The seven-year itch

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2013
Graph of home sale

It’s time to prepare for the next cycle of boom in the property market, which happens every 7 years. Educate yourself and start investing from now

Every investor has to assess his value of house every three years. Ask your bank for a valuation for your current house and compare with the price you have paid for it. If it has not grown in value in last few years, it is time to rethink the investment

The property market is a wonderful mechanism for transferring wealth from impatient to patient

There’s one question people always ask me – is property investment easy? The answer, in a word – NO.

Property investment is simple, but not easy. Looking at the facts, 50% of property investors will sell up in the first five years, and a vast majority will not buy more than two or three properties.

Follow simple proven formulas. If you want to be wealthy don’t do what everyone else is doing. The worst advice anyone can give property investors is to buy cheap properties in secondary locations, buy properties for cash flow only (only 5% of properties on the market are investment grade) and to buy properties in next hotspot region (investment is not gambling).

Here are answers to some more questions I am frequently asked.

1) In boom times do all properties sell for a good profit?

Corelogic’s most recent Pain and Gain Report revealed that 9.1 % of all homes resold of the June quarter recorded a gross loss when compared to their previous purchase price. This is a slightly higher result than the 8.6% recorded over the June 2014 quarter.

Homes that resold at a loss were owned for an average of 5.3 years while for those who profited from a resale, the average length of ownership was 9.9 years.

2) Do I need to reassess the value of investments?

Every investor has to assess his value of house every three years. Go to your bank and ask for a valuation for your current house and compare with the price you have paid for it. If it has not grown in value in last few years, it is time to rethink the investment.

3) How long can a property investment journey be?

Successful property investors know that investing is a long journey and it can take many years before you are a real success. In the first 10 years, you will have made all the mistakes there are in the property game and learn from them. Twenty years from then on will be a smooth ride and path to success. The property market is a wonderful mechanism for transferring wealth from impatient to patient.

4) How can one time the market for perfect buying conditions?

A study of 100 large US pension funds found that while all engaged in a degree of market timing, not one gained an advantage from it. In fact, 89 of the 100 actually lost as a result of their attempts to time the market, incurring an average loss of 4.5% over a five year period from doing so. Pension funds spends millions of dollars on research and wages to get the timing right. They fail 89% of the time. So, what chance do we have to time the market?

The best time to invest was yesterday, if not today would be the best time. Invest whenever you can and whatever you can. Do not time the market.

5) Is the boom over for property investors?

Yes, the boom is over for most property investor in this cycle. We will see small growth for next few years. But not double digit growth or boom-like conditions.

Keeping a BUFFER (little spare cash for expenses) is most important to ride through property cycles. Have some finances set aside for the lean time. This buffer will ride to towards next boom cycle.

6) Where are the interest rates heading?

ANZ bank is predicting that the Reserve Bank will cut its benchmark interest rate by half a percentage point to a new low of 1.5 per cent.

7) Did I miss the boom market?

You might have missed the boat for this boom cycle. Prepare for the next cycle of boom. The boom happens every 7 years and we would like you to educate yourself and start investing from now to ride the next investment cycle.

BOX: Strategise for success

Here’s what a successful investor’s strategy looks like

  1. a) Buy a property where it appeals to wide range of owner occupiers
  2. b) Buy a property below the real value (Don’t pay for over-new or off-the-plan properties)
  3. c) Choose a suburb which has consistent strong capital growth in past
  4. d) Buy properties where you can add value by renovating or repairs.

The 3 key principles of a successful investor

  1. a) Patience: If you truly feel the Investment is good hold on to it regardless of market conditions. Patient investors stay focused on their long-term objectives and are willing to withstand the discomfort of big market swings in order to minimize the mistakes that many investors make.
  2. b) Discipline: It is, for most investors, the most challenging principle to follow. To exercise discipline means accepting the fact that it takes risk to produce returns over the long term; and, by ignoring the events of the day, disciplined investors know that the longer they adhere to their strategy, the more opportunity they’ll have to generate positive returns.
  3. c) Optimism: Unquestionably, these are difficult and uncertain times. And there is every reason to feel as if things are rigged against us. But, history gives us every reason to be optimistic about the future.
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