The Ups And Downs Of Property Investing
The thing that we can guarantee about property is that there is a cycle that property values move through. It definitely isn’t a linear progression.
We all love times of boom! This is when property prices are increasing at a great rate, they’re often selling for over the asking price or reserve and there are more buyers than sellers. Time on market is low, economic conditions are good, lenders are lending, there are great quality properties on the market, developers are building like crazy and the media is taking intense interest and talking up record prices and boom times.
On the low side of a boom there is an affordability crisis, housing oversupply and low rental yields. This leads into the slow down phase which is often called the “price correction” phase. It’s like when the market stops to take a breather, reassesses where it’s at and relaxes into a new state of normal.
Interest rates often rise and the economy becomes a little less stable and market confidence waivers.
Following the slow down comes the slump. None of us like a slump. Property prices fall, rental vacancies climb, there are more people selling than buying. Confidence is low and the media is often at frenzy rate talking up the gloom. Buyers are in the drivers seat.
Recovery comes next. Rental vacancies decrease and yield rises, housing levels tighten and prices are starting to rise again. The economy is stabilising and confidence is returning.
Then we’re back in boom time and the cycle starts all over again.
The recovery and boom phases are the ideal time to hold or sell property, early in the slow down phase is a good time to sell if you’ve missed the boom, and, slump is the time to buy. But you need to be confident that you’re buying well and that you’re happy going against the media, and often the public’s, talk of doom and gloom. Research is key in every investment – and never more so than during a slump.
One thing that we don’t know about the property cycle is the duration of each phase. We don’t know when it’s going to turn. If we’re watching the market closely, we can see signs that things are changing. But look for evidence, not hype from the media or from agents selling properties.
The important thing about investing in property is that you need to work to your own plan, time frame and end goal.
Why are you investing? Where do you want to buy? What type of property? What’s your budget? When are you going to buy and how long will you hold it for? Are you planning on building a property portfolio or just the one property that you will sell too boost your super when required?
It’s always great to buy at the ideal time of the property cycle, so, to fit your time frame, you might need to broaden your property search and find a location that is in a slump or just coming out of it.
For most of us, investing in property is a long term proposition. The key to success is to weather the storms, go with the ups and downs, ride out the highs and the lows without getting blown off course.
You need to be aware of opportunities that come up along the way, but if you sell before your original goal, could you be missing out on the gains from the next boom? Will you invest your gains to buy more property in the next slump? How will you re-work your goals to get to an even better end goal?
Investing is always a numbers game. Know what to watch for and make sure they’re adding up.
That’s where the success in investing comes from.