People say that patience is a virtue, and when it comes to the world of property, that goes double. Whether it is consistently paying off your mortgage over a number of years to improve your borrowing power or reselling your current real estate at the right time, being able to hold back on temptation to give up control can be incredibly profitable for home owner and investors both.
Take the example of the latest CoreLogic RP Data Pain and Gain report. This report, which investigates the proportion of home sales that resulted in overall profits for for the vendor, also took a look at the correlation between the amount of time a person had held onto a property and its profitability.
Across the board, whether in the regions or in the capitals, people who sold their properties for an overall profit were far more likely to have held onto the property for longer. In Sydney, for example, houses that sold at a loss were on average held for 6.7 years, while those which sold for a profit were held for a far longer 11.2 years.
You need to make sacrifices in order to get yourself onto the property ladder as early as possible.
Daniel Goleman, an internationally-acclaimed psychologist, describes how in one longitudinal study of thousands of children, there was one major predictor for success: cognitive control, or the ability to delay gratification in order to better pursue your goals. And this applies to the property market just as much as to anything else in life.
First, you need to make sacrifices in order to get yourself onto the property ladder as early as possible. By buying early, you are the person who profits from the capital gains, rather than the person who owns the property you are renting. Let’s look at Sydney again – CoreLogic reports almost 10 per cent year on year capital gains in median value for the city. If you had bought a property worth $800,000 a year ago, it would now be wroth $880,000: a huge jump in value.
Now imagine that compounded over 10 times that period. By waiting, instead of cashing in too early, you are delaying your gratification and improving your profits as a result. However, if you leave your first purchase too late, you may find your property value peaking (as has been suggested is happening in Sydney lately) on top of already paying a premium.
So it isn’t just a matter of patience, but also of timing. Buy early to get it cheaper, then wait to see your profits soar – and make sure you get the right advice on your loan from your mortgage broker too, of course.