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.