Are you worried about all the negative media and the threats of a property market crash?
If so you're in good company and probably have many questions.
Over the last 20 years, I have answered hundreds of questions left on this website by property investors, but never so many and none so urgent as when markets begin to stagnate, and the future seems uncertain.
Here are four of the common questions I’ve received and my answers, which I hope may help you worry a little less.
1. How important is timing my property purchase vs time in the market?
Warren Buffett has long been attributed to a quote that reads along the lines of: "Be fearful when others are greedy and be greedy when others are fearful."
Investors interpret this adage as buying at the bottom (when others are fearful) and selling at the top (when others are greedy).
But that's not always the best property investment strategy.
I frequently meet investors who have missed out on a great opportunity because they were so consumed with timing the markets, they forgot to actually take the plunge and buy something.
Generally, these investors become obsessed with the idea of buying right at the bottom of a property cycle so they can secure a “bargain”.
While the stage of the property cycle should be considered when you are investing, it shouldn't form the entire basis of your decision.
In my experience, strategic investors do well in any market cycle, because they understand that it's time in the market that's more important than trying to time the market.
Timing your property purchase should be financially driven, in other words when you're financially able to make the next purchase comfortably, and not market-driven.
Sure sometimes you can time things well and get a "free ride" of capital growth like many buyers did over the last couple of years.
Too many investors try to time the market by looking for the "perfect time" to buy.
But it doesn't exist and while they wait for a mythical moment in time, they may miss out on investment-grade properties that will grow in value while everyone else is sitting on their hands.
It's much more important to buy the right asset, a quality A-grade property in an investment-grade location than to buy just any property a little cheaper.
2. How can I remain positive and take a long-term perspective, when all the news is so negative?
It’s important to remember that it's not the media's job to educate you.
It's their job to get your eyeballs onto their website where their advertisers have already paid to appear, and they know this is much easier to do with clickbait headlines and negative news rather than positive news.
I’ve noticed a significant change in how we consume news over the last decade.
In the old days, we used to read newspapers and monthly magazines, but now we rely heavily on digitally delivered news and social media.
This means the use-by date or expiry date of a news story from months or weeks to hours or even less, and with us scrolling through social media, the news outlets only have a few seconds to catch our attention
In short...the media is not a friend of the disciplined and patient investor since they focus on short-term returns, market predictions and negative news rather than long-term fundamentals.
3. So who should I listen to for property advice?
I believe it’s important to be careful who you listen to and only rely on proven and trusted providers of property market information to give you their long-term perspectives.
Of course, it’s also important to understand everyone else’s opinion on property, but that doesn’t necessarily mean giving them the right to give you advice – so be careful of your family and friends and others who tell you what to do.
Only listen to people who have already achieved what you want to achieve.
The problem is, in investing, a property optimist sounds like a reckless cheerleader, while a pessimist sounds like a sharp mind who has dug past the headlines.
So it’s important to remember that the long-term trend of our property markets has been upward for the last hundred years and this has been interrupted by multiple short-term downturns.
In Australia we seem to have 25 million property experts – everyone has an opinion.
You know what they say about opinions… there like belly buttons; everyone has one but they’re basically useless.
Of course, even the property experts tend to get it wrong despite being armed with all the research available in today’s information age.
The reason is those market movements are far from an exact science.
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The fundamentals are easy to monitor.
Things like population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures.
However, one overriding factor that the experts have difficulty quantifying is investor sentiment.
Currently, investor sentiment is low, in fact, the lowest it’s been for decades, despite the economic fundamentals being quite solid.
Unfortunately even the most rational of us tend to suffer lapses of logic when dealing with money and many of our investment decisions are driven by emotion.
Think about it…
When the media reports falling property prices or an impending housing crash, many investors become scared and sit on the sidelines, believing the end of the property is nigh and things will never improve when, in reality, much of the risk has been removed from the market.
Conversely, when property markets are booming and stories of investors seemingly making large gains overnight abound, people want to jump on the bandwagon and cash in; often at a time when the market is near its peak.
You’ve heard me say it before, as supposedly rational beings, humans tend to act irrationally when it comes to money.
Other emotional traps we experience include becoming overconfident, wishful thinking and ignoring information that conflicts with our current views.
In other words, many investors create their own “reality”, but unfortunately, I’ve come to realise that “the crowd” is always wrong.
When there is a general belief that property values can only keep rising and this spreads through a new generation of investors (as it does each cycle), driven by FOMO (the fear of missing out) they drive property values up even further, perpetuating the belief and helping make it a reality!
Similarly, when “the crowd” believes the real estate market is going to crash, FOBE (the fear of buying early) keeps them out of the market, and their negative sentiment gets reported in the media and the feeds itself.
The property market is too illiquid to play the trends, which means investors should run with the long-term upward trend and not be surprised when the market stalls or flat lines and they should not make any investment decisions based on the last 30 minutes or even the last 30 days of news.
But for reasons I've never understood, many people like to hear that the world is going to "break" and our property markets are going to crash.
It seems that for the typical Aussie optimism sounds like a sales pitch, while pessimism sounds like someone trying to help you.
And while that's sometimes the truth, most of the time, optimism is the correct default setting and the way successful investors think.
In fact, I've never come across a rich pessimist.
4. So when is the right time to buy my next property?
There’s a saying in property circles that goes;
“When was the best time to buy property? 20 years ago! When is the second best time - today!”
In other words, you buy when you can afford to and when you are ready to
The price you pay for an investment property will only matter if you purchase the wrong asset.
"Perfect" timing has little impact if you hold quality assets over the long term.
An investment-grade asset will, in the long run, mask any purchase price errors that you may have made.
You probably heard that fear and greed drive our property markets.
Buying when everyone else is, when all your friends tell you it’s the right time or when the media tells you its time, often means you’re driven by FOMO (fear of missing out) which sometimes means the property you buy could be over-priced or possibly inferior.
Currently, a different type of fear is driving property potential buyers to sit on the sidelines - FOBE (Fear of Buying Early.)
The Bottom Line...
While the best time to buy a property may have been 20 years ago, the second-best time to set yourself up for financial independence and buy investment great property is right now.
But don't expect a bargain, as A-grade homes and well-located investment-grade properties are still in short supply and relatively strong demand as currently there is a flight to quality.
However, that property that may seem reasonably expensive today will look like a bargain when you look back in a decade.
By then the market condition that you bought it will be a distant memory yet there will be plenty of people still on the sidelines naively waiting for the perfect time to buy.
