Doing well in real estate - lessons from my top clients
I was asked on a podcast a few weeks ago what I’ve learned from the many interactions I’ve had with successful homebuyers and property investors over the years. ?
The question caught me off guard at the time, but having thought about it a bit more now, I think I’ve realised the answer… ?
The best operators I’ve met focus on the micro. Not the macro. ?
Let me explain what I mean. ?
While macroeconomic factors like interest rates or global economic trends are important, even the smartest economists and property market forecasters struggle to predict the market accurately. ?
This couldn’t be better illustrated than via the doomsday predictions that house prices would collapse 30+ per cent as a result of the COVID-19 pandemic, and then again due to the recent/ aggressive rate hiking cycle. ?
While national house prices fell over much of 2022, prices are still around +15% higher than pre-COVID levels, and they have also risen for much of 2023. [1] ?
Now predictions and much of the news media has turned positive again…
There are always reasons not to invest… before the rate rises and COVID-19 it was the Labor government threatening to scrap negative gearing, before that the banking regulator (APRA) intervening to restrict credit growth, before that the European debt crisis, before that the Global Financial Crisis. ?
From my experience the most successful investors know that fixating on the macro leads to missed opportunities, and if there was such thing as “ideal timing”, it’s more a function of when they can comfortably afford to buy, and when the new purchase aligns with their broader wealth objectives. ?
When I think about my most successful clients, those who have personally accumulated property portfolios worth tens of millions of dollars, they focus on the “how to” of property, not the “when to”. ?
The “how to”, is the micro. ?
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One of the most compelling reasons to focus on the micro is the understanding that real estate markets are incredibly localised. What's happening in one city or suburb or asset class can be vastly different from another. ?
By immersing themselves in the micro-level details of a specific market, I’ve seen savvy investors uncover all kinds of opportunities and emerging trends. ?
It’s clear to me that the top operators follow their chosen markets intimately and know all the best opportunities currently available. ?
They’re closely connected to all the key buying agents and all the key selling agents. Sometimes they’re even approaching vendors directly – trying to unlock various off market?opportunities. ?
Successful investors live and breathe property. They look at properties daily. They know every property, every recent sale. They know what represents quality?and they know what represents value. They know how to buy well (not overpay). It’s extremely time consuming. ?
My top clients always have their finances in order so when opportunities come about they can move quickly and decisively. The market knows they’re serious and so opportunities also come to them. ?
Lastly, I’ve found the ultra successful often do things which aren’t vanilla. For example off market deals, unique settlement terms, part-vendor finance, all sorts of JVs, development schemes, etc. But these kinds of strategies aren’t for everyone and they’re often?higher risk. ?
In the world of real estate, particularly in Australia where we have so much going for us as a nation, I’ve concluded it's important to stay informed about macroeconomic factors, but there’s much more to be gained from the micro-level details. ?
Best wishes
References:
[1] PropertyUpdate.com.au , Australian Property Market Predications, 1 October 2023