One thing that I hear all too often from property traders (i.e. those that buy to sell, or those that take advantage of planning gain and then sell on for profit), is that they are making chunks of cash in the ‘here and now’ and once the property market falls, they will then start buying investment properties for ‘pennies in the pound’. In other words, they are waiting for property prices to fall, so that they can then get better value or a higher return on investment. Then, once the market picks up again they can either sell the properties on for profit, or refinance at a higher amount and extract their initial investment funds.
This sounds great in theory, after all this is what stock market traders do all day – ‘buy low, sell high’. But let’s be completely honest, it’s far easier said than done! There aren’t many people who can successfully predict when property prices are at their peak, and when they are at their nadir, so in my opinion this concept is just pie in the sky. You cannot rewind or fast-forward time, you can only act in the present. If we all had crystal balls we would have invested in London in the post-financial crisis, when prices plummeted, and then sold up in 2016, and made a fortune. But that’s gone and you can’t always wait for a crash before investing.
The problem is that the UK property market is not a ‘single market’ in the same way as the FTSE100 or New York Stock Exchange. Every city or region has its own market, which may or may not be linked to the London property market (from which most of the media and press base their news stories!). So what happens in London may not be happening in the rest of the country. This is the case at the time of writing. Many London property investors are spooked because of the Brexit uncertainty, which has stalled or had a negative impact on the property market in London. However from my ‘on the ground’ experience in the East Midlands, the property market here is still pretty strong, both in terms of buying/selling and the rental market. I would also point out that the ‘boom’ that was experienced in London in the post-Lehman Brothers period (from 2011 onwards) did not replicate itself to the same extent in the North – just looking at house prices in certain parts of the country shows that there’s not been any growth for over a decade!
If you wait for the so-called perfect conditions for investment, be that a falling market or political and economic certainty, you don’t know when that will happen (especially with the seemingly never ending Brexit saga!). In the meantime, you may have money sitting in the bank, slowly eroding due to low interest rates and higher inflation rates, and you are potentially missing out both rental income and capital growth during this period.
I read various magazines and articles and I will coin a well-used phrase, it’s about “time in the market, not timing the market”. The longer you are in the market (whether that be the property market or the stock market), the greater your chances of profiting. Those people that began investing in properties in the 1990s would not have been too concerned about the property market crash in 2009 if their plans were long term investment, because (a) they would have benefited from capital growth during this lengthy period and (b) they can ride out the market conditions by not selling. Similarly, if you invest in property now and you are able to hold onto the property for a few years and make a modest rental income and benefit from a steady, if not spectacular capital growth, you will still be better off than if you wait until the next crash which results in a 10-15% drop in property values.
In the example below, I show you how a 3% compounded annual increase in property values (based on a typical £100,000 property in the East Midlands today) will look after 5 years. Even if there is a 10% drop in property values at the end of year 5, you will still be better off than if you had kept the money in the bank and were earning 0.5% interest per annum. This also doesn’t take into account the fact that you are likely to be using a buy to let mortgage, so the actual return on investment will be greater (due to leverage), and the fact that you will be receiving a rental income during this period.
Year Year Capital Growth Total Growth Property Value
1 £3,000.00 £3,000.00 £103,000.00
2 £3,090.00 £6,090.00 £106,090.00
3 £3,182.70 £9,272.70 £109,272.70
4 £3,278.18 £12,550.88 £112,550.88
5 £3,376.53 £15,927.41 £115,927.41
To conclude, if you are investing in property for a long term investment, then in my opinion you don’t need to worry too much about timing the market. Over the long term, if you invest in the right area where both owner occupiers and tenants want to live, you will benefit from rental income and likely (but not guaranteed) capital growth. If you don’t need to sell your property and don’t need to re-finance to extract more funds, then you can ride out any dip in the market, and the longer you are in the market the less impact any dip will have.
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