Should we buy now or wait for a drop in the market?

As per my previous article, “will the property market continue to rise?”, I don’t believe there will be a drop in our particular property segment. Even if that was a possibility, my golden rule is to buy when:

  1. I have the money to buy; and,
  2. I have the money to cash flow a purchase for the short to medium term

A typical novice investor tries to time the market perfectly and that’s when they have:

  1. High capital growth
  2. Low interest rates
  3. High rental yields
  4. Easy to borrow money from the bank; and,
  5. Plenty of property available

I’ve never known an instance when you do get all of these factors at the same time especially with growth, rents and interest rates.

Many people asked me why I continued to buy during the GFC when there were no growth prospects and I would have to continue paying the negative cash flows for a few years. During the GFC, I actually got to buy better properties without paying inflated prices from the competition. The market did continue to rise more than my break-even point of 1-3 per cent (see The Effortless Empire book Chapter 5).

With the market rise, I got every single day of the growth cycle. By contrast, it took the newspapers six months to really start pushing the headlines and then it took the public another 6-12 months to start taking action. By that time prices had risen 10-20 per cent and then people had to fight the rest of the herd to find suitable properties.

You can download the latest version of The Effortless Empire here I re-wrote it in 2015 and the only thing I changed from the 2008 example was using the median price of $1m instead of $500k. (i.e. a doubling in the last 7 years as predicted in that original version). I don’t believe any other part of the strategy has changed or needs changing.