Time IN the market versus Timing the market
As real estate investors, we are so excited about the opportunities available to invest in Calgary this winter. Yet when we talk to Calgarians, they often look at us like we’re martians! Often we hear things like “you’re kidding,” or “it’s a terrible market,” or even “don’t you read the news?”
The common perception is that investors must time the market appropriately. Yes, and no. The ride is definitely easier when you can buy low and sell high. But wait—isn’t that what everyone is talking about these days? How low the home prices are? No one has a crystal ball, but what we know with great confidence is that Calgary is not booming. This is not the top of Calgary’s real estate cycle. We may or may not be at the bottom (aka buying low)—but the downside risk is very minimal.
And how do you minimize that downside risk even more? Stay focused on time IN the market. We are talking long term investments of 5 to 10 or more years. Why does this work with real estate? Let’s go back to how you make money in real estate.
First, there is mortgage paydown. It feels like a slow process on your personal residence—but it’s completely different with a rental property. When it is set up correctly, that mortgage is completely paid by your tenants. You are making $5000-$10,000 per year in the early years; then as time goes on, you pay less interest and more principal. Second, you have positive cashflow. If you don’t, that is not a good property—move on. You can even use your cashflow to pay your principal down even further! Third, you have leverage: you invest 20% of the purchase price, but make a profit on 100%. On a typical Calgary house these days, you can invest approximately $80,000 to $100,000 for a $400,000 house, and make a minimum 5-10% return based on mortgage paydown and cashflow alone. Fourth, your investment is insured; no stock broker can promise that! And finally, if you hold that house for a number of years, the market is very likely to go up. Property appreciation becomes the icing on the cake!
When things were booming in 2013-14, all kinds of people were wishing they had bought real estate. We would much rather get in at the bottom of the cycle, hold our investments and manage them well, and reap the benefits when the market does rise. We think 2019 and 2020 offer unique opportunities for investors to time the market (buy low) AND plan for Time In the market with a long term buy-and-hold strategy. Connect with us anytime @MtnEdgeDevelops (now on Instagram too!), https://mountainsedgedevelopments.com/.
