How do you time your investment in property?

Well you can’t and you shouldn’t.

Yes, it might be useful having an understanding and a sense of where we might be in the cycle in general terms but we are no matter how good an actuary you might be [hint!] we cant predict the future we certainly do not ever want to be investing speculatively.

When we buy and hold property over the long term, it doesn’t really matter of course where we are in the property cycle. When we buy and hold, it doesn’t matter where prices are because the gain/loss in value is never realized unless the asset is sold. Given the buy and hold strategy is long term, and we are primarily interested in the passive income generated from the monthly rental cashflow, then time only works in our favour. The reason is two-fold:

1. Inflation over time erodes the value of debt you have on the asset which, other things equal, implies that your real net cashflow goes up over time.

2. House prices go up over the long term. In fact, history’s shown that each cycle’s “bottom” starts from a higher point than the previous “bottom” insinuating an upward trend in prices over the long term.

When you’re trading/flipping properties over the short term, then you are more exposed to the property cycle. Wherever you are in the cycle, by definition market prices need to be higher than what they were when you purchased the asset. There are three ways to minimize the downside risk in these situations:

1. Buy below market value at the purchase stage through clever sourcing of opportunities

2. Add value to the asset through the development.

3. Have an exit strategy if things “go bad” – this usually means if the asset doesn’t sell, making sure the asset still cashflows positively when its rented out.

#investment #realestate #propertycycle