When should I invest in property?
History has shown us that Australia has a proven record of stable & growing housing prices over the long term. But when should you look at starting the property investment journey?
As an established property investor, this is probably one of the most common questions I get asked in particular from new investors – “When should I invest in property? Is now a good time to buy in (capital city name)? How’s the market? Am I gonna make money??”
To address these, I have a couple of investing principles which I thought would be good to share with everyone again:
- Wealth through property is created in the long term. When I say long term, we are talking about a time frame of 15 to 20 years (if not longer!)
- Property prices like everything in life goes through cycles. They go from rising, to peak, to declining and then eventually bottom out. And then back to rising again.
- The cycles are not all uniform in terms of duration/length. For example a rising cycle could be as short as 6 months to 12 months where there is a burst of price growth, followed by flat price for the next 6 years.
- The transaction cost in both buying & selling are huge in comparison with shares, making short term flipping of properties not as viable. Plus if you made capital gains on an investment property then you’ll also be liable to pay Capital Gains Tax (CGT)
Why am I bringing up these principles again? I want everyone to understand investing in property is not all about TIMING the market, but time IN the market.
If want to time the market by buying in at the bottom and sell out at the top, I wish you best of luck because I have seen many investors being burnt let alone making any profits.
It is extremely difficult to time when you should be buying in at bottom and when you should be selling out at the peak. It’s challenging even to experienced property investors.
However, there are definitely subtle trends and indicators which, once you understand, allows you to see whether a market is getting towards the bottom so you can monitor closely for deals, and vice versa – trends/indicators that’ll show you a market is getting towards the peak. I’ll cover these indicators in one of the future blog articles in more detail.
So in my opinion a combination of both – understanding when to buy into a specific market to capitalize the opportunity of near bottom prices, followed by holding for long term, is the secret formula to creating long term wealth through property.
OK now we’ve got the fundamental concept sorted, let’s come back to the question – when should I invest in property?
My short answer would be: “when you can afford it”. And the reason is simple – if you can afford to hold long term, the longer you can hold the more chances you can ride out multiple rising cycles.
Let me share this table which was released late last year from Corelogic – the 1, 10 and 20 years comparison of price growth between capital cities of Australia:
So as you can see, if you bought about 1 year ago in Sydney and Melbourne then it’s not really exciting as we’re currently in a declining market. You would’ve made a bit of loss. However, if you bought and hold for 10 years back, then you would’ve made on average 81.4% gain in Sydney or 74.7% in Melbourne. And what’s even more exciting is the 20 years comparison – if you bought 20 years ago you would’ve made about 220% in Sydney or almost triple in Melbourne!!
And that’s not just limited to the Sydney & Melbourne market. If you have a look across the board – all capital cities, with the exception of Darwin, has had an impressive run averaging 200% growth. Even Perth, which has been suffering last couple of years as a consequence of mining boom over, has also recorded about 160% growth over 20 years.
Just imagine if you have invested 20 years ago, versus not having bought anything, how much difference would that make to your financial position today?
I know someone back in the year 2000 when Sydney Olympic Games was on, he believes Sydney house prices was already too expensive and have been waiting for that “crash” to happen. And guess what? 20 years from then he’s still renting and waiting for that magic “crash” to happen. I truly feel sorry for him but I don’t think Sydney prices will ever go back to 2000 level anymore…
So talk to us today to see how we can help you invest & plan for you and your family’s financial future ahead! Even though you may have missed the growth in the past 20 years and you can’t change the past, but you can take control of your own future now and capitalize on the opportunity ahead of us!