One key factor to make money on property
The latest figures from CoreLogic show residential property is firmly on an upswing, and this time around there are some unexpected frontrunners. After several years in the doldrums, Darwin home values notched up price growth of 11.4% over the past year – add in rental yields, and investors pocketed impressive returns of 17.3%.
Other areas to deliver double digit gains in the last 12 months include Canberra, where capital growth plus yields totalled 13.5%, Hobart (total gains of 12.1%) and Adelaide (10.8%).
What is interesting – especially for investors, is that despite rising values, not everyone is making money on property.
CoreLogic’s latest Pain & Gain report shows that in the September 2020 quarter, investors were more likely to sell their rental property at a loss compared with owner occupiers. In fact, close to one in five investors copped a loss on the resale of a property, compared to one in ten home owners.
Making money on an investment property calls for planning, careful selection and a commitment to keeping the place in good shape. But there’s another factor, which investors often overlook – and that’s time.
Property comes with substantial entry and exit costs, and your rental investment needs to rise in value by at least these expenses just to break even. That’s why property is regarded as a long term investment. Question is, what exactly is the ‘long term’?
As a guide, CoreLogic found that among profit-making sales, the median holding period was nine years. Properties re-sold for a loss were typically held for just six years.
Your ability to hang onto an investment property for an extended period of time doesn’t just call for commitment. It also means having the financial capability to ride out short term storms – including the possibility that the property may sit vacant for an extended period, or require expensive repairs.
Yes, a rental property can be a great long term investment. But if you have doubts about whether you could afford to hold onto a place during adverse conditions, property may not be the right investment for you. Finding yourself in a position where you have to sell under fire sale conditions can see the next buyer profit at your expense.
Frequently Asked Questions about this Article…
Recent trends show that residential property is on an upswing, with unexpected frontrunners like Darwin experiencing significant growth. Darwin home values increased by 11.4% over the past year, and when combined with rental yields, investors saw returns of 17.3%.
In addition to Darwin, other areas with double-digit gains include Canberra with total gains of 13.5%, Hobart at 12.1%, and Adelaide at 10.8% over the last 12 months.
Despite rising property values, not all investors are profiting because many sell their properties at a loss. CoreLogic's report indicates that investors are more likely to sell at a loss compared to owner-occupiers, with close to one in five investors experiencing a loss.
A key factor in making money from property investment is time. Property should be viewed as a long-term investment due to substantial entry and exit costs. The median holding period for profit-making sales is nine years, while properties sold at a loss were typically held for just six years.
To maximize profits, it's advisable to hold onto an investment property for at least nine years, as this is the median holding period for profit-making sales according to CoreLogic.
Before investing in property, ensure you have the financial capability to handle potential short-term challenges, such as vacancies or costly repairs. This financial resilience is crucial to avoid selling under unfavorable conditions.
Yes, property can be a great long-term investment if you have the commitment and financial capability to hold onto it during adverse conditions. However, if you're unsure about your ability to do so, property might not be the right investment for you.
If property investors need to sell quickly, they risk selling under fire sale conditions, which can result in a loss and allow the next buyer to profit at their expense. It's important to be financially prepared to avoid such situations.
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