Allow me to explain what I mean when I refer to “The Property Investor’s Tipping Point”. Firstly, a little background.

Risk

The word risk in my opinion is often misused.

• Would wrestling a crocodile be high risk? Depends if it was me or the late Steve Irwin.
• Would sailing solo around the world be risky? Again, are we talking about me doing it… or Jessica Watson?

The level of risk in any undertaking is a reflection of the knowledge and competency of the person involved.

I want to share some thoughts with you that, if understood and applied, have the potential to make you a lot of money… as well as save you costly mistakes.

Investment markets move in cycles… from boom to bust and back again.

As a rule this is what we generally see:

1. A strong trend line in one direction where pretty well “everyone is saying the same thing”.
2. This tends to be followed by a time of confusion in the market, where commentators and investors alike seem to be sending “mixed messages”.
3. Following the time of confusion the trend changes, the market turns and “everyone begins saying the same thing” again.

When you are hearing a consistent message from pundits, investors and journalists etc you can be pretty sure the trend will continue in the direction it’s been going for the foreseeable time being.

The “tipping point”, as I refer to it, is that point where the pendulum slows and begins to fall the other way. It’s where the end of the bungee cord is stretching. The jumper on the end is still descending, ever so slightly… just before she is snapped back in the opposite direction, high above the ground again.

No one can honestly say with complete certainty what that exact point will be in the property market. That point where our market in the blink of an eye seems to take off, catching unaware those “napping”.

In my business I meet a lot of people waiting for the market to bottom before they jump in. The problem is that just before the market turns the confusion (mixed messages) often has them wait just that bit too long. And, like the bungee cord it takes off in an upward direction ever so quickly… and they miss that opportunity.

The reverse can be true as well. A booming market is likely to turn downwards not long after the mixed messages start. I saw that between two visits to Perth in late 2006. My trips were only about six weeks apart. The buzz in papers, on TV and amongst investors on that first trip was obvious. People were riding the boom. During the next trip the atmosphere had changed; there were mixed views about. Some were growing pessimistic. Nevertheless, the vast majority of people were still lining up at raffle-type events to secure a block of land. I began to warn people that I thought the market had (over) peaked and a correction was imminent. It didn’t happen straight away, in fact prices kept increasing… but then things tipped and prices fell to their real value.

Move Before The Tipping Point Ends

We know markets are driven by supply and demand. What drives demand has everything to do with investor confidence. Unrealistic investor confidence may artificially drive a market beyond its true value for a season… but “water will ultimately always find its own level”. You don’t want to be caught buying property in a hysteria-inflated market.

Equally, negative consumer sentiment will artificially hold a market below it’s true value. But again, water will find its own level and markets will recover to their true worth. That’s what happened during the Global Financial Crisis (GFC). Prices fell but did values? It made absolutely no difference to someone that their home or investment property was said to be worth $20,000 or $50,000 less at that time – unless they had to sell or needed to leverage against it. Why? Because it was always going to bounce back in price. Residential bricks and mortar is the most forgiving asset of them all because that is the one investment market that is not dominated by investors.

Since the GFC certain parts of the country, Queensland in particular, have remained pretty flat. Price growth has been as I would have expected or where I believe true values are. So my message to you is that to sell in this bottomed out market is about as detrimental as it was to buy in Perth’s (or any city’s) overheated / overinflated market of early 2007. The key is to ride out the storm; they are a normal part of the cycle (albeit it protracted due to the GFC and ensuing poor investor sentiment).

So Where Are We Now?

So where are we now? I can’t say for sure when the Queensland market will turn. I can say, however, that there are a lot of mixed messages coming through now. For a long while the messages were only of doom and gloom – all pessimistic. Many of them still are… but many are overly positive. Commentators, economists, investors and the man or woman in the street no longer agree. They are no longer all singing the same tune. To me that means we are in the tipping point!

You know what’s so predictable – yet so illogical. Most people will only buy an investment property when ALL the messages are positive – i.e. a seller’s market. Equally as silly; most people will not consider buying when ALL the messages are negative – i.e. a buyers market.

As far as the Queensland market is concerned it is undoubtedly still a buyers market so it would obviously make sense to be looking to add to your portfolio, not trying to sell it down

Right now there are still a few genuine bargains to be snapped up. But beware! The message has changed. It’s no longer all negative. Many are saying only good things about the market . Rents are rising again. I believe with all my heart that we have entered “the tipping point”.

I can’t say for sure how soon or how long it will be before the market is propelled in the opposite direction (i.e. UP) like that bungee jumper propelled up from the lowest point of her jump. I can say that I believe the market has absolutely bottomed and the only way from here is up! The Queensland property market is not going any lower… it’s all UP from here!

If you are hurting because of the holding costs you have been carrying through this extended flat period in the market; please don’t sell! Speak to an mrd Property Mentor about your options. Between our Property Mentors and finance team we will demonstrate the mrd Advanced Financing Strategies and show you how it may be possible to free up your cash flow without selling your asset. There is absolutely no charge or obligation to have us do this for you; it’s all part the mrd Customer Care Program.

Let me leave you with one more thought. Queensland has lost a lot of dwellings during the floods and cyclone. Not only has that negatively affected the supply of housing, the need for thousands and thousands of tradespeople etc to undertake the reconstruction means the demand for housing is already growing by the day. This in turn is forcing rents up. Seriously, “blind Freddie” can see why the tipping point is likely to be a short one. Then the trend will change and the message will no longer be mixed. That’s when we move into a sellers market and see the price growth we all know is imminent.

Everything To Gain… Nothing To Lose

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Nick Lockhart
Our Customer Care Program works for you… because investing is personal!

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