Let’s consider timing vs time in property. You have probably heard the phrase “Time in the market beats timing the market”.
Here’s why time in the property market doesn’t beat timing.
WHO SAID THAT AND WHY?
First, the quote “Time in the market beats timing the market” was made in relation to investing in the stock market. Ken Fisher quoted it. He is a billionaire investment analyst, author, and the founder and chairman of Fisher Investments. His point is that typically people invest small amounts of money in the stock market on a regular basis (i.e., monthly) over a long period of time.
This concept of regular smaller investments is called dollar-cost averaging. It means sometimes you will be buying stocks at their cyclical lows. Other times at cyclical highs, but the average cost per stock smooths out the ups and downs. This is a risk minimisation strategy. To prevent buying all, or a lot of, stocks at a cyclical high. So, in that regard timing is not important. Mr Fishers quote that “Time in beats timing” holds true.
However, in property, it’s not a race between time in and timing. When it comes to property investment most people typically invest large amounts of money on an irregular basis.
So in the case of investing in property, timing really does matter, A LOT.
If you only invested in one property every 5 years you probably wouldn’t want to do so at a particularly high point in the property cycle. Or just before the slump arrived.
“Timing in property compliments time in property, it doesn’t replace it”
― Kieran Trass
EXACTLY WHAT IS TIMING IN PROPERTY?
I go so far as to say that timing is everything in property investment. But when it comes to investing in property timing is not what most people think it is.
Most think it simply means just picking the so called bottom or top of the property market. This is evidence of a lack of research. Dare I say it is like a “kindergarten view” of timing when it comes to the property market. That view is an oversimplification and perhaps a convenient view for some to promote for their own purposes. Timing in property is so much more complex than that. However, you need the context of entire property cycles to grasp the importance of timing.
To understand it’s context when it comes to property investment. You can only appreciate the nuances of timing the property market when you look at it through the lens of the traditional entire property cycle. A case in point is that there are specific times cyclically when it makes perfect sense to land bank. Other times it’s not particularly financially viable. This is usually dependent on where the market is in relation to its entire property cycle.
There is often a common metaphor used once strong growth in property prices occur, within a short timeframe. I’m sure you have heard it before… “The property market is a bubble about to burst”.
Property crash calls are pretty much made every year when property values are rising. However there is often little or no consideration given to what is fundamentally supporting such strong growth in values. There is much emotion surrounding the dollar value of property rather than what is causing the value growth.
Naivety reigns amongst those ignorant of the property cycle and the fundamentals that underpin property values. Views like “prices are solely being driven up by a bunch of greedy investors” can dominate. However they often have scant regard to, or ignorance of, the genuine underlying fundamentals of values. Such growth could have been inspired by sheer greed or even cheap credit.
However to understand if that’s the case or not, it pays to carefully consider why such growth has occurred. Rather than just assuming too much growth has occurred just because it has been strong growth. Sometimes there are sound underlying reasons that justify a surge in values.
The trick you need to employ to find out whether values are in a bubble or not is knowledge.
Not here say, not emotionally or vested interest driven rhetoric.
Pure and simple knowledge, although that can sometimes be quite complex!
Do your homework, understand the property cycle and know your numbers.
In the end the debate around Timing vs ‘Time In’ property is no contest. They are not in a race to beat each other.
They compliment each other.
See next Articles: Why the Property Cycle is Predictable
Is the Property Cycle Different This Time?
The Three Phases of the Property Cycle
