Most Australians know that they want to own property at some point in their life. Very few Australians proudly say “I’ve done the numbers, and I’m better off renting my whole life”. Some buyers just want to get in as quickly as possible, and some people want to amass as many properties as possible before some arbitrary life milestone they set themselves (5 properties before you’re 30, type thing). However, one question seemingly as old as time itself is “when is the best time to buy”?
For what sounds like a simple question, it can create a whole heap of uncertainty.
Real estate sales agents will regularly speak in platitudes with sayings such as “it’s not timing the market, it’s time in the market”, and my favourite which is “the best time to buy a house was 100 years ago. The second best time is now”. These aren’t just whimsical statements bandied about, as there’s definitely a lot of truth to these. But even the most casual of news followers will also be familiar with doom and gloom predictions for the housing market, making it sound as though the arse falling out of the economy in the short term is just as inevitable as the heat death of the universe in the long term. As I’ve written about before, it’s frustrating that these scaremongering prophets are never held accountable for the vast majority of times when their predictions don’t eventuate.
A part of the issue with the “when to buy” question stems from the short-term thinking of buyers. When you buy a property and sell it later down the track, it’s not as simple as looking at the purchase price and then the eventual sale price. Standard fees and charges in Australian real estate transactions like stamp duty, agent fees, and interest on your loan have to be accounted for in terms of calculating your profit. For this reason, it’s roughly estimated that on average in Australia, you need to hold a property for at least 4 years before it’s worth it to sell.
At this point, many readers will be feeling rage quietly bubbling inside them, as they think of their recently purchased castle and how much it’s already worth. Chill out, it’s possible you really are onto a winner. This 4 year figure also takes into account all those properties in mining towns and regional areas, which may have had no growth, or may have even slipped into a position of negative equity.
Longer term thinking is often made harder by companies which spruik the idea of renovating and flipping houses within a year for a quick buck. It can happen, but it’s bloody hard work, and it’s possible to spend more on the renovations and end up behind on these kind of deals too. This “4 year rule” is one I tell all my clients. Not with the intent to try give a framework around when to buy and sell, but more to emphasise the point that when you’re buying property, you really don’t want to be forced into a situation in which you absolutely need to sell within the first 4 years.
Still, the question remains, when do you enter the market?
The truth is, if you want to wait for the absolutely perfect moment, you’ll likely never buy a place. Paralysis by analysis, and all that. At some point, if you want to enter the property game, you’ll need to take the plunge and understand that there will be market factors outside your control, no matter how much research you’ve done. The better mental approach for people is to understand that there will always be dips and rises in the housing market and if you fret each time one happens, you’ll have chewed off all your fingernails through stress well before you get to the 4 year mark. As long as you treat it as a long-term investment, you’ll be able to rid yourself of the short-term thinking that plagues many buyers.
Besides, a house is also a home, and you need somewhere to live, don’t you?