One of the most common mistakes people make when purchasing any investment, but particularly property, is buying and selling in the wrong market. It is a natural human reaction to want to negate losses and follow the pack by investing where everyone else is investing. Typically, this is to the detriment of the investor and the benefit of the minority who bet against them.
One of the more drastic examples which I can use is the buying and selling of Bitcoin. During the Bitcoin explosion, the price of Bitcoin went from around $900 per coin to around $20,000 per coin. Many people made enormous amounts of money from this and it was spoken about that the trend was going to keep going indefinitely. In the worst cases, people purchased Bitcoin at its height of over $19,000 per coin. Bitcoin now has fallen to just over $8,000 per coin and many people have lost their livelihoods. Many of these people may have sold their Bitcoin for losses when it crashed, while the “smart” investors were buying at the bottom of the cliff.
In property, the equivalent is buying into a market that has already boomed. In Sydney, the Median house price was around $650,000. It now sits at around $1,150,000 – just under double the price. Melbourne has shifted from a $530,000 median house price to over $900,000 since 2012, a similar situation to Sydney. So why are people still trying to buy into these markets? Will they continue to boom? Why did they boom in the first place? More importantly… where is the next place that is going to boom?
Ultimately, the answer is that nobody can know for certain and anyone that claims to know for certain is not your friend. All that anyone can do is look at surrounding factors and make an educated guess based on history. When buying any sort of investment, especially a long term investment like property, it is important to ask lots of questions and look to buy in a market which is about to rise therefore maximising the potential value of your investment.