One of the best pieces of advice when investing in property is to maximise your strengths and focus on markets which you are familiar with. While there is no doubt this is sound advice, markets and trends change extremely quickly and sometimes it may be lucrative to look outside of your property market comfort zone. How should you attempt to expand your experience? What can you do to give yourself the best chance of success?
The basics
The basics of property investment are the same whether you are buying property in Europe, the Ukraine or Australia. Focus on growth markets, buy good value or undervalued properties, increase their value, improve rental income and then eventually sell. This all sounds very easy when you see it down on paper but if it was that easy then everybody would be doing it.
While we are debating whether you should venture outside of your comfort zone that does not mean you should stop researching property markets in which you have experience. We only need to look at the situation today with interest rates at historic lows, minimal savings rates and more people now look to the property market to maximise their returns. Who would have guessed worldwide base rates would be as close to 0% as they are today? Who would have expected inflation to effectively eat away at the value of your capital because of minimal interest rates?
Follow the latest trends
The property market we see today is very different to that from a decade ago and almost unrecognisable to that of 50 years ago. We only need to look back over this period to see the massive changing trends and the ever-growing appetite for property assets. So, while you may have your strengths in particular markets there is no harm in researching areas outside of your comfort zone.
Maybe you have been investing with capital growth in mind? Is it now time to look at rental income as a means of improving your cash flow? Perhaps you have always focused on your national market? Should you consider introducing overseas property investments to your mix?
Slowly expand your knowledge and wealth
The introduction of the Internet has changed the way in which we are able to research properties, new trends and keep track of particular property markets. Another useful element of the Internet age is the ability to look back in time and see how markets reacted to specific events and situations. If you take into account current market trends and forecasts for the future it is possible to backtrack to similar situations and see how property prices and markets reacted then. However, no two situations are ever the same but as you compare and contrast historic and current day events it will give you a greater understanding of the markets.
It would be foolish to immediately invest your funds in markets which are in many cases alien to you – with your time better spent researching these markets in depth. Too many people make the mistake of jumping in too soon before they fully understand the markets, only to learn by their mistakes. There is nothing wrong in learning by your mistakes but researching new markets and new opportunities should be your focus before you even consider investing.
Diversification is vital
Those who have watched property markets for some time will realise there are cyclical trends when certain types of property are more in vogue than others. This is where diversification can help to reduce the impact of movements in one particular area of the market. Placing all of your “eggs in one basket” is never a good idea because you just never know what is round the corner. We only need to look at the 2008/9 worldwide recession with many property investors wiped out. This despite the fact that in theory they had the right properties in the right markets but events out of their control in the wider market led to a collapse in property prices.