2023 is filled with amazing opportunities for property investors.
To ensure you’re armed and ready for what’s coming, find out the answers to the four most pressing questions about the industry.
2022 was one of the most exciting and possibly nerve-wracking years for property investing.
We had to deal with so many issues from rising interest rates to higher inflation… and even a change in Parliament through elections. It was certainly one of the most interesting (if not difficult years) of being a property investor here in Australia.
But the year has come and gone. We’re already in 2023, experiencing quite a number of changes in the first few months of the new year.
Even so, you might still have questions about property investing that have yet to be answered. So, in this article, allow us to give you some help in answering four of the most pressing questions about the property space.
The 4 Questions
Question 1: Should I pay down my debt?
Everyone wants to be debt-free, right? We all want to live a life without debts, loans, or money owed to someone else. But if you’re a property investor, chances are, you will have to incur debt at some point. And that’s not entirely bad.
Truth is, borrowing money for investment is not wrong, especially if you have a solid strategy in place on how to grow your investment and pay your dues.
Now, our answer to this question of paying down debt is… it depends. There is a time and place to have that as a priority.
If you’re still building your property portfolio, it’s probably best to pay down your debt further down the line.
Why?
Because if you prioritise paying your debts, it’ll take you longer to build a property portfolio. Buying one property and waiting for it to be fully paid before getting a new one is not a good strategy—especially if you’re on a tight schedule.
The thing is, debt is a tool. It gives you enough money to get started on your property investing journey. If you use it well, you’ll definitely see better results faster. But if you abuse it, it’s going to cost you a lot.
Our advice?
Focusing on debt repayments is not the best way to go early on in your career. Start with building a great portfolio first.
Question 2: Is the property market crashing?
The short answer is it depends.
As for the long answer, there is no such thing as just one entire Australian property market. There are so many property markets all over the continent, and these markets move differently from each other.
Let’s talk about Sydney as an example.
Sydney’s property sales activity started to gradually fall away after the middle of 2021. And by the start of 2022, it completely fell. But that doesn’t cover the entirety of the city. Sydney’s suburbs are still actually experiencing a rising momentum at the time.
The bottom line here is that you have to identify which specific property market you are referring to when asking about ups and downs. You cannot just generalise a particular city, state, or territory.
If property prices in some parts of Sydney are falling, that does not mean the property prices in the rest of Australia (or even in New South Wales for that matter) are also dropping.
Question 3: What happens if I buy a property and the market crashes?
Don’t panic. If you’ve already got a property on your hands, you should take a deep breath. Avoid being fixated on any of the short-term metrics because it’s going to be dismal.
Remember, interest rates or any of the macroeconomic conditions that are affecting the property space won’t go up forever.
Historically speaking, yes, they have gone up plenty of times in the past. But this typically does not last for more than two years. In other words, if the property market crashed with you in tow, stop thinking short-term.
Instead, start looking at all the opportunities in front of you. You can think of something along the lines of:
“If I believed it was fairly likely that I would make significant returns over a 12-month period, but it may cost me short term in cash, what would I need to adjust in other parts of my portfolio to make that decision and still be viable?”
Remember, the upside is significantly better than the downside risk. And that’s how you should be looking at things when you experience a market crash.
Always be on the lookout for the three pillars: lifestyle, jobs, and affordability. Everyone needs an economic opportunity and to live somewhere where they feel happy. Not to mention everyone wants to have a good standard of living, and that kind of plays into affordability.
So, where the opportunities lie in the real estate market in the next couple of years is going to be fundamentally driven by that decision. The key to successful investing is to work out where demand is going. Go there first and stand in front of it.
Question 4: How should I tackle rising interest rates?
Expect rising interest rates for now. But here’s what you’ve got to do:
Focus on your goals. Look at your portfolio. Acknowledge that there will be different phases in the lifespan of your property portfolio. In particular, there will be growth phases and phases when you can reap your hard work.
Now, during times of growth, you might need to stomach a little bit of negative cash flow because that’s what’s going to get you to your goal. But remember, there’s a bigger game that is being played than just sudden interest rate hikes.
One of the ways people can go wrong in this environment is looking at a property negatively just because it’s currently at negative cash flow. All they’re doing is missing out on potential long-term growth. So, look at things pragmatically. And in any situation, always look for opportunities for growth.
After all, property investing is a long-term game.
Stay in the Game
The property industry can be pretty unpredictable. While there are tools and data that you can use to make informed decisions about property investing, there will always be things that we cannot prepare for.
But hopefully, knowing the answers to this year’s most pressing questions about property has somehow helped you make better decisions about your portfolio.
Always remember the reason why you started investing in property in the first place. Use that to guide you whenever the market you’re invested in is going up, down, or sideways.
