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Empower Wealth

10/08/2010
Blog post by Empower Wealth

Timing Your Purchase?

A lot of commentary, opinion and theories go into the ‘melting pot’ when it comes to the ‘TIMING’ of purchasing any investment asset and this is no different when it comes timing the purchase of a Residential Property, whether for owner occupier or investment.  There are those that will put a call out there ‘Now’s the time’ and those that claim ‘Waiting for the Bottom’ and more recently there is the comments around ‘I’ll wait for the first home buyers to leave the market’ (waiting for the heat to come out of the market)

Those that have been waiting out for the bottom of the market, sorry guys but you have missed it, history will show us that the second half of ’08, when the world was caving in was the bottom of this very quick downward cycle.  RP data released their May 09 figures which indicate a year to date change across Australia of 3.9% (picking up the losses of last year).  Melbourne Median House price was up 5.9% and Median Unit price was up 6.7%, as First Home Buyers led the demand charge.  Sydney was up 5.1% and 5.4% respectively also.  Brisbane was a little softer with growth of 3.1% in houses and a small decline in units of -0.3%.  So those holding back to save $10,000 or $40,000k, may have in fact cost themselves more in value increasing.  Indications are that the higher end is also starting to respond to the sentiment shift in the economy.

The trick to property is not a trick at all; it’s simply about taking a very long term outlook of what it is you are investing in.

Warren Buffet sums it up best when he talks about ‘why would you invest in something for ten minutes and not 10 years if you believed in it.  Short term investing is not investing at all, it is speculating.  You are basing a decision on a short term view point and I bet as a guess, those that are holding on waiting for the right time are really internally saying to themselves “I lack the Knowledge to take action, because I fear the unknown”.  Sure there is risk in the unknown as there is risk in crossing a road, yet if you take a long term view of the market, the ups and downs are washed out in the long term average trend.

Timing Your Purchase Empower Wealth

Source: Valuer General Office Victoria

The chart above represents the Median House Price growth on Metro Melbourne since 1974 taking readings each decade to the latest data available from the Valuer General in Victoria.  The result is clear; the long term growth of property in metropolitan Melbourne has been 1,422% or a compounding amount of 8.3% per year.  If you did the same number crunching with Sydney and even Brisbane you will get a similar long term outcome.

So the question on timing the purchase, should really be two questions you need to ask yourself to build up your confidence to take action:

  1. Can we afford it? – Hopefully this is easily answered by looking at long term interest rates around the 7-8% mark (since the RBA was made independent and the money markets were deregulated
  2. How long are we planning to hold it?  – If the answer is long term (as this could also mean using it for owner occupier purposes and then renting it as an investment).

I realise the long term performance is no guarantee of future performance, however 34 years of historical performance, which includes an oil crisis of the 70’s, plus several recessions and stock market crashes, clearly provides me with the knowledge and confidence I need to keep investing in the right residential properties.

My wife and I have managed to accumulate over $2.4 million in residential real estate, based on the knowledge that the longer we hold the investments the more they grow and more importantly the up swings and down turns matter less as the performance trend tracks the long term average.

So is it ‘timing’ your purchase or ‘time in’ your purchase – for me it’s the latter every day of the week.

Knowledge is empowering……….

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