Taking a long-term view: Over multiple property cycles
With the commodity curve in mind, you can clearly see how property values increase over time. If you buy a property with the intention of selling it a year or two from now, you’ll be bitterly disappointed to see very little capital growth, if any, when you want to sell. However, if you leave the property alone for five to ten years and take a long-term view over multiple cycles, it may look something like this:
Figure 1. A long-term view of the commodity curve
If you think back to your school days, you will have learned about the line of best fit. If we apply that here, you’ll see that while the value over time is constantly up and down, in the long term the line of best fit is always trending upward.
Figure 2. A long-term view of the commodity curve showing overall growth
This is how house prices have historically performed. (Refer back to the email where we discussed historical performance.) While there may be short periods where prices dropped or didn’t grow much, they very quickly recovered and continued to increase. As a property investor, this is something that you’ll get used to over time. When you’re in it for the long haul and stay put during market fluctuations, you’ll come out as a winner on the other side.
“Time makes the worst investor look good.”
There’s a great saying in property investing that says: Property investing has a habit of making the worst investor look good as long as they stay in the market long enough. If you own a property in an area that starts experiencing a downfall, generally, the right thing to do is nothing. You simply have to ride it out, understanding that it’s part of the game you’re playing. As long as the property is collecting rent and paying for itself, you have nothing to worry about. Just hang in there and wait for the correction in the cycle.
Stay tuned for more insights from Wealth Through Property.