Investing in an inflated market – When is it worth buying and when to walk away?

Investing in an inflated market – When is it worth buying and when to walk away?

I recently attended an auction in Sydney’s inner west suburb of Newtown, where I’ve been buying investment properties for the past 20 years. My local knowledge is pretty good hence I felt confident about how this auction would run.

Needless to say I was shocked to see the dilapidated property, albeit with good potential, sold for as much as what a newly renovated property would in a nearby suburb – a staggering $990,000.

Run-down-property-Newtown
Property in Newtown that sold for $990,000. Source: realestate.com.au

Once the shock of the sale price subsided, I realised just how daunting it is to invest in a property market where prices are going up faster than even the best research can prepare you for.

These days, you need to stay on top of last weekend’s sales rather than last quarter’s, prices are changing so rapidly it’s hard for even the best to keep up, let alone estimate what a property is likely to sell for – sometimes even the agents look surprised!

My first piece of advice would be to really ask yourself whether, for you, investing in an inflated market is still going to suit your financial position. Are you confident that you’ll see the returns you once predicted?

If you have the ability, setting yourself a higher budget could allow you to buy a property on a bigger piece of land. Land will always be a good long-term investment and provide more potential as the years go on.

It also seems buying an already renovated property could cost you less, with the renovation bug well and truly biting a lot of investors wanting to cash-in on the TV trend with the hope it will deliver big returns.

Renovated-property-Newtown
Newly renovated property in Newton that sold for $1,010,000. Source: domain.com.au

It’s hard to make sense of it but a $1.5 million, renovated property could be a better way to get into the market than a run down shack you expect to snap up for $800k.

Keeping all this in mind, I still believe the Sydney market is going to see gains this year so while any investment is long term, I would still feel confident buying now with the knowledge that there’s value building as the year goes on.

Investing in an inflated market – When is it worth buying and when to walk away? was last modified: August 31, 2015 by Steve Jovcevski

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