Take time with your property
RISING property values across much of Australia are likely to attract the interest of investors in 2021.
But buying in a “hot” market calls for extra care.
Latest figures from CoreLogic show residential property is firmly on an upswing, and this time around there are some unexpected frontrunners.
After several years in the doldrums, Darwin home values notched up price growth of 11.4 per cent over the past year — add in rental yields, and investors pocketed impressive returns of 17.3 per cent.
Other areas to deliver double-digit gains in the past 12 months include Canberra, where capital growth plus yields totalled 13.5 per cent, Hobart (total gains of 12.1 per cent) and Adelaide (10.8 per cent).
What is interesting, especially for investors, is that despite rising values, not everyone is making money on property.
CoreLogic’s latest Pain & Gain report shows that in the September 2020 quarter, investors were more likely to sell their rental property at a loss compared with owner occupiers.
In fact, close to one in five investors copped a loss on the resale of a property, compared with one in 10 homeowners.
Making money on an investment property calls for planning, careful selection and a commitment to keeping the place in good shape.
But there’s another factor that investors often overlook — and that’s time.
Property comes with substantial entry and exit costs, and your rental investment needs to rise in value by at least these expenses just to break even.
That’s why property is regarded as a long-term investment. The question is, what exactly is the “long term”?
As a guide, CoreLogic found that among profitmaking sales, the median holding period was nine years. Properties resold for a loss were typically held for just six years.
Your ability to hang on to an investment property for an extended period doesn’t just call for commitment.
It also means having the financial capability to ride out short-term storms, including the possibility the property may sit vacant for an extended period or require expensive repairs.
Yes, a rental property can be a great long-term investment, but if you have doubts about whether you could afford to hold on to a place during adverse conditions, property may not be the right investment for you.
Finding yourself in a position where you have to sell under fire-sale conditions can see the next buyer profit at your expense.