When I look upon my years in the property investment advisory field, there are several platitudes that have come up time and again. From “Location! Location! Location!” to, “Buy the worst house in the best street.”
These sayings are designed to put in simple terms the fundamental tips which help investors build portfolios of strength.
But among all of those truisms, perhaps the most important is this one – “Time in the market is more important than timing the market.”
That simple sentence can teach volumes about successful investment.
Time in the market
If you were to ask an experienced investor about their greatest mistakes, number one among them would be that they didn’t buy sooner.
This is a powerful statement. It shows that those who’ve already advanced along the path of financial security through property investment have learned a key lesson. They know if they’d acted sooner in buying, they would have profited more and at a faster pace.
It should serve as a mantra for anyone contemplating a purchase right now.
There are several reasons why time in the market is so important.
Firstly, time is a finite resource in terms of what you have available to you personally. Your peak earning and investing years will also be your best for borrowing funds and servicing loans. Once you age past those periods, it will become more difficult to build a portfolio.
I’m not saying it’s impossible to invest after you turn 50, but it is certainly more challenging. The older you advance beyond a certain age, the harder you must work on your investing program.
Also, time in the market delivers the best returns. Short-term market movements can be stressful for novice investors, but experienced landlords know the greatest gains are made over the long term.
Look at this chart of Brisbane’s quarterly median house price using ABS information.
Source: ABS
According to the ABS figures, a home bought for $185,000 in March 2002 would be worth $787,500 by March 2022. Over that period, the value has risen by 325 per cent.
If you had delayed your purchase by just two years and bought in March 2004, you would have paid $302,700 for that same house, missing out on $117,700 in capital gains. That sort of money could have been the deposit for a second investment which means you would have held two houses at the median price – assets that today would add up to $1.575 million in value.
Another factor working in your favour over time is compound interest. Compound interest means that when you purchase a property, you not only make a capital gain on your initial investment, but you also make gains on your gains as time passes.
Let me explain. Say you invested $400,000 in a property market that averages modest value growth of five per cent per year. In year two, your investment will be worth $420,000. In year three, add another five per cent to reflect a value of $441,000. You aren’t just making five per cent on your $400,000, you’re also making it on that $20,000 capital gain from year one. In year three, it’s now worth $463,050 – again the gain on your gains is boosting the return.
By year 15, this property will be worth a staggering $792,000. That’s the magic of compound interest working to improve your financial position at an exponential rate.
Another reason to invest early is that cash in the bank goes backwards in value – particularly during periods of high inflation, like now.
As we know in 2022, inflation drives up the cost of goods and services and pushes down the value of your dollar. This means money that’s, say, earning a meagre 1.2 per cent term deposit interest while inflation is at 6.1 per cent is losing 3.9 per cent of its value each year. Put another way, that $10,000 you deposit in the bank on 1 January will buy you $9610 worth of goods come 31 December. Hardly a low-risk investment that’s worth waiting for!
Catching the thief
As can be seen, the cost of investment inaction is staggering.
By simply doing nothing, you are not only losing the opportunity to make excellent returns, but you are also letting your personal wealth erode.
So, stop procrastinating and don’t overanalyse yourself into paralysis. Instead, seek professional assistance to get your journey underway. While there is doom and gloom among the pages of today’s market, I guarantee you two things.
The first is that there are excellent opportunities to be had right now in markets across the country.
Secondly, anyone who buys today and holds for the long term will not regret their decision to act as soon as they could.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933
