When is the right time…
When do you think is the best time to buy an investment property?
- When your friends tell you about a great location they just bought in
- You see in magazines and papers that an area has gone up in value by 20% plus
- When television shows broadcast the best locations to buy in according to their expert. These stories are generally advertorials that property companies pay to have shown (no I didn’t pay to be on the Today show nor Channel 9 News Brisbane)
- When a new train line opens up or a highway built
If you are an investor who invests using the above strategy… then I must simply thank you… as you are the investor who increase the value of my properties. I have purchased property there 6 to 12 months earlier at a much cheaper price. The urgency to buy a property, of an uninformed investor, pushes up the house price even further in a rush to try and gain some capital growth. This type of investing is emotional.
All of the above reasons are past tense. Property data can only be on past sales of an area and if you read that a particular location went up 20% in the last 6 months, then you have missed the boat.
Then how do you find locations to invest in before everyone else so you can take advantage of the big capital gains… the answer is research.
What do you research though?
To answer that, there are many areas to cover, but think about this firstly, why wouldn’t you invest in areas that the market has been dead for a long time?
Now I don’t mean areas that will be non-existent in the future because people are leaving in droves, but an area that in its natural property cycle has been flat for several years.
We all know that when the housing bubble bursts, property prices fall… not immediately but over time. It takes vendors time to digest the fact that their property is now not worth what it was in the peak.
So what happens in a depressed property market:
- Buyers disappear – consumer confidence is non existent
- Property prices reduce over time
- Vendors read media reports about property doom and gloom
- Vendors become desperate and emotional in trying to sell their properties
- They reduce their listing price to match the market of similar houses in their immediate area
- Savvy investors snap up bargains
- Vendors sometimes sell their properties for far less than already heavily reduced listing price
- And they continue to reduce in price until they become affordable again… and so starts another upward cycle
So why wouldn’t you buy property then?
That makes sense doesn’t it?
Why do most investors stick together like sheep and buy in locations because the masses do?
Now we research far more facts and figures in picking the best locations to invest in other than just a dead property market… but we do want to buy it at its cheapest. Well I do…
So why is it that when interest rates are high, investors don’t flood a market? Again I do…
It’s the same as buying shares, when was the best time to buy shares? In the GFC, they all dropped massively in value and the smart investors snapped up bargains and make some fantastic gains.
In my research I look for locations that the median house price has been decreasing for 5 years. This way I know I am getting close to the bottom of the cycle. I am not trying to calculate it at the very bottom but in the lower vicinity and then let my negotiations do the rest.
Now a funny thing occurs in a downward cycle… existing investors are often the vendors who sell their properties cheap. This selling off of properties can reduce the amount of investment properties a suburb has to offer.
Combine that with a suburb that has a good population growth and whilst property prices decrease, rental yields increase…
So the savvy investor who studies these areas can see the potential and snap up a bargain with a great rental return. They know that they can also continue to increase the rents every six months due to the high demand of renters in that area. In the days of higher interest rates, these investors know that when lower rates return, like we are seeing now, that they will have a positive geared property. They will lock their interest rates in at that stage to take full advantage of the great returns for years to come. The investors who are buying in the lower interest rates timeframe will see cash flow positive.
Both scenarios are ideal although there is a very distinct difference.
The key to all this is to buck the trend… buy in the right part of the cycle. If you don’t have the confidence to do this on your own, then the services of a “True” Buyer’s Agent will help…