No one wants to buy at the peak of the property market! Imagine if you buy a property and then a month later property values fall and it takes more than 2 years to recover to the amount you paid for it. That two years of holding costs (interest) for no gain. Would you kick yourself if that happened? This begs the question, how important is property market timing?
How important is good timing?
I used the graph below to pick two points in time to measure the importance of “good timing”.
You will notice above that the median property price in Sydney fell between December 1988 and Dec 1990. Similarly, in Melbourne, the market fell between December 2007 and March 2009.
I considered the question; what if you had a crystal ball and instead of buying in 1988 in Sydney or 2007 in Melbourne, you held out and purchased a property at the bottom of the market in 1990 in Sydney or 2009 in Melbourne? How much better off would you be?
The table below illustrates the difference in equity and overall percentage returns over the total holding period.
The percentage returns look significantly better. However, in fact, the dollar value difference isn’t that significant at all. The investor with poor timing in Sydney still has over $860k of equity in his property (versus $915k for the perfect investor). In Melbourne, the less successful investor has $255k (versus $325k).
This suggests that timing really doesn’t have a huge impact – even if you get it terribly wrong. In fact, the longer you hold onto your investment, the less timing really matters. I propose that if you plan to hold your investment property for 20 years or longer, timing is irrelevant.
Equity could have easily been zero
Importantly, these investors that had “poor timing” could have been a lot worse off. Imagine if they hadn’t invested in property at all? In this case their equity would have been zero!
No one knows
The fact of the matter is that no one really knows where the market is now (peak or otherwise) and what it will do over the next 2 to 3 years. No one. Zero
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