Should You Buy Investment Property Now, or Wait for a Crash?
A multimillionaire property investor explains why buying without delay might be a good choice, and how to be profitable in real estate regardless of market conditions.
As a property investor and trainer, I am often asked whether it is worth getting into property right now. Many people expect a crash at some point, and think that the market is in a bubble. As a result, they're worried about buying a first (or additional) rental property, and that it might be best to wait on the sidelines for a chance to buy in at much lower prices.
I agree that a property market crash will come, but strongly disagree with waiting until it happens.
If you don't buy now, you can't buy later
If you don't own any property currently, it will be a lot harder to buy during a recession. That's because lenders typically tighten criteria for lending during tough economic times — will be more likely to lend to existing landlords with an excellent track record rather than someone new to the game. That's not to say it will be impossible to buy, but you will be in a much better position as an existing landlord in good standing.
If you already own some property, owning more can potentially open yourself up to bigger deals down the road. The more you demonstrate that you are able to manage real estate and make repayments, the greater the potential for opportunity. Of course, the key is buying at the right price; having property that you are unable to make payments on, or property that loses value substantially during a recession, will hurt rather than help.
Buy for cash flow, not capital appreciation
While property prices go down in a recession, rent tends to remain stable. This is because, as people downsize, property owners become renters. Therefore, it is important to buy property that has good cash flow and view capital appreciation as a bonus. If that investment pays for itself and nets a nice profit on top, you can hold it for as long as any recession lasts and won't be tempted to sell, because you will be getting passive income.
In a bubble or property boom, it can be tempting to buy properties that are going up in value quickly, even if the cash flow isn't great. This is a huge gamble. If the market moves against you, the result could be negative equity, and possibly needing to sell at a loss to savvier investors who decided to play the long game. It is vital to avoid getting caught up in the FOMO (fear of missing out) syndrome, and to focus on formulas rather than feelings.
Every area is its own economy
Just because we are in a property boom doesn't mean that every area of the market is affected. Some have bottomed out, while others are unrealistically overvalued. Finding areas where prices have bottomed out and are now heading back up — due to factors such as new employers moving to the area or a governmental investment in regeneration — is the critical factor. When you find such an area, get to know everything you can about it, especially properties with the potential for good cash flow. During a recession, some areas will be hit harder than others; your job is to find those with good fundamentals that are undervalued in the current market. When a crash happens, these will help protect a local market from the worst effects.
So, is it time to buy now, or wait? That decision will be based on a host of factors that relate to your personal finances and appetite for risk. I cannot give you financial advice, and I don't know your circumstances., but there opportunities out there. I am doing well in the current market, and so are my students. I have also been through a big crash before, and know that when it happens again, cash flow will keep me in the black. At every point in an economic cycle there is massive opportunity; you just have to look for it.
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