The Hold Phase survival guide to property investing
You’ve probably heard the phrase that property investment is a long-term game, right? It’s not rocket science. Buy the right property in the right location, add value to it and then well, buckle up for the Hold Phase.
The Hold Phase, meaning the longer you hold on to a property, the more it will grow in value.
A fundamental part of the economics of real estate is holding property for a long time but statistics show us that many property investors sell after just six years, significantly reducing their opportunity to create long-lasting wealth from property.
Let’s look at some reasons why people shorten their Hold Phase.
- Changes in loan structure – Most people who buy real estate start with an interest-only loan. However, if they haven’t bought a property where the value has increased, and rent rates have risen each year, when the interest-only term finishes, they find themselves having to pay more out of their own pocket to sustain the property. Suddenly they are spending more on the property than they’re earning – so they sell and lose their wealth.
- Investing can be tough – As humans we are designed to stop doing something that hurts us – and property investment can hurt a bit. Sometimes it can hurt a lot. Bad tenants, missing rent, property maintenance, borrowing money, refinancing, endless conversations around money and sleepless nights. Any of these may lead someone to decide the property market isn’t for them, so they get out early and never make it to the point where they’re reaping the rewards from the Hold Phase.
- Impatience – We are living in a time where things happen quickly. Need an answer to a question? Simply ask Google or Suri. Want a meal cooked by someone else? No problem! It’ll be at your door in 30 minutes. Loving that new show on Netflix? The whole season dropped last night. Putting it simply, we are no longer designed to wait for anything and we’re impatient. The thought of waiting 15 or more years to accumulate significant wealth may not sounds appealing to an investor who wants their cash now. But that’s the property market – it’s a marathon, not a sprint, and you need to be in it for the long game, to win the medal.
So how can we make holding on to property for longer periods less stressful as investors?
A key part of the Hold phase, and getting through it with less bumps and bruises, is your tenants.
Your wealth is inextricably linked to your tenants and the demographic in which they sit. While there are currently 2.1 million tenants in Australia – a statistic that should be good news for property investors – research shows that one third of those people are vulnerable due to low income.
This sad fact of inequality directly impacts you as a property investor because you rely on being able to increase rents to sustain cash flow and success. If your tenants’ income grows, you are able to increase rents and maintain occupancy. Higher rents equate to better cash flow and income growth.
But how do we know where the right tenants are? Thanks to a demographics study by Roy Morgan we can now identify the ideal persona of tenants that can help make your property investment journey, and the Holding Phase, easier and more successful.
Your ideal tenant is:
Leading Lifestylers – You’ll find these folk in the most liveable suburbs next to the beach or bush walks, or in the cool urban pocket close to the action of the city. They’re all about living their best life and are happy to pay more in rent to get the lifestyle they crave.
Metro Techs – This group earn big so are happy to pay big rents. Highly skilled and on the cutting edge of all things tech, they’re cool and live life to the max. They’re great tenants because they have good knowledge and are going places.
Aspirational – While they may not be the biggest earners (yet!) these people are still on a good income and are happy to pay higher rents because they want to be seen to be on the road to success. Serious up and comers, Aspirationals want to be close to the action.
Hearth and Home – These are the people with perfect lawns, who spend most weekends in Bunnings and the other half making their home a joy to behold. They love their houses and want that to show. Responsible, hard-working and diligent, they make great tenants.
Need help getting through The Hold Phase?
Join our free property investing seminar.
Here you’ll learn exactly what it takes to go the distance as an investor, as well as, what to look for in the right tenant, the best places to buy and what you need to know before you sign yourself up to a career in real estate investing.
Spaces are limited. Book here.
Co Founder Positive Real Estate