Why Property Investors Are Greedy When Others Are Fearful

Why Property Investors Are Greedy When Others Are Fearful

And how families can learn from their actions.

There are many things in life we cannot control; weather, time, cultural shifts.. and the property market. To be more specific, when boom or bust periods occur. Sure, there are market indicators, economist reports, real estate agent opinions, and seasonal trends. But in reality, no one knows exactly when the market will come and go. And property investors thrive off this.

Investing in your property can seem daunting when considering macro factors that can influence a successful project, most notably weather, interest rates and building costs; and whilst these are considerations to ponder when choosing when to build a new home, there is a small group of people who fly against the wind, and in turn, create profitable outcomes by taking advantage of the boom and bust nature of the property market. This small group of people are known as Property Investors.

Whilst you may not consider yourself a property investor, you may already be one. Have you purchased a property? If yes, you’re an investor. Have you re-decorated the house? Improved the landscaping? Overhauled the kitchen? If yes to any of these, then you’re an investor.

In the article below I will go into detail on why investors love a slow market, and how you can apply the same critical thinking to your investment, whether you’re flipping a house, or building your forever home, this article can help shape your thinking.

H0617 Balgowlah Heights Project - In Construction

If banks can’t predict interest rates, neither can you

Nothing scares off investor competition more than interest rate hikes and its media commentary. Whilst borrowing capacity is at the forefront of most public thinking when making a big purchase decision, it seldom will impact you the way you think.

Can you accurately predict what the cash rate will be in 9 months' time? Banks can’t, and neither can investors. However, they know that the cash rate uncertainty shouldn’t stop them from planning to redevelop. From first design engagement to construction starting, it’s on average a 9-month process with the designing, planning, engineering and demolition filling that 9-month gap. Up to the point of the construction starting, the cash rate will likely change. In fact, it isn’t until a contract is signed and finance is secured that you are locked into the fixed or variable rate – which usually occurs right before construction begins. If you’re lucky enough to have had an interest rate decrease in those 9 months by your bank, then well done, you’ve used those 9 months to be ahead of the indecisive majority.

It's akin to holding off from planning a big holiday because you’re unsure of what the exact weather will be at the time. Without taking the steps to commit and plan, the dream may never happen, and holding off might mean the opportunity slips by you every year, or every cycle.

Equally, the full impact of the repayments isn’t entirely felt until the completion of the new home. Drawing down on the full facility isn’t completed until the house is completed, meaning the full cost of repayments isn’t realised until you get the keys, and by that time the variable rate may have changed, and so too the property market and the best part is that you’ve improved the value of your property whilst many have held off.

H0621 Willoughby Santorini Project - In Construction

Beating the mad rush

As the property market ebbs and flows, so too does the industry’s ability to process the work. Trying to push forward with a new home during a hot market is like trying to push a rabbit through a snake. There is only so much capacity the industry can take. This doesn’t just apply to tradespeople, but also councils, certifiers, surveyors, suppliers, engineers, architects and banks – these are external stakeholders that are outside of builder's control, but can have just as much impact on timing.

Reflect on the 2020 HomeBuilder grant—a Federal Government initiative intended to shield the construction industry during COVID. Instead, it had the unintended consequence of overstimulating and overwhelming the sector. Fast forward to today, and the Federal Government's Housing Accord, with its ambitious target of 1.2 million new homes by 2029, is poised to create a similar surge. Simply put, those planning to build a new home should act now to avoid the inevitable rush that will accompany this initiative. This is why savvy investors stay proactive; they understand that if they face industry-wide delays, they have only themselves to blame.

Using the property’s value as a rainy-day contingency

Your property is an asset and the timing of when you invest in it can have a huge impact on its overall value.

Understanding that trade and supplier prices are at their most lucrative in a slow market, using that period to invest in your property can yield savings on construction costs and in turn, improve your property's overall value, giving a level of financial security. Not all property investors buy and flip. Some buy, invest and keep it on the books as an asset. Equally, many families can use this framing as well.

For many families building their dream home is something they only ever hope to do once. For them, it’s meant to be a forever home that stays with the family for life. However, life is unpredictable. You get offered a big role in another city, you decide on a sea change, or the new neighbours are too noisy; whatever life throws at you, having the security of a property with improved value means that you have a healthy rainy-day fund.

‍Gladesville Project - In Construction

Learning from the greats‍

Warren Buffett frames it best when he said “Be fearful when others are greedy, and greedy when others are fearful”. So too Buffett’s business partner Charlie Munger when he said “I figure that I want to swim as well as I can against the tides. I'm not trying to predict the tides.”

There is no doubt that property investors follow this advice when it comes to finding market inefficiencies in the property market, and equally, families have the opportunity to follow the same advice as well.