The rise and rise of bricks and mortar
InvestSMART
Investors are disregarding advice to go against the crowd.
One of the foundation rules of investing is to go against the crowd – buy when prices are low and sell when prices are high.
The problem is, this philosophy goes against our inherent desire to follow the pack.
Step outside the pack
When property markets are hot, as they are in many parts of Australia at present, there are good reasons to step outside the crowd.
Angus Raine, CEO of the Raine & Horne Property Group explains, "In a heated market it can be tempting to buy the first property that becomes available in your price range, although there is a plethora of online research resources you can tap into before you arrive at an open for inspection.
He adds, "There's always a fear of being left behind, and none of us want to be among those who look back and say if only I'd bought back then".
Upfront costs call for a long term view
But as Ron Hodge, Managing Director, InvestSMART.com.au notes, "The upfront costs of buying a property typically make it essential to regard bricks and mortar as a long term proposition. A big gain in a single year may not be enough to merit jumping on the bandwagon. It's a knee jerk reaction that has seen investors get burnt in the past."
A classic example of this could be happening right now.
Look at the big picture
As a guide, the latest RP Data-Rismark January Hedonic Home Value Index Results show Sydney home prices rose by an average of 13.4% to the year ended 31 January 2014. Yet according to Rismark's CEO, Ben Skilbeck, "Sydney's annualised 10 -year growth to 31 January 2013 is a very modest 3.0% - less than half the rate of national household disposable income growth over the period."
As Angus Raine notes, "The best approach is to look for a property and location that suits your personal goals over time. The beauty of taking this long term approach is that you can afford to cut out the day to day 'market noise' and focus on your own needs."
Frequently Asked Questions about this Article…
Going against the crowd is crucial because it allows you to buy when prices are low and sell when they are high, maximizing your investment returns. Following the crowd often leads to buying at peak prices, which can result in lower returns or losses.
In a heated market, it's important to conduct thorough research using online resources before making a purchase. Avoid the temptation to buy the first available property in your price range, and consider your long-term goals to ensure the investment aligns with your needs.
Upfront costs in property investment are significant, making it essential to view property as a long-term investment. A short-term gain may not justify the initial expenses, and a long-term perspective helps mitigate the risk of financial loss.
While Sydney home prices rose by an average of 13.4% in the year ending January 2014, the annualized 10-year growth rate was a modest 3.0%. This highlights the importance of considering long-term trends rather than short-term spikes.
Focusing on your personal goals and taking a long-term approach allows you to ignore daily market fluctuations. By concentrating on what suits your needs over time, you can make more informed and less emotionally-driven investment decisions.
Fear of missing out can lead investors to make hasty decisions, such as buying property at peak prices. It's important to resist this fear by conducting thorough research and considering long-term goals to avoid potential financial pitfalls.
Location is crucial because it impacts the property's long-term value and suitability for your personal goals. A well-chosen location can enhance the property's appreciation potential and align with your lifestyle or investment objectives.
A long-term approach allows you to weather market fluctuations and focus on achieving your personal investment goals. It reduces the impact of short-term market noise and helps ensure that your investment aligns with your financial objectives over time.
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