With recent CoreLogic data showing national dwelling values fell 0.3 per cent in December, and many experts predicting a softer housing market in 2018, investors are faced with the contentious question – should I buy now or wait for a further drop in the market?
From my 20 years’ experience investing in Australian property, an important lesson I’ve learned is to purchase when you can afford to do so, instead of trying to time in the market.
The Australian property market
The property market rarely has perfect conditions (high capital growth, low interest rates, high rental yields, plenty of property available; and, relative ease to borrow money from the bank).
In addition, it is nearly impossible to accurately predict movements in the property market.
Australia does not have a uniform market, but numerous markets that operate differently.
Even if property price growth for the year is forecast at zero, some properties might drop by 5-10 per cent, whilst others might rise by 5-10 per cent giving a net result of no growth.
Delaying your decision to invest can be costly. If you decide to wait for a potential drop in the market and it doesn’t happen, you could face more expensive property prices and higher interest rates, making it more unaffordable to invest.
Even a twelve month delay can make a huge difference to your property’s value in 10-20 years’ time. For instance, if a property rises at 10 per cent a year, a $500k property is rising on average $1000 per week.
So each week you delay your decision to invest, that’s $1000 that you’ve lost.
The GFC
During the GFC, some people chose not to invest due to limited growth prospects. However, many property markets faired relatively well in the end and anyone who invested pre-GFC generally made a profit, provided they held on to their property and didn’t sell.
Throughout the GFC, I was able to buy better properties without paying inflated prices from the competition. I received every day of the growth cycle as the market continued to rise more than my break-even point of 1-3 per cent.
If you can afford to invest in a property this year, don’t put off your decision to buy.
Provided you invest in properties that tick all the boxes (situated in blue chip areas, positioned away from noisy main roads and with plenty of natural light) – chances are you’ll receive long term growth.
Tips for investing in property in 2018
Buy in blue chip areas
A good strategy is to invest in blue chip areas where there is limited supply of land and an increasing demand from high income, young professionals. These areas offer a better guarantee of consistent growth. Be wary about investing in the latest ‘hotspot’ areas – those suburbs predicted to undergo massive capital growth. While these areas offer the potential for instant equity and strong gains in the short term, they run the risk of failing to take off and provide long term growth or, growing at a steady pace for a few years and then remaining flat for decades.
Have a cash buffet
Every investment comes with a certain element of risk attached, even for the most seasoned property investor. To avoid having to sell in the short term, it’s advisable to have some spare cash on hand to cover the costs of any unforeseen circumstances, such as emergency repairs or late rental payments.
Avoid emotional decisions
When purchasing property, it can be easy to listen to advice from family, friends and neighbours who don’t invest for a living and may not have made much money from their investments. Always concentrate on what the numbers say about an investment, and avoid focusing on how pristine it appears, or how much you would enjoy living there yourself. Consulting an independent valuer before investing can be an excellent way to ensure you don’t pay more for a property than it is worth.
Author bio
Chris Gray is CEO of Your Empire, a buyers’ agency which builds property portfolios for time-poor people – searching, negotiating, renovating and managing property on their behalf. Chris’s team buys 1-2 properties a week and often spends $5m+ a year renovating on others behalf, providing a unique insight into market conditions and buyer and seller sentiment. Chris hosts ‘Sky News Real Estate – Smart Investing’ each Monday on Sky News Business channel, where he interviews various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www.yourempire.com.au, www.chrisgray.com.au and follow Chris on Twitter: @ChrisGrayEmpire
