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5 Ways Wealthy People Make Money In Any Property Cycle

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Have you ever wondered what the truly successful property investors do differently?

With over 13,070 professional and amateur property investors using our algorithmic research app Boomtown, we decided to find out.

As usual, it's pretty simple and the '5 ways wealthy people make money in any property cycle' infographic you can access here distils these lessons into a formula that could dramatically boost the value of your property portfolio regardless of the state of the property market and how busy you are.


Warren Buffett once said, “Price is what you pay. Value is what you get”.

He was referring to the fact that a share priced at $2 is not necessarily worth $2. It could be worth a princely $4 or, heaven-forbid, $1.

The problem is value is a very subjective measure that is hard to calculate, whereas price is an easy objective measure …but can be very misleading.

In property, investors are often at the mercy of bank valuers who decide whether the price they paid is indeed good value. This is not uncommon in off-the-plan purchases for example.

In good times, property values can also be distorted by market sentiment.

Buying off-the-plan is a good example. Investors perceive values to be increasing in an area so they lock in a price hoping that when construction is completed that prices will have moved up.

In general, property market cycles last around 7 years. What is less well-known is that 80% of the growth in this cycle happens in the final 2 years of a cycle. This can be extrapolated for longer or shorter cycles.

So by the time the market starts rushing upwards, everyone piles in and then the market peaks.

Many off-the-plan or retail investors get caught out with valuations coming in short of the contract price at settlement. So they either have to find more cash or lose their deposit (and risk being sued by an angry developer with deeper pockets).

Next we see media headlines lamenting the losses ‘mum and dad’ investors have made and everyone gets fearful and stops investing until the market is near the next peak again.

And this is exactly the fear Warren Buffett refers to and why sophisticated investors pull out their cheque books when everyone else is sitting on their hands wondering where the market will go.

It’s no surprise then that less than 1% of investors actually retire financially well off on the rental income from their property portfolio.        

Another Warren Buffett classic: “Be fearful when others are greedy and greedy when others are fearful.”

The wealthy 1% of investors prefer to buy property when no one else is buying. When vendors are nervous and highly negotiable. When the market is depressed and undervalued (there’s that word again). And particularly when the journalists are shouting doom from atop their one property portfolio.

 

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'5 Ways Wealthy People Make Money In Any Property Cycle'

Discover the exact formula the elite 1% of investors use to build wealth fast and securely.
Tip #1 will amaze you.

At Hotspotcentral we have thousands of users of our algorithmic research app called Boomtown. The more successful investors make money in any property cycle and I’ll share these with you below.

5 WAYS WEALTHY INVESTORS MAKE MONEY IN ANY PROPERTY CYCLE:

First off, they are not worried about property cycles. They change their strategy to suit the cycle. In fact, Boom-cycles are when they go on holiday. Sellers are greedy and properties are overvalued.

So what do they do?

Importantly, they use a combination of the following strategies:

  1. They buy under market value.

Wealthy investors never pay retail prices for property. They ensure there is a safety buffer of at least 20% (or instant equity) against changes in market conditions e.g. interest rate rises.

  1. They look for positive cash flow.

Wealthy investors don’t get bogged down in negative gearing debates. In fact, the majority of investors who negatively gear property in Australia earn less than $80k/pa.

  1. They buy and sell at the right time.

Yes, you can time the market with the right technology.

  1. They add value.

The 2016 BRW Rich Listers are overwhelmingly property developers. Only 8% invest their wealth in holding property. The youngest and new entrants are worth in the $100s of millions. They buy a development site and add tremendous value. And they spend less of their own time developing than most people will spend renovating a house.

  1. They use experts.

And that’s because they use other people’s expertise and contacts to make it happen.

 

GET YOUR FREE INFOGRAPHIC
'5 Ways Wealthy People Make Money In Any Property Cycle'

Discover how Tracy got her townhouse at 21.7% discount to bank valuation with instant equity and positive cash flows AFTER retrieving her entire original investment.

Now, I know what you are thinking!

“These ideas make sense, but how can I make it happen? How do I do this? I’m not a developer with deep pockets, vast experience and any spare time (family, work commitments, etc.).”

“I don’t have the time or expertise to research the market. I don’t know who to trust to pick the location for me or find the right opportunity.”

Well, here’s how an ordinary investor named Tracy Smith did it. In this short video case study (from 05m:46sec). I’ll show you the numbers and strategy how Tracy combined all the above ways to buy a property at 21.7% below bank valuation.

Tracy’s property was immediately cash flow positive with rent estimate to actual rents jumping during the 11 months of construction. In fact, the rental estimates were initially $450/pw but she got $490/pw (the estate agents do get it wrong) after 25 viewings on the first day.

But best of all, the $93,000 in manufactured equity meant she had the deposit to hold the property without lender mortgage insurance and without putting in any of her own money.

This meant the original investment money she used was immediately freed up to start again. That’s how the wealthy invest … independently of the property market cycle and certainly without regard to sensationalistic media headlines and general market sentiment.

… and she did not invest in Sydney or Melbourne just before the boom cycle. She invested in a South Gold Coast location where 85% of residents are owner-occupiers and tenant vacancy rates less than 1%.

In fact, apart from her instant 21.7% discount and strong positive cash flows, the area is statistically set to smash the market average due to its strong reading on 8 property supply-demand indicators we share with you at our Armchair Developer information page.

And finally, if you’re a traditional cash-only investor who prefers not to hold property, Tracy’s annualised cash-on-cash return was 57%…

… and she did it all in her SMSF.

What kind of returns are you getting in your SMSF? You might want to check.

Check out our recent blogs in this series.

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