The Psychology of Property Investing

Statistically : trying to time the market is an incorrect investment strategy to follow

“What with all the micro reporting data readily available today, perhaps investors decision making is becoming clouded and commitment is waning whilst waiting for that ‘perfect time’ to invest?!?”

And so we procrastinate and guaranteed to say “I should have!”

Be mindful that the micro market cycle in most of our capital cities is less important if you’re committed to holding the property for the long-term. One should at least try to achieve two property growth cycles in any given 10 to 15 period of holding onto your investment to significantly improve your compounding growth opportunities. This will far outpace trying to buy at the bottom strategy.

There’s more property research available than ever before today detrimentally resulting in your procrastination. When only a short while ago most property investors committed with very little statistical analysis to help them choose the better locations and investment opportunity.

Today access to too much information can result in delaying your investment decision, can also make it harder than it really needs to be, simply because no one really knows what is going to happen and compounding returns on your investment (time in the market) will far outpace a small savings upfront. Numbers do not lie and this is easily proved time and time again.

Know that the property market is a complex and multifaceted series of ‘markets within markets.’ There are several fundamental drivers of property in Australia and around the world. Including population growth, employment, supply and demand, infrastructure investment, lifestyle factors and affordability

”Timing is one of the most misunderstood concepts with regard to investing.”

Cannot generalise about property

Australia has eight States and Territories and the property markets in each of those locations can be performing differently at the same time and within each city different suburbs will perform differently. It’s happening right now whilst the media are overgeneralising and beating up a fearful storm; hundreds of postal codes are experiencing capital growth. Go figure! 

We are all very well aware that Sydney and Melbourne has lost value; but dig deeper and ask which locations and what type of properties are they actually referring to?

Why, because a generalised statement such as the above is totally inaccurate and detrimental to your own financial wellbeing because you are waiting to see what is happening whilst hundreds of postal codes in both Melbourne and Sydney are still growing in value. Check out the facts, they are readily available to you …. but more importantly trying to time the market is punitive rather than beneficial in the medium to long term over the life of your investment.

Of course, property market moves in cycles, this is normal and will always occur because the main cause behind these cycles is that we’re human and tend to share the general optimism or pessimism of others and deliberate government action to influence property values plus tighter credit squeeze has played a significant role in halting the artificial and unhealthy growth Melbourne and Sydney experienced of late.

Property Cycles always vary in length and are affected by a myriad of economic and social fundamentals at play whilst the government influences and lengthens or shortens the cycle by changing economic policies or interest rates. Then the media jump on board ….

Fact : no one really knows, not even the experts, how long a property cycle will last and the resultant financial effects will be as they are really unpredictable! But we do know that trying to time the market is less beneficial than time in the market.

Is it possible to buy at the bottom and sell at the top of a property cycle?

The highly successful Warren Buffet lives by his creed “Be fearful when others are greedy and be greedy when others fearful.”  This seems to continue to work for him, so why do you follow the herd mentality and be fearful when the media tell you to be?

Sure, market sentiment plays a significant role and continues to instil unfounded fear and if you were Warren Buffet you would be rubbing your hands in glee whilst identifying your next investment by making an informed decision … keep in mind there are hundreds of postal codes in our capital cities experiencing growth now and into the foreseeable future. Open up your mind to reality and possibility.

Timing the market or Investment Grade Properties?

How may stories have you heard from people you know or have read about who by waiting missed out on securing an investment? What you would not hear about is how much they failed to secure through lost opportunity costs (paying away income tax that could have gone to their investment strategy, lost capital growth, lost rental income, missing out on securing that all important fundamental of compounding growth) by delaying their decision making??

We all meet investors who miss out on a sound opportunity because they were so consumed with timing the markets, they never seem to actually make an informed decision. Why is that?  Are they always on the hunt to secure a bargain when the market is dictating value or will these investors always look for reasons not to invest?  I think the latter.

Sure an astute investor will always consider at what stage of the property cycle a particular location is experiencing and this forms part of your own due diligence and we highly recommend taking all factors into account.

Experience proves that a strategic investor will do well in any market cycle, because they understand that it really amounts to the “time in the market” that’s more important that trying to time the market. Look at any successful individual or family, when they are ready they undertake their research and invest.

Market timing fundamental mistake

“Informed property investors secure investment grade properties whenever the time is right for them in a location that suites their strategy.” So this raises the question you would want to ask of yourself “why do you over complicate the decision?” 

The important part of that statement is that they always select “investment grade” properties because this type of real estate is proven to do well in all market conditions compared to other properties.

You too can be an astute investor and invest when you have your finance ready or perhaps have built up enough equity in your portfolio to invest in a property.

Keep in mind that the micro market cycle in most of our capital cities is less important if you’re committed to holding the property for the long-term. One should at least try to achieve two property growth cycles in any given 10 to 15 period of holding onto your investment to significantly improve your compounding growth opportunities. This will far outpace trying to buy at the bottom strategy, proven to always do so.

There will always be property cycles when investing (stock market, art, diamonds, gold, banks or property) so expect cycles and look to maximise on the investment vehicle not the timing.

Timing is more important when reviewing what you have accumulated and at what stage in life you are at then. Reviewing and cleaning up your investments is vital to give yourself a better opportunity of reaching your financial planning goals and the closer one gets to retirement the more ‘conservative’ your approach to your assets should be.

Having said this, remember we are all generally living longer and some of your assets, you wold want to remain in growth phase to ensure you stay ahead of how inflation will erode what you retire on., Those that plan and make decisions will have created wealth from your investment portfolio on the back of compounding equity over the life of your investments. 

This is why “time in market with an investment grade property” is always more important that trying to time the market.

Factually there is no perfect time to buy, it doesn’t exist.

Some investors advocate that you make your money when you buy, what this should read is “you make your money by investing in the right property” over and above buying a bargain which could be a second-rate property. Getting it right upfront is thus vital in your decision-making process.

Match the investment to your goals and investment strategy by understanding “Your Own Why” upfront before you even start going to market to seek out your investment.

 In Summary

How much difference would it have made over the life of the investment if the investor got it wrong or right when investing through various property cycles from 1988 to 2017 using Melbourne inner ring suburbs as our example?

How much difference would it make to you the investor investing at the worst time or the best time?

During GFC property market in Melbourne fell by just over 10% and if you bought then back in 2007 it would have only made a compound difference of 1.91% to you over the past 9-10 years. But what about all the rental income and tax deductions you could have received if you didn’t wait?

OR if you bought back in 2000 the difference in compound growth over the past 17-18 years would have been a mere 0.58% (insignificant you would agree). The difference is statistically irrelevant to you if you hold your investment for 10 to 20 years meaning perfect timing has very little positive impact on your investment.

An extremely small percentage of investors who were waiting to see what happened during GFC could have predicted the bottom (10% fall only) and gotten their timing right anyway because they were waiting to see what the market was going to do! By the time data comes out the market has already moved thus you are highly unlikely to pick the bottom anyway!!

Owning the right asset is way more critical than timing the market and once again the power of compounding returns demonstrates this as the wrong investment will grow significantly lower when compared to a better investment decision over the life of your investment.

Investment grade property always outperforms the average growth!

“Timing the market is statistically unpredictable and thus you are highly unlikely to get it right.”

Selecting an investment grade property statistically returns you an increased ROI ontop of which Compounding Growth further accelerates your increased wealth.

Disclaimer

The article is general information only and is intended as educational material. properT network, nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.