This Simple Investment Strategy Can Work Even In A Decling Market


When investing in property, given current
market conditions, it’s a really good idea to have a strategy that can work even in a
declining market. So even if the market goes back for a period
of time, you can still make money and you can still be successful and you can still
achieve financial freedom. So in this episode I want to talk about a
strategy that works even in a declining market. Hi, I’m Ryan from on-property, helping you
achieve financial freedom. And I just want to say from the outset that
this is not me recommending that you, that you invest in a declining market. Obviously we want to invest in property that
is going to grow. We don’t want to go out and seek properties
that are going to go backwards in value. I’m sure there’s sound strategies out there
that can be really successful and make a lot of money from properties going back in value. But that’s not what I’m talking about. I’m talking about, given the current market
conditions, a lot of people out there are nervous to invest because I feel like the
market may go backwards for a short period of time. Sydney and Melbourne definitely look like
they’re going to go backwards. Brisbane, we’re not so sure about it looks
like it may continue to grow, but obviously there’s the chance that Sydney and Melbourne
can drag down the entire Australian property market as well as changes with appro. Making it harder to lend could have an effect
as well as potentially a global recession could affect the market. So is it possible to invest knowing that there’s
these risks out there, but we can still make money even if this worst case scenario does
happen? Because we have to admit that yes, there may
be a risk of the market is declining, but also there’s the potential for markets growing
as well. So it’s up to you whether you decide that
you want to invest or not given current market conditions, but there’s a lot of people out
there that realize that the market may still grow, especially somewhere like Brisbane that’s
hardly grown over the last 10 years, kind of has more potential than maybe Sydney or
Melbourne, which had the big booms. So there’s a lot of people that may want to
invest because they can see the potential for growth, but they’re nervous about the
downside risks. So let’s get into it and talk about this strategy
and the strategy is really simple. Okay. And we’re going to look at positive cashflow
properties. Now in the past, in order to find positive
cash flow properties, you really had to go out to regional centers in order to find them
where her rental yields are higher and find specific properties that have certain characteristics
that generate higher until yields. But by working with Ben Everingham from pumped
on property, we’ve now realized that you can quite easily generate a positive cash flow
property in a metro market by building a granny flat so you don’t buy it. And it’s positive cash flow, but you can create
the positive cashflow through building a granny flat. So we’re not talking about positive cashflow. I’m not talking about properties that are
really cheap in some unknown country town because given current market conditions, I
don’t think I would feel confident investing in smaller areas. I would want to stick to the metro markets. But obviously what you do is up to you. And so the reason positive cash flow properties
can work even in a declining market, is that your making money from day one. So if you’re investing in property that generates
more income than you’re paying in expenses, then you’re actually making money through
the rental income on the property. So you’re getting a return on investment from
the rental money that’s coming in after you’ve paid all your expenses. So this means that you’re not reliant on capital
growth in order to make money. So people who invest in negatively geared
properties, they’re actually in the opposite situation where they’re losing money from
day one. So when they invest in the property, obviously
there put a deposit down, but there’s more expenses than the rental income. That’s coming in. So there are therefore paying money out of
their pocket every single week, every single month. In order to keep that property afloat, they
need that property to grow and for that growth to exceed the money that they’re putting into
it in order to make a profit and to make any money. But in a declining market where the property
isn’t growing and is in fact potentially going backwards, you’re both losing money in the
cash flow that you have to pay out every single month and you’re losing money in the decline
in value of a property. So if you’re investing in property that’s
positive cashflow, if the property is declining in value, you’re still generating that cashflow
and you’re still making money. Now when markets do go backwards, rent does
go backwards as well. So that’s definitely something to consider. I have recently moved to Sydney. I’m in the Sutherland Shire in Cronulla. Uh, you can see at the moment, right near
the beach and then my mom’s place. It’s really good spot filming today, but in
Granola rents are currently going backwards. So I’m looking at rentals at the moment and
a lot of rentals on the market are listing for a certain price and then a couple of weeks
later the dropping by $20 or something like that. And so rents do go backwards when the market
goes backwards. But this is the interesting thing and this
is something that I learned from Steve Keen when I invested, not when I invested, when
I interviewed him and talked about the potential Australian property bubble a couple of years
ago, I asked him about when markets crash due, rents go backwards as significantly as
prices. And he suggested that no rent don’t go backwards
as much as price falls in an area. And this is because rents are directly tied
to how much money people earn, whereas purchasing a property is tied to how much money people
learn. But it’s also tied to how much money they
can borrow and what the interest rates are at the moment. So when someone’s renting a property like
myself, I’m looking to rent a new place at the moment I look at my income and how much
I’m earning. And then now we at, okay, how much can I afford
to pay in rent? That’s generally around the 30% of someone’s
income level is what they’ll pay in rent. But when it comes to purchasing a property,
people do the same sort of figure out what can I afford to buy. But they also look at, given current interest
rates, how much can they afford to borrow? So when interest rates are really low, like
at the moment, they can borrow a significant amount of money in order to purchase a property
and that can drive prices up. And then when lending gets harder or interest
rates go up, then people can’t afford it as much. So it drives prices down. So property prices can be tied to lending
as well, whereas rent them more directly tied to what people earn. So unless you have a major recession where
people are earning a lot less money than rents tend to be more stable than prices, or at
least that’s what I gathered from what Steve Keene was telling me. So even when a market’s declining, you rent
may go backwards, but you’re still likely going to be in a positive cashflow position
and you can still make money. Also, when it comes to investing in positive
cashflow properties, you have a, uh, hate using the word guaranteed. I need another word to explain it. You have an almost certain future ahead of
you where that property will be paid off. So if you’re negatively geared, you need to
continue working in order to pay that property off over the next 25 years. And it’s going to take many, many years before
that property to become positive cashflow. Unless you’ve invented with invested with
a good rental yield and you’re nearly there or you pay a lot of that money off yourself. But with positive cashflow property when you
purchased that property and it’s positive cashflow, it will go on to pay itself off. And so even in a declining market, if you
can stay in that positive cashflow position and you can continue to pay off the principle
of your property, maybe over a 25 year period through the rental income that’s coming in
as you own that property, over time, that property is going to go ahead and pay itself
off. So even if markets declined a bit before they
bounce back, or even if you, let’s say you purchase a property and it never grows in
value fr like ever. Okay, we’re talking no inflation, we’re talking
no growth in value at all, but what you rent it for today, you stay at and what you purchase
it for, it stays at that value so you can never really sell it to access capital growth. What happens if you’re in that bad situation? We’ll have your positive cashflow and you’re
paying off the principal of the property with the actual rental income that you’d have. Eventually over the term of that loan, the
property will get completely paid off and when the property is completely paid off,
what can you do with the extra cashflow that used to go towards the mortgage? Well now that extra cash flow can go into
your pocket and so you can still feasibly actually achieve financial freedom through
investing in positive cashflow properties even if those properties don’t grow. Now I want to say again, you want to invest
in properties that grow. You want to get the capital growth that’s
going to lower your loan to value ratio, which is going to lower your risk significantly,
give you more exit plans, more exit strategies that you can implement. Growth in an area also tends to lead to growth
in rent as well, which is going to improve your cashflow and allow you to pay off that
property faster. So you want to invest in areas that are going
to grow. This is why it’s so important to do your market
research like me and Ben always talk about and we’ve been talking about for years. You want to look at the Herron, Todd white
month in review report, and if this is the first time you’ve heard of it, Google HTW
month in review report and have a look at that and shows where the major markets are
likely at in their property cycle. Are they at the peak, are they declining,
are they at the bottom of the cycle and likely to be rising in the future. You want to identify markets that are likely
to grow. And then once you’ve done that, you want to
do your summer research and identify the most promising suburbs within that market that
are again likely to outperform surrounding areas. If you need help doing suburb research, go
to on-property dot com.au or you forge that suburb. And I do have a course over there on an advanced
suburb research where you can start to understand which of these suburbs are most likely to
grow. So go ahead and check that out. That’s a paid course if you’re interested. So you want to do your market research, you
want to do your suburb research, then you want to purchase a property that has the ability
to manufacture growth to create growth through something like a renovation or maybe development
or you can create growth and cashflow through building a granny flat. Now building a granny flat at this point in
time doesn’t seem to add equity to a property, especially when we’re talking about bank valuations
versus sales because banks don’t seem to know exactly how to value these properties. So building granny flats, there’s not really
an equity play that’s more a cashflow play, but you want to invest in properties that
are great for the suburb that also had the potential to manufacture growth. So you still want to be looking for that growth. You still want to be trying to get that growth,
but I think it’s important given the current market situation to also have a strategy that
can work if the market goes backwards. Because none of us have a crystal ball. We can only take control of what we can take
control of. We can do our market research, we can do our
suburb research, do our property research. We can invest in the best property, in the
best suburb of the best market. We can do that, we can do that, but there’s
no guarantees that that market is going to grow. There’s no guarantees in anything because
we don’t have a crystal ball. I wish we did. I wish we knew. But the goal is here is to take control, to
do everything within your power, to invest in a market that’s going to grow, but to also
be prepared and invest using a strategy that if the market doesn’t grow or if the market
does slip backwards for a little bit, that you can still continue to make money and you
can continue to stay afloat. And what I love about this strategy as well
is that not only can it work in a market that goes backwards for a time, it’s probably not
going to work in a market where the property is just continued to go backwards forever
and ever and vacancy rates go up and you can’t rent the property, then it’s not going to
work. Okay. It’s not going to work in every single situation. That’s not what I’m saying. Talking about markets that may slip back for
a bit before they grow, but something that I love about this strategy as well is that
it can work even if your life starts to fall apart. Even if you lose your job or your income suffers
or you have health issues or things like that. If you’re positive cashflow, then this property
is paying for itself and I’ve done a whole video on this about how positive cashflow
is underrated and talking about how you have life risks that when you invest in negative
geared property, you’re adding extra risks to your investment portfolio because you need
to be earning a stable income to keep that portfolio of float and that’s an extra risk
because if you lose that stable income, then you lose the portfolio. Whereas investing with positive cashflow property
that’s holding itself up, that’s paying for itself, it is now independent of your life
and independent of the stability of your income. It can pay for itself. It doesn’t need you and even in the fact that
you do lose your income, it can actually come in to save the day, which my passive income
assets, which are online businesses came in to save the day for me. So I’ll link up to that video in the description
down below if you want to learn more about that. But I love that this strategy, investing in
positive cash flow properties can work even in a market that declines for a bit and it
can work regardless of your life circumstances and regardless of the income that you’re generating
in your life because it doesn’t need you in order to pay for itself and to stay afloat. I also love that even if markets don’t grow,
and remember we’re doing everything we can to an invest in a market that will grow, but
even if it doesn’t, even if it just stays stable and ticks along, eventually it’s going
to pay itself off. And that income that was going towards the
mortgage can now go in our pocket once it’s completely paid off. So I hope this gets your brain ticking, gets
you thinking about positive cashflow property. Again, given the current market, I do lean
more heavily towards metro markets at the moment, which is why I’m so excited about
the two properties to financial freedom strategy versus looking at regional markets and country
towns and small areas like I probably did in the past, so I love the stability of the
metro markets. I love investing in those areas now and talking
about that and that’s why buying a property that you can manufacture cashflow by building
a granny flat on it I feel is a very worthy strategy of consideration at this point in
time. If this resonates with you, if you want to
start exploring that two properties to financial freedom strategy, then there’s two things
that you can do. Firstly, if you want one on one help, if you
need that help, your probably ready to buy in the next maybe three to six months, but
you need someone to help you find the right property in that metro market that can generate
the cash flow. Then go to on property.com dot Aau and book
your Free Strategy Session over there with the team over at pumped on property so you
can talk to them about your situation, where you’re at with your financial goals are and
they can help you know what the next steps are. You can then go and take those next steps
yourself or if you feel like it’s a good fit and you want to hire them to help you find
and acquire those properties, then obviously you can go ahead and do that if you let them
know you came from on property. I do get a referral fee for that as well,
so I do like to let everyone know about that, but yeah, so we’ve got to on property.com.you
book a free strategy session. If you want that one on one help, if you just
want to learn more and think about doing it yourself, then check out the two properties
to financial freedom video that I did with Ben Everingham. So I will link that up down below or on the
side here on Youtube. Or you can just go to youtube and search two
properties to financial freedom. If you want to learn more, that goes for about
an hour and explains the concept in more details. So go ahead. Either book a Free Strategy Session on property.com.eu
or go and watch the video on two properties to financial freedom. I wish you the absolute best in this market. I hope you can take steps to move yourself
towards financial freedom and until next time, stay positive.

4 thoughts on “This Simple Investment Strategy Can Work Even In A Decling Market

  • Your taking a punt on interest rates. Also if prices fall significantly and owning becomes cheaper than renting, there are of renters waiting to buy therefore reducing demand.

  • No strategy works in a declining market, many many households in Ireland are still in negative equity even after 10 years of paying the mortgage. Don't catch a falling knife

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