There are many different strategies which you can utilise when looking at your property market investments, some are riskier than others and some offer long term more defensive exposure. However, take this phrase which Lord Rothschild lived by and see if there is any sense in buying early and selling early :-
“The reason I made so much money was the fact that I always sold too soon”
So what does this term actually mean and is it a strategy which can work in the property markets of today?
At the end of the day the property market it not a complex arena when it is stripped down, it is basically supply and demand. The demand is created by a vibrant and prosperous economy (local, national or international) and the supply is introduced by those looking to take a profit and move on or those looking at a larger property for the future. Simple…..if only.
Below the surface there are so many different issues which you need to be aware of such as :-
Location, location, location.
Future of the area / country
While these are probably the main elements behind any property investment again they are just the tip of the iceberg and we could list many more different factors which may be local, national or international. Finding a strategy which works for the market in which you are looking is vital but you also need to find an investment strategy which you are comfortable with – if you are not at ease with any one investment strategy then don’t use it as it could lead to you making wrong decisions in the future.
Buying early covers a multitude of sins from entering a new emerging market at a very early stage to taking a ‘flyer’ on a new property development while others consider their options. There are also many other ways in which you can use the buy early strategy but the main risk each time is that you may have got your timing wrong , and your money is tied up for longer than you anticipated, or you have simply chosen the wrong market and you might actually make a loss on your investment. When you look to buy into a new market or a new development at an early stage the risk to your investment funds is much greater than waiting until the venture or market has found its feet, but the rewards can be so much greater!
While many people may look at the idea of selling early and wonder why on earth you would even consider this, if you ‘knew’ a market had further to go why would you sell before the top?
There are two things which drive investment markets, which include the property sector, and they are fear and greed. The fear that you are going to make a loss or markets may be about to turn and the greed factor when prices and valuations are pushed up to levels which are not sustainable in the longer term – often setting a market up for a large fall in the future. So what are the benefits of selling too soon? Why did it work for Lord Rothschild?
One perfect example where you would have protected a large part of any investment gain by selling too early is the Dubai market which is going through a tricky patch at the moment as the financial crisis starts to hit the Middle East. This is a market which has grown enormously over the last few years and many people have made good money but the slowdown has caught many people by surprise. Property investors are now starting to retreat from Dubai for the moment and while there is no big fall in prices, buyers are drying up and prices are starting to soften.
Just a few months ago many people had been suggesting that 2010 was the time to sell, the time when supply and demand would cross and there would be a softening of property prices in the region. So why not wait until 2010?
The simple fact is that as 2010 approached you would see more and more property investors starting to get nervous, wondering whether they should be selling before the supply and demand figures cross. So this would actually be a self fulfilling prophecy in that the sellers would get the upper hand, buyers would site back and wait until the prices soften and the market as a whole would start to drift back, nothing serious but you would see your asset values peak and then start to fall.
History has shown that as soon as the investment community comes to a consensus decision the timescale for that will start to shorten and slowly but surely investors will start to sell ‘too soon’. So the clever investors are the ones that look to sell their properties ‘too soon’ before the rest of the crowd realise what is going on. The benefits of this are two fold, demand is likely to remain strong for property and there would be no talk of prices being over valued in the short term. In essence you would be selling into the ‘greed factor’, the investors who think they have missed out and want a slice of the action now.
While buying too soon has more risks than selling too soon, they are both attractive for wholly different reasons. By buying ‘too soon’ you will likely be buying at the bottom of the property cycle, assuming you get your forecasts correct, but there are risks that some unforeseen event such as the credit crunch might creep into the picture or other similar situations.
As for selling ‘too early’ there are no risks involved in this because you only know the value of you investment today, not tomorrow, not next week and not next month. The trick to making money on any investment is to sell before the market as a whole turns as this will ensure that you are selling in the uptrend, buyers are still out there looking for assets and prices are strong. If you wait until the top of the market you might be the last to ‘turn out the lights’ and see the value of your property fall as desperate sellers enter the fray.