What’s ahead for our property markets in 2022?
Most analysts and economists agree that our housing markets should perform strongly in the new year.
But things won’t be the same – capital growth won’t be as strong as we experienced this year and we are likely to end up with a two-tier property market.
So what lessons can we take from 2021 to make us better investors in the new year?
Last week, I shared 10 lessons. Here are the other 11:
11. Invest for Capital Growth
Capital growth should be the key driver for your property investment decisions, rather than cash flow.
Sure, cash flow is important and will keep you in the game, but it’s capital growth that gets you out of the rat race.
So, smart investors first build their equity and then they convert it to cash flow.
Moving forward, I can see we are going to have a two-tier property market.
In many locations, property values have already increased by 20 per cent or more this year, but wages growth has been minimal.
This means the average Australian won't have any more in their pay packet to be able to pay $200,000 more for a property.
If COVID has taught us anything, it’s the importance of living in the right type of property in the right neighbourhood.
In our new ‘COVID-Normal’ world, people will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.
They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes’ reach.
Residents of these neighbourhoods have now come to appreciate the ability to be out and about on the street socialising, supporting local businesses, being involved with local schools and enjoying local parks.
As obtaining finance becomes more difficult moving forward, it will be the people with money that drive property prices.
Not just locals living in the area but people who want to move into these better locations.
You see, there will always be wealthy Australians who will be able and prepared to pay more to live in these better locations. Rich people don't buy cheap properties.
Currently, the high end of our property market is leading the growth in property values and the gap will only widen between the more expensive suburbs and the affordable ones.
12. There will always be reasons not to invest
Every year brings its own set of crises and lots of reasons not to invest.
You can go back as far in history as you like and there won’t be a crisis-free year.
Sure, some years are worse than others, but there is always bad news and much of it is unexpected.
Where investors get into trouble is that rather than focusing on their long-term goals, they see these crises as once-in-a-generation events that will alter the course of history, when in reality they are just the normal path of history.
13. Property investment is risky in the short-term, but secure in the long term
The past decade has reminded many property investors that real estate is not a way to get rich quickly.
It was a long period between the last property cycle peak 2017 and October last year (2020), when property prices remained flat and in fact fell in many locations
Yet those who stay in the game benefit from the power of compounding growth which builds wealth, but takes time.
I have found it takes the average property investor around 30 years to become financially independent, but most don’t make it because they can’t stay the distance, in part because they don’t have good cash flow management.
14. Plan for the worst and look forward to the best
As a property investor, I protected myself from the challenges to our property markets brought about by the pandemic by:
Owning the right assets – investment-grade properties in desirable locations
Having multiple streams of income from a diversified portfolio of residential, commercial and industrial properties, as well as shares
Owning my assets in the correct structures that protected my interests and were tax efficient
Having set up financial cash flow buffers to see me through difficult times
Protecting myself and my assets with adequate insurance policies
Fortunately, I didn’t need to rely on these protections I put in place long before the challenging times, yet having them in place helped me sleep much better.
15. You can't rely on one stream of income
You've probably noticed that successful investors enjoy multiple streams of income.
They strategically go to great lengths to make sure they have money coming in from all directions or, in other words, "they don't have all their eggs in the one basket."
Unfortunately, many Australians learned this lesson the hard way over the past few years, with some losing their jobs, others having their work hours cut back and yet others losing their life savings as many small businesses went broke.
And even though we are through the worst of the economic downturn related to the pandemic, there will always be issues to contend with.
It may not be a pandemic next time. It could be personal health issues or your inability to work.
Sure, it's hard enough for some people to figure out how to create a single source of income, let alone multiple streams, but in my mind, you have no choice.
Rather than relying on your job as an income source, become financially fluent. Learn to invest and develop multiple streams of income.
16. There are always risks associated with investing
Don’t be afraid of failing, because the biggest risk is not doing anything to protect your financial future.
Sometimes negative experiences, mistakes and failures can be even better than a success because they teach you something new that another win could never teach you.
However, we are often so driven to get things right that we fail to see the value in the things we get wrong.
Instead we spend our time wishing we had done it differently.
Or not doing anything at all because the fear of making mistakes paralyses us. If you get it wrong, learn from your mistake and make it count by doing it differently next time.
One “failure” can – with time – help you create many successes.
17. Cautious optimism is better for your investment health than permanent pessimism
Life is not fair; get used to it.
But having said that, optimists are more successful in all areas of life than pessimists, or so-called realists (who are just pessimists in disguise). And this includes in the realm of investing.
Now, this doesn’t mean you will necessarily be happy and smiling all day.
But it does mean that you have an ability to look at a situation and, while it might be tough, you’re able to see around that corner and see the possibilities rather than the difficulties.
Those who have high expectations usually rise up to meet them.
18. Time is a limited resource – don’t waste it
We all have 1,440 minutes every day, but some of us squander it, waste it or don’t use it efficiently.
2021 reminded me how truly valuable time is.
Start to capitalise on the time you have and get a whole lot more done.
19. The only certainty is change
We all face changes every day – whether it’s a simple change in the weather or something as significant as another wave of the coronavirus pandemic.
Changes are a normal part of life. The problem is most of us don’t like change; we like certainty.
However, learning to expect change has brought me hope during challenging or unexpected life events.
I’ve come to realise that it’s not the circumstances or the changes that dictate how my life will go, but rather how I handle those changes and disruptions.
Rather than worrying about all the changes occurring, I’ve learned the concept of having a useful belief about the changes that are happening to me and seeing what good will come from them.
The more I feel in control of my life, the more comfortable I feel and the better I perform in all areas of my life.
20. Worry Better
A simple fact is that most things you fear will happen never do. They’re just monsters in your mind.
And if they do happen, they’re most likely to be not as bad as you expected.
But forget the saying, “don’t worry, be happy”. Instead, worry the right way. It’s better than not worrying at all.
You see, worry can play an important role in your life, and it doesn’t have to be destructive.
We’re all wired to worry.
That’s because worry had an evolutionary benefit, it drew our attention to the fact that there were some things that you should be doing while there were other things that should be avoided.
Those who worried correctly survived and evolved.
But today, time spent worrying is time that you could spend identifying opportunities and taking action.
Worrying about the right things can motivate you, but if you find it unproductive, try to take your mind off things by getting engaged in other activities:
I’ve learned the trick of limiting the amount of time I worry.
I was taught the concept of telling myself to put a limit of say 5 minutes or 10 minutes on your “worry time” and then forcing myself to move on by focusing on other tasks or engaging in other activities.
It’s a good trick to learn.
21. This too shall pass
How often do we need to hear the world as we know it is coming to an end, before we realise that the world as we know it has not come to an end?
Now is the time to take action and ready yourself for the opportunities that will present themselves in 2022.