When is the best time to invest in property? It’s a good question and depending on how you look at things, easily has the ability to shape your future and even your retirement!
With the cost of living at an all-time high, house prices more than they’ve ever been before and interest rates well on the rise – many people would fairly assume that 2022 is the worst time to purchase property!
However, I’m here to tell you that an outlook such as this could lead to you making a very big mistake when it comes to your ability to create wealth.
To answer the question of, when is the best time to invest in property, we need to take a large leap back and look at the bigger picture – or put simply, take a look at the different stages of your life in relation to when and how you’ll make money.
THE 0-25 AGE BRACKET
At this stage of our life many of us are not making money or are on the path of creating wealth. For the most part we’re children and teenagers who are completely reliant on our family for our basic needs and survival. The focus during these years is usually education – getting through school, and then sometimes university ahead of embarking on a career. If anything, throughout this process we rack up study debt which needs to be paid down as we enter the next age bracket.
THE 25-40 AGE BRACKET
At this point in our lives, many of us are simply getting established. We’re building skills and experience in the workforce and at the same time, having a family, purchasing our first home and acquiring the things we need (or think we need) to move through life successfully. At this stage it can also be easy to take on consumer debt and fall into a cycle of lending. Typically for many people, they’re working hard to get ahead, and very little wealth creation is happening throughout these years. In fact, it’s a pretty expensive time! But the problem is however that by this point, we could have already lived for half of our life – and still, there’s no wealth?! So, when is the best time to invest in property?
THE 40-60 AGE BRACKET
The 40-60 age bracket may not necessarily be the best time to invest but it’s during these years that most people surface for air and start to think about how they’ll fund their retirement years. That’s not to say that it gets any easier to do this though. At this age many still have dependents such as children to support, or even elderly parents – for others, they may still be paying down debt or putting extra towards their mortgage. Either way, with more experience and money smarts, this is the age group where typically most of the wealth during a person’s lifetime is created.
THE 60–80 AGE BRACKET
Then as we enter retirement, we usually see the tables tipped again in the favour of those prime wealth creation years being over as employment dries up and we have to live off our savings for the last couple of decades of our life.
All and all, 20 years give or take to enjoy our wealth doesn’t sound like a lot of time across a period of 80 years (if we’re lucky). Wouldn’t it be nice if we could bring that back a little bit?
The question still remains – when is it the best time to invest in property?
YOU DON’T HAVE AS MUCH TIME AS YOU THINK
Here’s a clue – it’s highly likely that you don’t have as much time as you think you do to create wealth. This means you need to get onto it as soon as you possibly can!
So many people show up to our events and say things like, “I’ve been thinking about investing in real estate for a while now”. The problem is that this “thinking about it” could have easily gone on for 10 years plus without them doing anything.
WHY INVEST IN REAL ESTATE TO CREATE LONG-TERM WEALTH?
Property is a sound and stable investment option which grows in two ways.
Cash flow – money that is paid to you as rent from letting the property out to tenants. In an ideal world this pays off the debt and covers the costs. There are many different cash flow strategies that can be deployed to manage cash flow and ensure that it is put to good use in order to create future wealth.
Capital growth – the longer the time in the market, the more the property is generally worth which creates value in the form equity. Essentially this means you owe much less than what the property is worth and if you sold it there would be a substantial profit. You can also draw out equity and use it to purchase additional investment properties. Again, there are many strategies that can be deployed depending on your goals.
WHEN IS THE BEST TIME TO INVEST IN PROPERTY?
The best time to invest was always yesterday. The next best time is always now. It’s not going to get cheaper and none of us will live forever. We will all hit the end at some point. So, it’s really REALLY simple – the sooner you start investing in property, the better off you’ll be. Time is the strongest ingredient to make the biggest impact on your portfolio and therefore your ability to create wealth earlier on so you can enjoy it for longer.
Every day that you’re not investing is a day that you’re not getting at the end.
WHAT ABOUT JUST WAITING UNTIL THE MARKET IMPROVES?
The short and easy answer is NO! For all of the reasons I’ve mentioned above. Long term, today’s market conditions will not matter. The only thing that will matter is if you’ve invested today.
For instance, over the last couple of months there’s been wide-spread talk about the market potentially slowing down which may make some investors overly cautious about dipping their toes in today. Surely if they wait, they’ll get a better deal?
The problem with this is, while you’re sitting there hoping for a halt in property prices – the exact opposite is happening.
Now not only are you losing potential capital growth by not buying today and gaining more value on your property tomorrow, the longer you wait, the more you’ll pay to enter into the market.
Take this for example. Over the last 12 months we’ve seen around 20 per cent growth (some areas more than others). So even if going forward the market grew at a slightly slower rate of 15, 12 or even seven per cent – growth is still growth and the price of real estate will continue to be more in the future than it is today!
Not acting in the hopes that the market will go backwards is wishful thinking that will cause you to lose out on huge gains. The best time to buy (with the right investment strategy) is today.
WHAT IF I’M IN AN OLDER AGE BRACKET? IS IT TOO LATE FOR ME?
Should you still invest in property if you don’t have a 30 plus year stretch ahead of you to pay off the debt?Does this mean you’ve missed the boat?
The good news is that for most people it’s not too late.
This conversation comes down to your income expectations which will vary significantly from person to person. For argument’s sake, let’s say that the magic number you want to retire on is $100K per year – how many free-hold properties do you need to generate that annual income from rent alone? We can’t possibly predict the market but for this scenario let’s say each property was producing $18,000 a year surplus cash flow – you’d still need at least five or six rental properties to reach your ultimate outcome.
Again, for some people this might be fairly straight forward. But for others they may not have the time, equity or serviceability to pull this off.
HOW TO INVEST SUCCESSFULLY AT 50 OR ABOVE
Luckily when it comes to real estate, there’s more than one way to skin a cat.
Here’s the thing – cashflow is king to keep us solvent, but it is actually capital growth that creates wealth.
I’ve shared this story before but feel it’s a fitting example of the different ways you can use real estate to create wealth at any stage of life while highlighting the importance of just getting started.
Bob and his wife recently retired a couple of years ago.
At the time, Bob’s wife who is a little younger than him was planning to work for a few more years. They sold their family home in order to down-size which left them with $800,000 – a fair chunk of change.
With the additional funds they were planning to pay off the mortgages on their rental properties with the theory that it would create on-going cash-flow, which upon calculation resulted in an annual income of $32,000 a year.
So, with $800,000 paid down, they get $32,000 back each year.
Now I’m sure you’ll agree, with all things COVID aside, $32,000 isn’t going to fly you around the world right…it gives you a bit of a boost, but you certainly don’t feel wealthy. Hence why Bob’s wife felt she would still need to work. On top of that they were establishing how they’d ration out Bob’s Super to make the budget balance.
Really? Surely there’s a better way than scrimping and saving like this after you’ve worked your entire life to enjoy the fruits of your labour.
LIVING OFF YOUR REAL ESTATE GAINS
I asked them what’s the worst that could happen if they didn’t pay off that $800,000 of debt? Say, the rental properties ticked along with their rents covering the bulk of the expenses and they used their $800,000 as money to live off?
That money could potentially give them $150,000 a year to live off for at least six years! Or eight years at $100,000 if that’s what they choose to do. Naturally some years you’ll spend more and others much less but it’s tax-free money that’s yours to do with what you please.
And when that runs out? Then you’ve got your investment properties to fall back on. At that point you could sell one of those and create another $600,000 worth of cash. And so on and so forth.
With the right forecasting and expert financial planning, we worked out that we could get this couple through until the age of 92. But even if they did live beyond that it’s unlikely in the years leading up to that milestone that they will have spent $150,000 a year, so buffers and things like that were accounted for across our scenario planning.
ACTION EQUALS WEALTH!
So, when is it the right time to invest in property? The moral of the story is, if you snooze, you WILL lose. Nothing would make me happier than for you to start your wealth creation journey earlier so you can enjoy it for longer.
That’s why having a robust investment strategy is absolutely essential when mapping out your long-term plans.
There are many different ways to achieve wealth from real estate and with endless opportunities surrounding us, now is not the time to do nothing.
Learn how. Come to one of ourfree property investing seminars.
Here you’ll find out how to take advantage of the current market landscape, as well as the chance to have one of our property experts assess your exact situation and establish a property growth plan that’s right for you.
Register Now For The Free Property investor Webinar.
By Sue Irons
CEO – Positive Real Estate New Zealand
