Use the Property Cycle to your Advantage

It is said that the only thing that is constant is change, and know the property market is no exception. The property market is cyclical, and it is important to learn how to invest wisely at each stage.

Ensure you have a new plan in a changing property investment nz environment Over time, property increases in value, generally doubling about every seven to 10 years, but it does not happen at a steady rate. During a boom phase of the cycle, values tend to increase very rapidly, and in a bust phase they will flatten out and even decline a little. This cycle provides great opportunities to invest and make good profits.

Throughout the cycle I am always looking for positive cashflow properties that meet my 10% yield rule. It’s not hard to do when the market is flat lining, but it netflix login can be quite challenging in a boom when every man and his dog is buying property, making it harder to get a good discount.

Should you happen to be building a portfolio during a flat period, the best strategy is to buy as much cashflow property as possible so that your portfolio can benefit come the next boom. Big discounts (30–40%) are possible at these times in the cycle, which means your yields will be good enough to meet your investing rules, even though interest rates may be high. For myself, however, as I already have a strong portfolio, at times like this I tend to focus less on buy-and-hold properties. My reasoning is that it can be time-consuming to run around looking for properties that meet my hold criteria.

Once the market starts to recover, I will be in a strong position from a financial servicing point of view, and that’s the time to focus on capital growth properties. The more capital growth property I am able to buy at the beginning of a boom the greater my overall increase in equity will be.

However, I am not advocating taking big risks at such a time. It is important to look at what interest rates are doing to be sure that all servicing costs can be covered, especially if they go up. Forty per cent of the increase in value that takes place during a boom occurs in the first six months. For my business, this is the best time to revalue and refinance to realise the capital growth I’ve had on both the cashflow and capital growth properties in my portfolio, after which I concentrate on buying as much cashflow property as I can. Once you’ve become a market expert you’ll notice when things start to move and because you’ll be aware of what the market is doing you’ll know when to buy those capital growth properties and significantly increase the value of your portfolio.

Use the property cycle to enhance your trading

Instead of buying and trading a property within a short period, it is possible to take advantage of the property cycle and make a much larger profit. The idea is to buy at the beginning of a boom and put the property into your trading trust for around three months. By then, values will have increased and so will your profit. Here’s an example: say you buy a property for $200,000, renovate to increase the value to $260,000, and then sell for $250,000. Instead of making $20,000 as you would if you sold in 14 days, you could make $40,000 by waiting until the property has increased in value, e.g. $280,000. If you use the GST to service the property while you hold it, it won’t cost you anything during the relevant period.

The above post is based on the book “The 15 Million Dollar Man” by Sean Wood, to read more click Property Investment and download 2 free chapters.

For further reading on Property Investment NZ, click on the articles below:

Setting Goals for Financial Independence – click here

Tips for Becoming a Property Expert – click here

Buying Rules for Property Investment – click here

5 Tips to Add Value through Renovation – click here

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