10/01/2019
"Many investors view the current market as an unforgettable opportunity: the ability to quickly place many properties in their portfolios with minimal risk. Adding properties at a profit and with a positive cash flow is extremely easy right now. "
One might forgive that this was a description of the Sydney real estate market in 2014, just when the big boom was happening, but it is actually the current market. This is the opinion expressed by Drew Evans, director of Caifu Property, who is fully aware of the fact that there are profit opportunities in all market conditions.
"We like the current market. The typical investor "buy, hope and pray" in retail is the only one who is concerned at the moment, "says Evans. "They are worried because they know that their wallet will be stuck in the next five years or more – it will not grow much, or even go back. But for investors who know how to create equity in a transaction, the next five years will be a fantastic opportunity. We are very excited about this because the profits generated by each transaction are improving. "
Investors who make the mistake of waiting for the market to turn around before construction will be much less exposed during the next wave. Establishing a portfolio with profitable properties will not only create equity today, even in stable or even declining market conditions, but will also generate substantial wealth when the market turns around.
"All investors understand the process of creating capital from market growth; In principle, acquiring a property and waiting does not require any particular skill or knowledge, "says Evans. "In recent years, you could throw a dart at a map of Sydney and it would have worked."
Calmness in the Face of Adversity
Evans thinks that many of the problems facing investors are due to a lack of back-up investment techniques. The typical retail approach has been so easy for so long that investors have not tried to develop a broader range of skills. The result is that in a declining market, many investors simply do not know what to do and are worried. Nevertheless, Evans remains confident.
"In 2018, we make money without losing it," he says. "We had expected 14.96% average return on our clients' properties this year, but we were down 12.49% and we actually have an average of 27.45% for our clients."
Given that this figure is almost double what was initially forecast, this represents a capital gain of $ 227,222 per property for Caifu's clients.
Evans concedes that the Caifu team uses very cautious estimates when concluding contracts for customers because it wants to plan the worst while hoping for the best. This means that returns are consistently much higher than their minimum benchmark of 10% return.
"Obviously, none of our clients are calling our office and complaining that we are doing this kind of" wrong calculation "with their money," he says.
Nevertheless, Evans has strong ideas about the excessive caution of investors who might miss out on opportunities. For example, building a duplex allows you to add your own value and control the process of creating shares – contrary to the expectation of market fluctuation, which involves factors beyond the control of anybody. investor.
"If you had warned someone from a disadvantaged suburb where market growth would be 27% next year, he would ask you for information," Evans says. "But if they want to create their own equity by building a duplex that's worth 27% more than they paid, they're scared. And that makes no sense because, whatever the method chosen, it is always a 27% increase in shares, worth hundreds of thousands of dollars in share gains. "
To give a broader perspective on the issue, Evans notes that the market has not grown at this rate, even during the best years of the Sydney boom.
"This opportunity to add properties to your portfolio so easily does not exist in the most fashionable markets – it's only now that it's easy," he says. "
That's why we see this as the opportunity of our life to build an extraordinary portfolio. "
What about falling housing prices?
Evans is also of the opinion that creating your own capital in a declining market can be a shield against price declines.
"Have house prices already fallen by 20%? They did not even do half of that in the GFC, "he says. "But even if we had record drops and fell by 20%, our customers would still be up 7%. There is no doubt in my mind that this is the safest way to invest because you have an integrated equity buffer in your property. "If you use prudent bank assessments to do due diligence, funding is not only available. but the margin of safety you have is huge. That's why we almost doubled our expected results, even in a declining market. "
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