Long-term fo­cus pay­ing off


IN­VEST­ING in real es­tate, whether it be your own home or an in­vest­ment prop­erty, can pro­vide a great op­por­tu­nity to build wealth.

But there are rules to help in­vestors to make good choices. Of­ten we read about rules on buy­ing. In fact, I have ten of them that cover the fun­da­men­tals of buy­ing well.

But there is also a sim­ple rule that prop­erty in­vestors, par­tic­u­larly those new to the mar­ket, some­times over­look: that suc­cess through prop­erty in­vest­ment re­quires a long-term com­mit­ment.

That’s not to say there haven’t been times where own­ers have achieved worth­while prof­its over rel­a­tively short pe­ri­ods, but those times are rare.

Un­like buy­ing and sell­ing of stocks, where tim­ing the mar­ket is key, it is the length of time in the mar­ket that is fun­da­men­tal to a suc­cess­ful prop­erty out­come.

Re­cent num­bers from na­tional re­port­ing house RP Data – in their June quar­ter re­port – con­firm that of the 63,390 home sales Aus­trali­aw­ide, 88 per cent of sell­ers made a profit; with more than 30 per cent of all re­sales chang­ing hands for at least dou­ble the pur­chase price.

Over­all, res­i­den­tial re­sale prof­its in­creased 26 per cent in the June quar­ter to $12.1 bil­lion.

So far, so good. But a fur­ther anal­y­sis of th­ese re­sales re­veals the rest of the story. Or, as I like to say, the devil is in the de­tail.

For those who had held their prop­erty around five years or less, that is, they pur­chased af­ter Jan­uary 2008 – some 22 per cent made an ac­tual loss on re­sale; while 32 per cent made less than a 10 per cent gain, which af­ter buy­ing and sell­ing costs, makes the ex­er­cise not worth the ef­fort. A quar­ter of sell­ers made be­tween 10 and 25 per cent gain on re­sale. And only 5 per cent more than dou­bled their money.

And of that lat­ter group, it is likely that some form of ren­o­va­tion would have taken place. So a true 100 per cent re­turn in less than five years would be rare.

Now, I’ve been ac­cused of be­ing a “killjoy” in the past, but that’s not what’s go­ing on here. I re­main a strong ad­vo­cate of res­i­den­tial prop­erty. But equally, it is im­por­tant to paint the whole story. And as you’ll see, the story does get bet­ter.

For own­ers who held longer be­fore sell­ing, just 7 per cent made a loss on re­sale – a sig­nif­i­cant im­prove­ment on those who kept their prop­er­ties a shorter time; and just 6 per cent made less than a 10 per cent gain; while 11 per cent made be­tween 10 and 25 per cent gain. But more than 43 per cent more than dou­bled their money – a sig­nif­i­cant im­prove­ment on the 5 per cent who re­port­edly achieved sim­i­lar in the shorter pe­riod. But as with that group, many of the bet­ter per­form­ing resold homes would have been ren­o­vated and im­proved be­tween sales. When it comes to res­i­den­tial prop­erty, it gen­er­ally gets bet­ter with time.

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