When it comes to investing, timing is everything, right? Or isn’t it?
Property Markets, like all investment markets, go up and down in cycles. The difference of buying in a slow market as opposed to buying in a hot market can seemingly make a huge difference in the performance of your investment. In this article I’ll share with you how timing your investment right can have a huge impact on your investment decision… or not?
Have you had thoughts similar to: “If only I had bought more property 10 years ago… ?” or “I am too late to enter the market. I have missed the boom.” I have many stories like this. As a matter of fact 20 years ago my wife was offered a prime property in Mooloolaba right across from a large Marina for $80,000 which would now be easily worth in excess of $1 Million. Should she have bought the property? The short answer is… it depends. See, there are two main factors that influence the timing of an investment.
- Timing the Market
- Timing your personal circumstances
Timing the Market
Let’s start with Timing the Market: Unless you are equipped with a serious level of data analytics skill or maybe a crystal ball to predict market dynamics, picking the bottom of a market is extremely difficult. There are some rare investors that are successful at analyzing the market correctly. John Edwards from Residex in one of them but he is a real estate expert and has a serious level of human and IT talent to help with this. You can buy his reports online. But unless you possess these rare skills, like in the sharemarket, picking a top or bottom is highly unlikely.
Rest assured though that if you choose your property investment on key fundamentals, which we’ll cover in our articles and videos, then the long line of market history is on your side. We recommend you invest with a long term mentality because then even if you buy at the market peak, the march of inflation is your insurance and will make sure your asset increases in value over time. Yes, you heard me right, buy the right property in an area with the right fundamentals and hold for the long term and your asset will go up in value. It’s that simple! So would the purchase of the Mooloolaba property been a wise decision? Well hindsight is an exact science and the capital increase suggests absolutely, but let’s keep going.
Timing your Personal Circumstances
To me, more important than timing the market, is timing your personal circumstances. Two questions to ask yourself to determine if your timing is right are:
- Do you have enough cash outright or deposit/equity to secure the loan required to buy property? Most banks are happy with a loan to value ratio (LVR) of 80% of the purchase price. But don’t forget you also have stamp duty, legals and borrowing costs.
- Do you have enough cash flow to make the loan repayments? Even though you will have income from rent, you must have enough buffer in your cash flow to allow for changes in interest rates, times of vacancy and for any unexpected repairs or renovations.
Timing your investment
So the Mooloolaba property by the Marina? Well 20 years ago the timing wasn’t right for my wife. See she is German and at the time she was travelling around Australia on a yacht. A property in Mooloolaba was as sensible as buying in Peking. And her financial situation at the time didn’t allow her to invest speculatively in a foreign country. Her decision not to buy was right, even if in hindsight she could have made a lot of money with the property. I also have many more ‘what if’ stories.
To help you get an idea about income and expenses we have created a free download today with an example income and expense budget of a typical average $400,000, 3 bedroom, 2 bathroom house. Just click the link below the article, enter your name, email and you should find the budget in your inbox straight away.
In conclusion, while the ideal time to buy a property is just after the growth cycle has commenced, as an already growing market will raise your value. Yet each cycle is different depending on the particular economic conditions present at the time. And within that different geographic areas can have very different property growth price outcomes.
For me the best time to buy property was yesterday and the second best is tomorrow, so if the investment fundamentals are right and my personal circumstances are in order, then I go and invest. I don’t concern myself overly with the timing of the market but make sure that the timing for my personal circumstances is spot on.
In our next article I will be looking at the WHERE of property investment. I look forward catching up with you soon.