[Investing Tips & Tricks] Purchasing in a RISING MARKET!

Looking back at my portfolio, Hornsby one has no doubt being one of my best performer because I bought it in a rising market and rode the wave.

So I thought I’ll put together some of my observations on the indications of a rising market so hopefully more people will be able to enjoy the wave as they progress on their investment journey ?


First of all property investment is a long term game and comes in 4 cycles – rising, peak, decline and bottom. The usual saying of on average Australian property price doubles every 7 to 10 years is due to this cyclical nature. i.e. in 7 to 10 years the market has gone through one cycle of peak – decline – bottom – rising and now returned to peak.

A simple way to display this:
property-clock
Image source: Eureka Property Buyers

What every property investors really want is to be able to buy at bottom of the market (6 o’clock) as the tide is about to turn and then ride the rising – peak wave (up to 12 o’clock). Traditionally, this window represents a relatively short period of time: about 1-2 years max within the 7 to 10 years cycle.

The reason my Hornsby property was able to do so well is because I purchased in the rising market when the prices are being pushed up. Conversely, if you bought at peak of the market when it’s about to turn, then you could be up for a prolonged period of time where property price would stagnate or even fall off a little bit. Mining towns in Perth is an excellent example. Houses that used to sell 800K and rent for $1000 per week has now dropped over 50% both in the price and rent, causing a big loss to the investors. (people who bought in mining towns – be careful!)

In my opinion indications of a rising market are as follows:

1. Number of people attending open inspections
The number of people attending open inspections is usually the first indication of how much demand there is for the type of property. The more people attending indicates the higher the demand and more competitions, which will tend to push the price upwards.


2. Multiple offers scenario
Another way to tell whether you’re purchasing in a rising market is to find out whether there are multiple offers on the table. You can find out this information easily from the agent.

When I was purchasing my Hornsby property along with my offer are 3 other offers on the table competing with me and that was the first week it was open!! Similarly, in my QLD purchases I’ve also encountered multiple offers scenario so I know I’m buying in a rising market.

The other thing to watch out in multiple offer scenario is try not to overpay. Some cunning agents actually leverage off multiple offers scenario and turn them into a blind auction and I’ve seen them doing it. Be extra wary if agents come back to you suggesting to raise your offer. That’s why it’s important to keep to your budget, and I will cover in my article later a way to calculate purchase price using cashflow calculator.


3. Days on Market
Everyone knows buying property is research, research and more research! A lot of free and useful information can be found on YIP (Your Investment Property) site but I use the Days on Market indicator as a gauge:
http://www.yourinvestmentpropertymag.com.au/top-suburbs/

One of the useful metrics is Days on Market. It’s an indication of how long the property is sitting on the market before it’s sold. The lower the value the more upward pressure there is to the purchase price, because there is good demand to purchase them!

Be mindful though statistics are usually a couple of months behind so I would still strongly recommend getting on the ground to get a feel when you can. For me, seeing is believing!


4. Checking sold records and Median Price history
Another method is to lookup sold records as well as checking the Median Price history. This is one of the free website I use:
http://house.ksou.cn/

Under Suburb Profile you will be able to find information such as the Median Price History in a graphical format like this:
castle-hill-price-median-history

It gives you the trend for almost last 2 years, with a percentage of how much percentage gain it has since last year. So you can get a feel whether the suburb price has been going gangbusters in the last year or so.

These are just a couple of indicators I can think of right now and the list will most likely expand as I think of more. Hope it helps!!

During the meantime if you have any questions or need any further information/clarification feel free to reach out to me by replying to this article or via contact page ?

Cheers,
David

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