We’ve all heard lots of advice about property investing but there are a few common phrases that keep coming up and recently I’ve had a bit of time to reflect on them.
One of the most important things to understand when it comes to investing in any asset class is ‘what is your strategy?’ This should really drive the way that you invest. One common misunderstanding is that ‘Long term investment returns high yields’. There are two problems with this – firstly, what does ‘long-term’ investment mean to you. Is it 5 years or 10, or maybe 20? Secondly the presumption is that the property cycle is the same in all markets. But we’ve seen that in some markets that aren’t very volatile, the property cycle can stretch to 10 or 15 years as opposed to 7-10. It’s the volatility in the market place that allows us to make significant gains. And of course, significant losses – which is why it’s so important to understand the market you’re investing in and where the cycle is at.
This points to my second myth – ‘Property prices double every 7-10 years’. This just simply isn’t true. As we’ve just seen there are big differences in property cycles, depending on the market, and that largely comes down to the basic market forces of supply and demand. But it’s also important that the affordability point is profitable and reasonable. An investment property worth $700K in the wrong market at the wrong time is highly unlikely to yield 100% growth over a 7-10 year period. So, again, it comes down to finding an affordable investment for the market at the right time in the cycle.
The third point that I hear a lot is a strange one and I don’t quite understand the logic behind it – ‘You only make a loss if you sell for a loss’. So many investors hang onto a property for far too long assuming that property ‘always goes up’ and I’m fairly sure that they also believe that ‘property doubles in value every 7-10 years’. If you have an investment that is not performing as you believed it was going to, or that you need it to, then cutting your losses can often lead to fantastic gains IF – you understand the market you are investing in.
So it should be clear that timing the market to pick periods of strong growth is much more important than time in the market. And, importantly, time out of the market can have a big impact on how you’re later positioned financially. This is exactly what we specialise in. And we love it. And it costs you nothing at all to come to talk to us about what your investment strategy is and how best to get there. To get the best possible advice call Calla Property and get the right information on 02 9016 2852.