Investing is a game of ‘adapt or die’. We’ve seen recessions, financial crises, and major blips before. And we’ve seen property investors adapt to the new environment – and survive. Here’s what these investors are doing after COVID-19.
12 years ago, investors faced a calamity unlike most had ever witnessed. The Global Financial Crisis came to town, slapped around the stock exchange, and rode away with millions in investor funds. Profits, hard-earned over years and even decades… Gone overnight.
It was all doom and gloom. Until investors adapted.
Investors refreshed their views on how to invest. They chose security and stability as their investment strategy. And ten years after GFC, investors were putting 10 times more dollars into bonds – the safest investment you can make – than stocks: $US155.8 billion ($238 billion) versus $US14.8 billion ($22.6 billion).
The coronavirus is the latest blip on investors’ radar. And make no mistake, commercial property investment has changed because of the coronavirus pandemic.
And just like GFC, investors need to adapt.
Anyone investing like they did at the start of 2020 might fall flat on their back in 2021. It’s time to be careful. Here is part one on how you as a property investor can stay on your feet after COVID-19.
1. Focus on what’s in your control
Survive uncertainty by looking at what property fundamentals are at your discretion.
You can control your gearing. So, maybe it’s time to regain some equity.
You also can control which asset you choose to acquire next, and its location. It would be crucial then to chat with your networks about how the market is fairing now.
And you of course can control the end tenancy. Consider then that an ideal tenant pre-COVID might not be so crash hot today.
Before you panic or chase the next investment, ask yourself, “Which parts of your current or next investment can I control?” Then focus on them to see how you can strengthen your position.
2. Refresh your assumptions on property investment
An ASX-listed tenant is not necessarily a secure tenant.
I’ll say it again.
An ASX-listed tenant – even with a long history of solid performance – is not necessarily a secure tenant.
I’m not nuts. I’m merely aware that big players can falter when big disruptions shake the market.
Virgin Australia is a prime example. The fallen airline giant has produced a bidding war after COVID-19 knocked the airline from its feet. Perth Airport even seized Virgin planes as collateral for unpaid debts.
So, if publicly listed companies don’t guarantee safety, which do?
In comes, essential services.
A tenant providing essential services to its community, state or country, is a tenant that will most likely survive and even bolster during economic uncertainty.
Ask whether there is a need for whichever retailer, industrial property occupant or white-collar tenant you’re considering as your next occupant. Are they a logistical company? Are they a grocer? Are they linked to mining? Are they a government entity?
These tenants, providing essential services, could be better at delivering you income security than even the biggest ASX-listed occupant.
Diversification will always be a smart investment strategy.
For property investors to diversify their portfolio in a post-coronavirus world, this might mean spreading risk between different locations, different industries and different tenant types.
For us at Properties & Pathways, we’re bolting different assets together in the same trust. That way, when our investors are placing their money with us, they’re getting an imbued diversification in that one investment.
We admit that’s really important, not only for our investors, but for us as investors alongside them.
For more information on investing with Properties & Pathways in a commercial property syndicate, get in touch with us today. We invest alongside our investors in every investment. Our 88 per cent reinvestment rate proves it.