Property investment. Buffett is a smart investor. Be like Buffett.
In a New York Times article nearly a decade ago, famed investor Warren Buffett wrote, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” When Buffett wrote this he was referring to the stock market, but it is equally applicable to the property market.
It’s an old axiom that the key to successful property investment is patience. There is a common saying that if you sit on property for long enough you will make a return – hence, “as safe as houses” – but if you buy in at the right stage of the cycle you may be able to maximise that return over a shorter period of time.
The recent history of the Melbourne property market illustrates the importance of timing, lending credence to this observation and the applicability of this view to the property market.
“CoreLogic data tells us that in January 2011 the median house price in Melbourne was $500k, by January 2013 it was $484k and by January 2017 it was $640k,” DHA Chief Economist Dan Carton said. “So, if you invested in market in 2011 you would have made 4.2% capital growth per annum through to 2017. In contrast if you invested at the bottom of the current market in 2013, by 2017 you would have made 7.3% capital growth per annum.”
By applying Buffett’s view, property investors can enter the property market when prices are flat (or have even seen price corrections) and the sentiment is not positive. By entering the market at this point, investors may buy in while people are afraid and enjoy the returns when the market picks up again.
It is of course not that simple and other factors, such as the health of the local economy and population growth, should also be considered. As with other types of investments, it is important to seek professional advice.
“It is a reasonable argument that once a market bottoms out it could potentially sit there for an extended period,” said Dan Carton, DHA Chief Economist. “And in some markets this could be true, meaning a long-term hold strategy is an option to maximise your earning potential.”