- Successful investors know the value of cash buffers
- Holding for the long-term requires great property managers
- Diversification is key as is working with qualified experts
The strong market conditions at present are music to the ears of property investors across the land.
For some investors, this will be their first experience of rising market conditions, whereas, for others, it may be their third cycle or more if they have owned property for a couple of decades.
Remember that rising market conditions come and go, and it is the investors who steadfastly hold their course over the years necessary who will benefit the most financially.
That’s because the best results are delivered by buying the right property at the right price at the right time – and then holding it for the long-term, including during periods of market contraction.
Unfortunately, fear means that many investors sell too soon so they don’t benefit from the long-term magic that is compounding capital growth.
That’s why successful investors need to have a mindset that enables them to manage the myriad ups and downs the market can throw their way over the years.
What I mean are situations such as unfavourable market conditions, rising interest rates, rental vacancies, unexpected repairs, loss of employment, and global financial shocks, such as the GFC and COVID19, which are all examples of the challenges investors can face.
However, experienced and successful investors plan for these types of scenarios by having strong contingency plans in place, including the following.
1. Cash buffers
Property investors must always have access to some sort of cash buffer to provide cash flow for unexpected, as well as regular, expenses.
This financial safety net can come in the form of cash, a line of credit or an offset account to help manage scenarios such as vacancies, repairs, interest rate increases, or loss of employment.
2. Expert mortgage help
Savvy property investors have a number of experts on their team, including investment-savvy mortgage brokers.
Having a skilled broker on their team helps investors capitalise on changing lending conditions, including refinancing when required, to assist with holding costs and allowing them to hold their portfolios for longer.
For example, investors who have not refinanced in the past 12 months are likely paying too much when they could have capitalised on the changing COVID19 loan market conditions.
3. Great property managers
Not all property managers are created equal and a great one can have a positive influence on an investor’s cash flow.
Alas, a bad one, can do the opposite and motivate some investors to sell just out of frustration.
Great property managers help to secure the best quality tenants, maximise rents, minimise vacancies, and ensure an investor’s asset is well-maintained.
During the pandemic, high-performing property managers were able to think outside the square and negotiate win-win scenarios for both property owners and tenants.
4. Well-maintained properties
It might seem obvious but better properties result in lower vacancies and maximised rents.
During COVID19, when vacancies shot up in some areas, tenants had the power and could choose from many properties.
Obviously, tenants gravitated towards the higher quality, well-maintained properties, whilst rundown ones remained vacant for longer and suffered the biggest reduction in rents.
5. Portfolio protection
One of the simplest things that successful investors can do is to have appropriate insurances for their portfolios.
Not only do investors ensure they have the correct building insurances, but they also make sure that it reflects the current market value of their properties as well.
On top of that, landlord insurance policies protect their properties from tenant damage and can provide protection from issues such as long-term rental defaults, abandonment, and public liability problems depending on the policy details.
The saying, “Don’t put all your eggs in one basket” is as true for property investment as it is for so many other things.
Diversification is key for successful property investment to not only capitalise capital growth but also to minimise risk.
During COVD19, we saw different impacts on properties depending on dwelling type as well as geographical location.
For example, inner-city unit vacancies surged in Sydney and Melbourne, with rents pulling back dramatically.
Conversely, in other capital cities such as Brisbane and Perth, and many regional locations throughout Australia, vacancy rates have reduced to less than one per cent and rents have surged by $30 to $100 per week.
7. Context and experience
Investors who have held their portfolios through many property cycles have experienced the ups and downs before.
They take a pragmatic approach to investing and are well aware the boom times can be followed by more challenging periods, and vice versa.
Long-term investors are also very selective about where their property investment education is sourced from and only follow bona fide experts with recognised training and education as well as significant experience.
Many investors were spooked during COVID and sold property when perhaps they should not have.
Others held off buying because the news seemed too bleak, and some just got lost in the white noise because of the axiom, ‘The darkest hour is just before dawn.’
However, other experienced investors saw the trends of previous global economic shocks and the buying opportunities that were in front of them.
So they made their move – and are now already realising the fruits of their learned labours.