February 15th 2019
The questions we need to tackle. What to buy? and When to buy? Let’s start with the question of when.
I personally believe that while some times are perhaps better than others, there is no bad time to buy an investment property. Let me explain why I say that. If you were a speculator or a renovator, for example, that would not be the case. Then timing is critically important. Markets as we all know are somewhat cyclical in nature. They can be appreciating, mildly or rapidly. They can be static. Or on occasion they can be losing a little ground. Both the speculator and the renovator are planning on a short ownership period with an anticipated sale in the near future. To get the profit they seek, the speculator needs an appreciating market. And for the renovator, the market if not appreciating, must at least be stable.
This is not the case with the investor. The reason being that he has no intention of selling. If the market goes up, he will realize an increase in book value. In net worth. But it will have no effect on his cash flow. That comes from rent. So as long as the property is rented and the mortgage is in place, a change in market value will not impact his cash flow. And even if the market were to dip, it will recover over time. (Just think what your parents paid for their first home, or what you paid for yours for that matter.)
Let me give you a couple of personal examples. In the mid-eighties I purchased 4 semi-detached properties (I still own them of course). At the time I paid $67,500 each. That may have been a little on the high side. A better purchase would have been $64,000 each. But they rented and they carried. Today, just over 30 years later, they are worth about $300,000 to $320,000 each, and they are paid off. Does it really matter now whether I paid $64,000 or $67,500 at the time? Not in the least.
Then in 1990 I purchased a single family home. It was at the very peak of the market and I paid $160,000 for it. The market as you may recall slid into recession shortly thereafter. Within about a year that property was worth about $140,000. Would have been better if I’d waited and bought then I suppose. But wait a minute. Today the property is worth somewhere in the vicinity of $450,000 and the mortgage has been paid off by the tenants. Here again, a shift in the market made no difference whatsoever to cash flow, and over time I more than made up for the temporary paper loss.
In the Book of Ecclesiastes, in the Scripture we read:
“He that observeth the wind shall not sow; and he that regardeth the clouds shall not reap.” ECC 11:4
The renovator and the speculator have to keep a close eye on the ebb and flow of the market. Timing is everything. Not so with the investor. I have been at this a long time. I purchased my first property back when I was a student at university. Now I am at retirement age (with no plans to do so). I have purchased property in hot markets and in sluggish markets. I have never sold a property unless I have moved geographically. I can say absolutely that I have never bought a property that I later regretted. Never. But I have not bought a lot of properties over the years and regretted that decision.
Over the past number of years I’ve heard the economists and especially journalists forecast a coming downturns in the market. They are doing it again. I’ve never paid attention to these before and I don’t now. I purchased another investment property in this past year. And if you can you should too. Don’t ‘observe the wind’, don’t ‘regard the clouds’. Don’t listen to the sideline ‘experts’. If you can possibly do it, jump in now. Years from now, looking back, you too will find that you have no regrets about the purchase you made.
Next issue we’ll take a look at the questions of what to buy. There is no single one type fits all solution but there are a lot of factors you’ll want to take into consideration in making the decision.
Wayne Quirk, Author
“THE MONEY MACHINE”
wayneq@remax-gc.com