In our last newsletter, we talked about economic cycles in general and the property market cycle in particular. When talking about these cycles, the inevitable question is: "So when is the best time to invest?" The answer might surprise you!
There are three broad approaches. The first approach is that of the masses - we can refer to them as "the poor", since we have already established that just 5% of the global population can be considered wealthy, and the other 95% constitute "masses". Calling this an "approach" is somewhat of a misnomer – a "reaction" would be a better term, since this approach involves little knowledge or strategy, but rather a fickle reaction to the current newsflow and events in the market. These are the people who buy property at the height of the boom, swept up in the excitement of the media coverage of roaring house price inflation and frantic market activity. It is the same people who over-extend themselves with credit they cannot afford, buying properties that are over-valued. They are truly surprised when they cannot find tenants or discover that a property requires management and ongoing maintenance. These are same people who try to sell these "poor" property investments during the lows of a market slump, making huge losses and crippling themselves financially, because in their excitement, they neglected to set up the right structures and do their homework properly. These "investors" are, in fact, victims of the property cycle and their own, personal property investment cycle is an exact replica of the boom and bust cycles in the market. You can easily spot these people – in good times they will tell you about tons of easy money to be made with property investment, and when the downturn arrives, they will tell you that property is a terrible investment and that creating wealth with property is a pipe dream.
The second approach, we can call the "Warren Buffet" way, since this investment guru has near-perfected this approach. Buffet says: "The time to buy is when there is blood on the streets". For shrewd investors with plenty of cash or credit available, this is indeed the strategy to follow. These investors buy when the media is filled with negativity, everyone else is selling and property prices are plummeting. Similarly, these investors sell at the height of the boom, some making impressive profits in the process.
This approach is not easy to implement – buying when everyone else is selling and the market is shrouded in bad news and negativity requires immense discipline and nerves of steel. Likewise, selling when everyone else is buying and the excitement of the boom is palpable is almost impossible for "most people". Even so, this approach has been proven to work, provided that investors truly have their fingers on the pulse of what is happening, get their timing right, remain absolutely unaffected by either the positive or negative sentiment in the markets, and do not succumb to either greed in the boom times or panic in the slump.
The most intelligent approach is embedded in the Treoc Way. This approach involves understanding the property cycles, and making provision for the impact of the various phases of the cycle on your long-term property investment strategy, without allowing the inevitable "boom and bust" phases to sway you from your long-term goals. This approach involves understanding that good property buys can be found in any phase of the property cycle, and conversely, buying property during a property market slump does not guarantee that your are acquiring a bargain.
The Treoc Way further requires that property investors look for good property investment opportunities that are aligned with their long-term property investment strategy continuously, all the time. As Dolf de Roos tells us, the property deal of the decade comes along every week if you are looking for it. The Treoc Way also demands that property investors do their homework on every single property investment opportunity, no matter how fantastic and exciting the deal looks at first glance. There are certainly more bargains during a market slump, but that does not mean the property you are looking at is necessarily one of them – you still have to do the homework, and resist the temptation to buy simply because there is "blood in the streets". Buying a property during a market slump is only intelligent if you have found a property in the right location at less than market value, for which there is rental demand, and for which you can get the right finance without overstretching your cash flow. But then, these rules apply in any stage of the property cycle.
Conversely, a smart Treoc property investor will not lose out on a great opportunity simply because the cycle is in the boom phase, but will instead take extra care to do the calculations right by factoring in the boom phase characteristics such as the rising interest rates and property prices.
In essence, in the Treoc Way, the right time to buy property is always "Now!", provided that you are doing the research and homework to ensure it is the right property for your particular property investment strategy. And then the secret is to hold the property over the long-term, to ensure you really enjoy the full capital growth over each property cycle, while simultaneously earning an ever-increasing passive income from the rental.
Don't wait for yet another property cycle to come and go before you invest in property, losing out on five to seven years of steady capital growth and growing passive income! While keeping an eye on the property cycle and factoring its effects into your decision-making, don't waste your time and energy trying to find the perfect moment. The right moment to invest in property is always right now!
