I used the graph below to pick two points in time to measure the importance of \u201cgood timing\u201d.<\/p>\n
![\"property](\"https:\/\/i0.wp.com\/www.prosolution.com.au\/wp-content\/uploads\/2017\/03\/market-timing.gif\")
<\/a>property market timing<\/p><\/div>\n
You will notice above that the median property price in Sydney fell between December 1988 and Dec 1990. Similarly, in Melbourne, the market fell between December 2007 and March 2009.<\/p>\n
I considered the question; what if you had a crystal ball and instead of buying in 1988 in Sydney or 2007 in Melbourne, you held out and purchased a property at the bottom of the market in 1990 in Sydney or 2009 in Melbourne? How much better off would you be?<\/p>\n
The table below illustrates the difference in equity and overall percentage returns over the total holding period.<\/p>\n
| \n The value of perfect timing<\/strong><\/p>\n<\/td>\n<\/tr>\n Holding period<\/strong><\/p>\n<\/td>\n More equity today<\/strong><\/p>\n<\/td>\n Excess compound return from \u201ctiming\u201d<\/strong><\/p>\n<\/td>\n<\/tr>\n 8-9 years<\/p>\n<\/td>\n $70,000<\/p>\n<\/td>\n 3.1% p.a.<\/p>\n<\/td>\n<\/tr>\n 26-28 years<\/p>\n<\/td>\n $52,000<\/p>\n<\/td>\n 1.6% p.a.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n The percentage returns look significantly better. However, in fact, the dollar value difference isn\u2019t that significant at all. The investor with poor timing in Sydney still has over $860k of equity in his property (versus $915k for the perfect investor). In Melbourne, the less successful investor has $255k (versus $325k).<\/p>\n This suggests that timing really doesn\u2019t have a huge impact \u2013 even if you get it terribly wrong. In fact, the longer you hold onto your investment, the less timing really matters. I propose that if you plan to hold your investment property for 20 years or longer, timing is irrelevant.<\/p>\n Importantly, these investors that had \u201cpoor timing\u201d could have been a lot worse off. Imagine if they hadn\u2019t invested in property at all? In this case their equity would have been zero!<\/p>\n The fact of the matter is that no one really knows where the market is now (peak or otherwise) and what it will do over the next 2 to 3 years. No one. Zero. Nil. Zilch!<\/p>\n |