Why it’s better to be a concentrated investor rather than a diversified one, why population growth and construction boom in a suburb is not a sign, and more property investment secrets revealed
Investors should always focus on well-sought-out suburbs. Choose a suburb which has 10% capital growth consistently for the last two decades. These suburbs will out-perform cheaper suburbs
If you are planning to invest in Western or northern Suburbs of Melbourne, stick to a 10 km radius. In east and south east, stick to a 20 km radius.
Wealth creation is a 30-year journey. The first ten are the hardest. Wealth creation should be like watching your kids grow. Treat your investments as a business, don’t gamble with them.
I always say wealth creation is transfer of money from impatient to patient.
With that in mind, investors can be classified as diversified or concentrated investors.
Diversified investors are those who are often are not knowledgeable in one type of investment and tend to diversify into property, shares, and commodities. Diversification is for people who want to hide their ignorance. Usually you will get this advice from a typical financial advisor.
Concentrated investors are more successful in my opinion. They specialise in one area. In my opinion, businessmen or investors who are wealthy have one thing in common in that they specialise in their investments. If I try to do ten things to make money, I will lose money in all ten things, so, I would rather focus on doing one thing that makes money.
Another trait successful people have in common is that they reinvest money earned from investments.
Now, as an investor, what must you concentrate on?
Investors should always focus on well-sought-out suburbs. Choose a suburb which has 10% capital growth consistently for the last two decades. These suburbs will out-perform cheaper suburbs. Novice investors have a notion that the cheaper suburbs in outer Melbourne or Sydney will grow, due to the ripple effect. It doesn’t work that way.
Disparity between other suburbs and inner or middle suburbs will grow in the future. Some of the suburbs in Melbourne will increase by 20% and some of the suburbs will so no capital growth at all. All the suburbs will not have the same capital growth.
Will the house prices continue to grow into the future?
In Australia, over some 120 years or so of not quite so accurate statistics, property prices have risen at an average compound rate of 10.4%. Again, property prices have doubled every 7 years or so despite droughts, wars, changes of government, interstate and overseas migration, interest rate movements, exchange rate movements, changing rates of unemployment, CPI movements, etc.
Property price rise is a long-term Investment and short-term fluctuations shouldn’t deter sophisticated investors. What happened for 900 years is going to happen for the future, in terms of property prices. So, if you want to hear naysayers and curtail your investment journey. You will be on the losing end of the wealth game.
What area should investors focus on in Melbourne?
If you are planning to invest in Western or northern Suburbs of Melbourne, stick to a 10 km radius. In east and south east, stick to a 20 km radius. These suburbs will always out-perform the outer suburbs of Melbourne.
I recommend driving through the suburb you would like to buy and see. If there are many houses being built or lots of sales of land boards on display, stay away from the area. These suburbs will have the lowest capital growth or maybe no capital growth for 10 years.
Population growth and construction boom in a suburb is not a sign of good capital growth for it. Scarcity of land is important for good capital growth. If the jobs don’t keep up with the population growth, Councils will release unlimited land to accommodate more people. But in established suburbs, only people who can afford the space can move in there and it becomes a sought out suburb.
Box: Major Capital City Home Value Changes
Year to Date : 13.5%
Annual Change : 12.5%
Median Value : $720,000
Year to Date : 14.6%
Annual Change : 15.9%
Median Value : $831,000
As to which property market will outperform in next 12 months, Melbourne house prices are forecasted to grow in the next 12 months. Melbourne will outpace Sydney in next 12 months. There is still 8 – 14 % dwelling price rise left in Melbourne Market and Sydney dwelling prices will rise by 3 – 5 % capital left for next 12 months. Darwin and Perth are expected to see prices fall. Brisbane has so much potential to grow. Please avoid all the regional towns.