Investing in fast rising market
Oh, the swings and roundabouts of pandemic property investment!
That sounds like the title track of a Gilbert and Sullivan production. It conjures up images of barely-in-control players swinging each other about the stage while traversing vocal gymnastics of the highest calibre.
Property markets have been riding a similar emotional rollercoaster. We’ve gone from famine to feast in a short space of time, and it’s been head spinning.
Keep in mind, building wealth via property investment is supposed to be a sedate pursuit. I’ve heard more than once it’s about ‘getting rich slowly’.
This is absolutely sensible, of course. The joy of real estate is that through excellent leverage you can acquire an asset and use the rental income to pay the outgoings while you play the waiting game. ‘Time in the market’ means come a property cycle or two, you are sitting on a handsome chunk of equity.
This is all well and good, but you’re not always investing during a flat market where you can take your time analysing price and selecting an asset.
So, what can you do to ensure you’re securing the right kind of asset at an appropriate price during moments of huge price upheaval?
Here are my three tips for buying when values are rising quickly.
Understand your goals
First up, before you even act, you must establish your investing foundations by understanding your goals.
It seems basic, but the one thing buyers often fail to do is define what they hope to achieve by purchasing a particular property.
For example, are you a sit-and-wait investor or a quick flip renovator? Is your end game a desire to live off the rental income or sell down for equity?
By defining your intentions before purchase, you can ensure you’re choosing the right asset for your circumstances.
You should also take time before the purchase to understand what your lending situation is. How much can you borrow? What repayments can you reasonably service? What sort of rent does the asset need to generate?
Knowing all of this means you can set your budget wisely ensuring you don’t overextend yourself and put too much pressure on your finances.
Current sales evidence is key
The secret to buying right is understanding property value, and that means ensuring your comparable sales evidence is as current as possible.
I talk to plenty of buyers’ agents from around the country. They say determining what to pay for a property when prices are rising quickly is one of the toughest parts of their job.
They want to compare their potential property purchase to similar sales so as to gauge market value.
But sales evidence in a fast-rising market become quickly out of date. By the time a contract has progressed beyond the settlement stage and is being recorded as a confirmed sale, there’s been at least 30 days – often more.
This one-to-two-month lag is a long time when prices are rising on a weekly basis.
Also, you rarely find a sold property that’s identical to your potential purchase. You invariably have to try and allow for myriad factors such as land size and outlook, accommodation and condition, what sort of ancillary improvements there are etc etc. The list is extensive.
Overcoming this is tough, so in fast moving markets you need gather as many very recent sales as possible.
My advice? Attend as many auction events in your area of interest as you can. In addition, reach out to local agents and ask for their lists of recent sales.
You can use dated sales (absolutely no more than six months old), but you may have to guesstimate the difference between that past market and the current one. It’s not easy, but it is possible.
Rely on professional advice
This is far and away the best move to make.
Look for independent professionals, such as buyers’ agents, who operate in the current market. They specialise in securing property by monitoring their areas of speciality every day… and they know how to adapt and adjust for market changes.
They can also advise you when it’s appropriate to pay above the apparent current value for a property. If a property is ideal for your circumstances, and there’s substantial evidence to indicate its value will continue to rise sharply in the short term, paying a premium is a smart move.
Are you prepared to miss out now (again) and regret it in the future?
Buyers’ agents and advisors can help you find that ‘sweet spot’ price that places you at the front of the purchaser pack, but doesn’t overexpose you too much financially.
Buying in a rising market can be challenging (just like listening to an amateur singing Gilbert & Sullivan), but it can also be rewarding. With the right guidance and a calm steady approach to your purchase, you can secure an investment that will both service your needs and deliver solid value gains and rent returns.
Mike Mortlock is a Quantity Surveyor and Managing Director of MCG Quantity Surveyors. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating. You can visit them at www.mcgqs.com.au Mike Mortlock is a Tax Depreciation expert, Quantity Surveyor and Managing Director of MCG Quantity Surveyors. He is a regular speaker and commentator having been featured in the Financial Review and Sky Business. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating for investors. You can visit them at https://www.mcgqs.com.au