4 Traditional Rules of Property Investing to Reconsider
Real estate is the crown jewel in most Australian investors’ portfolios. Property investing is seen as a safe and effective way to build wealth. However, some of the rules we’ve passed down from generation to generation aren’t necessarily still 100% relevant in today’s market.
As a mutligenerational family business, Blocksidge Real Estate has seen the rules of property investing change and grow. It’s interesting to note that each Blocksidge generation has their own opinion on these 4 following rules.
Property Investing Rule 1: The value of real estate comes from the land, so always buy houses over apartments
This one is a popular one and definitely an old family favourite. However, as times are changing this is becoming a little more flexible. Sure, if you’re looking in the same location then a house will generally be more valuable than an apartment. However, that doesn’t mean houses are always the best investment or that apartments are not capable of delivering substantial profits. For example, according to the recent Queensland Market Monitor report from the Real Estate Institute of Queensland, the median price for apartments in Norman Park and East Brisbane increased by over 15%.
Property Investing Rule 2: The “Australian property market”
It’s always great to read articles about the “Australian property market”, “Queensland property market” or the “Brisbane property market” to get a feel for what’s happening around town. But by no means do these articles give information relevant or specific enough to make good investment decisions. Brisbane alone is comprised of almost 200 suburbs and each one operates with different demand and supply drivers, and varying fundamentals. For example, a house on the river with views to New Farm park in going to be worth more than a house of the same size, age and quality that is located three streets back with views of a main road. There is no such thing as ‘one’ property market. Queensland and Brisbane have multiple property markets created by different geographic locations, different price points, different value drivers, varying demand/supply, and different types of property.
Property Investing Rule 3: House values double every decade or so
This one is a bit of old folklore. It’s been a common real estate “rule of thumb” for some time. As the saying goes, properties double in value every 7 to 10 years. However, there is little in the figures to actually support this rule. Some properties will double in value, some may even triple, but others will under-perform. Not all property is created equal and it is crazy to just buy a property and hope it will make a good investment by substantially increasing in value. It’s hard work but the trick is to find an “investment grade” property that will outperform the averages.
Property Investing Rule 4: You should always buy at the bottom of the property cycle
Ah the “property clock”. You’ve probably seen it in all manner of reports. This is an example of the property clock that Herron Todd White use in their monthly property reports –
As you can see, the property clock depicts the cyclical nature of the property market. Midnight represents the peak of the market and 6 o’clock represents the bottom of the market.
When weighing up your investment property decision it may make some sense to buy at the bottom of the market as you may score a bargain. However, you may also be waiting a long time for the market to move up. Conventional wisdom once advised investors to stay away from a market once it started rising as you’d missed the bottom. However, this advice saw some missing out on substantial growth as the market kept rising. For example, Sydney investors are still buying and making big profits even though the market is currently and has been at its peak.
Property investing is tricky and at times can be as much gut instinct as it can be a science. There’s multiple factors to consider in the complex equation of property investing so if you feel overwhelmed it’s always a good rule to get some advice. Our property agents would be happy to assist. You can find their contact details here.