Property investment is a sensible move especially since it’s a strategy for wealth creation. However, timing is crucial. After all, property is an important purchase that you shouldn’t take lightly.
It’s not only important to locate the right property that meets your needs but also establish the appropriate time to buy.
When you think about the appropriate timing, you may naturally assume it’s when the market has reached its lowest point.
While this is an advantageous time to invest, it’s hard to establish when the market has actually reached this point. Nevertheless, this guide will help you make an informed decision.
High vs. Low Interest Rates
You should watch for interest rates along with property prices and note that the ideal conditions for investing in property are when both interest rates and housing prices are low.
You’ll discover that these rates affect the cost of mortgage repayments as well; therefore taking advantage of low interest rates will ultimately result in a lower cost.
While this situation is theoretically true, there are benefits to investing when the interest rates are high because it generates a buyer’s market.
High interest rates will result in the slight increase of mortgage repayments. Consequently, numerous buyers will hold off on purchasing property during this time. However, this doesn’t imply that sellers won’t put their properties on their market.
With a high supply and low demand, you can capitalize on the larger inventory and possibly lower costs because of competition. Furthermore, there will be fewer buyers competing with you, so you’ll be in a better position to negotiate a lower price.
Financial Position
Being in a position to finance your home is very important. If you have outstanding debts or need to borrow over 80% of the home’s value, you should probably wait until you are in a better financial position. Otherwise, you’ll probably have to pay extra from your pocket to cover mortgage insurance.
You also want to ensure that no more than 33% of your income deduction goes to mortgage repayments or you could face the risk of defaulting.
Property Cycle
Property markets move in cycles. Therefore, property values may increase because of a strong market, or decline throughout certain phases. For this reason, it’s important to recognize where the market is in the cycle to ensure you purchase the property at the right cost. Bear in mind that the property cycle goes through four phases:
Boom Phase
This phase is typically the shortest in the cycle and property costs increase at a fast rate. In general, the phase starts slowly as investors realize that property returns, for instance rental payments are increasing. As a result, properties frequently sell for more compared to their asking price because of the boom.
Slump Phase
The phase arises due to property oversupply following the activity of developers/builders in the previous phase. During this phase, property costs stop increasing, and may even decline in some instances.
During this phase, numerous buyers struggle with repayments because they overcommitted themselves in the boom phase. The only solution to relieve the financial stress is selling-in most situations at depressed costs.
Stabilization Phase
The property market doesn’t typically shift from a negative period to the subsequent upturn. Generally, there’s a short phase during which different economic factors catch up and market stabilization arises.
Upturn Phase
During this phase, vacancy rates fall gradually, rents begin to rise, and property values start increasing thereby generating investment opportunities. By the middle of this phase, property is usually affordable and investment returns are favorable.
You’ll discover that the appropriate time for investment will differ from one individual to the next. Therefore, if you’re unsure about the timing of your investment, consider seeking professional advice.
For more information on when to invest in the property market, contact us at Apartment Agents or provide suggestions.