"Now is the best time to buy property"

[Garry K]

There has been a radio ad running in Melbourne for a few weeks, I think it's for a "consultant" John Hopkins.

One of the quotes that captures my ear is about buying property in the current market conditions. It goes like this...

"People ask me when is the best time to buy property. I tell them - when the market says it's not"

Now, I quite like the contrarian approach, ie not following the herd or backing last years winner.

It's a catchy phrase, and makes you stop and think.

I wonder which "market" he is listening too/referring to when he says this.

Hopefully, it's the uninformed part of the market, otherwise if the "market" is correct, you end up looking pretty silly.

What do you think?

GarryK

 

[Glebe]

Essentially I agree with him, but simply because the markets says 'bad' doesn't mean my answer should be 'good'. It still comes down to your due diligence.

 

[richmond]

hopkins

It also mentions the consultant saying "2 developments that come to mind are one in the city and one in Richmond" or something like that... hmm, no vested interest I'm sure.

I didn't mind this frmo their site though

"A RELUCTANT INVESTOR'S LAMENT"

I hesitate to make a list

Of opportunities I've missed;

Investments that were in my grip -

I watched them through my fingers slip;

Prime properties I should have bought

Were lost because of over-thought;

I thought of this, I thought of that;

I could have sworn I smelled a rat,

And while I thought things over twice,

Another grabbed them at that price.

It seems I always hesitate,

Then make my mind up much too late.

A very cautious man am I

And that is why I never buy.

I chose to think and as I thought,

They bought the house I should have bought!

The golden chances I had then

Are lost and will not come again.

Today I cannot be enticed

For everything's so overpriced.

The deals of yesteryear are dead;

The market's soft - and so's my head!

At times a teardrop drowns my eye

I had the chance, but did not buy;

And now life's saddest words I pen -

IF ONLY I'D DECIDED THEN.


Cheers
r

 

[Aceyducey]

Richmond,

Good poem - but while reading it I missed two opportunities!

Cheers,

Aceyducey

 

[Peter 14.7]

Hi All

I still say next year mid 2005.

A number of questions will be clearer by then.

1. What impact Oil is actually having on the world economy. Will it slow or will it be a non-issue?

2. USA rates and hence US economy. Is it coming back. Will the $ devaluation hurt?

3. AUS interest rates? Still on hold or back to middle point RBA with another 0.5% rise.

4. AUS economy. Are we still booming or has the high $$ hurt exporters?

5. THe Drought?

6. War In Iraq. Has the election made any difference?

7. Stock Boom. Is it over ? was it just money going no-where or has the good times come?

8. Wages and Employment. Any lower.

9. Senate Control. What is going to happen to unfair dismissal, etc...

Peter 147

 

[Corsa]

I still say next year mid 2005.

A number of questions will be clearer by then.

Hi Peter 147

I am sort of agreeance with you and sort of not. I mean effectively I believe the time to buy is now, when no-one else is buying cos they are worried about other things.

A number of items on your list of things that you want clearer are issues that have been around for the last 5 years. I say, sometimes you dont have the historical certainty to provide you with the clarity in order to make some of these decisions.

Overall buying when you can afford and at a good price will overall a number of these variable increasing or decreasing in or out of your favour.

I am in favour of an investor being mindful of these influences as part of the decision making process as long as it is not necessarily a prohibitor for taking action, if you know what i mean.

Cheers

Corsa

 

[Sunfish]

Hi All

I still say next year mid 2005.

A number of questions will be clearer by then.

1. What impact Oil is actually having on the world economy. Will it slow or will it be a non-issue?

2. USA rates and hence US economy. Is it coming back. Will the $ devaluation hurt?

3. AUS interest rates? Still on hold or back to middle point RBA with another 0.5% rise.

4. AUS economy. Are we still booming or has the high $$ hurt exporters?

5. THe Drought?

6. War In Iraq. Has the election made any difference?

7. Stock Boom. Is it over ? was it just money going no-where or has the good times come?

8. Wages and Employment. Any lower.

9. Senate Control. What is going to happen to unfair dismissal, etc...

Peter 147

Interesting list Peter. But of course at any point in time there are/were similar doubts. I was about to say "equally compelling doubts" but I agree that we live in "interesting times". Like the Chinese, I do not believe this is a blessing.

This year's winners soldierd on in spite of their doubts, or possibly without doubt at all. This years losers did exactly the same. Following your beliefs can make for riches and a good book for some and failure and ignomy for others. Guess it depends what you believe to be true.

We once agreed that we have similar backgrounds so you may wish to contemplate when the employers last agreed that the economy could handle a pay rise?

So is it the right time to buy RE? Like you I'd rather keep my powder dry.

Thommo (still only half-way through my red)

 

[likewow]

Hi Peter 147

I am sort of agreeance with you and sort of not. I mean effectively I believe the time to buy is now, when no-one else is buying cos they are worried about other things.

SNIP..........

Cheers

Corsa

Hi Corsa

Can you explain what the above has to do with sound investing fundamentals? With record low yields and the prospect of low or no cap growth and increasing interest rates, imo its not a real good time to be buying IPs right now.

Some things are good to buy on the basis of 'when others are selling' (such as shares in a fundamentally sound company) but property isnt one of them because theres so much more involved in the dynamic of property investing.

Id love to hear your reasoning.

 

[quiggles]

We shouldn't be led astray by the forum. The time to buy may be when everyone is selling, but that's everyone, not just the people who are spending their days and nights analysing the property market.

 

[Alan H]

Hi Garry.

I think buying 'against the herd' is a worthwhile stategy but only if it's done in conjunction with some other criteria.

Betting against the market, just for the sake of going in the opposite direction won't always work. At certain times in a cycle the market is probably right! For example, at the peak of the tech boom, those stocks were clearly WAY overpriced and starting to buy them as soon as they began to drop wouldn't have been a smart move, even though it was against growing market sentiment. They were incredibly overpriced and had a way to drop.

IMHO, Steve Navra's approach here is a good one. By all means buy against the herd, in fact you can often make some extra 'cream' this way, but in conjunction with this contrarian approach, firstly ensure the fundamantals of the property, stock etc add up. Certainly yield is one important determinant for me.

When property was booming 12-18 months ago, for my type of investing, I couldn't see the advantage of new property puchases. However, the stockmarket prices and yield looked good and even though it wasn't the most popular thing to do, that is where I directed my investments. With the index around 2700 compared to the current almost 4000 I suppose it was a 'contrarian' approach.

For me, living in Sydney, I still feel property needs some correction. Quite simply, the rents need to rise a lot, prices need to drop or a combination of both still needs to occur to improve yield.

So do you park your money in the sharemarket? As I tend to use quite a bit of borrowed money here, I want tax and dividend payments to cover my holding costs and have growth as a bonus. Therefore, the yield here is important to me again and as the sharemarket spirals upward, invariably the lower yield is making it harder for me to find stocks that meet my criterias.

So where does this leave me? I guess it's basically keeping existing properties, progressively taking profits on shares and building up my cash reserves to take advantage of 'opportunity'.

Getting back to the original question though, taking 'advantage of opportunity' may well involve some 'contrarian' purchases, but only if the purchase can also justify itself on basic fundamentals.

 

[Corsa]

Hi Corsa

Can you explain what the above has to do with sound investing fundamentals? With record low yields and the prospect of low or no cap growth and increasing interest rates, imo its not a real good time to be buying IPs right now.

Some things are good to buy on the basis of 'when others are selling' (such as shares in a fundamentally sound company) but property isnt one of them because theres so much more involved in the dynamic of property investing.

Id love to hear your reasoning.

Sure no worries Likewow.

I cant give you a thorough detailed economics post the way Pitt St or Peter 147 might respond to a post like this however I can try and explain where I am coming from with my post.

Having only been investing for almost 3 years, from day 1 the most common response I received to the decision to invest or not was "arn't you worried about interest rates". In addition to this I would have started investing 5 years earlier if I hadnt of been talked out of it by someone who advocated "Shares" as the only option and Property being very expensive without the value. What I have found is that it is easy to hold a number of properties using money that I might have just put in the bank as savings any way and they are also growing in value. Even if the portfolio is growing at just 3% then I am better off from a pure cash/equity point of view.

So, irrespective of what is happening with Oil, Interest Rates, the net outcome for me is the same as if I was putting the money away in a bank account or if I was investing in property, capital growth is a bonus.

I am also in the process now of buying another property which is coastal SA with good prospects for both income and capital growth. A few people are buying in this area which is largely untapped but no-one I know is buying this kind of property now. They will buy in a few years time when the area is fully developed, up and running, and prosperous and they can see that it is prosperous and they know what the interest rates will be at that time...and they will pay a significant premium for it as well perhaps another $200,000 more than what a few investors/home owners are paying now. My thoughts are, even if the income and capital growth prospects do not follow with this investment, as I have no "real" proof that they will, only the history of what has happened in other coastal areas in SA, but fundamentally it should be ok. In any case, as long as I can afford to hold and I am only contributing what I would have put in the bank, then the end case is the same for me.

Not sure if this answers your question, but these are my thoughts in any case. The right time to buy is always when you can afford it and when you can buy good value property/shares, and the other factors will always be variables throughout your period of investing anyway and always changing in and out of your favour.

What are your thoughts?

Cheers

Corsa

 

[Peter 14.7]

Sure no worries Likewow.

I cant give you a thorough detailed economics post the way Pitt St or Peter 147 might respond to a post like this however I can try and explain where I am coming from with my post.

Cheers

Corsa

Corsa, you flatter me and grossly undersell your knowledge.

Knowing what you have, at your age, with your background, I still dont understand why your single!!!

Still in awe, Peter 147

 

[duncan_m]

Sure no worries Likewow.
The right time to buy is always when you can afford it and when you can buy good value property/shares, and the other factors will always be variables throughout your period of investing anyway and always changing in and out of your favour.

Well said Corsa.

For me Jan Somers summed it up very nicely in Story #37 of "Building Wealth - Story by Story", where she wrote:

"There's is so much to be learned from these people who have been investing in property for a long time. One thing they all tell you is: If you wait for the right time to buy, you'll never buy anything at all. And if you sell when everyone else says sell, you'll never have anything at all. The trick is to buy whenever you can afford to. In other words, buy when it suits you financially, not when its economically correct".

 

[jrc]

You're only going to know it's the right time to buy if you're familiar with the market. Not just prices, but potential of the area eg changing demographics, employment etc. I bought in a regional city a few years ago, but while I hadn't had the money to invest I had been following prices for a while. I read that town's newspaper several times a week. I was fortunate I got in before the real estate boom hit that city, but the fundamentals were there for that investment even if real estate hadn't increased substantially in value.

Interest rate rises and coping with them are part of risk management and to a certain extent I think you need to distinguish the decision that it is a good time to buy in a market from how you manage risk

eg regional city, continuing employment and population growth, yield y%, condition of property, might be a good buy or not. If it is not a good buy, then you don't need to worry about managing risk. If it is a good buy, then how you manage the risk then becomes important. What if interest rates rise, what if I have a vacancy, what if ......etc?
You might decide that part of the risk is too high to proceed or that you can manage the risks

I'm happy to buy when others are selling (or maybe more accurately when others are not buying), but not necessarily to buy everything that is being sold or at the price it is being offered for sale. On a couple of occasions I have hesitated too long, but not because I had doubts about the value of the purchase, but because of other factors such as concern about risk. In these cases where I was overcautious, it was because I had not done sufficient research on what the risk factors were.

As an investor I am happy for others to be concerned about interest rate rises, particularly while I can fix interest rates at about the current variable rate.

 

[househunter]

Hi everyone,

I would just like to say that anytime is a good time to buy. Even Now!
For the new investors this does not mean that you have to rush out and find something that is for sale and buy it at that price just because the bank has approved you the loan and you are itching to buy. If you go back to the basic principle of investing and that is to make your money when you buy you can't go wrong. Two years ago you could rush around and buy a property almost anywhere and voila six months later you have made money.

Unless you are very experienced you will not make money like that at the moment. The way you will do it is by walking the streets so to speak and making offers. Sooner or later you will get the deal you are looking for because someone is overcommitted or getting a divorce etc. Pick the right areas and do some research and it will work. Just remember that there is always someone out there selling for the wrong reason and they are the deals you need to look for. Sure it may take time but its a great feeling when it happens. And then of course when the next boom comes you are then in a prime position to hopefully borrow against that property you bought for the right price. Good luck everyone.

Househunter