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What do ducks and the best property investors have in common?
The answer is simple: they only make a move when they feel comfortable and well-prepared. Even though that’s a bit of an anticlimactic analogy, it tells you something really important about investing in property - you need to get your ducks in a row!
Chances are, at one point or another, you’ve probably felt anxious about investing in property at a bad time. That’s great! It means that you’re taking one of the most important investments in your life seriously.
But, if you only focus on questions like “is now a good time to buy property?” and “when is the best time to buy a property?”, you’re forgetting the most important factor in a successful real estate investment journey - you, and your financial situation.
Property mentor Helen Collier-Kogtevs has pitched in on the debate of timing the market or time in the market, and why time in the market is better. For the naysayers, we’ve also outlined what to look for when buying an investment property, and the signs of a property boom. Finally, we’ve made a checklist that helps you be more like a duck - by having your finances sorted, and setting yourself up for property investing success.
Let’s get quacking!
Timing the market vs time in the market
In case you don’t already know, Helen Collier-Kogtevs is a superstar property investor, and the founder of Real Wealth Australia. Here’s what she has to say about the debate about time in the market vs timing the market:
“I’m definitely all about time in the market. Timing the market comes with risk. Unless you're living and breathing property, and really, truly understand property cycles, there's a good chance you'll get it wrong. So I would prefer people got into the market, negotiated the best price for the best property for their circumstances, and then just gave themselves time.”
Issues with timing the market
For new property investors, it can be easy to fall into the trap of thinking that there’s only one way of making money from real estate - that is, by buying at a low price right before a boom.
For sure, if investing in property runs in your blood and you have a flawless nose for real estate booms, there’s good money to be made by timing the market. But, for the average Jane & Joe, focusing on spending time in the market is the simpler and steadier way to go.
“The beautiful thing about property is that when you spend time in the market, it’s so forgiving. The longer you hold, the more money you will make. With patience, it will always give you a return on your investment.”
The irony is that if you’re always looking for that perfect price in the perfect time of the property market cycle, you’re much more likely to miss out on some great investment opportunities!
We say this because real estate booms and downturns are always viewed in hindsight. This means that you’ll never know if you’re right at the top or the bottom of the market cycle. So, if you’re constantly waiting for the bottom of it, you’re most likely passing up on a number of properties that would’ve been perfect for your investment portfolio.
“Hindsight is a wonderful thing. I can always tell you when the bottom of the market has happened but in real time, it’s pretty difficult to know when the bottom of the market has happened.”
Why is time in the market a safer way to go?
When we asked Helen what made her such a strong believer in time in the market, she shared this story with us:
“I remember my first investment property, which was a townhouse. We paid the asking price of $300,000. This is going back over a decade, so everyone around us at the time was like, ‘You did what!? You paid how much?’ You know, calling us crazy.
"And I must admit as a new investor I kind of thought, ‘oh gee, I've done the wrong thing here. I've paid too much for this property!’ Anyway, I sold it down the track for $860,000. Did I lose any money? No. Did patiently holding on to the property turn it into a great financial investment? Absolutely!”
And that’s why time in the market always wins. It’s how you consistently make a strong return on your investment. Since the annual median growth rate for property in Australia was 5.9% pre-COVID, holding onto your real estate makes it much more likely for you to get a good return on your investment. At the end of the day, financial freedom and security is the end-goal, right?
This also lets you pour all of your attention into the one thing that matters most - whether or not it’s a good time for you to buy.
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How to tell when is the best time to buy investment property?
If you’re like Helen and you believe in time in the market, the only thing left that’s keeping you from investing in property is whether or not you’re in the right financial position to jump in.
So how can you invest in property with confidence? It’s all about getting your financial ducks in a row.
“I’d much rather have an investor pay a little more for a good quality property that suits their personal strategy, financial position and risk profile, rather than make a gutsy investment and end up stressed over whether they can afford to financially sustain it over time.
"With the latter, time in the market will depend on their ability to sustain the property over the long term and through any ups and downs. There’s nothing worse for any investor, than being in a constant state of financial stress while worrying whether or not the property will pay off.”
That’s why, when your property investing strategy is focused on time in the market, it’s a good time for you to invest as long as you’re completely confident in your financials.
Financial checklist before buying an investment property
- Understand what your borrowing power truly is, and what you can afford.
- Have your pre-approval in place.
- Get your personal finances in check by understanding your monthly income and monthly spend.
- If possible, consolidate your debt.
- Have a plan to minimize credit card use. Cancel cards you don’t use.
- Have a savings regime with a buffer, so that you don’t spend your entire savings account as a deposit. If you have previous properties, it’s a good idea to put aside equity from those as a buffer.
- Get the best loan structure from the start. Don’t rationalise sub-par alternatives just to jump on an attractive property.
Do you tick all the boxes? Then you’re ready to buy your next investment property!
Need to stay on top of your property's bills & statements?
Concerned about piles of paperwork and loose ends after you've bought your investment property? We've got you covered. :Different helps you keep your investment organised by keeping all your statements, bills, properties, maintenance requests and inspections all in one place.
So… is now a good time to buy a property?
We get it, telling you that it’s never a bad time to invest in property is a bit of a cliché, and it doesn’t give you the whole picture.
The point is that when you’ve got your finances in order, holding property and spending time in the market will make almost any investment a good investment.
We still fully appreciate that by researching with diligence you can increase your return on investment, not just by buying real estate that will sell at a higher price, but by purchasing a property that tenants want to live in.
“As investors, the goal is to rent your property 365 days of the year.”
That’s why a healthy balance of spending time in the market paired with strong research and a general understanding of how the market is doing, can get you far.
So, how do you know if it’s the right time to buy a property? And what should you look for when buying a property?
Helen has shared with us what you can look for to get an idea if a property market is in a healthy stage.
Checklist: is it a good time to buy property you're considering?
- Have prices fallen or risen in the suburb lately? This is probably the most ancient rule - but like we said, with time it will likely be a good investment. Even if prices are falling, don’t let a good investment property pass you by if you can comfortably afford it.
- Is the percentage of renters in the suburb at around 30%? This is a clear indicator of whether or not it’s a suburb that tenants want to live in. If you’re looking at 25%-26%, that’s generally fine as it means there’s room for growth. But if the percentage is at 10%-12%, then that’s a sign that it might not be attractive to tenants.
- How is the sentiment in the market? If you’re seeing clearance rates and auctions go up, that’s a sign that house prices are starting to move. This varies by suburb, but your average suburb in Melbourne, for example, would have between 1000-1200 auctions per week, and a clearance rate between 70%-75% in normal times.
- Does the property have what tenants want? Different tenants will have different search criteria, but most appreciate proximity to schools, public transportation, shops, and a good neighbourhood.
- Look at quarterly government reports. They will always be able to tell you whether you are in a boom, recession, downturn or otherwise.
“Talking to real estate agents also gives you an idea of where the property market is at.”
At the end of the day, regardless of which strategy you believe in (if you believe in either at all), the most important question to consider is whether or not it’s the right time for you to invest in a property. By making sure you’ve got your financial ducks in a row before you dive into a purchase, you’ll be increasing your chances for success considerably - no matter if you’re a time in the market believer, or a timing the market guru.
Thinking of buying an investment property in the upcoming months? It might be a good idea to get in touch with the experts at Real Wealth Australia for investing advice. You can also reach out to the property managers here at :Different for up-to-date information on what tenants are looking for in 2020.
How :Different can help
Whether you need advice before or after your property purchase, the :Different team are here to help. Talk to one of our friendly property experts today.
Disclaimer: The information on this website is for general information only. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. :Different and Real Wealth Australia are not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.