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Market Update:
21st July 2010
Quick Summary:
Introduction
Over the past few weeks we've been looking at ways to evolve and adapt your investing to a cooling property market, including:
Part 1: Why property prices will be flat over the rest of 2010
Part 2: Five strategies to increase profits
In this update (Part 3) we'll round out our discussion by looking at five ways that you can reduce risk and minimise potential losses, while also maintaining buying power and flexibility.
Something Fun
First though, something fun... If you're having trouble with rowdy tenants or vandalism spare a thought for Radivoje Lajic - a Bosnian man whose house has been hit six times by meteorites. Sensing foul play by aliens, Lajic has reinforced the roof on his home and is wondering what he has done to upset the extra-terrestrials. Hmmmm - I'm not sure if insurance will cover damage from outer space objects!
Last week I outlined my reasons for why I'm predicting property prices will only increase by a small amount for the rest of 2010. Further data released this week supports that view. Specifically, although the total value of investor finance in May increased by 2.6%, owner occupied housing fell by 0.3%.
In plain English, what this means is that investors are propping up the housing market, but this can't and won't last because without strong home buyer demand, prices will soften and investors will look elsewhere. We are in that space now... home buyers are deferring, investors are readjusting and demand is softening.
The 5 DON'Ts
#1 DON'T: Buy 'Growth Focussed Solution Properties'
Here's a proven strategy that has literally made me millions:
"Buy Problems And Sell Solutions"
Applied to property investing, the best opportunities to profit come from buying problems, value adding, and then on-selling the 'fixed' property to an investor or home buyer who doesn't have the skill, inclination or risk appetite to do the work themselves.
For example, instead of buying a new apartment and waiting for market growth, you'll make more money by investing in the right project, doing the developing yourself, and selling to investors wanting a negatively geared property.
Therefore, in a climate where general market growth will be difficult, it's much smarter to focus on opportunities where you can create profit by value-adding, than it is buying dressed up solutions where you pay a premium for perceived convenience. In summary, be the renovator - not the person paying more for the renovated property!
#2 DON'T: Take Silly Speculative Risks
If you want to speculate on property, do it when prices and sentiment are strong, not when there's an undercurrent of uncertainty and pessimism. Now is not the time to be borrowing large slabs of home equity and using it to fund speculative growth orientated deals.
Before buying ask: ‘What am I risking? For how much reward? Over what period of time?’ and only proceed when all the answers line up sensibly. Only risk what you're content to potentially lose.
#3 DONT Be In A Hurry
If you find a great deal – buy it. Otherwise, take your time because there's always another investment opportunity around the corner. When you hurry you usually cut corners, assume the best and buy on impulse rather than fact. For instance, what hurried decisions have you made recently that have ended up being unwise?
#4 DON'T Max Out Your Borrowing Capacity
Because borrowing ability = buying capacity, if you blow your cash (for deposits) and financing on a marginal deal you'll be locked out of the market when buyers hold more power than sellers.
If you aren't sure of your borrowing capacity, need ideas for how to improve it, or would like help with a specific loan problem, then I highly recommend giving the helpful guys at Acceptance Finance a call. Their phone number is: 1300 931 155
#5 DON'T Be A Forced Seller
If you’re in a tight financial situation – take control and make tough decisions while you can. Otherwise someone else who doesn't have the same level of interest in your financial future might sell at any price.
Have A Question?
Do you have a question or need help with any matter raised in this email? If so please make a post under the following forum thread:
http://www.propertyinvesting.com/forums/property-investing/general-property/4333033
