The world has changed a lot in the last few years. It was only 4 years ago that a very small minority of Australians had the privilege to work from home. No matter which big city you went to, the roads were clogged at peak hour and the trains were packed daily.
Well, maybe not in Darwin, but you get the picture.
Covid brought a change to the way we work, and with it, there was an exodus from the big cities to the “near cities”. Regional cities within 1-1.5 hours of the big cities saw rapidly rising rents and prices as people rushed to the regions and a more spacious lifestyle.
The last 2 years have seen a return to a “new normal” way of living, and the regions have lost some of their glamour as the amenity and benefits that you get from a big city become more evident once again. But we are not seeing a return to full office occupancy.
We’ve also been through a major wave of inflation, and interest rates have jumped by 4.00% from their lows in 2020. Between April 2022 and February 2023 Australia’s median house price dropped 9.1%.
We’re now on the home straight of 2023, with just 13 weeks before Christmas. The big question many investors are asking is: what strategy will make the most profits in the next year?
OpenCorp’s Director of Investment Services, Michael Beresford, discusses the best strategy for investing in 2023 (and beyond).
Shiny Red Balloons
My brother, Allister, and I were mentored by our dad, who became a successful property investor in his 40’s when we were teenagers. His strategy was basic, but it worked. Al and I adopted Dad’s strategy and quickly grew multi-million-dollar portfolios in our early 20’s.
Despite our success with Dad’s strategy, we were restless and wanted to make money faster. We started exploring alternative investment strategies. Between the ages of 25 and 35, we invested in just about every type of residential property imaginable. Some made money, some lost money, but without fail they all came with higher risk and more stress than our Dad’s strategy.
We realised that we weren’t chasing better investments. We’d been chasing more excitement.
As a result, we learned that just because something isn’t exciting, doesn’t mean it’s not the best strategy. In fact, we now understand that boring is best. Boring investments mean:
- Reliable results
- Minimal stress
- Minimal time commitment
Today, our family has a saying: “Don’t go chasing red balloons”. This simile comes up whenever one of us gets excited about a new idea or opportunity that is not tried and tested.
The risk that investors have today is that there are lots of shiny red balloons out there. They could be:
- Ai algorithms that tell you where to buy
- To be clear: there is no algorithm that can tell you where the next housing hotspot is.
- Renovating for profit
- Cost inflation and a shortage of labour have shrunk the margins for renovations and extended the time frame to complete projects.
- DIY renovators can make good profits if they have the time and skill to do most of the work but could often make more money (reliably) from working overtime or taking a second job.
- Subdivisions and Duplexes
- While property development can be profitable, the margins achieved for 2-lot subdivisions are generally only marginally higher than the rate achieved for the general housing market – in many cases, most of the profits come from the market going up, rather than getting a premium for the risk you are taking on as a developer.
- Options strategies
- Securing an Option that enables you to make profits from selling a property you don’t own is time-consuming and requires intricate knowledge of the planning system to consistently make it work.
- Buying mispriced property in the regions
- Regional properties were mispriced in 2020 before the government’s Home Builder Scheme and the huge population shift to the regions.
- Today, the traffic is heading the other way and people are moving back to the cities, which is seeing the rental vacancy rate growing in regional areas and creating a risk of prices sliding backwards.
Given the many competing forces, the most reliable strategy for 2024 (and the remainder of 2023) will be the buy-and-hold strategy, targeting affordable markets with low vacancy rates.
This strategy works through most market cycles, but 2024 is perfectly positioned for investors using this strategy, due to:
- Already low supply levels, as seen by extremely low rental vacancy rates.
- Population growth continues at multi-decade highs.
- Lower housing starts, resulting from
- interest rate rises in 2022/23 that priced many buyers out of the market; and
- fears of building new homes due to highly publicised builder collapses in 2022 and early 2023.
- Cost of living challenges, including rapidly rising rents, are driving people to seek lower-cost housing where possible.
But a buy-and-hold strategy on its own is not a silver bullet to making profits in the property market. Investing is a game of inches, and you need to make sure that the odds are stacked in your favour. That means, finding the right market to invest in, ruling our areas (or regions) within that market that might underperform, and then buying the right property for that market.
We call this the M.A.P process: Market, Area, Property.
To provide some perspective, using this strategy our clients have outpaced the market by an average of 25.8% since 2010. As a result, their acquisitions have averaged profits more than $100k higher than the typical property in Australia over that period – ensuring that our clients are also better positioned to buy multiple properties than the average investor across Australia.
Results like that, achieved for thousands of properties over more than a decade, are not a fluke. They are achieved by using a reliable process that was refined, measured, and refined again. It also takes lots of research, with a typical year at OpenCorp including more than 19,000 hours of direct property market research that we use to help our clients achieve their financial goals.
Investors should not need to stress about their wealth creation: as I said earlier, the goal for investors is to have a system that is so reliable it is almost boring. The excitement should come from what you get to do with your profits. That’s why you should always ask yourself whether the investment strategy you’re considering is a “shiny red balloon” or a proven and effective way for you to achieve your goals.
How to take advantage of these conditions
Australia may be about to experience a goldilocks period for property investing, where interest rates are stable, supply is low, and demand is rising. If you’re ready to start planning the next stage of your investment journey, but don’t know where to start (let alone have 19,000 hours to research the markets around Australia), then you should know that there are experts who are here to help.
OpenCorp is Australia’s best-performing property investment advisor, with an unparalleled track record.
Request an appointment with one of our property investment experts today, to secure your roadmap to a better future.
Until then, invest wisely and dream big.