How to Mitigate Your Exposure in a Property Crash

Depending on who you ask, the world may be ending as we know it, at least in the property sphere!

Property prices in a few cities are declining, and the price growth of 20% for the others has ended. But not all is lost!

Last week I wrote in detail about property cycles and what to expect in the future for Australia’s property market, but a conversation with an existing client prompted this week’s topic of “ How to Mitigate Your Exposure in a Property Crash”.

The Majority of Australia Has a Phenomenal Portfolio Until They Don’t

To understand my point of view, let me provide you with the context of the past two years in Australian real estate. It’s been a whirlwind of positivity; almost everywhere in Australia experienced some capital growth.

Capital growth over the past two years didn’t discriminate based on whether you were based in regional or metropolitan Australia. Even less desirable property types, such as small apartments, enjoyed uplift (don’t get me started on apartments).

As an investor in the “boom” phase, you can feel invincible. With every month that goes by, you feel like nothing can stop you and your “phenomenal” portfolio.

With a skip in your step and a twinkle in your eye, you think that the good times will keep on rolling, but then the good times stop…. And this is where savvy investors should be celebrating.

The Proof is in the Downturn

As we discussed in our last blog, the downturn phase of the property cycle follows the boom.

I’ve been encouraging those I speak with to pay close attention to their portfolio throughout this next period of the cycle.

This is where investors can differentiate whether their property will perform throughout all stages of a property cycle or just in the boom phase.

If your property can continue to grow or hold its value throughout a downturn, you’ll be well positioned in the recovery and boom phases of the cycle.

There will always be ups and downs; it’s not realistic to think your property will never fluctuate in a negative direction. However, how your property performs during a downturn can tell you a lot about the quality of your asset.

Home Values Dropped 2% in Australia. Who’s Still Profiting?

In the second quarter of 2022, nationally dwelling values dropped by 2%. This was led by a decline in values in Sydney, Melbourne and Hobart.

In saying that, many Wealthology clients achieved capital growth throughout this same period.

By focusing on a clearly defined set of fundamentals, Wealthology clients can mitigate their exposure to downturns in the market and capitalise on the ups.

The Fundamentals of Profiting Throughout a Downturn!

Throughout the boom phase, many investors can take a happy-go-lucky approach, buying whatever they can get their hands on.

This may seem like a good idea at the time. However, investors can be caught out once the cycle moves to the next stage.

With decades of guiding investors throughout all stages of property cycles, we’ve created a set of fundamentals to accelerate growth through the boom phase and maintain it throughout the downturn.

Infrastructure

“Build it, and they will come”. Infrastructure is a pivotal pillar when it comes to successful property investing. We know that property located in relative proximity to critical infrastructure performs over the long term. We’ve seen this time and time again.

Population Growth

A key metric to safe investing is population growth. Population growth is essential because it provides a certain level of safety from a rental and resale perspective. A constant flow of people in an area maintains a healthy equilibrium between supply and demand.

Employment

Jobs, jobs and jobs. Can anyone say they love to travel long distances to work? Very unlikely. Data in the 2016 census revealed that Australians travel less than 16km to their place of employment. Considering Australia’s sheer size, that’s a great indicator that Australians want to work nearby where they live.

Purchasing property near central employment nodes provides you with greater options with tenant selection and will see that your property will maintain demand even in softer markets.

Strategy To Hold!

Increase Costs – Decrease Expenses

Regardless of the cycle’s stage, property should always be viewed with a long-term outlook. To enable you to hold investment properties long term requires strategy and cash flow.

I’m sure you’ve heard countless stories of selling just before the boom. Most of the time, these sales are forced due to an inadequate cash flow position and poor strategy.

I handpick properties for our clients that will deliver above-average rental yields and minimise potential expenses such as maintenance.

This means that even throughout periods of slow growth, you can still hold the property in preparation for the next boom.

How to Join the Downturn Party

If you want to be part of our community of investors celebrating the “downturn” phase of the cycle, please reach out to our team! Almost all investors make money in the boom, but very few position themselves to profit throughout all stages of the property cycle.

We’ve helped countless Australian families and want to help you too.