Buy Now or Wait For The Dip?
Should I buy now or wait for a dip?
As investors we are constantly told you make your money when you buy not when you sell. If this is the case should you be investing in a red-hot market like what we are currently experiencing? This is a question that can be asked in all markets, and for all asset classes. Stocks, real estate, bitcoin, they are all the same. Let’s look at stocks. If you had purchased any index fund in say 2015, after the market had already enjoyed many, many years of amazing growth, would you have paid too much? Well fast forward to 2021 and it would look like you were quite the savvy bargain hunter. But if you had purchased the same index in January of 2020 and then needed to sell in April, you would have looked like a horrible investor….or were you?
Almost all investment success comes down to time. The longer you wait, the more successful you will be. Using stocks as an example regardless of when you buy, even at the peaks before whatever crash we talk about, your purchase would happily be in the black when enough time passes. This brings us to the idea of what type of an investor you are and how that impacts the markets you buy in.
Let’s say there are two main types of people; investors (and speculators) or traders. Traders are constantly moving in and out of the market with the goal of making smaller (or sometimes very big) gains on each investment. If this is their occupation, they derive the bulk of their income from the profit on the flip. They buy something for $10 and sell it for $20. These investments often have very narrow time windows of days to months depending on the strategy. It could be simple flip to another investor or a buy, renovate and sell to an end consumer or investor. Traders are very sensitive to market fluctuations. Their fortunes can be wiped out or balloon with major market moves. For traders the goal is always to buy the asset as low as possible to reduce risk and maximize upside potential. For a trader a hot market like what we are experiencing in real estate squeezes margin because competition drives up prices. This does not mean you can’t successfully trade in and out of deals, but it becomes more work with less profit.
An investor on the other hand is much less sensitive to market ups and downs. In the current market the price of all homes will be higher, but when we expand our time horizon to 10 or 20 years, the purchase price has much less impact on our overall plan. When we factor in rental income and very conservative price appreciation, the purchase price has very little impact on total wealth accumulated over two decades. Now within those 20 years there is every chance you may experience a crash or two, but over time the recovery brings you back to where you were pre-crash. The typical investor buys at the high with “fear of missing out (FOMO)” and sells at the low with “fear of losing everything (FOLE)”. A successful investor buys for more reasons than just price as part of a solid overall wealth building plan.
So for an investor, the best time to buy is whenever you are ready and able to buy. Who is to say Florida real estate will not be 20% higher this time next year. No one knows. Of course it could be 20% lower too. But as long as your fundamental investing thesis remains intact it doesn’t matter. If you still like the area, your tenant prospects remain solid, and you don’t have an urgent need for the funds you are using to invest, just hold tight and let your real estate work its magic. For a refresher on our wealth concepts checkout out this series from David.
So there you have it. In a nut shell the best time to buy is when you are ready to buy and can hold tight for years to come to weather any storm. Or if you are a trader just remember, what goes up will eventually come down. Prepare for both sides of the mountain and you should be fine.
Also a quick reminder if you are looking to sell your property, we are a full service shop and can look after that for you as well. We do more than just find you amazing homes to buy, we can help you sell them for top dollar too.
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