Pete Wargent says investors need a strategy that skips scaremongers, maintains a long-term outlook and shifts focus to quality over quantity as we head into 2022.
Leading investment analyst, author and one of Australia’s brightest financial minds Pete Wargent told KnowHow founder Bushy Martin on the Get Invested podcast that investors need to ignore the negative media commentary that continues to persist around Australia’s property market, and take a long-term approach to offset any risks.
“Let’s face it, we’ve been hearing those reports for 20 years in Australia in terms of the property market, and the stock market has had a couple of major corrections over that time. So I guess there’s nothing new there in terms of the amounts of scaremongering,” Pete said.
“I think the thing for people who invest in property is that when people talk about the economy and economics, they’re very often focussed on what’s going to happen next quarter. Is the economy going to grow or contract? Is inflation going to be up or down a notch? But for most people who invest in property, they’re probably taking a longer term time horizon, and certainly most investors and successful investors are probably looking with a 10 or 20 year lens.
“Therefore, what happens over the next three or six months really isn’t that relevant to the outcome. So I think there are some risks out there for the property market for people who make ill-judged decisions. But if you’ve got a long time horizon and you stick to some basic commonsense rules, you can remove a lot of that risk, particularly if you take a longer term focus.”
Bushy added: “We really are seeing a lot of FOMO (fear of missing out) occurring in property markets and a lot of areas around the country. We’re seeing investors and property buyers generally just grabbing anything for the sake of getting into the market, which is potentially going to create some pain and heartache down the track.
“If you take that (long term) approach, then all of the noise and the fear mongering that the press likes to engage our eyeballs and our ears in doesn’t really make much difference.”
Pete explained his thinking about how to make property investment decisions that are beyond the short-term hype.
“Ideally, you want to stick to the markets where demand is going to be strong over the medium and longer term, rather than getting too exposed in some of those smaller, more remote regional markets. I think when immigration comes back in 2022 we will see roughly 90% of migrants go to the capital city,” he said.
“So I think Sydney and Melbourne will come back to life as the main destinations of choice for migrants. But I do think we’ll see some of that working from home or working remotely. So I think we’ll have a bit of a hybrid model going forward where people aren’t necessarily in the office five days a week, as we used to expect. So I think there’ll be a bit of both going forward – some of these trends will reverse and some will stick around.”
Pete also said property buyers should consider investing outside of their home states.
“It makes sense from a couple of perspectives, really. One is price entry points and the other one is to get a nice spread of assets so that you’re not fully exposed to one market,” he said.
“I think for people who grow a bigger portfolio it does have land tax implications as well, because if you’ve got all of your assets in one state or one location, then land tax comes into the equation for some investors. So it comes with its own challenges as well.
“You might not be as familiar with the interstate market, so there’s a bit more research or understanding to be done. The buying process is different in different states, so there’s a bit of learning to be done there. Those are just the practicalities of managing a property that isn’t on your doorstep, and so you need to have a good property manager in place to manage that.
“So there’s a few pros and cons, but if you’re looking purely through an investment lens, then it does make sense to get an exposure to several different markets rather than focus all of your assets in one area.”
Finally, in light of potential changes to lending laws, investors also need to ensure their properties are set up for maximum performance and wealth creation.
“What does it mean for investors? Well, I guess something that’s really been the case since 2014 is the amount of money that you can borrow or the amount of debt that you can carry as an individual is going to be capped at a ratio of your income. You need to make extra certain that every asset you own and every asset you buy is performing to its maximum potential,” Pete said.
“You don’t want to be carrying debt against that property that just aren’t going to deliver for you because there’s a bit of an opportunity cost now. So you should probably look to focus on quality rather than quantity of assets and just make sure that every dollar of debt in your portfolio is performing to the best of its ability.”
Listen to the full interview here.
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