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.
