The usual tactic to invest in property is to wait for the ‘right time’ to buy, and hold back until the market is primed for growth.
It makes sense to do that— we were taught that buying at a higher price means:
- you’ll need higher capital,
- it will take longer to breakeven, and
- you run the higher risk of incurring a loss if the market declines.
But of course, waiting for that opportune moment isn’t a walk in the park. Not even Warren Buffett, the world’s most successful investor, claims that he can predict when the property market will boom or bottom out.
With so much focus on market value, people tend to become speculators who plan for the short term, rather than investors who plan for the long term.
The reality is, even in a down property market, you can still invest and make money if you have a strategy that supports your success.
We’re not suggesting that looking into the market isn’t a well grounded method. It is something you should pay attention to, but relying on it completely is wrong.
Whether the market is strong, steady, or declining, having a strategy will help you manage your investment and turn it into a success.
Speculator vs Investor
Speculators and investors do the same thing on the surface: they buy, they sell, then wait for maximum profit. What differentiates one from the other is the method used in decision making.
Speculators are basically financial gamblers who take higher risks in the hopes of reaping higher rewards. They mostly rely on property prices to determine whether it’s good to invest or not.
Investors, on the other hand, have a more structured way of making money. While investing always entails taking risks, investors are better at weighing up their options and planning for the best course of action.
How to identify what you are
Do you depend mostly, if not solely, on external factors when deciding when to buy and sell property?
Do you take into account and rely on property prices, government incentives, etc. when making investment decisions?
If so, then you’re likely what’s called a speculator.
Speculation is buying an asset, hoping that it will become more valuable in the near future. This is a short term, not to mention incredibly risky, way of deciding when and where your money goes.
Speculation can be and has been effective in reaping great rewards to some, but don’t forget that “high risk, high rewards” also means a much higher chance of failing.
Those who succeeded are often just lucky.
Only taking these factors into consideration means that you’re gambling your money on something that’s completely out of your control. No one can predict the market, so one false move could snowball into monumental losses.
Speculation is a game of luck for the most part, so if you want to ensure that you get handsome returns for your speculations, maybe consider investing instead.
Where speculators hope for high rewards in the short term, investors consider their gains in the long term.
What investors do is apply risk management to making investment decisions.
Investopedia defines risk management as, the process of identifying, analysing and mitigating uncertainties in investment decisions.
Investors take precautionary measures to reduce or curb the risks they identify as much as possible. They don’t rely on elements that are out of their control. Rather, they find ways to make sure that their property will still be bought, after thorough planning.
Investing is buying a property at a good price, renovating it to increase interest and sell-ability, and repeating the process.
If you buy a property in a desirable location and beautify it to make it as presentable as possible, there will always be potential tenants willing to buy or rent despite the higher price.
How investors gain profit regardless of the market trend
There are three market trends, namely, the flat market, the growth market, and the declining market. We are told that it is ideal to invest when the prices are at their lowest (declining market) for the highest ROIs, but that isn’t always the case.
The flat market is the state of the market that’s stable. Supply and demand are neither too high nor too low. In a graph, it would be represented by a plateau phase, hence the term ‘flat’.
So imagine investing when the market is flat. You buy a property at X (where X = $50k). You spend $25k on renovations. Then the property sells at Y (Y = $100k). You gain a profit of 25%, which is very good.
In this trend, the market is expanding; more companies are entering it, ready to do business. They buy new plots of land to develop to accommodate and reinforce high demand.
A higher demand equates to a higher price. And during this period, we are told that buying for investment is not the best option, because you might lose more. But that isn’t always the case.
Taking the base prices from the earlier example, picture yourself buying a property at X+20% ($60k) as the market is growing, then spending $25k on renovations. Because of the price hike, your property is now worth Y+20% ($120k). If you manage to sell at this rate, your profit will be almost 30%. An excellent gain.
During this trend, there is little demand for property. People don’t feel like they need to buy, and it could be due to various factors. Maybe there’s no space in the area to build more apartments. Or maybe a real estate company cannot incur profit anymore to support themselves, so they choose to buy out of the industry. Or, people really aren’t looking, for whatever reason.
Lower demand means lower prices, and normally, this would be the best time to buy an investment property.
So you buy a property for X-20% ($40K). Assuming cheaper costs (due to recession), you’d spend a bit less on renovations (say $20k). Now, your property is worth Y-20% ($80k). You’ll get a profit of 25%, or 20% if renovations aren’t cheaper. Which is still a great return.
Why our mindset has to change
Based on all these scenarios, you can see that investors will still have a substantial profit no matter what the market trend is. In fact, if done right, it is possible that investing during a growth market can even lead to a higher ROI, as per the example earlier.
Rather than leaving buying and selling to matters of chance and luck, having a concrete plan to make your property an attractive purchase regardless of its price will secure your desired gains and lower your chances of losses.
How to invest in any market at any time
Having a well thought out strategy is the only way to remain in control of your investments. It’s just like any other business. If you don’t plan ahead carefully, you have an amplified chance of failure.
External factors like exchange rates and property prices are factors no one can accurately predict. You want to rely less on those factors and instead focus on what you can change and control.
That’s why we put together a strategy called S.T.A.R.R to ensure you invest in US property with confidence.
Tempting as it is, using speculation as a means to gain huge ROIs from your property is not advisable. Not only are you gambling by doing so, you’re also only giving yourself a small chance of winning.
Property investments are not supposed to be a matter of instant gratification. For you to thrive in the market, you want to be an investor who plans for the long term. You will reap better returns, and you have a much higher chance of getting great results the more properties you invest in.
Ultimately, what happens in your investment journey, good or bad, is up to you and how you plan for it.
By focusing on factors that are under your control rather than solely on market prices, you leave less of your probable gains to chance and instead have a traceable method that you can change and adjust to further assure your success.
To learn more on how to shift from being a speculator to a serious investor, why not give us a call? We can help map out a strategy that will work for you in any market – book your strategy call here >>>https://stardynamicinvestments.com/booking-page