More from Opes:

• Dream home vs invest – What should I do?
• Should I Buy, Should I Sell? – Should I Wait, Should I Invest?
• Paying down debt vs investing - which strategy is better?

Investing now (pros and cons)

Let’s go through the reasons investing today could be a good idea. 

#1 – Property prices tend to go up 

No-one has a (working) crystal ball, but property prices tend to go up over time. 

82% of the time NZ property prices rise over a year; 18% of the time they go down over the year. 

That’s according to the last 32 years of data.

If you wait 5 years to invest, chances are you’ll pay more for that property. 

That has two downsides. 

First you’ve lost out on the potential gains – the increase in value. 

But, then you also need to be able to afford the bigger mortgage you’ll need to take out to buy the place. 

But how much could prices really go up?

Let's say you buy a $600,000 property today. 

In an average market, in 5 years that property could be worth $800k. That’s if the market grows at a typical average rate of 6.8% 

So, you could make $200k in equity over the first 5 years in this example.

But, not every market is average.

In a blazing hot market, prices rise faster. That $600k property could be worth $990,000. That would create nearly $400,000 in equity.

But property prices can go down too. In a cold market property prices could dip. But, by my model, you might still see a $40,000 gain over five years. 

If the market performs as it has in the past, there is a 75% chance that you make at least $40,000 over 5 years. That’s just in terms of the house price going up.

#2 You know you can get the mortgage

I often say to investors,“The best time to invest in property is when the bank is willing to lend you the money.”

2003 was a great time to buy property. Back then you could buy an investment property with a 5% deposit; and your second investment only needed a 10% deposit. 

The banks had lending rules, but they didn’t have the Reserve Bank’s Debt-to-Income Ratios or LVR restrictions. 

Since then, banks have tightened their lending criteria, and there is less wiggle-room. That’s a long way of saying that it’s got a lot harder to get a mortgage approved today!

That trend will likely continue. The bank might lend to you today, but they might not in a few years. 

Similarly, your financial situation might change. You might earn a good income today, but your income could go up or down. That may mean you can no longer get the mortgage for a property.

So, sometimes investors say to me: “I’m going to wait a few years to invest.”

Then, in a few years, they find the bank isn’t willing to lend them the money any more. 

#3 You get more time in the market

CoreLogic often splits property owners into 2 categories. 

On one side you have those who make money from property. In other words the owner sold their property for more than they bought it for. 

On the other side are those who lost money in property. In other words, the owner sold their property for less than they bought it for. 

What do you think is the main difference between the two groups?

The people who made money through property owned their houses for an average of 8.5 years. The people who lost money through property owned their houses for an average of 2.9 years. 

It’s time in the market that counts more than your timing of the market. 

If you’re 40 today and you plan to invest in property … you have 25 years in the property market before you hit retirement. If you wait until you’re 45, then you only have 20 years in the property market before you stop working. 

Waiting to invest for 5 years (pros and cons)

But, there are benefits to waiting to invest too. Let’s go through the benefits of waiting 5 years to invest. 

#1 – Property prices could go down

Property prices could go up and down. 

If you buy today, there is a chance you can lose money.

For instance, if you bought a property in 2021, you might have bought at the top of the market. 

One investor I know bought a property for $900,000. Two years later, it was only worth $850,000.

They lost an average of $25k a year. 

If they had waited to invest they could have bought this property cheaper. 

While property prices often rise, they don’t always.

So, if the market isn’t at the right part of its cycle, leaving property for a few years can mean you are waiting until the time is right. 

#2 – You might earn more money and be able to afford a better house

Your income tends to go up over time, so if you wait a few years maybe you’ll earn more. And over the next few years perhaps you can save more of a deposit. 

That could mean you’re able to afford a better house (and a better investment).

One investor I worked with had 2 kids (ages 2 and 4). So, they were spending $400 a week on daycare. That’s why they couldn’t afford to invest in property. They didn’t have the spare cash to top up a mortgage.

The right plan for them was to wait a few years until the kids were older. Once the kids were at school, they could afford more money to invest in property. 

In this case, it’s reasonable to say: “I’m going to wait a few years.” And that was the right decision for them.

Are you thinking logically or emotionally?

When investors say to me: “I'll wait 5 years”, they often say it from a place of uncertainty. 

They might think: 

• “Can I really afford this property?”
• “What happens if property prices go down?”
• “Is this really the right time in the market?”

So when deciding whether to wait, it’s essential to decide if you’re thinking logically or emotionally.

Because the future feels uncertain – investors often hope the future will feel clearer in a few years. But the truth is, investing always feels uncertain.

Five years from now, you’ll know what happened over the next 5 years. But you’ll still have no idea about what will happen in the following 5 years.

Uncertainty doesn’t disappear.

Similarly, it’s very easy to look back at a previous property you bought and see the gains (or losses) and think: “Of course, that was what was going to happen. It was obvious.”

But, if you’re really honest with yourself, you’ll probably think: “Yeah I did feel uncertain about that decision at the time.”

There are logical reasons to wait and not buy property today, but just make sure you’re realistic about the future always being uncertain. 

One trick is to ask yourself: 

• “What am I waiting to see in five years?”
• “What would make me feel ready to invest?”

If you have a clear answer to that … perhaps you are thinking logical. If you don’t really know … then perhaps you’re using the idea of “waiting” as a way to procrastinate.