Falling house prices, especially in the capital cities, and with further falls likely, has left many investors wondering if it is a bad time to break into the property market. Savvy investors tend to shy away from buying near the peak of the market only to watch the market fluctuate and the values drop, then to stick around for years until it picks up again. However, the smart investor listens to Warren Buffet’s sage advice: “Be fearful when others are greedy and greedy when others are fearful”.
‘Timing the Market’ Could Be Misunderstood
The truth is, market timing isn’t all that important to the successful property investors, or investors of any kind, because they know how to build wealth whether the market is rising or falling. Some do well in a falling market and others in boom times. But of course, some property investors fail in the boom times and are even worse off in the bad times, so it seems market timing doesn’t affect them.
The Secret is in the Long Haul
There are many opinions surrounding investing in property and many people believe that timing is everything, and of course some who follow the advice do succeed. But others don’t, and the secret to remember when investing is that timing your purchases perfectly has very little bearing if you are in it for the long haul and can hold you properties long-term. Money is rarely made in property overnight and it takes perseverance to turn that mortgage into millions. While the property market does dip and dive, over the long term it actually improves. Over the past 20 years there have been five major downturns, but each time prices have regained value in a matter of a few years and continued an upward trajectory.
The Power of Time
So, time in the market is as important as timing the market. The power of time also allows you to benefit from compound interest, a cornerstone to wealth creation that also applies to property. Compound interest effectively earns you money through interest, then reinvesting that interest for further gains. In property, compounding can mean, for example, that a $400,000 property is worth $650,000 after a decade at five per cent per annum growth. While the rate of growth fluctuates, over a number of years it tends to even out to a fairly predictable figure for the particular area.
Buy Quality Property
If you’ve bought a quality property that grows at rates of return that will produce wealth over the long term, you will grow your asset base will grow larger and produce the cash flow you need to become financially free. So, whether it’s the right time or not, a successful investor will always seek out the best quality property they can find. Ultimately, making an informed decision on a worthwhile property – bust or boom – will serve you much better than a rushed decision ‘because it’s the right time’. An investment-grade property will always outperform a lesser building when it comes to capital growth. Waiting for the market to shift in your favour before purchasing may mean you lose out on a great property, so it isn’t always wise to wait, sometimes you need to be brave and jump in despite current sentiment, which brings us to our third point.
The Market is Unpredictable
While the basics of determining the market highs and lows can be determined fairly easily, such as population growth, interest rates and inflation, what is not quite as crystal clear is investor sentiment. All the factors could appear to be in place for a booming market, but for some unknown reason, people may not be buying at that time. It can differ from area to area, which is why it’s a great idea to get specific information on your location before making any decisions.
Investor sentiment is largely swayed by the media, the ‘crowd phenomenon’, or FOMO (the fear of missing out). For example, if the media reports on falling property prices or hikes in interest rates, people become more likely to sell, thus flooding the market with properties that consequently won’t sell for as much as they otherwise would have sold. Similarly, if an apparent housing boom becomes news, investors think this is a good time and want to jump on board. However, what that actually does is quickly drive the market to a peak, people become disheartened with the market, and the cycle continues. There is a whole lot of opinion and ‘experts’ in the property game, so equip yourself with hard evidence and clear facts in order to make the best decisions.
In conclusion, timing is a factor, there is no doubt about that, but it is not everything. The best way to move forward in your property investing journey is to gain as much knowledge as you can on your local market, investor sentiment and key population and demographic statistics from such companies as HtAG. Being armed with the right information will ensure you make the right choices and that you’ll enjoy successful wealth creation long into the future.
Higher than Average Growth helps their customers to make timely and accurate decisions about their property investments. The company ranks the investment potential of many different local government areas and suburbs across Australia by leveraging benefits of machine learning algorithms. To classify the investment value of a certain geographical area HtAG process huge volumes of property statistics. Their methods are underpinned by the advantages of big data and data science. Integrity and ethics are at the core of the company’s business values and aim to help investors to deal with market speculation and the wrong advice of spruikers. At HtAG the subjectivity of individual preferences as well as knowledge gaps of economists, buyer agents, and other investment property professionals are entirely removed and instead replaced by data-driven guidance.
Alex Morrison has worked with a range of businesses giving him an in depth understanding of many different industries including house cleaning, financial support and health care. As the owner of Integral Media, he is now utilising his knowledge and experience with his rapidly increasing client portfolio to help them achieve their business goals.