Why Past Performance Equals Future Performance in Property Investing

It’s highly likely that while watching an ad on TV for a financial product or service, you have heard the phrase, “past performance does not equal future performance.” However, when it comes to property investing, we believe the opposite is true. At Providence, past performance can be a reliable indicator of future success.

In this blog, we'll explore why historical growth is crucial for real estate investors, how demand and desirability drive this performance, and why understanding market trends and risk assessment can make a significant difference in your investment strategy.

Historical Growth

A property that has shown consistent growth over the years is likely to continue performing well. This historical growth data helps investors identify high-performing areas and properties that have already demonstrated strong demand. This provides a better understanding of where to focus your efforts and capital.

Demand and Desirability

What drives consistent growth in real estate? The primary factors influencing a property's performance are demand and desirability.

Demand is closely tied to the availability of local amenities. Consider the proximity of a property to schools, parks, beaches, golf courses, shops, employment hubs, or transport routes. These amenities remain constant and are key elements that make a location desirable. People also tend to pay a premium for properties located near these conveniences.

Additionally, individuals with higher incomes are more likely to purchase property in suburbs with desirable amenities. As more affluent residents move in, both rental prices and property values rise. As the suburb becomes wealthier, it attracts better shops and services, increasing its desirability. The more a suburb grows in affluence, the more people are willing to invest in real estate there.

Market Trends

One of the key benefits of examining past performance in real estate is the ability to identify market trends. Real estate markets follow cyclical patterns, with periods of growth, stability, and sometimes decline. Understanding these property cycles can help you make informed decisions about when to buy or sell.

Risk Assessment

A property or suburb with stable or increasing value over time is generally considered lower risk. These properties are more likely to continue performing well, even during economic downturns.

On the other hand, suburbs with volatile or declining values present a higher level of risk. These markets may be subject to fluctuating demand, changes in the local economy, or shifts in the desirability of the area. By analysing historical data, you can assess whether the potential rewards outweigh the risks.

Conclusion

By learning from the past, you’re better equipped to make strategic decisions that can help you build long-term wealth through real estate.

So, while the saying may apply in some markets, in real estate, we believe that past performance can indeed indicate future success.