Where vs. When to buy

[Jake Milne]

THE RANT

It's amazing how many people of whom I've talked with have an expert opinion about market timing. You know what I'm talking about; you've probably heard people recently say "I'm not going to buy as the market has come back." or something similar too.

Now I'm the first to profess that even though it's possible my understanding is more than most I am by no means an expert... I'm 100% sure there are people in this forum that know MUCH more than me and others in this area and yet, it's uncanny that just because everybody lives in a property they feel it makes them think they're a senior economist.

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I PUT TO YOU

In this post I'd like to put to you some thoughts about market timing and learn what your opinion is as to its potential as per investing in real estate.​

"TREND IS YOUR FRIEND"

Okay; You may have heard this age old adage before so it sounds pretty obvious, but the real meaning of it is DON'T try to pick the top or bottom of market trends.

How many times have you thought "Ahhh I wish I had bought then..." or "I really should have sold before then..."?

It's in our nature as investors to want to be the clever guy/girl who got in before a spike and got out (or leveraged) before a pull back. Truth be told though that no investor can do this consistently (if you know how please post) as we only know tips and troughs retrospectively.

The good news is, in Australia, real estate prices spend more time trending than they do reversing or retracing. Reversals also occur over a relatively shorter period (e.g. 2009). Therefore it's my belief that if you buy in historically proven trends you'll be right most of the time (but wrong at top and bottoms) where as if you try and pick the peaks and troughs in trend you'll be wrong all the way up the trend and then back down; only eventually being right at the top and bottom.​

WAVE OR OCEAN?

Whenever people talk about the market it's almost always looking at a greater area and commenting on how it's performed like it's a single wave on a beach...

We've all done it, we've all said "Yeah Sydney is doing well right now" or; "I wouldn't invest in Hobart at the moment" but the thing is Sydney is not just one wave, nor is Hobart or even any little village for that matter.

Real Estate markets are highly complex. They involve hundreds and thousands of participants with a vast range of time horizons representing the individual lives of millions of people. There are various cycles and trends, within trends, within trends. So is a market a wave? Or is it more like an Ocean?

Let's look at how the Sea behaves. The primary force is the very big swells in the ocean. These are provided by the extreme weather systems and planetary forces dominantly controlling how water moves.

Then there are secondary trends like waves caused by localised weather conditions or land obstacles. They can flow with or run against the swells and waves they're between. The smallest waves have the less impact and come and go more quickly. If you had a boat on the Sea you'd notice all of these cycles and that's how it is with property markets.​

TIMING & LOCATION

The point I'm trying to make here is that when people say to me "I don't want to invest in Melbourne because it's trending downwards" I try to make them see that even though one of the waves in the market is smaller at this point in time there are other waves that you can ride on instead. For example St Kilda has a clearance rate of above 80% at the moment... That's just as high as in 2010 and properties there are fetching record prices. And even if you didn't buy one of the areas that is performing right now, it won't be long until another wave whether it be a bigger or smaller one comes along as Melbourne over time has proven fantastic growth.

Therefore I'd like to argue that market timing can be useful if you buy in areas with proven trends but it's very risky trying to pick emerging markets or betting on the smallest waves. In my view it's better to buy in an area that performs well with the swell rather than speculating.
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So what do you think!? Is it best to invest on a big wave or a small wave? Is it better to spot emerging markets (when) or go with proven performers (where)? Is it best to ignore all of this and rely on something else?

Please leave your comments BELOWWWWWWW

 

[Melbournian]

i invest whenever i feel i can make a good buy whether in the downturn or upturn.

i'm curious as to know as a buyers agent - you buy many many properties for clients using their money but in terms of yourself as an investor - what does your personal portfolio consist of ? are those properties in those areas you have recommended to other investors or have you bought now that it is on a downturn in melbourne property market.

having a buyers agent who has been personally financed their own purchases, rented, sold or renovated i believe adds that additional edge i reckon to the property game in which someone like myself would be keen to use in purchasing.

 

[Jake Milne]

I like that approach Melbournian, thanks.

As per working with a buyer's agent. If you were to use infolio the answer is yes. I do own property; and yes you'd be guaranteed to be working with someone that owns 7 capital growth investment properties throughout the areas that we recommend in Melbourne such as Elwood and Armadale.