Why would any one buy a property while purchase and lease
prices have significantly dropped and may drop further.
People buy property for different reasons, however what’s
common among all is that real estate stands to offer an inflation hedging
investment in a real, tangible, income producing asset. Unlike other asset classes,
real estate rarely earns negative annual returns.
Risks exist, however insured property will never incur a
complete loss of value. Easy to manage and mostly simple to understand;
provides a passive income if managed by a third party.
Motives to purchase a property:
- Personal
or Family use
- Long
term rental yields
- Appreciation
in value
Regardless if your motive was one or all of what is
mentioned, taking into consideration that property is a sizable purchase it is
important to manage market risks and evaluate entry prices and time prior to a
property purchase. No, Definitely not. This doesn’t mean wait for the perfect
moment, as none knows the perfect moment.
The million dollar question is? Who knows the peak and the
bottom. Who does, needs no further knowledge and doesn’t need to continue reading.
As history taught us an logic suggests no one can identify
the peak or the bottom until the cycle reverts and we considerably, consistently
drop from the peak or rise from the bottom. The perfectly wrong time to
purchase (the peak) and the perfectly right time to purchase (the bottom) can
only be identified after it already happened thus when it is too late.
Reading through this we discover that it is more logical to
avoid the perfectly wrong moment than select the perfectly right one as an entry
point.
Let’s venture through the process of avoiding the perfectly
wrong time. The peak usually occurs after a consistent rise in prices, the rise
may sustain for months or years, regardless of the length and the level of growth
the peak only comes after a period of growth. This said, what should be avoided
is purchasing property after a significant growth in prices, unless you follow
a systematic approach of step entry were risks are leveraged as well as growth
prospects. Let’s call the period around the peak the selling zone.
The perfectly right time (the bottom) comes after a period
of consistent drop. After the market significantly dropping -and the more it
does- we get an indication generally that we are nearing the bottom. Let’s call
the region around the bottom as the buying zone.
It has been long said “invest when the blood is on the
street” indicating that we should take opportunities when times are rough. The above
is a scientific approach to the same old thought.
Step entry is key to average your price and scientifically
go through investments, however for those wanting to buy their first home or
one of very few houses the downturn (post a significant price drop) represents a
safer long term entry point than when prices are on the rise.
