"I Buy My Straw Hats in Winter"
This advice from the world’s first billionaire could have saved you $109,000 on a $455,000 property.
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There seems to be a lot of bad news in the media particularly when highlighting apartment stock levels in Brisbane and the impact this is having on prices and rental yields. In many cases these articles fail to mention that these supply levels are not necessarily applicable to many suburbs in the middle or outer rings.
There is no "Brisbane apartment market". There are hundreds of Brisbane MICRO apartment market.
I did a quick look in Boomtown Pro and found a handful of areas that have a very solid DSR BoomScore™. I'm talking 35+ and similar to other locations that subsequently boomed.
Despite some of the perceived gloom, according to a recent report by Urbis:
"Apartment oversupply in Brisbane could soon be a distant – if a little hysterical – memory, according to property experts."
Urbis associate director Paul Riga went further saying, “the sun’s coming out through the clouds” based on his view that the Brisbane apartment market is now correcting itself faster than most expected.
With all the doom and gloom associated with apartment oversupply it’s not surprising we tend to forget that all property markets are in essence homeostatic in nature i.e. they seek equilibrium when out of balance.
An example of this mechanism in play is when developers build too many properties in an area… prices drop... followed by a drop in profits … and so the developers move on which puts a halt on new supply.
Soon enough the market is in balance and prices go sideways for a while.
Then as the market absorbs stock, developers move back in to capture rising prices…
…And so the cycle of supply and demand rebalancing continues.
Buy your straw hats in winter
John Paul Getty, once the richest man in the world and the first man to make a billion dollars, was asked about his investing strategy to which he said:
“I buy my straw hats in winter. In the winter they are at the lowest price, and in spring they are highest. I look at my investments the same way, when everybody is selling I buy and when everybody is buying I sell.”
His idea of buying when demand is soft and then selling when it is highest is a good idea if only the property market was as predictable as the four seasons.
How to buy your straw hats in winter
This can be complex and I go into it in more detail in my latest webinar using a real life example of how investors on our passive developer program bought an apartment in Brisbane while everyone else was worried about prices dropping.
They were investing with little chance of imminent capital growth and by the time the project was completed, prices had in fact dropped by 1.4% with further pain to come then.
You would be forgiven thinking they were crazy.
Fortunately, these investors made on average 32% capital growth. And they made this at the time of settlement, not 2,3 or maybe 4 years later.
This is what I call “manufactured capital growth” and it's great if you simply want more certainty about how your portfolio performs.
Not only did they buy their straw hats in winter; they had someone else create their straw hats at a greatly reduced price everyone else had to pay (even if they too bought them in winter).
Each investor in this passive development project invested between $160-$180k for a property they got at a discount of 24% to the appraised value: the equivalent of 32% capital growth from day one.
Let’s see how this works:
- Capital invested - $165,000
- Cost price paid by investor - $350,000
- Valuation - $460,000
- Profit - $110,000
- Discount – 24%
$110,000 / $350,000 x 100 = 32%
$110,000 in instant equity for a property costing $350,000 is the same as 32% capital growth from day one.
If you are thinking “I don’t have $165,000” then that’s okay. Most of our investors don't and we have a solution for this which I will go into in my webinar about investing in small developments with little money, no time and no expertise - all done for you.
Similarly, you can beat the market by using Boomtown to pick suburbs with the greatest potential for organic capital growth.
Sure, it’s less certain relying on the property market and the data is only reflective of a suburbs potential at a particular point in time - but it’s much better than relying on generic hotspot recommendations based on professional bias.
Read more: Urbis | Brisbane Apartment Market Essentials
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