Why buy real estate now? In a down cycle? Yes!

Why is it that so many people are running from the local SA property market?

Why is it that when friends and family hear I am looking for investment properties to buy, they think I am crazy? I hear comments like, "The property market has crashed!" or "Property prices are still going DOWN!".

Well, of course I know that...

The Golden Rule in all business is, "Buy low and sell high".

Well, after a crash, the prices are low... therefore, it is now the time to buy!

I know that a lot of property investors are in serious trouble at the moment, but they broke that golden rule.. they bought late towards the end of the recent property boom, just before the peak... and then the bubble burst, now their properties are worth LESS than they owe the banks on their mortgage bonds...

What about the fact that property prices will probably drop even lower than they are now? Well, I say, "So what?"

Do we really care what the potential selling price of a property is, if the intent is not to sell it? The only time the value of a property matters, is when you wish to sell the property. The market moves in cycles... yes, its going down now, but it will turn around and go up again... and property bought to hold, (i.e. buy to Let) should never be sold.

Furthermore, once a tenant is paying the rent, and assuming the rent covers the expenses (i.e. the property is cashflow positive, which is quite possible to achieve at the moment), then what does the actual value of the property matter? It can go up or down or sideways or nowhere, none of that affects the cashflow!

Lastly, if we wait for the very bottom of the market before buying, how will we know we have reached the actual bottom? Once we see prices start to rise again, then we will realise we have just passed the turnpoint, but then its almost too late to start buying (unless you want to grab a last bargain or two). So start buying now, continue right through the bottom of the market until prices rise to the point that achieving cashflow positive deals becomes difficult, then sit back and enjoy the capital appreciation and benefit from accruing equity by refinancing carefully to obtain cash lumpsums for purchasing in the next crash in 6 to 8 years time.

One final comment... this is the best buyer's market that South Africa has seen in two decades! We are seeing properties available from seriously desperate sellers, at well below market value. If we buy at least 20% below market value, then the property market must drop another 20% before the value of that property falls below the price paid. That has never happened in the past and is highly unlikely to happen in this cycle (or any other).