The answer is of course as far back in the past as possible. Sadly I am not in the time machine business and we can only ever act in the present, which does limit our options! The choice becomes act now or delay and act later or not at all?
When investing we expect reward for our investment but the risk we face is primarily of house prices falling. That reward comes in two ways for the capital investment, rental yield and capital growth.
Being unable to predict the future makes us look back at the past for guidance and certainty or scare stories. We tend to find what we look for either way! If you bought in 1988 it would be several years before you saw an increase in the value of the property and if you bought in 2007 it would be 2012 before property prices returned to those levels.
Prices Fall – Keep or Sell
So what would you or I lose if we bought and the market fell and we had to sell when the market was against us? If we had a mortgage for a high amount we might face negative equity and would have to make a capital repayment at the end. If we bought with a small mortgage or non we would face a reduction in the capital value remaining after the property sale.
As I say to my wife when we discuss this, we would be far better to ride a downturn in prices and wait for capital appreciation. You have to be patient but within ten years of a market falling we are out of the negative property value situation if we take the last two declines since 1973 as examples. If property prices had just fallen where would you most want to put your money – I would want to put the money into property.
We could turn this on it’s head and say that for most years if you invest steady growth lay ahead for a sustained period. In the long term performance has been historically good, but short term investment carries more risk.
So whenever I talk to people about property investment I caution them to think about the long term and invest for that rather than a set period. The property market has risen over the long term and at the moment remains short of stock but it has not been a slow and steady rise, peaks and troughs in the market have written many a newspaper headline.
