In today’s bonus snippet, Bryce and Ben revisit a classic topic: investment stock vs. investment grade.  

This is in response to a question from a listener asking if the insights from Episode 8 (recorded all the way back in April 2015!), still hold up in today’s market. Spoiler alert: they do! 🎙️ 

Bryce and Ben break down the evergreen principles behind these concepts, emphasizing that while the market may evolve, the fundamentals of property investment remain timeless. 

Tune in to learn why investment stock, despite its name, isn’t always the best choice for investors and how investment grade properties continue to outperform over the long term. 

Don’t miss this deep dive into one of the core concepts that have shaped The Property Couch’s approach to successful investing

Listen to the full episode here: Episode 339 | “Man, Can Politicians Spend Money!!” – ft Property Q&A 

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If You Enjoyed TPC Gold | Investment Stock vs. Investment Grade: Which Should You Choose, You Might Also Like:

• Ep 8 | Investment Stock vs. Investment Grade 
• Ep 123 | What is Owner-Occupier Appeal and How to Use It When Buying Your Next Investment? 
• Ep 503 | How to Get the Right Property Investment Advice – Chat with Joel Burton 

 

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Transcript

Bryce Holdaway
This question is coming from The Property Couch’s Facebook Messenger. It’s from Al Knight Lewis and the topic is investment stock and investment grade. Question: Is it still relevant?

“Good afternoon. I’ve just started listening to your podcast and I’m finding them so interesting. Episode 8 talks about investment stock versus investment grade. And I’m wondering if the info in this episode is still current and relevant six years later. I’m looking for our first investment in Brisbane.”

So just to build up some context Ben, back in April of 2015, you and I recorded the investment grade versus investment stock, which is part of the vernacular now. I reckon it’s really embedded in the industry. There’s a lot of our peers who we’re very grateful and thankful that they listen to our podcast and incorporate (it) into their dialogues that they’re having with their own clients within their own businesses. But investment stock versus investment grade wasn’t that well known back then in 2015, so we spent a bit of time differentiating between the two.

And so the good news is that, well, I cannot remember what we said, I’ll be totally honest Ben, but what I do know is the principles that we talk about at a framework level are always (let’s throw a number) 98.3% evergreen, Ben. They are evergreen principles because we rarely talk about topics that are fads or Johnny on the Spot or not timeless principles. So the idea of there being investment grade and there being investment stock is still as relevant today as it ever was and will still be relevant going into the future.

So the good news that we can give Al Knight Lewis, and for everyone who’s listening, who might be in a similar journey where they’ve just started with us: Yes, the timeless evergreen principles that we talked about back in April 2015 still do exist. So like I said, I can’t remember what we said then, but I do feel 100% confident that the actual framework that we talked about is well and truly relevant today. So I just want to qualify that. I’m not dismissing that; I hope I’ve said the right thing. I just can’t remember word for word what we said, but I do know that the framework is absolutely still relevant.

Ben Kingsley
Yep, supply is the enemy of capital growth. Investment grade versus investment stock moves on the principle that investment stock is built on mass volumes of that homogenous stock, so there’s no point of difference. There’s no relevance to it. And our argument around investment grade is that combination of land, well-located land, because at the end of the day, it’s the land that appreciates but you can also get some improvements on that land that have high desirability, high emotional content. And that rings true anywhere.

Now, what we are seeing with low interest rates is that it means that the rising tide is again, lifting all ships. So the argument’s going to be is who gets the long-term income growth? And that will revert back to even some of those more important areas that I believe will still continue to outperform based on the desirability and the demand for those areas, as opposed to the investment stock. So it’s been proven; there’s some data that’s floating around now around what performs better. Old houses perform better than any other compounding return over a long period of analysis, and the most underperforming asset has been medium and high-density apartment stock. So it’s true to form and we think that will continue.

Bryce Holdaway
Two things: there’s a paradoxical thing, a paradoxical concept of investment stock is not good for investors. So let that land. It’s paradoxical. Hang on a second, you just said investment stock is not good for investors. That’s right, because as an experienced investor you want to chase stock that owner-occupiers like. We have documented that multiple times on this podcast. So circle back to that if you need to. So that’s number one.

And number two: where it has a slight difference is in the inner Sydney market, because a bit of that medium density stock has actually performed quite well for a lot of people. I’ve had a lot of Sydney folks go, hang on a second. Well, that city is probably the only city that actually has a little bit of a higher performance on some of that because it’s got such a huge population. The geography in Sydney is barriered by a national park south. They’ve got a mountain range to the side. They’ve got ocean and then they’ve got all these waterways. It just makes it so geographically tough so therefore it’s such a high density city.

But I still wouldn’t be loose in Sydney. I’d still go back to the fundamentals of making sure that if you are going to buy, (buy) in a proven performing block, not the massive high rises that are under enormous stress, both from a PR perspective, from an engineering perspective, from a body corporate perspective. So medium density stock works a bit better in that city. But I still would ignore the fundamentals that we talked about at your peril in that city.

Ben Kingsley
Yeah, in Sydney’s case, you get these mega designed density areas: Paramatta, the CBD, Willow Creek…where there’s just literally thousands that are going to be built over a period of time and they’re all relatively homogenous, (and) they underperform. So I think the context there that Bryce is saying is those 20 to 30 older blocks and the density there, they’ve actually delivered capital growth and our clients are also pretty happy about the ones that we bought for them during the times that we bought them there.

Bryce Holdaway
So I’m also talking about medium. I’m not talking about high density, I’m talking about medium density where you’ve just got slightly bigger apartment blocks that do have some of the facilities actually done okay, because Sydney has been through a boom since we went through that episode. And then obviously we’ve had this post-COVID.

So that could be a little confusing for some of the Sydney folk, but I’d still dive super deep in the principles that we talked about. So that if you are going to buy medium density, low to medium density in that city. Notice I didn’t say medium to high density, low to medium density in that city that you’re still leaning in on the fundamentals. Did that help Al? Let us know: go back to us on socials, send us an email, let us know, we’d love to know if that was helpful. And it’s obviously a good one to revisit for our community.