At Capital Growth Property we advocate taking the longer term view on leveraged passive property investment. For busy people developing cash flow from their job, or other investments the better approach is passive investment with active portfolio management.
Active property investmentsProperty development, refurbishment, house flipping takes very concentrated focus and risk management. When you ad leverage (debt) to the equation, the risk increases, and time become the all important factor. Unless you give up your day job, it is very difficult to manage. Time becomes expensive.
While you have current debt on an asset with no income to cover the debt. You are capitalising your interest payments, or receive a negative cash flow and funding from other sources.
This is a temporary situation that requires maximum attention and time.
Bust people who are generating tax liabilities with their extra income are better off taking the passive approach
We live in an age where there is huge pressure for instant results and success. Property investment is not immune to this as the countless TV shows dedicated to renovating and “flipping” properties quickly to gain speedy returns demonstrates. The reality of this type of short-term investment is often very different from the fairy tale ending of a TV show, with many investors stung by unexpected and expensive costs, stressful renovations and lacklustre returns.
Successful investment is often about good timing. Anyone that has lived through the fluctuating cycle knows that investment timeframes can ultimately determine the potential of an investment. Professional investors will most likely have an extensively varied portfolio and the skill and experience to be reactive and manage each investment for the best return.
So what about everyday property investors who want security with low risk? What should they be looking for and what are the benefits of long-term investing?
Capital gains and locations
There have been many booming areas of Australia over the last few years, especially in larger cities, with a high demand for housing and limited supply. Lower interest rates have also driven a strong increase in buyers in the marketplace, especially investors. Property Observerfound that since values started rising in May 2012, Sydney dwellings have risen by 43.1% and Melbourne values are up by 25.9%. However, not all regions of Australia have been in a “bubble” and some, such asPerth (0.9%) and Darwin (2.9%), have actually experienced a year-on-year drop to June 2015.
This means short-term investors looking for a quick capital gain may be limited in their choice of locations, or may require more cash upfront, to be able to invest in high growth areas. Long-term investors on the other hand may find cheaper properties that will realise their capital gain goals over the full course of the property cycle.