Biggest mistakes property investors make: Timing the market

There’s more property research available than ever before today.

In fact, only a decade or two ago, most property investors had to dive in with very little statistical analysis to help them choose the best locations.

Things are much different now, but sometimes too much information can make an investment decision more difficult than it really needs to be.

Cycles, cycles everywhere

Australia has eight States and Territories and the property markets in each of those locations can be performing differently at the same time. property cycle

For example, Sydney has been running hot of late, but Perth on the other hand has been in a steady decline since the resources boom faded away.

Of course, the property market moves in cycles and the main cause behind these cycles is that we’re human and tend to share the general optimism or pessimism of others.

They vary in length and are affected by a myriad of social and economic factors and then, at times, the government lengthens or shortens the cycle by changing economic policies or interest rates.

Currently Sydney seems near the peak, maybe around 11 or 12 o’clock, while prices in Perth are continuing to fall so it’s market is probably somewhere between 1 o’clock and 6 o’clock as 6 o’clock represents the bottom of a market cycle.

The issue is that no one really knows, not even the experts, how long each cycle will last because it depends on a huge number of variables including economic conditions as well as human behaviour – and we all know how hard that is to predict!

Buy at the bottom and sell at the top?

Warren Buffett has long been attributed to a quote that reads along the lines of: “Be fearful when others are greedy and be greedy when others fearful.”

Investors interpret this adage as buying at the bottom (when others are fearful) and selling at the top (when others are being greedy).

But that’s not always the best property investment strategy.

I frequently meet investors who have missed out on a great opportunity because they were so consumed with timing the markets, they forgot to actually take the plunge and buy something.

Generally, these investors become obsessed with the idea of buying right at the bottom of a property cycle so they can secure a “bargain”.

While the stage of the property cycle should be considered when you are investing, it shouldn’t form the entire basis of your decision.

In my experience, strategic investors do well in any market cycle, because they understand that it’s time in the market that’s more important that trying to time the market.

Market timing mistake

What I mean by that is sophisticated property investors buy investment grade properties whenever the time is right for them in a location that suites their strategy. property time market clock house cycle investment timing watch growth

The important part of that statement is that they always buy “investment grade” properties because this type of real estate is proven to do well in all market conditions compared to other properties.

Smart investors buy when they have their finance ready or perhaps they have built up enough equity in their portfolio to purchase another property.

While you wouldn’t want to buy in a market that is starting to fall drastically in price – say in a Central Queensland mining location, which isn’t where investment grade properties are located anyway – the market cycle in most of our capital cities is less important if you’re committed to holding the property for the long-term.

That way you can ride out any temporary market fluctuations, because there will be price ups and down during your property investment journey.

When it comes time to sell down some of your assets when you reach retirement, or whenever is the right time for you, you will have created wealth from your portfolio’s compounding equity over the decades. 

And that is why time in market is always more important that trying to time the market.

Too many investors try to time the market by looking for the “perfect time” to buy.

But it doesn’t exist and while they wait for a mythical moment in time, they may miss out on investment grade properties that will grow in value while everyone else is sitting on their hands.

Another truism is “make your profit when you buy”.

But by this I mean you make your money by purchasing the right property, not necessarily by buying a bargain which could be a secondary property.

This means buying an investment grade properties that you can add value to in the location that is at the appropriate point in the cycle compared to other locations.

This way you’re not waiting for the property cycle to do the heavy lifting, you are in essence “manufacturing” your own capital growth through value add strategies.

The bottom line:graph of the housing

While, to some degree timing the market is important, it is definitely not the key to investment success.

There’s a saying in property circles that goes;

“When was the best time to buy property? 20 years ago! When is the second best time – today!”

In other words, you buy when you can afford to and when you are ready to.

Disclaimer

The article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives. 

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