In the first part of this series, we looked at some of the considerations of holding a residential investment property portfolio, including investment returns and strategies, in an historic context. In the second, we looked at the key drivers that have driven success in residential property markets over the past 20+ years and their degree of relevance going forward. In this part, we now look at how those key drivers continue to re-emerge in current trends. Most importantly, the entry, holding and exit cost modelling that every investor should fully understand to ensure they can insulate themselves from the adverse consequences of cycles and trends that see many others fail in optimising returns in their residential property
portfolio are set out.
The first and second parts of this residential property investment series were published in the January/February editions of Australasian Dental Practice in 2012 and 2013 respectively. This was a depressed period when critics of residential property investing were indeed most vocal. Ironically, herd instinct is often contributory to boom periods as well, as we shall see, which largely explains the Sydney market during the latter part of 2013. In any case, the series commenced at a time when it was more practical to calmly assess the tenets of property investment generally and key aspects your own portfolio more specifically. In summary, they covered the following matters:
• What the traditional portfolio building strategy entailed;
• Property investment timeframes - the medium and long term perspectives;
• Diversifying your risk - the types of properties and the geographic areas or regions, including interstate, to consider in your portfolio timing;
• How leverage, gearing and compounding really works for you in the property market;
• Buyer confidence - assessing affordability and mitigating against mortgage stress; and
• Interest rate volatility - stress testing your portfolio and re-assessing your after tax cash flow.
In this article, we will tie these factors together, see how they have re-emerged in 2013 and what it has meant in the context of some modelling undertaken for two real time investments made in the most recent property price cycle.