ANALYSIS: Most property buyers want to buy at the bottom of the market and sell at the top. It sounds simple. All you need to do to make your millions is get the timing right. Wait until prices hit rock bottom, swoop in, get a bargain, and ride the wave back up.
However, buying at the bottom doesn’t always make vendors the most money. Even when prices are bottoming out, that’s not necessarily when to get the lowest price.
In Auckland, property prices bottomed out in July 2024. But property prices go up over time. If you bought before September 2020, you got a lower price than the bottom of the market a few years later.
Similarly, Auckland house prices bottomed out in December 2008, but if you bought before January 2006, you got a lower price, too.
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But seeing as none of us have a time machine, buying in hindsight is not an option.
When house prices are falling, it makes sense to wait. For instance, if you bought in 2022, it’s likely your property has dropped in value. If you had known that was going to happen, you probably would have waited.
However, consistent investments made over a period of time will often outperform those made with market cycles in mind. Doing this could make you an extra $440,000.
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Imagine two investors. Let’s call them Irene and Mark. They began buying properties in Auckland in the year 2000.
Irene decides to invest consistently and purchases a property every four years, come rain or shine. The market’s up? She buys. The market’s down? She buys. The world’s on fire? Still buying.
By 2025 she has seven properties to her name and spent a total of $4.2 million. Some of her purchases have made more money than others, but overall, her properties will have increased in value by $3.32m.
Mark, on the other hand, has a sixth sense for buying properties at the right time. So, he always buys exactly when house prices are at a cyclical low. He could see that property prices bottomed out in 2000, 2009, 2015, and 2019 and pounced.
Opes Partners economist Ed McKnight: "Buying consistently, rather than perfectly, can surprisingly lead to better results." Photo / Fiona Goodall
These two investors bought at different times, but to keep things equal, Mark’s total property bill is also $4.2m.
Today, he’d be up $2.9m. Anyone would be chuffed with that result, but Irene still made $440,000 more, so picking the bottom of the market doesn’t always make you richer.
Sure, if you start this example at a different time, in a different city, or with a different number of properties, you’ll get a slightly different answer, but the point is that consistent investment can sometimes give you a better return.
Another issue with trying to pick the bottom of the market is that it’s difficult to tell when prices are at their lowest. It’s only easy to see in retrospect after prices have started going back up.
Even we economists get our forecasts wrong. That’s why I choose to make consistent investments. Over the better part of a decade, I’ve bought five investment properties. I picked up one of my early investment properties in 2019, right before property prices took off before the Covid property boom.
I wish that I could tell you I’m a market genius, but I also bought another property in November 2021, when the market was peaking.
I could either beat myself up about that, or just remind myself that “waiting for the bottom” is often a flawed strategy. Buying consistently, rather than perfectly, can surprisingly lead to better results.
- Ed McKnight is the economist at property investment company Opes Partners
