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ยป How to make upward profit in a sideways market
Date published: 30/11/2011
How to make upward profit in a sideways market
There is much uncertainty around the world, politically and financially, with post-GFC economic fallout, corporate collapses and riots in the UK, Africa and the Middle East. My solution for all of this is quite simple: turn off the television and go for a walk outside.
There is enough economic uncertainty and violence in the local area: I don’t need to deal with woes that are millions of miles away and beyond my scope or ability to influence. I can, however, make a dramatic difference in my world if I focus my attention on issues closer to hand.
The local stockmarket seems to be trending sidewards, as does the local real estate market. Gone are the days of the 30% rapid rises and if you are waiting for the halcyon days to come back, don’t hold your breath, it may be more than five years before we see the market making such rapid and confident “double digit” jumps.
For the next few years the market may well trend sideways as it has done for the last few years (at time of writing the Australian stock market is now at the same level it was in mid-2005 and Brisbane house prices are at levels last seen in 2007).
If you cannot simply “buy & hold” for rapid gain, what can you do? Knowing that the TV is turned off and you are immune from distracting overseas or interstate images, you can safely invest some time going for a drive around your local area and discover some things that the real estate web sites cannot show you.
Is there a house in 1980’s orange brick in a street where all the other homes are rendered in white? A timber place that has not seen a fresh coat of paint since Bob Hawke was in power? Is there a house in a beautiful street with overgrown lawns, messy gardens and a few old tyres or beer cans loving arranged next to some dried flowers and a shopping trolley? The old adage used to be about buying “the worst house in the best street” and it is a cliché for a reason: it works well (if you work at it) and it has stood the test of time.
Use an iPhone app such as CBA Property Guide or RP Data to literally “point & click” at a house while you are out and about and it will tell you how many bedrooms, the last sale price and other handy information. You can even find out the names of the registered owners or just contact an ethical realtor and say “I’d like to make an offer on this property”. (Yes, an ethical realtor exists in your area; try Facebook for authentic testimonials, use www.ethicsinrealestate.com.au or http://www.realestatemonitors.com.au)
Another iPhone app called The Pocket Planner will tell you how much your mortgage repayments will be at different purchase prices and interest rates, and in addition to telling you how long it takes to pay off the loan, also tells you how much you need to have in superannuation and life insurance.
You may not be handy in all aspects of home renovation, but we are not suggesting that you gut the house and start over. Minor facelifts, a coat of paint, some landscaping or the replacement of a falling down fence can add thousands in perceived value. If you would like to do large and complex work, then enlist the help of an expert in that particular area; however, there may be many simple things which you can do yourself.
In a market which is trending sideways, there will always be some houses that sell for 10% below their true value and some that sell for 10% above their true value. You can identify an undervalued house, give it a facelift and then resell and you may stand to gain 20% or more, plus the cost of your facelift.
WARNING: beware of “overcapitalising”, it is easy to buy the worst house in the best street, but if you make it the best house in the street, it becomes harder to sell. A rough guide would be to invest 5% of the purchase price into your facelift and resell in the same price bracket or no more than 10% higher than the fair market value (remember you bought for 10% less than FMV). The aim is for fast cashflow in 3-12 months, not a 5 year “buy and hold”.
For more information, or to discuss your specific situation, please contact me directly.
Jeremy Britton
24HourWealthCoach
Jeremy Britton is an independent wealth coach and an expert on market cycles in property and shares. Jeremy’s book “Who’s Taking Your Money? (and how to get some of it back!)” is easy to understand and recommended reading for investors of all ages. Find him on Facebook or www.24HourWealthCoach.com.
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