Rising interest rates have caused some pain for investors over the past year and are likely to cause more pain in the future, but as B.Invested founder Nathan Birch points out, some markets and some investors are more vulnerable than others.
In fact, B.Invested has been sourcing properties for clients in capital cities that are up to 30% cheaper than they were 10 years ago. Meanwhile, other markets don’t offer the same value.
All that glitters is Gold Coast
Nathan often points to the Gold Coast market as an example of the importance of timing. Buying in the Gold Coast now would not be a great idea as values have increased strongly in the last few years.
However, five years ago, Nathan was picking up properties there for the same price or cheaper than they had sold 15 years earlier. Those are the conditions that can be replicated in certain areas in today’s market.
A decade of surrogacy
If someone holds a property for 10 years or more and then Nathan can pick it for the same price they had paid, or cheaper, it’s a no brainer. The rents are higher than they were 10 years ago, the interest rates are cheaper (even though they have risen recently, people are paying 6% on loans at the moment, where 10 years ago it was more like 9%), and therefore, the opportunity is there for a good deal.
That previous owner has played the role of surrogate parent and the property is now ready to reach its potential.
Who had it the best?
Nathan often wishes he was around in 1992 around the time of Australia’s “recession we had to have”. The reason is that off the back of that recession, there was mass discounting of properties. Sydney properties could be picked up for $20-$50,000 in some areas.
People would have advised against it because interest rates were pushing the 20% mark, but look at what has happened since.
The economy may have been in dire straits at the time, but the opportunities were there to purchase assets without the inflated price.
Nowadays, the deals are harder to come by because prices have been inflated so much and at a disproportionate level to incomes.
Turn of the century
Another great time to buy, according to Nathan, was around 1999-2000. The world was focused on the potential for the Y2K bug, the rise of terrorism. In hindsight, the economic conditions may have been better than thought, but the fear and uncertainty had a lot of people too scared to invest. There were a lot of deals to be had in the market as a result.
In the future
Nathan believes there will be a lot of people in the future who look back to the year 2023 and think “I wish I could go back then, you could still buy a property for $1 million in Sydney. This is because inflation and market cycles over time will also make today’s prices look like a steal compared to what they may be in 20 or 30 years’ time. It’s all relative.
So, if you are looking at scaling up your portfolio or taking the plunge for the first time, don’t be swayed too much by the commentary and fear around the economy. Lending markets will adjust, values will recover and property cycles will continue like they always have. And a property that can be purchased cheaper than it sold 10 years ago is usually a pretty good deal.