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Maximising opportunities in downturns

Thursday, 15th Jul 2010
Categories: Market News, Newsletter

 downturn

There’s no denying that some people feel the economic climate at the moment is a little unsteady. There’s debate about a controversial resources tax being implemented by the Government, interest rates have risen steadily over the past few months, world economic markets are still recovering, and a possible election may soon be on the horizon.

But uncertainty is not something to be afraid of. In fact, the most successful investors thrive in such environments, seeing opportunities rather than obstacles. When everyone else is confident in times of booms, successful investors are cautious. They understand the market, and know that booms don’t last. Investing in property is as much about your mindset as it is about the physical aspects. Remember indecision is a decision to do nothing. Will you end up in June 2011with a year where you didn’t make a decision?

Whilst Australia had done well for itself through recent troubled times, we do need to be realistic. There may be other bumps in the road ahead for the immediate future. And that may mean for some, to tread with a degree of caution. But this stage of the cycle doesn’t come around very often. Every 7 – 10 years says history. And history also says that buying at low points of a cycle can be the best time to make real wealth.

Here’s my top five list of things you might like to consider when scanning the current market for opportunities:

  1. Buy now and buy well
    I’d be seriously considering buying now in most cities in Australia. When everyone else is cautious, this is generally the time to reap the greatest rewards. Although it may break you from your comfort zone, being counter-cyclical to everyone else in a time like this is a good thing. But just because it’s a great time to buy, doesn’t mean you should buy just anything and forget the rules of property investing. Buy stable, solid investments, ones able to perform well over the long term and avoid speculative purchases for the time being. This will put you in good stead even if the market does become a little shaky.
  2. Maximise and secure your rentals
    If you already own an investment property, you might want to think about maximising its returns as well as securing its income to cover you for any bumps in the road ahead. Re-evaluate your current weekly rent. If it’s way off the mark, talk to your property manager about increasing it slightly, but if it’s pretty close then I would leave it alone so as to keep your place safely rented. Try and minimise possible vacancies by considering longer leases, and don’t forget landlord insurance to protect you from all those unforseen situations that could hurt your back pocket right when you can’t afford it.
  3. Get educated
    In these times, it’s hard to know what to believe. There’s misinformation everywhere, misleading statistics, and a stack of so-called experts pushing their own agenda and personal experiences. My opinion? Don’t believe everything you hear. Conflicting stories and uncertainty based on this creates worry, doubt and procrastination. But uncertainty can be cured by closing the gaps in your knowledge. Shop around by attending seminars, buying books and magazines, reading blogs, sourcing expert consultation about your individual circumstances and generally investing in property education. Be aware however of this misinformation in the market (including sadly from some property spruikers). Only then will you be armed with the right knowledge to help you make the most informed decisions with confidence.
  4. Have a backup plan in place
    Although I’m convinced that the future will be bright, I can’t really guarantee that because no one can predict the future. So all you can do is prepare for the good times and the bad. If you’re worried about your situation and the future of the market, investigate options to protect yourself if things get tough. When you do have the money, pay a little extra towards your mortgage every month so you create a pool of excess funds to draw out later if you have to. Look into options for changing the mortgage on your own home to interest only for short-term relief. Or see whether you are able to setup a line of credit, ready for times when you may need a helping hand. With backups like these in place, you might feel more comfortable about investing in these times and taking some calculated and potentially rewarding risks.
  5. Find your niche
    Perhaps you’re a serial renovator; buying, renovating and flipping to make a quick profit. Or maybe you’re more of a developer, who buys plots and develops them into small groups of units or townhouses. Or perhaps you’ve done well for yourself through concentrating on certain areas and specific types of property. Whatever your fancy, stick to what you’re good at and where you’re confident you can make money. Now may not be the best time to try your hand at new things. Talk to successful investors and their story will always be the same; they discover what they’re really good at and they repeat the process over and over to make their fortunes.

It may not be the easiest time for everyone at the moment, but at least you should be able to look at the situation and see that the only way is up. It’s easy in good times to ride the wave of wealth and think you’re invincible, however, you need to adjust your attitude and see the opportunities today, but also see the potential risks tomorrow. My final parting piece of advice? Protect yourself, do your homework, and create opportunities from obstacles to make the most of times like these.

By Damian Collins