opportunity cost
noun
the benefit that could have been gained from an alternative use of the same resource
Collins English Dictionary. Copyright © HarperCollins Publishers
Do you ever find yourself agonising over choices out of fear of making a mistake? You weigh up the pros and cons, you do a little (or a lot of) research, start asking opinions from friends and eventually you make a decision only to discover the choice you made is no longer available?
Annoying, isn’t it?
I listened to a good mate of mine earlier this week as he relayed that very scenario and his frustration over his inability to make a decision.
“I’ve wanted to buy something for years but I’m too busy to get my head around the market and I don’t want to buy something that turns out to be a crap investment.”
This guy works hard, no doubt. Plus, he can service a home or investment loan. But every time he took the initial steps to do some research, he felt like he was falling down the rabbit hole of conflicting advice and too many choices.
So, he did nothing.
The cost of doing nothing
Let’s think about the opportunity cost of doing nothing. My mate had just under $100,000 in capital which has been growing at a snail’s pace for the last few years. When he first considered investing, this would have been an adequate amount to secure a freestanding dwelling in the middle ring of Melbourne’s North or West without too much difficulty. By doing some research and getting into the market, a $500,000 property back then would, in most cases, now be worth $650-$750,000.
Getting a 25% – 30% return on property is not an unusual story and many investors who got into certain pockets have done very well out of the recent “boom”. Sure, we all wish we could predict the future so we could take the agonising decision making out of the equation but ask yourself this: what is that indecisiveness costing you?
My mate is a prime example of this. The $100,000 he had before, isn’t enough to get him back in now. The market has moved and now he needs to move with it. The areas he was interested in a few years ago – and even some of the neighbouring suburbs he dismissed – are now unaffordable. Naturally, he’s kicking himself and doesn’t know what to focus on next which is further paralysing him.
And so the cycle begins…
Be guided by facts, not noise
The reality is, we are living in an environment never seen before with the rate of population growth and considerable shifts in the way we live.
In 2016, 400 people per day made the move to settle in Victoria and over the next 20 years, the population of Victoria will grow by 2.54 million, reaching 8.87 million by 20371. That level of growth puts pressure on councils to increase density around infrastructure nodes, creating new urban hubs and activity centres, resulting in property values increasing well above market rate. Re-zoning of areas is part of that strategy which encourages development around ‘High street’ style shopping strips.
Case in point: This property in 33 Crimea Street, Paramatta sold for $219,000 in May 2011, and then fetched a staggering $2million in 2017 due to massive infrastructure investment in the region and a change in zoning.
According to RP and Census data, fewer than 10% of tax payers own investment properties2. This is a huge contrast to the hordes of people I speak to, both personally and professionally, who talk about getting in the market.
Look, I get it – it’s hard. It’s most often the biggest decision you make in life and the situation isn’t helped by the constant and generalised statements that “Sydney is busting,” and “Melbourne is oversupplied.”
There is always scope to be profitable with property regardless of headlines and how certain ‘hotspots’ are performing, or not in some cases. If nothing else, just be curios and open, learn about the changes happening and embrace the shifting landscape.
There are many market segments and therefore opportunities. Indecision leads to doing nothing and doing nothing leads to lost opportunities.
My advice is, don’t wed yourself to the opinions of others and think there is only one market, or a handful of suburbs that can give you a return. Don’t let fear of the unknown limit your ability to invest. Talk to a professional, find out what your options are and get started.
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