Essential Tips To Survive A Property Market Slowdown
Buoyed by strong growth and low interest rates, many new investors have entered the property market but those who’ve done so unprepared for a slowdown may soon find themselves in trouble. As a long-term proposition, property follows a cycle that must be understood - and the risks of which mitigated against - in order for investors to best weather a future storm. For those who are new to property investment, congratulations! Most now think that their path is certain and set for future wealth, just as I believed when I first started out investing. Over the past two decades, however, I’ve realised the need for a more balanced approach. With that knowledge at hand, here are my tips to survive a property market slowdown:
1. Understand how the property cycle works
The normal part of the cycle is that its peak will then be followed by a trough, or lowest part of the cycle - none of which can be predicted. Following on, each new cycle is higher than the previous peak of that market. You only make a loss when you sell your assets in the lowest part of the property cycle.
2. Accept the property cycle’s movements
It’s vital to understand that the downward trend of the property cycle is normal and may last several years (as we’ve seen with the Perth market). This movement can be mitigated against by having a cash buffer in place from the very start to help you through times of tight cash flow.
3. Be pragmatic about lower yields
Sometimes you may need to accept that a lower rent (even a much lower rent) is better than receiving nothing at all. This is the best way to manage a downward moving rent cycle, something that can be mitigated against by calling on the cash buffer referred to in the previous section.
4. Diversify your property portfolio
Make sure that your property portfolio is spread across several states so that if one experiences a downturn your other properties can carry the underperforming ones. This is also true for holding a number of different property types in different areas throughout our states, as each has their own cycle.
5. Buy to hold: capital gain benefits
Hold on to all your assets as best you can, because when the market recovers and valuations trend upwards again, there’s more equity to be gained at the top of the next market peak. Property investing is for the long term - at least 10+ or preferably 20+ years.
What many people fail to understand at the beginning of their investment careers is that downturns are all part of the normal property cycle. It’s often only a matter of time before one could strike your portfolio and the only way to guard against exposure is by being prepared. Those that best weather property market cycles usually have access to quality advice from experienced property investment professionals. Align yourself with an adviser who can help you to acquire superior investment properties and build a high-performing portfolio. Then you can rely on their expertise to best guide you towards success through future downturns.