Timing the markets
by Contributed - Story: 81055
Sep 28, 2012 / 5:00 am
Sep 28, 2012 / 5:00 am
One of the most impactful pieces of advice I recall receiving regarding investing was from Warren Buffet. A young school boy asked him what should his investment priorities be? Mr. Buffet replied, “The greatest investment a person can make is in themselves.” I have always found truth in Mr. Buffet’s statement and since an early age, I have not had challenges with cashing in the odd investment to provide seed capital for a new concept or idea of my own.
Since real estate is typically a higher dollar value proposition, it is difficult to create analogies between real estate and stock market investments. There are however some important aspects to buying signals that stock market investors use which are often overlooked by real estate investors.
In the stock market, the principle of Dollar Cost Averaging is used to “buy down” the average value of stocks held in a particular corporation or fund. In other words, instead of buying $10,000 of stock in one lump sum, you acquire $1,000 per month for ten months if you believe there is a chance the markets will fall in your favour. Naturally a return (which always occurs) puts you in a better fiscal position than buying one lump sum.
The ultimate challenge in real estate is convincing yourself it is an appropriate time to purchase. I have addressed this topic in the past in a few ways:
If you are purchasing a property simply to live in, timing should be less of a concern. The only argument to this is if your real estate advisor is suggesting the market is artificially high and may be due for a correction, such as in 2007, 2008.
The second point is that you can only time the market as it decelerates, you will not time the bottom and many people suffer with missed opportunities.
Every REALTOR® in the Okanagan likely has a client or two that is sitting on the fence taking a wait and see approach and the next phone call from the REALTOR® will likely get the response, “It is too late now, I missed the bottom”.
While there is some truth in the statement, it is also true that there are some fantastic opportunities in the market. For example, a recent listing in the West Kelowna area received 5 offers in the first 48 hours. It was a five bedroom home on a pleasant street that needed some TLC. The list price was below $250,000... you do the math. As a first time home buyer, if you were able to suite the property, the mortgage would mostly be covered by your tenants... did you miss the market or are we at the sweet spot?
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