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Hot prospects in a cool market
by Eynas Brodie (Australian Property Investor)
Gold Coast Bulletin | September 2008 ONE could be forgiven for thinking that it's a bad time to park money in real estate. Although on their way down, interest rates are still high and affordability remains a problem, particularly for first homebuyers.
However, if you look back over the course of history you will find that there is nothing really new here.
So is it a good time to be considering bricks and mortar? Some of the world's most successful investors will tell you yes. But why?
Let me introduce you to the phenomenon of countercyclical investing, which is also known as contrarian investing. Quite simply, this form of investing is about going against the crowd; in other words, not adopting a herd mentality. Counter-cyclical investors believe they make their money when they buy, so they aim to purchase property below market value. That way, they maximise the capital gain they stand to collect from the investment.
This makes sense when you acknowledge the fact that if you buy an overvalued asset, for example during a property boom, it will take you a lot longer to make a good return.
Opportunities are always out there for counter-cyclical investors, but the number of opportunities is at its highest when the property market is cooling.
Ironically, this is when many people don't want to buy. They think that because others aren't buying, they shouldn't be either. A lot of people believe there is less risk of investing in real estate when everyone else is doing it.
"That many people can't be wrong," they convince themselves.
Of course, by the time the boom arrives, the countercyclical investors who had the courage to step in when the market was down have made the biggest gains. Once the crowd eventually catches on, prices are driven even higher - often to artificially inflated levels delivering the early investors even greater profits.
So while on the surface it appears that buyers are few and far between right now, rest assured there are a number of investors who are quietly setting about growing their property portfolio and developers who are land banking for the future.
They know that when there's an abundant supply of real estate on the market, they can gain a real advantage. They can acquire quality assets for bargain prices, putting them in a strong position when the next upswing arrives and fasttracking their wealth building goals. And the upswing will arrive. Very rarely, if ever, have property prices gone down over the long term.
Remember, when the market is down, ultimately there's only one direction left for it to go. The same rule applies when the market is up. Suddenly being the odd one out in a crowd doesn't seem so bad.
• Eynas Brodie is editor of Australian Property Investor magazine. She lives and invests on the Gold Coast.
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