Why Proactivity Provides Profits

By Mike Anderson

Through fifteen years in the property and financial services industries Silverhall Director, Mike Anderson, has learned that a proactively managed portfolio can deliver far superior results to the age old ‘buy and hold’. Whilst many people are fervent believers that property is only a long term investment, Silverhalls strategy strives for shorter term success based upon active research and monitoring.

The key outcome for most investors when buying property is capital growth. However, as the property market is cyclical in nature, a long term approach will dictate that we will be holding assets that are not growing for years at a time. The Sydney market, as an example, had strong growth from 2001 to 2003 yet the market did little for the subsequent six years. Six years of negative gearing with rising interest rates and no growth - if not negative growth! During this same period we saw other markets performing in a very different manner. Perth witnessed stunning growth from 2004 to 2006 and Darwin performed solidly from 2005 to 2009.

What is very evident when examining the history of property cycles is that any boom period is followed by a period of stagnation, and then another period of growth. The key therefore is to be in the markets during the upside and then trade out and into a countercyclical market that is about to grow. In theory it is easy but in practice it takes a great amount of research to identify the stage a market is going through and then overlay that with the other principle variables that impact the market such as demographics, government policy, and infrastructural change.

The following Chart illustrates the results of a proactively managed portfolio. It assumes a house is purchased in Sydney for $250,000 in 2001 before being sold in 2003. After accounting for agency

selling fees, legals and capital gains tax the residual is then invested in the Perth market (less stamp duty). This investment is held until sale in 2007 where the residual balance is invested into the Darwin market. When compared to holding the one property in Sydney over this same period the difference is well in excess of $300,000.

Whilst some people may have enough income and equity to buy and hold all three properties, they are the minority. For those that have the capacity to hold only one investment property the opportunity cost can be tremendous. Keep in mind that this example spans the best part of a decade.  That is a decade of growth you cannot get back if you were stuck holding a poor performing asset.

Silverhall uses a research strategy overlaying population growth and movement, government planning, infrastructural change but most importantly a focus on exit point. Having clients understand who is going to pay more for their investment in 3-5 years, and why, leads to better investment decisions being made.

Silverhall’s Property Selection Process

Silverhall does not pretend to have a crystal ball on EXIT, however, through sound due diligence and constant review they advise clients when the market is showing signs of peaking. It is much easier to get out of a market that is still moving up than one that has commenced a decline.

Mike Anderson is a major shareholder of Silverhall and will be presenting at the AIA National Investors Conference from 25-28 July at the Surfers Paradise Marriott Resort. He and his partner will also be presenting at the Gold Coast group on 17 February and to the Sydney North Group on 17 March. Refer to the EVENTS section of the AIA website for more details.