Hi Guys n Gals,
With the recent (last couple of years) general market declines and near future price rises unlikely (I'm talking about real gains not a 0.2 percentage rise an a month only to see if fall the following month) why would you purchase residential property at the moment? I mean if the market is flat (if not a further slide backward over say the next year or two), why not wait? If all future buyers held off purchasing our already stressed market would be further distressed hence a cheaper entry point for future investors. I'm curious as to why any potential investor would buy now if there is any chance of a further deteriorating market, hence a cheaper entry point. Thanks.
Why invest into any asset class then, I presume stocks have fallen too, right? It depends on your strategy, your time frame, your risk, your buffers, etc..... If your strategy in equities was in the accumulation phase for long term, then your dollar cost averaging may be the way to go, if you continue buying the stock even on the way down than you should buy more of it, right? (And I don't mean just any stocks). So why would a IP asset class be different?
Nobody has a crystal ball what will happen to any asset class, and actually gold was the winner for the last 10 years, so if you can pick the bottoms and tops, that's great but for some of us property is, "Time in the market - not timing the market".
For me if I can get an IP that will maintain itself, with OPM, by stacking up my numbers, than a deal is to be made. Why would I wait when the prices are on the increase, when the herd mentality would follow.
Also, your comment mentions property on month on month basis, whereas my interest lies at least 10 years.... Who compares IP assets on monthly basis, unless cash flow is at stake?
It really comes down to knowing what you want, taking the risk, and sticking to your strategy, if you have one, that's all.
I use asset classes for diversification and protection of wealth, so I understand, yes assets will become overvalued and undervalued in time, doesn't matter if they are stocks, IPs, commodities (eg. gold/silver, others), etc... That's all.
So in my case the price of property is not the only factor in my equation, but rather whether the deal will stack up.
Perhaps with numbers its easier to understand. Say you purchase an IP for $500K with 80LVR, that's $400K loan.
Now assuming it's costing you 1/3 to maintain the IP a year, 1/3 by a tenant, and 1/3 by ATO. Then for you to keep this property it would cost you approx. $15K a year ($500K x 0.03). If after some minor renovations, you can slightly increase rent, or interest rates decrease, then you could fix your loans for 10 years and the property could and would maintain itself. In addition rent has increased on all my properties in the last 10 years, so I would expect some, not uniform, rental increases too. All this helps you to maintain your IP.
The question then becomes for your total outlay of $150K (10 years at $15K/yr) what will its value be in 10 years (I hope for some capital growth, at least more than my personal outlay of 20% + 5% costs, and 80% OPM outlay. If it doubles than $500K is now $1mill, or you made $500K for $150K outlay - not all your outlay but OPM - this represents 7% growth/yr. Assuming half, 3.5% growth/yr means doubling in 20 years, or equity grows to $750K only in 10 years, etc... (I use number 70! to derive the figures
).
That's the risk I am willing to take in my investment strategy if the numbers stack up, I hope that helps.
