By Steve Waters
Being the first to do something carries the opportunity for both great risks and great rewards.
Those who decide to lead the pack with their investment decisions can be hailed as genius when they get it right. Of course, they also look foolish if the chips fall the other way.
The real talent lies in not only consistently spotting early opportunities but also having the courage to act on them.
This is the realm of the savvy pioneer investor – and right now, they are watching Sydney with interest.
So, how do those who lead, and not follow, know when it’s the right time to jump?
Big picture view
There is one a key difference between investors able to pick the best times to buy, and others who wait too long and miss out on some gains.
Successful investors have a long-term mindset. This group recognises that positive and negative micro-movements are part of the overall market cycle, and reacting to them in a knee-jerk fashion can be financially catastrophic.
Smart buyers understand the historically regular long-term waves that property prices ride. They also know the best time to profit is when others are holding back.
The measures to watch
Many countercyclical investors have been watching the Sydney story over the past year with anticipation, not dread.
These are people who know the 10 per cent fall in median values over the past year is a small correction in a larger cyclical wave.
They also understand that despite recent softening, Sydney’s long-term average capital gain has been solid.
This is why many pioneering profiteers are beginning to move back toward the big capital’s real estate.
Pioneers drill down
Successful first-responding investors work from macro to micro.
At present, we have seen Sydney’s overall market trend downward. It was a startling rise in fortunes that brought us here, and a correction was inevitable, but the softening has been compounded by multiple factors.
Tighter lending post-Royal Commission coupled with pending State and Federal elections on the back of party-political instability have all played a part. An oversupply of attached housing has also been a downer.
There are some positives too, however. While building approvals are down, this means supply will tighten in the future as any oversupply is absorbed. Ongoing record low interest rates create confidence too. In addition, Sydney remains a global city that is the economic hub of the nation’s service industries. Overseas migration continues to help drive population as well.
Pioneer investors see this mix of positive and negative news, and want to take advantage of the flux and contradictions. When the news is full of conflicting information, that’s the time to consider re-entering the market.
What else to watch?
So, there are signs that the market is full of opportunity, but what’s next?
Choosing the location and individual property can be a tough task. Setting aside for one moment the all-important consideration that you must invest to suit your own personal circumstances, how do you pick where to park your money?
Everyone has different trigger points as to when, where and what they buy. In our business, we look at various measures including:
- Are we buying a particular property at below cost of replacement?
- Have sale prices dropped back to their past lows?
- Have price movements steadied toward normality?
- Is capital growth (e.g. 10-year average) hitting a long-term equilibrium?
- Is a particular property in a certain area representing such good value that it needs to be bought?
- Also, are local agents buoyant about activity and falling days-on-market?
Recently, we went to a multi-auction event in the Southwest-corridor region of Sydney. We were there on the advice of one of our good local contacts. He suggested there was a property that looked like offering great value to the right buyer – and he was correct.
We bought the four-bed, one-bath 1980s home for $388,000 for our client. Even after doing a little work, he’ll be well ahead on the value front.
That property suited the client perfectly. He was diversifying his national portfolio into Sydney and was prepped with finance. He was able to act and execute when an opportunity presented itself – particularly under auction conditions.
The final secret
The big lesson is this – understanding data and its trends is crucial, but having the ability to decipher it in parallel with ground truth is paramount to buying great value before everyone else sees it.
Smart investors buy opportunity, they don’t buy history. The best profits are made by those who think six months ahead, not three months behind.
Get ready, stay focussed and be active, and you’ll be forging a path to success that others can only hope to follow.