Timing the market or time in the market: Which is more important?

Expert Advice with Philippe Brach 14/03/2016 

Let’s be honest. If you’re a property investor in Australia and you don’t own property in Sydney, you’d probably give anything to go back in time a few years and pick up a property (or 5) in our beautiful harbor-side capital.
 
Certain suburbs throughout the city have enjoyed growth of 30 per cent, 40 per cent, even up to 50 per cent since 2013. They were exciting times and I know that when talking to my investor clients, there’s a feeling amongst those who don’t own property in Sydney that they have somehow ‘missed the boat’.
 
I can understand why you might feel disappointed that you didn’t benefit from Sydney’s boom, as there were some very big profits made in a short space of time.
 
But it’s important to look at the bigger picture when you’re investing in property – and the bigger picture involves a much longer investment life cycle than a few years in a booming market.
 
Looking back to look forward
We often talk about ‘timing the market’ in property circles and there’s no denying that, when you get the timing right, it’s possible to truly fast-track your profit results. On the flip side of the coin, if you get the timing wrong you can delay your financial rewards.
 
Anyone buying real estate in Sydney in the current market, for instance, will be waiting far longer for their property to experience double-digit growth than the buyers of 2014 and early 2015. Those lucky landlords and homeowners only had to wait 12 months for their properties to grow in value by 20% or more; if you’re buying in 2016, you may be waiting upwards of three to five years for the same results.
 
But if you invest with a long-term goal in mind, the performance of your property over the next few years should pale in comparison to the eventual gains you will make.
 
To put it in perspective, let’s look at historical price growth. According to Australian Property Monitors and the Economics Department of Macquarie University, median house prices in Sydney have evolved as follows:
 

Year Median value % increase
1970 $18,700 --
1980 $68,850 368%
1990 $194,000 282%
2000 $287,000 48%
2010 $637,000 222%

 
When you look back as Sydney’s price growth over the last 40 or 50 years, it’s clear that some decades performed better than others.
 
But what would you prefer: to be able to time the market to enjoy one of the more profitable decades above? Or to be able to buy in 1970 and have time in the market, to enjoy property price growth of an incredible 3400 per cent between then and 2010? Of course Sydney is not the only solid market and I could have used other locations as an example.
 
The real ‘timing’ you need to focus on
I’ve made my point that time in the market is the most successful strategy for profiting from property. But there is one other component to ‘timing’ your purchase that is essential to your success as a property investor, and it’s the timing that relates to your own personal situation.
 
I meet with investors every week who are keen to enter the market and jump into their next opportunity to become a landlord. But sometimes, for myriad reasons, it’s just not the right time for that person to acquire another asset.
 
Perhaps they have some personal debts dragging them down, which they need to work on paying off so they can shore up their loan application and increase their borrowing power.
 
Perhaps their savings or equity position isn’t substantial enough to cover a property deposit. Or perhaps they’ve entered a new phase of their property journey and they’d be better off consolidating their assets rather than purchasing new ones.
 
For these reasons and more, I advise those who are serious about building a profitable property portfolio not a develop a fixation about ‘timing the market’ and instead, focus on your end goal. When you know where you are now and where you want to be, you become less concerned with what’s happening in the market ‘right now’ and more interested in how you can leverage your money, knowledge and assets to move forward. That is the fundamental secret to creating genuine, lasting wealth, as opposed to speculating as an investor in chase of a quick buck.
 

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Philippe Brach   Philippe Brach is CEO of Multifocus Properties and Finance

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property
 

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