In the world of Property Investment Timing, there's a timeless adage that echoes through the corridors of financial wisdom: "Buy low and sell high."
There is a Time to Buy and a Time to Sell
This It might sound like a simple enough principle, but when it comes to property investment, buying low and selling high takes on a whole new level of significance.
Picture this: buying a property for a fraction of its potential value and then selling it at its peak when the market is roaring, or retain it to take advantage of the rental increase that follows property price action.
This strategy isn't just about good fortune; it's a calculated approach that requires an understanding of market dynamics, a keen eye for opportunities, and the courage to act when others hesitate.
The Essence of Timing your Property Investment: Buying Low and Selling High
At its core, the concept of buying low and selling high is about capitalizing on market inefficiencies. It involves identifying moments of economic distress, political turmoil, or other external factors that temporarily drive property prices down.
Baron Rothschild(18th-century British nobleman)
The time to buy is when there's blood in the streets
Rothschild of the famously wealthy Rothschild dynasty made a fortune buying in the panic caused by fear and misinformation that followed the Battle of Waterloo.
These downturns can create golden opportunities for savvy investors who have the foresight to see beyond the gloom.
"Buying property when there's "blood in the streets," means having the courage to invest when others are fearful. Courage based on long term vision and understanding of the resilience of a market.
2001 and The Bloody Streets of South Africa
2001 was a year of bloody streets in South Africa. It was a time of political turmoil, massive Interest rate fluctuations, 911 fears and the final nail in the property investment coffin – Property Capital Gains Tax was introduced.
A decade of Political turmoil
The 1990 to 2000 period in South Africa was marked by a whirlwind of political upheaval, as the nation navigated the uncertain transition from apartheid to democracy. This tumultuous decade witnessed a remarkable shift in power dynamics, driven by key events and influential leaders.
The release of Nelson Mandela in 1990 symbolized a turning point. His release from prison after 27 years was a beacon of hope for millions, signaling an end to decades of racial segregation. As the African National Congress (ANC) gained ground, negotiations began with the National Party government, paving the way for democratic elections in 1994.
However, the transition was far from smooth. Clashes between the ANC and Inkatha Freedom Party erupted in violence, particularly in KwaZulu-Natal. These tensions were fueled by historical rivalries and political maneuvering, resulting in a high death toll. The Boipatong massacre of 1992 and the Bisho massacre in 1993 stand as painful reminders of this period's challenges.
The decade also witnessed economic uncertainties. Debates around black economic empowerment (BEE), land reform and wealth redistribution sparked fears among both local and international investors.
in June 1999 Thabo Mbeki had stepped into the very large boots of the iconic Nelson Mandela.
The government moved interest rates up sharply in an effort to attract foreign cash into the country – with crippling consequences for local investors, businesses and employment providers!
Interest Rate shocks
The government had used interest rates to try to attract foreign cash into our economy, a strategy that failed horribly, resulted in a the prime interest rate climbing to a staggering 25.5% in 1998.
By 2001, some interest rate sanity had been restored and prime was hovering around 14% . But the specter of a prime interest rate of 25.5% had not left the minds of investors and potential homeowners.
To gain some perspective on this, a 25 year R500 000 bond at the prime interest of 14 % will cost you a monthly installment of R 6018
The same bond at an interest rate of 25.5% would cost you R10 644 per month
That interest rate shift in a matter of months was enough to terrify most investors and potential first time buyers
911 - a World at War?
A world at war. On 11 September 2001, the Twin Towers came down and we thought, "the world was going to war!"
Somebody had poked the sleeping giant called the USA, and somebody was going to pay!
George Bush was not going to take this attack lightly. On 7 October 2011, less than a month after 911, the USA started its bombing campaign in Afghanistan.
The world held its breath!
American bombs were falling in Afganistan and US Troops were mustering. Fear gripped all the markets and investors stockpiled their cash, or bought gold and oil.Nobody was thinking about new long term property investments in this time of uncertainty
Capital Gains Tax
Less than a month after 911, just as the troops were shipping out to Afganistan, Capital gains tax (CGT) was introduced in South Africa with effect from 1 October 2001.
Horror of horrors, South African investors were going to have to pay tax on capital appreciation of their assets and many property investors decided that enough was enough and looked for greener investment pastures.
2001 - A time to buy or a Time to Sell?
Business confidence, political uncertainty, interest rates, a world at war and the final nail in the coffin, your capital gains were going to be taxed.
For the South African property market, the stage was set.
There was blood in the streets.
Timing is everything and in Property Investment Timing - Was it a time to buy or a time to sell?
A 21 year Case Study
On 5 October 2001,
- 4 Weeks after 911,
- 4 Days after the introduction of capital gains tax on properties
- Interest rates forecast was anybody's guess
- South Africa had a new President
- The hunt for 911 terrorists was under way
- 2 Days before the USA invade Afganistan
It was time to buy -
After 14 years in the local property industry as a commercial property broker, I had learned very valuable lessons from some very experienced and successful property investors. Everything I had learned from them was telling me that it was time to buy and I took the plunge. I bought my first buy to let investment property on 5 October 2001.
Market conditions were such that, it cost more to rent a townhouse than to buy it. The result was that from the very first day of ownership, my rental income paid for all my bond, levies and rates.
I literally bought the property for free! I recall turning to my wife and saying, “ We have just bought a townhouse, it cost us nothing, and its already paying out profits!
"Lets do it again" – and so we did.
From Day one, I did not invest a single cent of my own money in this property!
Year on year, this property investment remained profitable and got even better as the rental increased and the interest rate decreased steadily to around 10% in 2006.
By this time my taxable income on the property was becoming an issue so I refinanced the property by a further R250 000.
Eventually the bond was paid off in February 2022 and was netting me an income of R5000 per month.
Its 2023, I now owned a property worth R600 000 free and clear, I had already taken out R 250 000 plus all the rental profits from monthly cashflow over 22 years.
I tell the full story in this video in what I called “The Best Investment Ever”
History tells a story – I had timed the property investment market correctly and it was time to buy property in 2001.
My only regret is that I bought too few properties while the time was ripe.
The Pioneers of Property Investment
Apart from Baron Rothschild who I quoted earlier, throughout history there have been remarkable individuals who mastered the art of Property Investment Timing - buying low and selling high.
Lets take a look at how they did it.
Be fearful when others are greedy, and greedy when others are fearful
One name that stands out is none other than Warren Buffett, a man renowned for his prowess in stock investing.
Not surprisingly, his wisdom also extends to property. During the aftermath of the 2008 financial crisis, when real estate prices plummeted, Buffett saw a chance to make a substantial profit. "Be fearful when others are greedy, and greedy when others are fearful," he famously said.
His investment firm, Berkshire Hathaway, poured billions into distressed property assets, reaping massive returns as the market rebounded.
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Opportunities are like buses, there's always another one coming
Another legendary figure is the British tycoon Richard Branson.
Renowned for his ventures in the airline and entertainment industries, Branson also has an eye for property.
He once shared, "Opportunities are like buses, there's always another one coming."
This mindset was evident when he snatched up a private island in the British Virgin Islands for a fraction of its potential value.
Over the years, he transformed it into a luxury retreat, showcasing how shrewd investments can yield remarkable returns.
The best time to buy is when everyone else is selling and the best time to sell is when everyone else is buying
And then there's Robert Kiyosaki, author of the famous financial education book "Rich Dad Poor Dad." Kiyosaki's teachings have inspired countless individuals to seek financial independence and wealth-building strategies.
He emphasizes the importance of investing in assets that generate cash flow, including real estate. Kiyosaki is a master of timing the property investment market.
Kiyosaki believes in the power of buying properties during economic downturns, stating, "The best time to buy is when everyone else is selling and the best time to sell is when everyone else is buying."
During the United States the Subprime Mortgage Crisis (between 2007 and 2010), was triggered by a large decline in US home prices after the collapse of a housing bubble, leading to mortgage delinquencies, foreclosures, and the devaluation of housing-related securities.
It was a time of distress and crisis!
During this time of worldwide crisis, Kiyosaki bought thousands of "distressed properties" .
His insight encourages investors to think independently and seize opportunities that others might overlook.
Weathering the Storm: How the Pros Do It
Buying property when economic and political tides are stormy requires a unique approach.
It's not just about seizing any opportunity that comes your way; it's about meticulously researching and identifying assets with hidden potential.
Look for properties in prime locations that are temporarily undervalued due to market conditions.
Lessons for Aspiring Investors
For those considering property investment, the stories of these billionaires offer invaluable lessons:
Patience Pays Off: Successful investors don't make impulsive decisions. They patiently wait for the right moment to strike, even if it means enduring short-term challenges.
See Beyond the Headlines: Economic and political turmoil often dominate headlines, but these situations can also create hidden opportunities. Train yourself to see the potential where others see only problems.
Research is Key: Before investing, conduct thorough research on market trends, property values, and potential growth areas. Make informed decisions based on data, not emotions.
Long-Term Vision: Property investment is a long-term game. Buying low and selling high might not yield instant gratification, but it can result in substantial gains over time.
Embrace Risk Wisely: Investing during tough times involves risk, but calculated risks can lead to significant rewards. Be prepared to take a chance when the odds are in your favour.
Property Investment Timing: Look out for the signs, is the media full of gloom and doom, saying that there is a massive selloff, or the property market is in crisis. That high interest rates are killing the property market etc . ....that there is blood in the streets. This is your biggest clue that it may be time to buy.
Get Help from experts. Get help from seasoned investors, not from your local agent or property developer who are simply trying to sell what they have.
Organic Growth offer specialised property investment coaching who can equip you to gauge the condition of the market, and can help you capitalise on market conditions by buying the correct property at the best price in the most favorable areas.
It’s a time to buy!
Buying investment property when there's blood in the streets isn't about exploiting others misfortune; it's about recognizing opportunities that arise from market conditions caused by fear.
The tales of property billionaires like Warren Buffett, Richard Branson and Robert Kiyosaki illustrate how a combination of insight, research, and calculated risk-taking at the right time can yield substantial profits.
“Buy when everyone else is selling!”
So, when the media and all the conversations around the braai are about Load shedding, economic downturns and political upheavals, remember that beneath the chaos lies a potential goldmine for those who dare to seize it.
There truly is a time to buy and a time to sell, and the key is knowing when to do both.
As an investor with more than 30 years in the local property market, I can say, It feels like a time to buy…
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