Economists, bankers, agents, accountants, property ‘commentators’, will talk about the property cycle. Often with extreme confidence. You can pick up many books that include a boom/bust cycle with a theme around ‘seasons’ or a ‘clock’ showing when the market is going up, when it is stalling, and when it is going down.
Go back and look up prominent and respected commentators, and professional economists, you will see 1year, 5year, and 10years ago the predictions they make are often so wrong it is ridiculous. Watch my quick take on why the AKL property market is so hot.
So if you cannot rely on the ‘experts’ then what makes sense to lean on when making decisions on when to buy? The market commentators will use averages and talk about cities, but you are not buying a city. You are not buying the ‘average’ property. You are buying something undervalue or with hidden potential. You are buying a property in an area that you know because of the research. If the numbers are good then this is your protection if markets fall a bit… because the rent will keep on coming.
The suburb indicators are probably a good starting point. Corelogic and Homes.co.nz recent sales data will help you assess if a specific deal is a good deal. The numbers will help you make your decision. Having your own knowledge founded in a strong understanding of market fundamentals for the areas YOU are the expert in.
Even the tenants in lower economic brackets will usually keep paying because they are supported by the government and can be evicted if they miss payments – even with the new legislation.
Each book has a unique take on property investing but most importantly for this topic, they talk about market cycles, capital gains, and how to think about debt from this point of view. These guys are worth listening to because they are not ‘expert’ economists with small or non-existent portfolios, they are very successful investors who share their insights.
If you look at the market history for property in NZ – you will see a trend line that goes up. Even if you overpay, the value has always caught up eventually, as long as you did not buy in the wrong place or the wrong type of property. The price appreciation in a terrible area will show a profit and increase because of inflation mainly but at a big opportunity cost… so tread carefully.
Famous investors will say to be greedy when others are fearful – and vice versa – you have to be open to new ideas and perspectives but make your own call on what to do. Some of the best buys we have seen in the last 5years have been executed during lockdowns because of Covid-19. It is unfortunate that some people are struggling and are forced to sell during this period but if someone needs to sell and is offering a good deal, then why not take it?
Remember to check out the Don’t Buy and Hold Forever video from the property formula workshop.
Don’t just hope and guess, but rather understand market cycles, learn specifically when you can buy, and improve your buyer’s mindset with education, as this will give you a much better chance of being successful. Just do not use the market timing and property cycles excuse for not buying.
Over the last 5 years, I spoke with 500+ investors each year at length. Many of these people have been waiting for the prices to drop to take action, and it has not happened. So many missed opportunities and lost progress. One of our clients said to me early on that “scared money doesn’t make money!” and boy this message etched into my brain. You don’t have to be stupid, but if you do nothing, that is an investing decision.
Should you wait and build up more equity or borrowing power, or try to execute sooner? A mortgagehq adviser will help you assess your options and make the right decision on that critical question.
Andrew & Blandon
P.S. Tomorrow we are going to ‘eat the veges’ and talk about the boring stuff that is supercritical to property investing – that is tax, interest-only loans, and the legal aspect. Just quietly, I love the power of the details because it’s often these complicated elements that make investing so profitable.