Should you buy, is the wrong question.

With the spread of the coronavirus, is a scary and sad time. The number of lives being taken, and the number of people displaced or at risk, is something that we hope will be effectively managed by all governments. The health and well being of everyone is the most important thing, so take care each day.

Throughout all of this, on a day to day interaction with my clients there has been a significant increase in the question; should we wait to buy a property? It’s a prudent question, and something I would ask, which made me think about my response, would I wait? 

As always, to make many of my life decisions, I jump on trusty excel (yes excel) to run some numbers. My summary - the starting point is not as important. 

1) The numbers:

If I buy a $600,000 property and it goes up 3% on average pa compounded over 30 years the end value would be $1.456m (nice!). FYI if that same property grew at 2% it would be, $1.086m.

I purchased this asset at the age of 30, at 60 the above figure is what I may expect using simple math. I’m not saying either of those growth values are known, definitive, but simply used for calculations purposes.

What happens if I have a magic wand and am successful in timing the bottom of the market? I buy that same property for 10% less so $60,000 and these are the results:

• $60,000 at 2% pa over 30 years = $108k
• $60,000 at 3% pa over 30 years = $146k
• You have to wait 30 years for these results (or 10,950 days). 

Yes, I haven't included factors such as lower stamp duty, mortgage repayments or the fact an average house price can exceed well into the $1.0m range, I acknowledge that. However, I’m highlighting the most important factor which is time. At the age of 60 in this scenario, if I held the property for 4 years more, I would recoup this difference, if I held in for 5 more years (35 years) I would be better off. Time is the real factor, and having a balanced approach with the investment to ensure you can hold it for a long period of time is the true win. 

It’s a distance game and a patience game, yes it would be great to buy a property for ‘cheaper’, but the quality of the asset and the length that you can hold it are a greater factor. Being swayed by news articles is never the right strategy.

2) Why I like property

For me, property as an asset class fits with my mindset, and the nature of the asset helps control my emotions of fear and greed, classic areas that hurt individuals when it comes to investing.

1. It provides shelter. It starts off with a place to live for you or your tenants. It’s generational and based on life circumstances. You need that extra room for a growing family. You will upgrade that house, do you move out of home for freedom, you will do it. That times our growing population is a simple factor.
2. It’s not marked to market, which means that there is no share price to track every second and there are no major headlines about your specific property, it's easier to have a set and forget mentality.
3. When the share market drop it’s due to transactions that have actually happened, people have made and lost money that day due to the decisions they may make. Property is an illiquid asset, meaning it's not the easiest to sell, negative sentiment takes time to flow into the property market. It’s very different from the ease of clicking a button on your share trading platform.
4. It’s specific and you have greater control. There is only one property per address, you can paint it, redo a kitchen, or demolish it completely there are options without needing to sell. 

So let me round it out. Would I wait? Not if my plan suggested the next activity was to purchase a property, and I had set myself up to reap the benefits over the long run. I would never let market turmoil, media headline dictate a plan for my wealth. As the old saying goes, “It’s time in the market, not timing the market”.