You know those people who are always waiting for the optimal time to buy a property?
They either wait and wait until everyone else starts buying or they wait and wait and ultimately do nothing at all.
The thing is each of those strategies is as silly as each other.
You might think that is a little odd because surely buying something is better than buying nothing at all, but you’d be wrong.
Why is that?
Well…buying when everyone else is, when all your friends tell you it’s the right time or when the media tells you its time, often means you’re driven by FOMO (fear of missing out) which sometimes means the property you buy is over-priced or possibly inferior.
But thank you as the herd of buyers has pushed up the value of my properties and those we’ve bought for our clients.
On the other hand, buying nothing at all doesn’t improve your financial situation either, and the people suffering from analysis paralysis generally struggle to ever take the next step to, you know, actually buy something.
Is there a perfect time?
So, while these two examples might seem a little extreme, they do in fact reflect a huge cohort of Australians keen to stake their claim in the real estate market.
They either buy at the wrong time or they don’t buy at all.
In contrast savvy property investors understand that the best time to buy is when they can afford to do so, regardless of the market conditions.
Now that may seem counter-intuitive to my point about people buying at the peak of the market who generally overpay.
However, smart investors recognise that there are a number of capital city markets around the country experiencing different market conditions at the same time, so they opt to buy in the right property markets – not necessarily in their back yards.
As an example, in the final of Sydney’s recent strong growth period ,when frenzied buyers were outbidding each other to the point where prices overshot intrinsic value and everything to do with emotion, sophisticated investors were choosing to buy in Melbourne and Brisbane.
That’s because the markets in those capital cities were much more reasonable at that point in time, plus as all eyes were on Sydney they were in stronger negotiating positions because of fewer buyers.
While some buyers experienced the temporary high of being the successful buyer for a property in Sydney, sophisticated investors were happily buying investment grade properties that had better chances of short term growth.
Market timing folly
Unfortunately, there are far too many buyers out there who devote far too much time trying to time the market.
That is, they try to pick the moment just before a market is going to strengthen.
The truth of the matter is that unless they are property investment experts, they are unlikely to ever achieve that.
In fact, even the professionals get it more wrong than they get it right!
Ditto, with the bottom of the market.
The thing is, when people talk about market timing as a strategy, they don’t really know what they’re talking about!
They have confused time in the market with market timing because it is always the ability to hold property for the long-term that will produce results.
The bottom line…
While you can make money when you buy by recognising the potential to add value that others do not, that is dwarfed by the capital growth you can achieve by holding an investment-grade property for many years.
In fact, I’ve found that it’s only after 10 years that investors start to see their portfolios produce significant capital growth.
By then, the market condition that you bought in will be a distant memory — there will be plenty of people still on the sidelines naively waiting for the perfect time to buy.