With rising interest rates and rising inflation, many property investors are asking ‘What do we do now? We want to keep building our property portfolio but everything is getting so expensive and times are uncertain. Do we keep investing or sit and wait for the next few years?’
Understanding how property markets cycle is important to know in these current changing market conditions.
Yes, we are likely in for a tough couple of years until inflation is controlled, wages rise and the economy stabilises.
Are there still opportunities to grow a property portfolio?
Let me provide an example of how investors use the changes in a market to position themselves for the next property cycle upswing.
Actual Case Study:
I have a client who had invested in standard houses on land over several years and had sold them off and was looking to start investing again with a different strategy.
He really liked the idea of using property to rent out rooms and drive his cash flow higher than a traditional rental property.
In 2019, we researched those areas where Council allowed a home to be used as a Rooming House and the API Solutions team sourced a property that was suitable.
This property was in a Perth suburb at a time when the Perth market was dead.
We paid $415k (negotiated down from offers over $489k for the property.
My client added an extra bedroom and bathroom (costing $25k) to make it a 4 bedroom, 2 bathroom, 1 carport brick and tile home on a 701 sq m block of land.
He now rents the property for $755 per week.
But it gets better:
This property is in a R20/30 zoning and could be subdivided. My client has constructed in 2020/2021 a 5 bed 3 bath brand new home in the backyard and it rents for $1150 per week.
Not only does he own these Rooming houses in Perth but he also replicated this model in a beautiful regional city in Victoria and we helped him purchase a renovated 2 storey brick and tile home 6 bedroom home that rents for $1290 per week. Again, at the time of purchase, the market was dead and the negotiated price for this property was $410k and it’s now valued at $750k.
Rooming houses are certainly not for everyone but the important point is this:
Both these properties were bought when the property market was absolutely dead and my client rented out the rooms to super charge his cash flow.
Now both the Perth market and the Victorian regional market have had extraordinary growth in those 3 years that he has owned the properties.
He has a valuable property portfolio that returns more than 10% yield.
He did this by having a Strategy, positioning himself to be ahead of the next property cycle while getting extraordinary cash flow.
No matter WHAT the interest rates are doing or HOW HIGH inflation gets or HOW DEAD the property market is, there are always opportunities but the Strategy needs to have a focus on strong cash flow to get you through the challenging times.
If you sit it out and wait for the things to settle down and the market to change, you may not be in a position to take advantage of the next market upswing.