Get a Financial Grip by Pete Wargent

Author:Pete Wargent
Language: eng
Format: epub
Publisher: Big Sky Publishing

Naturally, as property investors we aim to invest counter-cyclically so that we buy when confidence and prices are low in anticipation of the boom period ahead. Over time, you will learn that residential investment property is an asset class that is very sensitive to interest rate movements. Most leveraged property owners in Australia have variable-rate mortgages, and therefore affordability and confidence are inexorably linked with the Reserve Bank’s interest rate policy.

If the state in which you live has recently experienced a significant property boom, it can definitely make sense to invest in another capital city. This has the advantages of helping to reduce or negate land tax (if you have a portfolio with a high land value), diversifying the investor’s risk across different regions and, especially, allowing the investor to take advantage of the cyclical nature of property markets.

The effect of buying at the bottom of the cycle can have a marked effect on the price we have to pay for an investment property. I once bought a Sydney harbourside property that was originally listed for $675,000 before the asking price was dropped to $645,000. After I made an offer of $575,000, we eventually settled for $582,500. That is the difference that buying at the bottom of the market, when others are fearful, can have on purchase prices. After less than two years, the property was worth significantly more than the initially requested $675,000, and I had still not so much as added a lick of paint to the place.

Infrastructure

I remember that after I had settled on that property on the Pyrmont harbourside, just a few metres from the water, I watched a TV discussion where a budding investor phoned in and said that he was planning to buy a unit in Pyrmont, only for the presenter to tell him in a sombre manner that he should instead be investing in a suburb 45 km west of the CBD. Ostensibly, I assume, the reason was to chase a higher rental yield, but ‘new infrastructure’ in the outer suburb was given as a major reason.

I knew a fair bit about the suggested outer-western Sydney suburb in question, as I used to have a client there back in my auditing days. Some of my former work colleagues still talk in hushed tones about how, during a warehouse stock count, the mercury nudged 57 degrees. I do not profess to know too much about the infrastructure plans out there, although I do remember taking two diabolical hours to drive from Sydney on the F4 freeway. I tried the train, but it was even worse, taking two and a half hours, my annoyance compounded by being accosted by a couple of dangerously confused-looking chaps in the train station. My lesson that day was that smart suits, laptops and dodgy train stations are not a happy combination.

It pays to be healthily sceptical when cash-flow investors cite ‘infrastructure developments’ as the main reason to invest in a remote or regional area. However, an area such as

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