What smart real estate investors look for when buying
The real estate market has become a gangbuster due to the current coronavirus disruption and record interest rates.
With Australians spending more time at home, many are looking for extra space, better prospects or a home with more lifestyle choices, and the suburbs that offer this seem to be riding a rising tide.
A recent report from realestate.com.au showing that over 250 Australian suburbs have experienced house price increases of over $ 200,000 in the past 12 months alone.
But is the real estate market overcooked? Here I cover the key things you need to know to make your next real estate move smart.
We’ve seen prime areas have seen a significant increase in median home prices over the past year, the best performing being Byron Bay, up 110% last year with a median property value of 2 , $ 7 million.
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But everywhere is not on the rise. There are a handful of suburbs that have grown at a much slower pace and in some cases even retreated, such as Barden Ridge in southern Sydney, where values are down 6.4% for the year.
The numbers show a big difference between a good and a bad real estate purchase. So how do you make sure your next move is making you money?
How to be a successful real estate buyer
While these numbers are interesting (and hard to ignore if home ownership is on your financial roadmap), just focusing on last year’s numbers could be a costly mistake.
Besides short-term market ups and downs, the high costs of buying and selling real estate mean that buying real estate in the short term can be a risky proposition. Smart real estate investors look beyond what’s happening today when they buy and sell. Buying property with a long-term view takes a lot of risk.
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When you take a look at the real estate market over five, 10, and even 20 years, you can see that short-term fluctuations on average “deviate” to provide a more consistent return over time.
In Australia, real estate investors benefit from the fact that we have a fairly steady population growth (high demand) and the fact that our real estate supply is limited. Supply versus demand is one of the main drivers of property prices over time and should be a priority for property investors.
Adapt your real estate purchase to your lifestyle
One area where it’s easy to go wrong as a property buyer doesn’t think about how your property purchase fits the lifestyle you want to live. If you fall into this trap, you may end up owning a property that is a “good” investment in absolute terms but doesn’t work for you.
This can happen if you buy a property but don’t anticipate changes in your circumstances over time, things like starting a family and getting out of the workforce, child care and school fees, and any other priority for which you wish to allocate money.
If you want to buy property the smart way, start by defining your “basic lifestyle,” including the expected changes in your income and expenses over time. You can then overlay your property purchase on this baseline to confirm that your property matches the lifestyle you want to live.
Risk management is essential
With the seemingly constant disruption of the pandemic, it is more important now than ever to have a strong risk management strategy in place. But you can only manage risk that you understand, so find out where your real estate risk comes from.
You need to choose a good property, be prepared to deal with rising interest rates over time, have a solid war chest or emergency fund to protect yourself against the unexpected, and consider protect you with insurance to cover your income and mortgage payments.
Do this and you are a long way towards securing your real estate investment to get the results you want. Plus, you’ll have peace of mind and the confidence that you’ve made the right choice for you.
In addition to providing you with a great place to live, property is an investment that can earn you money, help you create a second source of income from investments, and build your wealth to create financial security. But, homeownership is a major purchase that will likely impact your financial situation for years to come, so take the time to define your real estate strategy.
You need to understand what’s going on in the market, think long term, develop a real estate plan that matches your non-real estate financial goals, and manage your risk. Do it and you’ll be on your way to becoming a smart marketer and achieving the bottom line results that matter most to you.
Ben Nash is an expert finance commentator, podcaster, financial advisor, and founder of Pivot Wealth, author of Amazon bestselling Get Unstuck: Your Guide To Creating A Life Not Limited By Money.
Disclaimer: The information in this article is general in nature and does not take into account your personal goals, financial situation or needs. Therefore, you should determine whether the information is appropriate for your situation before acting on it and, if so, seek the advice of a financial professional.