I was recently having a nice chat with someone when it became evident that they had a very different view to my own on the prospects of an area’s capacity for capital growth (clearly their first mistake). The conversation was somewhat circular in that they were entirely focused on making their final investment decision based on the ‘history’ of an area versus the potential for future growth. This was even more interesting given that their thoughts on investing in shares was the opposite (based on future earnings capacity). What it came down to was their lack of clarity around property as an investment asset and the manifestation of the fear that had formed from confusing and contradicting media. So I told them to stop it or they’ll go blind. That is, stop listening to negativity and ‘macro’ reporting or they’ll end up blinded to real opportunity.
Understanding the asset …
Put simply, any investment that is going to create you real wealth needs to be chosen on its capacity for capital growth over time. The greater the growth, the greater the wealth and the other opportunities that can be created from it. To compare, one of the benefits of investing in shares is their liquidity which means if you get it wrong or if markets change you can make changes quickly. It’s also why it’s a highly volatile asset and mostly carries greater risk due to the whole ‘what’s happening in the world today?’ nature of that market.
With property being relatively illiquid (ie; not as easily sold) it has the benefit of being a much more stable asset class but that’s also one of the reasons it is far more important to invest in the right product in the right place. Unfortunately a lot of people still invest in property today with a ‘today’ market focus similar to shares. They listen to the trends and take into consideration future earnings but often this is based on predictions over the next 12 – 24 months (a ‘today’ focus) as opposed to the next 5 -15 years where property really comes into its own.
… because understanding = $
It feels a bit like déjà vous but in early 2001 I was having these exact same discussions. Back then QLD had struggled through the 90s with high unemployment and a flat property market while the Sydney and Melbourne property markets were really heating up and most people believed that the most money over the next 10 years could be made there (based on the ‘today’ focus). 10 years later and $300,000 invested in Brisbane over Sydney would have meant the Queensland investor would have been around $250,000 better off!
In January I made an observation after a report came out suggesting the Sunshine Coast (one of our focus areas) had the most expensive land in the country. The report was wrong, it was based on limited data and while it could be easily explained away the media (and doomsayer’s) had a field day. My view was that we should all wait for the March Quarter results as I believed it would paint a very different picture… and it did, $40,000 different! I’m surprised we didn’t see a headline that talked about the ‘collapse’ in land prices. All I’m saying is, you can’t make a long term decision based on ‘today’s’ bites of information because that’s not what the big pictures about… and definitely not where the long term gains are in property.
The truth is out there
I look at it this way. If I’m looking to invest in any asset personally I take the time to do my research. I find out what makes the market tick and what to look for to ensure my investment will perform well long term. Now I’m fairly analytical (I know that might surprise some of you – ok maybe not) but if I’m not an expert on the asset class I’m looking to invest in, the first thing I do is find someone who is and I pick their brains until I understand what makes their market tick.
The difference between making a good property investment and a not so good one is education. If that’s all you’re missing to get you started or moving forward, find someone you trust and pick their brains over a coffee.
I have a long black with lots of sugar…