Active Development vs. Passive Investment - Is it worth it?
When it comes to your investment strategy, what side of the fence do you sit on?
Do you consider yourself a property investor?
What has been your strategy up until now?
Has it brought you all of the riches and rewards you expected?
And how has that portfolio been travelling over the last 5 years?
If you’re reading this, you’re probably a Western Australian who considered themselves a fairly successful investor up until 3 years ago when it all started to slow down and the stimulus tap was closed shut.
These days, however, it seems property investment, at least as a passive hold strategy, isn’t the golden goose it used to be.
We’ve been sitting here in the west, stewing with jealousy as our cousin or old colleague who moved to Sydney in 2010 has been raking in the equity gains and building their portfolios on the back of the lowest interest rates in national history.
For the most part, just like us from 2005-2015, it has been a case of right place at the right time for those in the east, and the numbers are showing that their ship is starting to leak too.
So is that the end of the run for Sydneysiders, and is there any way for us in the west to recoup those book losses a little quicker than we hoped?
Sometimes we sit down at dinner parties and hear of friends and colleagues who are actually pretty bullish about their investments and are even pushing ahead quite aggressively as the rest are still recoiling from their ego hits.
There has to be something they know that the rest don’t.
And the answer is that they, like everyone else, were not immune to the losses felt since 2015. The difference, however, is that they have been offsetting those losses by continuing their investment goals through one core difference – their investment concept.
Unlike the buy-and-hold investor who is fairly beholden to market conditions from the day they sign on the dotted line, praying for another mining boom, the active investor buys with the intention to manufacture their own wealth through turning one into two, three, four, or even 10.
And whilst their investment level is usually quite a lot higher than the passive holder, their research and scoping studies are so much more robust that the risk-for-reward factor generally holds up.
The active investor isn’t stunted by ego or nostalgia, they don’t append value to the number of properties they hold at any one time. Rather, they focus on the profitability of the projects they are undertaking and the equity position they command.
And in an era where serviceability is now so hampered by the lessons of the exuberance of our east coast counterparts, selectively manufacturing wealth within your smaller portfolio and cycling that profit through project after project, is to some a much more empowering and de-risked strategy.
No longer will we see the everyday punter who found his way to 28 investment properties (by securing 98% loan after 98% loan).
And in an era where the super-cycle may not occur again in our lifetimes, no longer will a portfolio of 3-4 passive holds lead us to a retirement of riches.
So what are we talking here?
What is an active investor doing exactly?
The answer: an active investor is doing their part to assist in solving what is becoming a massive structural issue in Perth’s geo-economical foundations.
If this were a communist regime, it is likely that this capitalist opportunity wouldn’t exist.
The government would simply have the mandate and power to solve the problem itself.
But where there is chaos, there is opportunity.
And, in simple terms, the opportunity in 21st century Perth is to contribute to the next wave of settlement in our city – the urban infill expansion.
For decades, public need aligned with an ideology of geographical expansion. As a young city, it was only natural that we continued to push the frontier of development north, south, and east, providing new and equal opportunity for everyone to have their own patch of dirt unparalleled by most other cities around the world.
However, finally, it seems that we have reached a point of critical mass.
Finally, the cost of expansion is starting to exceed the distaste of sharing.
And with a public need has come a cultural shift.
Suddenly, we start to value amenity and walk score over backyard and frontage.
We prefer speedy access to facilities over peace and quiet.
And this is the opportunity.
Whilst the 20th century investor got rich on holding land on the frontiers of the city, waiting to be called by the Satterley’s and Peet’s of the world, the 21st century investor will win this game by controlling as much land as possible as close to the city as can be afforded.
Profit is a product of controlling assets society demand the most.
So my question to you, Perth, is where will you profit in this new era of Perth, WA?
Will you be a producer or a consumer?
An active developer or a passive holder?
Will you solve a problem or incentivise those who do?
I know which side of the equation I will be on.
Strategic Property Group is a full-service Mortgage Broking and Subdivision Consultancy based in Perth, Western Australia. If you'd like to learn more about property development and investing for your future, check out the rest of our site, or head over to our Contact page to get in touch.