You're probably entering the property market with the notion that timing is everything when investing. Today, we're going to let you in on this thing called countercyclical investing….and why perfect timing doesn't exist!
Investors devote endless time and effort to forecasting events that relate to market performance. The problem with this is that not all forecasts are correct. If it were, investors following these forecasts should be reaping enormous gains by now.
Countercyclical investing follows the concept of thinking ahead and buying before the demand for it increases and significantly affects prices. When you know where things are heading and buy before others, you're likely to gain more. But that's not always the case. In property investment, knowing what you can and cannot do can make all the difference between profiting and losing everything. Though much importance is given to countercyclical investing, successful investors will know that you can create wealth at any point in a cycle – when done intelligently. So what does this mean?
Median house price for Melbourne's inner ring properties over 20 years starting from 1998 (taken from smartcompany.com.au)
When you look at this graph, you will see that there's a huge difference when a property investor buys right at the bottom of the market of each downturn and getting it terribly wrong and buying directly at the peak of the cycle.
Simply put, "perfect" timing will have only little impact if you hold your investment over the long term. The investor who bought at the very worst time in 2000 is only 0.58% worse off than the investor who got the timing right by buying at the very bottom.
The longer you hold your investment property, the less crucial perfect timing of your purchase becomes. The more important thing to consider is the quality of the assets you own. Why? Investment-grade properties will more likely, outperform averages in relation to capital growth. Your asset will grow substantially over the long term and help you obtain financial freedom. That's why location is important for property investment because these properties, along with security and street appeal, are considered investment-grade properties.
In addition to owning quality assets, you should also learn the power of compounding. It makes your investment compound work and earn for you instead of withdrawing and spending them. If you have a $10,000 interest-bearing account that earned 3% interest ($300), you would be practising compounding if you left the interest in the account to grow further. This will build year after year, and it's much the same property.
Let's face it, market movements are not set in stone. There are factors we can monitor like population growth, supply and demand, interest rates, and so on. But they are not the only essential drivers of property markets.
One important factor that is difficult to quantify is investor sentiment. It measures how much a property investor wants to invest at a given time. Unfortunately, even the most rational investors suffer lapses of logic when investment decisions are driven by emotion. When falling property prices are reported, investors become scared to invest in thinking conditions will never improve. Alternatively, when property markets are booming, investors are quick to follow the crowd to cash in. However, these scenarios will not guarantee you the results you want.
If there's one thing we've learned from the data above, investors who are waiting for the perfect time and right signals are more likely be worse off than those who made a poorly time decision but took action and bought a property.
Rather than trying to find the perfect timing, buy the best assets you can – now. Owning investment-grade assets that grow at wealth-producing rates of return will make you earn more over the long term.
At A9 Property we provide free content and advice for investors getting into the Australian and Brisbane property investment market. As property investors and property managers, we want to help you get the most out of your investments. A9 Property provides first-time homebuyers and property investors knowledge on the world of real estate. Our weekly real estate blog discusses a variety of property-related topics, including property investment strategies, real estate industry trends, and current property market shifts to give you valuable insights and help you make informed decisions. We specialise in off the plan properties – a popular investment strategy in Brisbane and Australia. If you're looking to invest, Check out our carefully selected portfolio of off-market properties for sale or contact us for an obligation-free chat to discuss how you can succeed in the business and make the right property investments.