“Do you think now is a good time to buy?” If only I had a dollar for every time someone asked me this question.
Most people I speak to are looking out the window for the answer. They expect me to offer them some insights related to interest rates, rental demand, vacancy rates, capital city hot spots and much, much more.
If you’ve been wondering about this question yourself, let me help you. The answer is to not look out the window. The answer is to gaze into the mirror, instead. Rather than primarily trying to discern whether market conditions are ripe, investors should be looking inward by asking themselves whether they are personally prepared to invest in their hard-earned money wisely.
Here are seven tips to indentifying a good time to buy properties in Australia, or anywhere for that matter:
1. After You’ve Got Some Smarts
I spent tens of thousands of dollars at university to obtain a piece of paper that says I know something about finance. Aside from learning how to do a keg stand, I can really only think of two primary takeaways: I learned how to create an Excel spreadsheet and I learned just enough about the share market to lose a lot of money.
We’ll happily invest thousands in training to open a door to a career, but how much are we willing to invest in our real estate smarts before buying a property? My experience has taught me that most of us are not willing to invest much in education, at least not until we feel some financial pain.
Smarts not only keep you from being taken for a ride by spruikers, but they also give you clarity, confidence and a feeling of certainty that you don’t need to rely on the opinions of the so-called “professionals.”
If you know you need some property investing smarts, good for you. I suggest you check out Steve McKnight’s Property Apprenticeship course.
2. When You Have a Plan for Making Money
One of the first things we teach in our training program is the importance of outcome-driven investing. Unlike speculating, where you simply buy assets, and then sit back and hope for the best over time, outcome-driven investing requires that you have a clearly established plan for creating profits.
Smart investors first identify their desired profit and the strategy that is most likely to bring the desired outcome. Then, and only then, do they buy.
3. When You Can Afford to Borrow
Determining when you can afford to borrow ultimately comes down to determining how much you can afford to pay back. From the lender’s perspective, you pose a significant risk.
They will loan you money, but only when they are confident that you can do two primary things: repay the loan on time and offer security in the event that you do not repay.
Of course, from your perspective, this means that you will need both a consistent income to meet the repayments, and a wad of your own cash to invest in the property, so the bank feels confident you’ve got nothing to lose. Until you can meet these two requirements, it’s not a good time to buy.
For more information on when to borrow, Steve’s course provides three full sessions on the lending industry, and how to borrow wisely.
4. After You’ve Become an Area Expert
Property speculators who lack smarts have no option but to rely on the latest opinions about which areas are poised to become the next real estate hotspot. Skilled investors, on the other hand, invest both time and energy into their own research and form their own opinions based on the facts.
Steve defines an area expert as an investor who has researched an area to the point that they know it as well as someone who has lived there for five or more years. This might sound like a tall order, but if you buy without this level of knowledge, you’re leaving yourself open to a significant amount of risk.
5. After You’ve Done Your Due Diligence
The Oxford dictionary defines diligence as “careful and persistent work or effort.” Due diligence is simply the careful and persistent work or effort that is due or expected before you can justify a purchase as significant as real estate.
The problem is, most people don’t like work, especially of the careful and persistent sort. It’s easier to blindly trust what you’ve been told by the agent and hope for the best.
Smart investors never rely on the assertions and representations of others. Due diligence is all about digging deeper to seek independent evidence to either confirm or discredit what you’ve been told about the property.
6. After You’ve Considered Your Exit
Before buying any property, the smart investor thinks through his or her exit strategy. Regardless of whether it’s a long-term buy and hold, or a quick cash deal, you should be able to clearly answer some key questions.
How are you going to make money on the purchase? How long will you need to own the property before you sell it? What kind of buyer will want your property when that time comes?
If you can seal up your exit, you’ve removed a significant amount of uncertainty and risk from the equation.
7. When the Underlying Trend is Your Friend
There are two ways to achieve growth outcome through property investing – generic growth and manufactured growth. Generic growth is when your property appreciates in value because the entire market appreciates. This is what most investors hope for in order to get the best profits.
Manufactured growth is when you take charge and make the growth happen by adding value to your property, perhaps through a renovation, a subdivision or further development. This requires a higher level of skill than most investors possess.
If you plan to ride the wave of generic growth, you must befriend the underlying trend. In other words, where and when you buy a property is important. Of course many say, “It’s not timing the market that matters, it’s time in the market.” What they mean is, “If you hold long enough, you’re bound to see some growth.”
Feel free to follow this advice if you want to buy, hold and hope. If, however, you want to be proactive and maximize your growth potential, you’ll need an awareness of property cycles and the clues that forecast an increase in the market.
“Do you think now is a good time to buy?”
If you’re confident that you can tick all seven of the boxes above, then the time is right to buy. If not, then it’s time to take a step back and lay the right foundation first.