Why "passive" property investment just won't cut it in the new world order

Post by John Bolton - Squirrel Founder

Everyone loves a “get rich quick” story – and the last 20 years or so have been littered with them.

Being in a falling interest rate environment meant you could throw money into just about anything (property, shares…you name it), sit back and reap the returns. A lot of people have gotten very rich by virtue of nothing more than being in the right place at the right time.

In a recent article, I talked about how the next few decades are going to look very different – as various economic, regulatory and environmental forces usher us into an extended period of low growth.

It’s pretty depressing stuff.

But while the “get rich quick” days are behind us, there will always be genuine ways to make money in property – and now’s the time to be evaluating your investment approach, to make sure it’s going to perform over the next 10-20 years.

How will different property investment strategies stack up in this environment?

You can think of them as sitting across a spectrum, a bit like KiwiSaver…

1. The “passive” or conservative approach.

The passive route for property investors would be sticking with that “well, I’ll buy anything, and just wait until it doubles in value” approach we’ve seen so much of over the last 20 years.

It’s relatively low risk (property will always perform over time) but as they say, hope is not a strategy – and moving forward, it’s going to deliver really slow, boring returns.

2. The “balanced” approach.

This middle-ground might be where you’re still buying passively, but you’re seeking expert advice to help eliminate the real lemons and buy in areas with growth potential. Being more intentional about where you’re buying means you’re improving the odds of getting better outcomes, but you’re also totally reliant on the quality of advice you’re getting.

It’s not a strategy that’s without risk. The property industry is full of people who have a vested interest in you buying (yep, even mortgage brokers), and it’s important to remember that inherent bias when taking any advice.

3. The “growth” or active approach.

If you want to do well, your best chance will be by taking a much more active and engaged stance, and not being afraid to take risks.

This means having a really intentional approach as to where and what you’re investing in – and actively seeking opportunities to transform those properties and create more value, rather than leaving it to chance.

In its purest form we’re talking about property development, whether that’s subdividing or develop-and-hold, or whatever. It’s higher risk, obviously – there’s more opportunity for things to go wrong, and the path to success likely won’t be linear – but it’s going to give you the best chance of achieving superior returns.   

Just as importantly, being active is about being really engaged in learning and seeking out new information and opinions, not just to inform your own strategy, but to help you see opportunity where others can’t.

Success over the next 10 to 20 years is going to be heavily reliant on finding ways to do things better, smarter and differently to create more value.

Moving forward, you can’t afford to be tied to one perspective.  

As a final note, I’d just like to caution again that it’s tough to find truly impartial advice and opinions among those who get paid when people buy houses. That’s not to speak ill of the property industry, it’s just a fact.

The best thing you can do is to read broadly and seek out different versions of the truth, in order to expand your knowledge. Let yourself be influenced by a variety of opinions, and don’t get trapped in one line of thinking. 

That will be key to success.

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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