What are your recommendations for an older and more advanced investor who has already been through the consolidation phase?
Ryan: What would your recommendations be for an older investor/more advanced investor who’s already been through consolidation and has less time on their side compared to someone starting out? I’m guessing less time in terms of the years to accumulate.
Ben: Right. If you’ve already gone through consolidation, then you should be now at lifestyle phase, which is the best time. I’d be saying if you’ve gone through consolidation properly, you should just have passive income coming through for life, but if you want to go through another accumulation phase, then something that Ryan and I are both big on is making sure you target properties with three different things in mind. One is strong short and long term capital growth.
The second is above average cash flow and rental returns, especially if you’re in a later stage in life to make sure that when you own that property outright it’s giving you above average returns, and the third is finding something that you can be a bit more active on and making sure that you manufacture some growth in the short term so that you can achieve an above average result over that shorter period of time that you have, because if you’re saying that you’ve only get ten years to invest and go from where you are to accumulation consolidation again then you’ve really got to find a way to make a property double in value over that time so that you can sell it and put that money into cash or share or dividends or buy another couple of properties with higher yields completely outright and just go back to that lifestyle phase that I’m sure we’re all working towards.
Ryan: Yeah. Well, and I think being very active in it as well. If you’ve got less time on your side, so you want to take less risks because you don’t want to stuff everything up and end up with nothing, so you want to take less risk.
That’s why Ben was talking about those three different areas. You want to focus on the most potential ways to make money, because that way if something goes wrong and you can’t make money in one way, you’ve still got multiple other ways to make money as well, or, perfect situation, it all works in your favor.
You can buy under market value, you can increase the value of the property, and the market goes up as well, so you can make all that money that way, but yeah, I would focus on things where you can take an active role in it, and by taking an active role you can make that property perform better than it would otherwise.
A lot of people who are investing when they’re younger, like we are, we’ve got the benefit of time to say, “Well, I can just invest in whatever,” and hopefully eventually time will just sort everything out for us and will get us to a decent point.
But if you don’t have time to sort it out, you’ve got to take it on your own hands, which I think is actually a better situation and what we all should be doing anyway. But you take it on your own hands.
Ben: I completely agree with you. I think there’s two things here. From looking at the data recently, what I learnt is that in Sydney, Melbourne, and Brisbane in the last 46 years, the average annual growth rate in all three markets has been over 9.5% per annum for literally 46 years.
If you look at the last 20 years, that average annual growth rate has gone to over 8.6% in all three of those markets. Then you look at the last ten years, it’s been just under 8% in Sydney and Melbourne, but it’s only been 4.5% in Brisbane, so what that says to be is that if you’ve got time on your side and you’ve got 20 to 50 years or 40 years to buy and hold, then the averages work out better, but if you’re talking about reducing that to a shorter period of time, it means you have to become more active because you can’t rely on what’s happened in the past to continue, because over a 20 year cycle they’ll be extreme boom times and extreme bust times, but the averages are better than over a shorter period of time.
The shorter the period of time, the worse the average annual result is going to be for you, so buying below market, adding value on the way in, adding value on the way out, it’s all very important to make that extra 20 or 30% over a seven to ten year period, combined with your average growth rate of let’s say 5% per year for that next ten year period.
I think it’s really important to find ways to actively invest as opposed to just sit on the sidelines if you’re at that later stage in life.
Ryan: Yeah, and also map it out. How many years do you have left? What exactly do you want to achieve? Is that feasible, and how can you achieve that? Have a plan that you work out and work towards rather than just buying something and hoping for the best or going from property to property. If you’re a more advanced investor, you know all the basics about investing, which is fine.
That means that you can actually focus your intention on higher level stuff, so about exactly what do you need to buy? Which property do you need to buy to reach your goal, because you already know that process and you’re not going to be super stressed by that situation, you can then really focus on finding the right property for you and for your situation.
Well, I hope you enjoyed the insight to this question with Ben Everingham from Pumped on Property. We’re really having a blast doing these Q and A sessions with you guys, so keep the questions coming.
If you’re at the point now where you’re ready to purchase investment property but you think you might need some help, then Ben is offering free strategy sessions to On Property listeners. Simply go to OnProperty.com.au/session, and you can book a time with Ben and you can go through where you’re at, where you want to be, and what your next steps are to get there. Again, that’s OnProperty.com.au/session. Thanks so much for watching. Until next time, stay positive.