Investing in property. Part 1 (three parts)

If you only knew


Investing in property is sometimes a tale of lost opportunity. We have all heard the expression ‘it seems like yesterday….’  well real estate opportunities are often reflected upon like that. You might have said there are suburbs you would ‘never’ live in that are now hotspots and you wouldn’t buy regional because it never goes up. Ugly areas and regional investing are now popular real estate winners but only some people saw potential. It could be argued that the fundamentals were ignored and the opinion was pervasive. Investing in property is about fundamentals and real estate as an investment is easier to monitor than many other asset classes.

Real estate as part of super planning – especially younger investors

Unlike super real estate is physical, people can actually touch the investment and interact with it. Elizabeth Dumonic, Principle of EWRE says “Among all the private investment opportunities, real estate typically outperforms other asset classes and is usually less volatile. People are familiar with homeownership, making real estate investing more tangible and attractive”. Having diversification is also essential investing so adding a property to the mix is prudent.

For many retirement is decades away and having a balance you can’t touch can create long-term apathy. Adding a property to your super plan creates awareness of your needs post your working life. Elizabeth argues “Real estate can be a great asset class and diversification tool; it’s typically not directly correlated to other financial markets and can provide income from rentals or refinancing. Hold period is around four to 10 years, so it is looked at as a long-term, retirement-friendly strategy.” So, where and when to invest.

Investing can be daunting and carries risk but not planning is equally risky. Interestingly Covid has revealed favourable real estate opportunities that may have never been identified but for Covid’s impact. Covid has highlighted the value in regional and interstate property and many more people can participate in investing.

Regional real estate transacting is booming as people leave cities, enjoy remote work and the slower pace. People are also buying property to add to their super portfolio with a long-term approach. Affordability has been showcased as have the benefits of investing remotely. However, like all investing research is key.

Fundamentals not opinion

Timing the market is basically nonsense because no one can predict markets. At the beginning of Covid, all the pundits predicted great falls in real estate some stated up to 40% falls. Timing your purchase well will give you a one-off bonus – but it’s luck. The most important tip is to buy the best assets you can. Owning an “investment grade asset” will allow further investment and at times of poor or no capital growth, strategic property investors “manufacture” capital growth through property renovations or development.

Real estate investing requires an examination of the fundamentals and they determine long-term performance. Population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures are long term and are easy to monitor. Short-term performance is about market opinion and should not directly influence investment decisions. Media reporting crashes and booms are sensationalist and should be treated as such. So, the first step in investing in property is to focus on the facts and ignore the white noise.

Next week in Investing in property Part 2 we focus on fundamentals and how to apply those fundamentals to real estate investing. We also look at the problems of ‘expert opinion’ and how it can affect long-term decision-making.