Ben Nash AUGUST 11, 2021
The property market has been going gangbusters off the back of the ongoing coronavirus disruption and record low interest rates.
With Aussies spending more time at home, many are looking for some extra space, a better outlook, or a home gives them more lifestyle choices, and suburbs that deliver this seem to be riding a rising tide.
A recent report from realestate.com.au showing over 250 Australian suburbs have experienced property price rises of over $200,000 in the past 12 months alone.
But is the property market overcooked? Here I cover the key things you need to know to make your next property move a smart one.
The numbers
We’ve seen blue chip areas have significant median house prices rises in the past year, with the top performing being Byron Bay up a whopping 110 per cent in the past year with a median property value of $2.7 million.
But not everywhere is on the up. There are a handful of suburbs that have grown at a much slower rate and in some cases even gone backwards, like Barden Ridge in Sydney’s south, where values are down 6.4 per cent for the year.
The numbers show a big difference between a good and not-so-good property purchase. So how do you make sure your next property move makes you money?
How to be a successful property buyer
While these numbers are interesting (and hard to ignore if property is part of your money road map), focusing just on the numbers over the last year could be a costly mistake.
Along with the short-term market ups and downs, high property purchase and sale costs mean buying property with a short-term view can be a risky proposition. Smart property investors look beyond just what’s happening today when they buy and sell. Buying property with a long-term view takes a lot of risk off the table.
When you look at the property market over five, 10 and even 20 years, you can see that the short-term fluctuations ‘average out’ to deliver a more consistent return over time.
In Australia, property investors benefit from the fact we have fairly consistent population growth (strong demand) and the fact our property supply is limited. The supply vs demand is one of the key drivers of property prices over time and something that should be at the front of mind for property investors.
Fitting your property purchase around your lifestyle
One area it’s easy to go wrong as a property buyer is not thinking about how your property purchase fits with the lifestyle you want to live. If you fall into this trap, you can end up owning a property that’s a ‘good’ investment in absolute terms but doesn’t work for you.
This can happen if you buy a property but don’t plan around changes to your situation over time, things like starting a family and taking time out of the workforce, childcare and schooling costs, and any other priorities you want to allocate money towards.
If you want to buy property the smart way, first map out your ‘lifestyle baseline’, including predicted changes in your income and expenses over time. You can then layer your property purchase over this baseline to confirm your property fits with the lifestyle you want to live.
Risk management is critical
With the seemingly constant pandemic disruption, today it’s more important than ever to have a solid risk management strategy in place. But you can only manage the risk you understand, so educate yourself on where your property risk is coming from.
You need to choose a good property, be prepared for rising interest rates over time, have a solid war chest or emergency fund to protect against the unexpected, and look at protecting yourself with insurance to cover your income and mortgage repayments.
Do this and you’re a long way towards securing your property investment to achieve the results you want. On top you’ll have peace of mind and confidence you’ve made the right move for you.
The wrap
Apart from giving you a nice place to live, property is an investment that can make you some serious cash, help you build a second income stream from investments, and build your wealth to create financial security. But, property is a big purchase that will likely impact your financial situation for years to come, so take the time to get your property strategy right.
You should understand what’s going on in the market, think long-term, map out a property plan that fits with your non-property money goals and manage your risk. Do this and you’ll be well on your way to being a smart property buyer and getting the money outcomes most important to you.
Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, author of the Amazon best-selling book Get Unstuck: Your Guide To Creating A Life Not Limited By Money.