Last week we started looking at popular property myths, and I was able to debunk a few… but I have more! Here’s the second part of ‘Debunking popular property investing myths’.
House prices always rise
That may look like it’s true, but I’ve experienced the complete opposite.
In 1995 I worked in an architectural firm in Ireland for the summer, while I was still a student. The most expensive house ever bought in Ireland at the time was sold in Killarney, for (I think) 4.5m. I remember at the time, that was an astronomical price. A couple of years later it sold for around double that.
As the market rose, people were paying 20-30 million for some of the bigger homes and in more salubrious areas of Dublin, most other houses were going up too, but when the 2008 crisis hit, the market fell. In some places development land fell by 60%-70%.
So clearly the market (and house prices) can go up and down. Generally speaking, it’s pretty safe, but in today’s market we’re looking at a situation where inflation is up, and so interest rates are being driven up by that. Affordability is going to put downward pressure on the price of houses, so it’s something to keep an eye on. I do think it’s quite possible that there could be a fall in prices, but the housing crisis in Ireland is so huge at the moment. An agent selling and renting property in Dublin recently told me that two house sales fell through, because the buyers (who worked in the tech sector) couldn’t guarantee they would have a job in a year’s time so decided to pull out of the deal. So house sales are under pressure.
Now in terms of rental, by comparison, the agent told me he recently listed a 2-bed apartment property in Dublin and within an hour he had attracted 600 enquiries – that’s an enquiry every 6 seconds! That being the case, is there any chance that prices will fall? It’s unlikely, but affordability right now is definitely a concern.
Now is not the right time
A great myth. But a myth nonetheless. At the moment, we’re at what looks to be the top of the market, so it could be easy to say now is not the right time, and in general I would say that that is probably correct. But does that mean you should stop looking at the market? No. And that’s because bargains come at different times. You’ve got to understand that motivation is a big issue when it comes to selling, not just the state of the market. If someone is in financial trouble, they need money in a hurry.
Take the crypto collapse, for example. Say for example someone has used their crypto wealth as collateral on a property – thinking they were sitting on hundreds and thousands in profit – they may have put a deposit down on a property with a big mortgage, thinking they could easily afford it. Now all of a sudden, crypto has collapsed, and their wealth has evaporated and they’ve got to get out, because they don’t have the money to cover the price of the property.
If that person needs to sell quickly, you could find yourself a great little bargain.
Only invest when interest rates are low
That’s a myth that has to be busted insofar as you can invest at any time, but be aware of the affect interest rates might have on you personally.
When interest rates are low, asset prices are inflated. That’s what you’re seeing now. We’ve had very low interest rates, for a prolonged period, and now they’re coming back to a more ‘normal’ amount, so what you’re seeing is deflation in asset values. Does that mean now is a bad time to buy? I don’t think it does.
Every time you buy a property, you have to look at the the likely interest rate curve over the next couple of years. If you bought a property at 0% interest, the smart person would realise it wouldn’t stay at 0% for long, and plan for interest rates to rise back to a normal level and budget for that eventuality.
If you buy at a low interest rate and get a locked-in rate, that’s great, but how long will it be locked in for? If you’re locked in for 3 years, what will the increase be at the end of the term? The sensible thing to do in that case would be to save the surplus cash you’ll have with that low rate and create a nest egg to either invest in another property or to pay down your debt. Because when your fixed rate period ends, your income level won’t be going up to match the increased level of your new repayments!
Don’t think that you have a couple of years of easy money to spend as you like – that would be what I did back in 2007 and is something I still regret!
Property is only for experienced people
This is another myth that can be knocked on the head. One of the big things that holds people back (in terms of limiting beliefs), is that property investment is only for experienced people, and that you shouldn’t get into something so risky.
I don’t think that’s true, but I do think you should learn what you can. Get yourself educated: read up on what you need to in order to figure the important things out. But you don’t need to be an expert to invest in property. Tread carefully, find a mentor if you can, and get them to steer you along the right path. But get in as early as you can.
Have a go-getting attitude, but keep a lid on your expectations. Don’t think you’ll become a millionaire overnight – slow and steady wins the race after all! If you’re planning to get in and out quickly, that’s where you can end up taking risks that could end your career very abruptly. Play the long-game and get yourself into a position where you can weather any unexpected storms.
Your net worth might go up and down over the years but that’s the nature of investment. Keep that in your mind and remember that when the market is going up, it doesn’t mean you’re a property genius. By the same token, when the market goes down, you’re not an idiot. You’re just riding the rollercoaster that is investment.
I hope you’ve found this entertaining as well as useful – if you’re looking for more hints and tips be sure to subscribe to the weekly podcast, newsletter, or why not join one of the Livestreams?