I was doing an interview for a wealth magazine the other day and they asked me to describe what kind of investor I am.
I said, “I’m a big picture investor.”
“So, like art and stuff?” says the kid in a cheap suit.
“No mate. Back to TAFE with you…”
I’m a big picture investor. That means I try and get behind powerful trends emerging at the macro level.
Let me say it even simpler, I look at making money today and tomorrow…
Here is a quick example:
Smarty pants real estate investors say, “You make money when you buy.”
You’ve heard that right?
…and they think they are so, so smart when they say that. I think that is rubbish and really, really dumb. Because the money that I have made over a five and ten year period completely smashes the money that I may have made by buying well… Get it?
So, my way of thinking is why not make money today and tomorrow. That’s got to be a better way, don’t you think?
Here is why this is important.
Kill your competition and ride big profit cycles
Markets at all levels of the economy move in cycles. You have periods were things are going great, and times when it’s not so great. No market, or investment class, is immune to it.
But overlaying the cyclical swings are broader changes, sometimes structural shifts, in the way the world works. Place yourself in the slipstream of one of these super-trends, and it’s nothing but sunny days.
The market still has cycles, but instead of swinging between good and bad, you’re moving between awesome and super-awesome.
In fact, if you can predict these trends in advance, it’s hard not to make money!
This is why I’ve been backing the mining boom in recent years, once I saw how Asia, led by China, was creating a level shift in demand for Aussie resources.
People still think that the mining boom is over… It’s not!
But be warned, in the mining sector there are cycles. Get them wrong and you are stuffed.
Lots of investors were caught with their pants down, chasing the market when a sudden shift in rents saw their cash flow and values both drop dramatically.
…in some areas there was a crazy feeding frenzy and investor have lost $100,000 -$200,000 over night on the value of there investments… Ouch!
Now, I think I know a thing or two about the mining boom. I personally own, with 2 partners, a portfolio of 63 rentals in one particular area and growing it to over 150 in the next 12 months.
This is part of my “make money today” process. We will be out of these markets in a couple of years.
Now, I know that you’re curious to know what my strategy is and I’m happy to tell you, but the problem with it is that it’s very capital-intensive, risky and not easy to duplicate… So why bother?
However, here is one that is and I’m really excited about…
Let me give you a stat. And I’m really giving you something for nothing here, so I’m expecting at least some flowers in the mail or something…
Before the turn of the millennium, units and apartments in the capital cities accounted for 25 percent of all home sales.
Now, it’s 35 percent.
This graph here shows the long-run trend increase in the share of unit and apartment building approvals. Last year it was just under 45 percent!
The take-home message? The “density” of Australian housing is changing… fast.
This means more units, more apartments and more town-houses… and a changing game for property investors….
The changing density is being driven by two irreversible super-trends….
The first is generational preferences.
Over the past twenty years we’ve seen an entire generation turn their backs on the suburban dream of a quarter acre block, hills-hoist and a lawn the size of tennis court. Instead they’re drawn to the inner cities, to wine bars and all day breakfasts.
They’ve traded lawn-mowers for lattes.
Gen X and Gen Y want to be where the action is, even once they’ve started a family. Partly this is about lifestyle, but a lot of it is being driven by another super-trend:
The lengthening work week.
People are working longer hours, earn more money, and fill their time with extra-curricular activities. They are money rich and time poor.
And so they want to live as close as possible to their work, friends, yoga class, favourite café. They don’t care so much about the size of the house they live in, because they don’t actually spend much time there.
And they certainly don’t want to spend most of Saturday morning mowing lawns and trimming hedges.
And with fuel and electricity prices ratcheting up and up, it becomes expensive driving long distances to work, or heating massive homes.
And so this generation actually prefers to live in medium density housing, close to the areas they love. And soon, they’ll be joined by their baby-boomer parents…
Think about it. Once Grandpa gets too old or gets sick of pushing a lawnmower around, he’ll be looking for a low-maintenance, ‘lock and leave’ style residence…
… and a latte.
Watch out for that. The baby-boomers are a huge segment of the Aussie population. Once they start moving, they’ll have a huge impact on the market.
The other super-trend driving a move towards medium density housing is population.
By 2050, the Australian population is going to increase to 35 million. If the new blood is anything like us, 75 percent of them will want to live in a capital city, 90 percent of them will want to live on the coast.
This will put huge pressure on our urban centres. Higher-density housing is one of the few ways the government can deal with it.
According to Prof. Graham Currie at Monash Uni, we have the most car-dependent country in the world, with the lowest urban density. Our economy loses more man-hours to traffic jams than America, and it’s only getting worse.
New roads are clogged again before they’re finished. If we want world-class cities then we need world-class public transport, and we’re going to have to bring urban density quickly into line.
This will require a cultural shift, and radical realignment of government planning principles, but there isn’t another choice.
And if affordability continues to be an issue, which of course it will be, the government will need to get more active in bringing more affordable options to the market. Obviously it’s much easier to deliver an affordable apartment than it is a quarter-acre block.
And so we have two massive super-trends driving a move towards higher density housing. There are more and more people, and more and more of them want to (and in fact, must) live in the inner city.
This will radically reshape the property market in Australia. You can already see the start of it. In NSW for example, they’ve announced a major “Paddington-style” terrace development for Western Sydney, while in suburbs closer to the city, they’re pushing on with attempts to increase urban density.
And so, am I saying rush out and invest in any old or new apartment in a 20 storey building?
No. Lower rise, boutique, inner city apartment blocks, with anything from 8 to 22 residences will perform best – particularly those close to the hip and funky centres. They’re pure gold.
Look this will be the investment stock of the future. As I said earlier, in Sydney it’s already happening. When you want to buy an investment property in the inner city you don’t buy a house, you buy a flat or unit… Following me?
But the best strategy could be to get a block of land and get a permit for several town houses (let’s say four), sell two, keep two. Do this and you could end up with several million dollars of equity in a matter of years.
There are many ways to do it.
But stick with me. I’ll help you stay ahead of the curve and make sure you’re in prime position to ride the wave of these global super-trends.
This is what I’m about. I look, listen, research and then act with my own cash.
There are fortunes to be found when you look at the bigger picture… Don’t be a spectator.
Signed with success