The Property cycle and my personal journey
Riding the Property Cycle - My personal story
As any other Mortgage or Financial Advisor will attest, we are asked many things relating to Property, Lending, Investments, and the Economy in general - daily. It’s par for the course as a Financial Advisor.
One of the main questions we are asked is “What do you reckon will happen to property prices”?
So, I thought I would provide a little background on my own experience with property cycles, values, and the impacts of economic cycles on our property journey.
So, here we are, after a long period of Property Value Increases, we are now in a declining market. So, how far will it go and what considerations could you be making?
The following is a short outline of my personal experience - it’s a true story!
It was July 2005. My wife-to-be and I had just settled back in Auckland after 12 months of travel across Canada and we purchased at a time when the market was buoyant. We purchased a property that was subdividable and learned the hard way that, our budget of approx. $50K was soon to blow out to over $100K and put us through some challenging times. My Job was unfortunately a little un-stable and so we found ourselves in a more financially stressed position than we had expected. We had a wedding coming up - and at the same time interest rates were rising.
Despite having the section for sale for some time, we couldn’t sell the section and eventually had to sell it for bottom dollar to balance the books (and made no money).
The person that bought it built a 3- or 4-bedroom home and sold it within 18 months for a stack of money. that was approximately 2005/6 - both the front and back properties are now valued at a total of approx. $2.7M. We had sold the section for around $170K and the front house about 5 years later for around $700K.
Just after selling the section and getting married a few months later – we moved to Wellington and within a few months purchased a property in Wadestown – it was a still a “normal” market at this point – we purchased a home and income. By this point, my employment was much more stable, and my income was substantial – as was my wife’s…..until we started a family.
Fortunately, by this point we had learned some lessons from the past and our confidence had grown.
After about 18 months and with No.2 on the way, we needed to move house (long story but my wife was temporarily paralysed and couldn’t manage the steps to our house and never returned to the house again).
By now we understood leverage and the importance of income. Having a home and income provided 2 income streams and assisted us into the purchase of a new family home – with drive on access and internal garage…. We lived there for 3 years before moving to, and purchasing a family home, in Tauranga.
However, given the market was relatively flat at the time, we decided to retain our Wellington family home as well as our dual income property (the previous previous family home). We were now in a position where most of our overall mortgage costs were covered by rental incomes from our rental properties that we had geared up and leveraged to purchase our Tauranga home.
So, what’s the point of this story?
Panicking and selling out when the market is slow/flat/in decline isn’t always a smart move – unless of course you need to (and sometimes you do and should).
Instead, these times present opportunities – if you have available equity and good stable employment with good income, the opportunity may exist to leverage that equity and your asset to buy whilst the market is less frenzied. Its not for everyone but it’s certainly an option that may be suitable for some.
As in my previous article, the opportunity is to take advantage of this time and the opportunities that prevail. History suggests that these times generally don’t last too long!
Get in touch if you want to talk through your options. I’m just a call away!
Happy Friday.
Paul Dow
Know How Property
021615907
