WAITING A COSTLY ERROR IN REAL ESTATE
GAME
October, 2005
Perth property buyers' agents Property Wizards
are cautioning real estate buyers that "timing the market"
may not be a smart investment strategy.
Director Trevor Dunkley said in periods such as
this, when the market is surging, many investors became increasingly
concerned about whether or not it was the "right time"
to enter the market.
But he said such a situation provided the perfect
illustration of why waiting to get into real estate was a costly
error.
"There would be many investors wanting to
get into suburbs such as Subiaco, West Leederville and Shenton
Park right now, but who are worried about paying too much due
to the present hot cycle," he said.
"But waiting to enter the market could be
even more costly, as prices in areas with key growth drivers
will continue to rise, throughout the different cycles.
"By the time buyers who've held off realise the theory
that there is a "right time" to enter the market is
flawed, they've already missed the boat.
"It's why people are always saying they're
kicking themselves for not getting in earlier and that the area
they wanted to buy into has now skyrocketed out of their reach."
Mr Dunkley said, with hindsight, most people realised
that it was better to get into the market sooner rather than
later as their fear, indecision or lack of time could cost huge
monetary returns.
He also said delaying buying in order to save
a bigger deposit was another enemy investors should watch out
for.
"This strategy sounds logical to most people,
but it can have a huge negative impact on your hip pocket,"
he said.
"Waiting 5 years to save a bigger deposit
so you can afford a more expensive property can cost a lot in
lost equity and capital growth.
"For example, if one person buys a $250K
property with a $50K deposit on an 80% mortgage and it grows
at 8.5% a year, after 5 years it will be worth $375K. With an
interest only mortgage of $200K, the investor now has $175K
equity.
"Compare that to another person who saves
for another five years and buys a $375K property. With a $75K
deposit, their 80% mortgage amounts to $300K - giving them just
$75K equity.
"The scenario shows the decision to hold
off and save more actually cost them a whopping $100,000 dollars."
Mr Dunkley said real-life examples revealed it
was better to enter the real estate market earlier rather than
later - and the key was to recognise that there are opportunities
for investors in all markets.
"If you're prepared to search, or engage
an expert to search for you, it is always possible to find a
superior investment," he said.
