I thought it would be interesting to have a look at what happens if you get your timing wrong in the property market. How much would you lose in the short term, and how would you look financially in the long term compared to someone who did nothing.

Book a Free Property Strategy Session

0:00 – Introduction

1:32 – Every peak and decline in the last 50 years

3:58 – The worst decline and longest recovery (1989 in Sydney)

4:39 – How our portfolio would have been affected

5:24 – How much money would you have lost

7:06 – How do property values grow over the long term

8:25 – An example using today’s figures

11:10 – What if you bought at market bottom?

13:30 – Comparing investing during the peak or bottom of the market

15:05 – Taking cash flow into account

17:24 – Get a free strategy session https://onproperty.com.au/strategy

## Transcription:

Ryan 0:00

I thought it would be really interesting to ask the question, what happens if you invest in property at the worst time, we always talk about market cycles, looking at the cycles of the different cities within Australia, buying at the best times and not buying at the peak of the market, but buying at the bottom of the market, when it’s likely to grow, that obviously increases your chances of success, and decreases your risk. But what happens if you buy at the wrong time? What if you get into the market at the very peak, and then you see a massive crash the following year. So today, we’re going to go through some statistics from the last 50 years of Australian property prices in Sydney, Melbourne, Brisbane and Perth. We’re going to find this worst time to buy. And then we’re going to map things out and see okay, what would our portfolio look like? How much money would we lose? How long would it take years to get back to square one? And what would our property look like in 1520 and 25 years down the track, versus if we just sat on the sidelines and did nothing. So it’s a really interesting thought experiment to go through. And so as you can see, I’ve got a spreadsheet here with property data. This came from homely.com a few years ago, as you can see, it only goes up to 2016. But that doesn’t affect our analysis, because the worst time isn’t 2017 to 19. The worst time actually occurs back in the late 1980s, early 1990s. So if we go across the here I’ve kind of colored things in red is the peak of the market. Yellow is the recovery. So how long did it take to recover. And so we can see this first decline in Sydney in 1982. market went down by 2% took two years to get back to where it was, we can see here 1989, the following year, it dropped 17% 17% in one year, that is a huge drop for the property market. And it took seven years to get back to its peak and back to where it was. And why did it drop 17%? Well, this was obviously the recession of the early 90s. And look at property prices leading up to this recession, you go to 1984 1985, property prices of 84,500 or 92,000, so under 100,000. And then in the next 1234 years, you had property prices actually more than double in value, with 1988 property prices going up by a whopping 39% set a huge run up in that market, then we had the recession, which obviously led to that big decline. So this is the worst one that I could identify here, Melbourne, we’ve got a six year period here from 1990, to 1996. But the drop was not nearly as bad. We got some other drops here. There’s one here from 2004 to 2010, in Sydney, where it took six years to recover. But again, the drop was not nearly as bad. If we go across to Brisbane, then there’s been no less declines. They had one here where it took two years now the one where it took two years, another one where it took four years, but again, not as big of declines. And then purchasing is a bit more volatile to go up and down. And so we’re seeing a bunch of periods of crazy growth, look at this 50% growth, as well as followed by some declines. And as I record this now, and you know, 2020 2015 was the peak of the market for Perth has now been declining for five years, and is down somewhere around 20% 25%, something like that. And so maybe this would actually be the worst period, but it hasn’t gone through its recovery yet. So we can’t really look into the future of that and do any analysis. So what we’re going to look at is this time period of 1989. Let’s say that we got into the market right at the peak right before a crash. And we bought property at 210,000 the peak of the market. So where am I? Here I am. So I’ve got the Sydney data, I’ve deleted the other ones, so we can kind of work with this. So let’s say we bought this for $210,000. The next year, it actually goes down 17%. And so what I’ve done in this column here, let’s go ahead and zoom in a little bit. Hey, and look at this a bit more closely. We can see what our portfolio looks like in the first year we’re down 17% second year down 11 back to 16% 14%. That 8% and then about 4% until in year seven, we get back to zero. So let me do

let me do years down this i have here so i can actually see what years we’re looking at really quickly so let’s go ahead and number our years alright so it took us until the eighth year or so seven years to actually get back to square one so you could have done nothing in the seven years and been better off like how much money would we have lost so let’s do equals this minus turner and $10,000 we can see we would have lost 35,000 in that first year alone if our deposit on this property was 20% then that would be $42,000 deposit so it would basically wipe out the majority of our deposit let’s actually have a look at this divided by 42,000 how much of our deposit will we lose 83% of our deposit we would have gone ahead and lost there in that first year that is not a return that you want to see on your property and then obviously in the next two years it continue to stay low in the third year you still at minus 81% and then things start to improve from there go to minus 71 minus 38 minus 19 and zero so within seven years we’re back to square one let’s say that we’ve continued to hold this property and rent this property out and that let’s just say it’s neutral good so it’s not costing us any money we’re just looking at the prices here but we can say that okay let’s change these colors to green once our property grows there montel probably doubles in value we can go for a darker green here and then our property actually triples in value and then quadruples in value and then quintupled in value i don’t know what color to make that that’s too dark to say but you get the idea and so what we can see here is that while it took us seven years to get back to zero the next six years is that right 123456 years our property doubles in value and so we go from turn 10,000 to 452,000 so 13 years all up for our property to double in value and then let’s look at the 25 year mark when most loan terms are around 25 years so let’s assume that you got your property paid off around that 25 year mark you can see the property is now worth four times what it was worth when you originally purchase it or a bit less than four times what it was worth so 13 years we were two times where did we double where do we triple it again 23 years was triple and then it took us just another two years 25 years to go for x so that’s pretty cool to see that even though it was really bad for those first seven years and seven years is a long time in the long term you still got to be in a pretty good position especially the views the rent to pay off the debt on the property you now own it outright worth 590,000 let’s change these figures and let’s do it for something like the two year strategy that me and ben have been talking about where you buy a property for $400,000 in somewhere like brisbane you build a granny flat for 120,000 so all up you’re in for $520,000 in this strategy we go over the property tools.com.au to calculate i created myself we put in that purchase price 520,000 renting out the house for 400 a week renting out the granny flat for 300 giving us a total of $700 per week in rent interest rates super low at the moment obviously around 3.3% let’s assume a 10% deposit for a house and a 30% deposit for a granny flat that averages out to about 15% trust who had done the math on that that gives us a positive cash flow of 13,500 per year or over $1,000 per month so that property is more than paying for itself and actually giving us extra money to pay off the debt on that property so let’s assume let’s work with these numbers so 520 so equals this times by one plus the growth rate so we can get our numbers

and then we’ll go ahead and paste these down here and then we’ll have a look at if we bought you know similar to today’s figures at the worst time what would it have looked like and we can see goes from 520,000 to 431,000 within a single year so loss of nearly $90,000 there which would obviously be very difficult to stomach and we can see again it’s going to take those seven years to go back to what we paid for it it’s going to take 13 years to double 23 years to triple and 25 years to quadruple and so we can see at 25 years let’s assume we’ve paid the property off our property is now worth 1.9 mil and remember we put down a 20% deposit but because we’re in a positive cashflow situation the tenants who are renting the property of paying off the mortgage for you and giving you some extra cash flow as well so we can assume that they paid off the mortgage we now own this outright 25 years later for $1.9 million now that’s assuming we get exactly the same growth rates as we did back then that’s obviously not going to happen this is just an example and not to be considered financial advice at all always speak to an advisor before you make any investment decisions just putting my disclaimer out there now let’s have a look at let’s say we actually waited and purchase the property here three years later when the market had actually declined and see where does that put us so $520,000 we purchase it here that would make this this next one he number one let’s again format this just so we can see our numbers more clearly and then we’ll go ahead and put in our numbers down here alright so this one equals the previous year times by one plus the growth rate of the year and this is how you can see where picking the right market timing can actually have a big impact on how things go for you so we can see we didn’t actually go through that decline but picks it at the bottom of the market obviously we’ve got no years at all where the property is worth less than what we paid for it and we can see that it took us 13 years to double in the previous one in order to double here it’s only taking us 10 years so cuts out three years in three years we’ve basically tripled i mean in 13 years we’ve basically tripled the value of our property 13 1415 years around that mark and then by when do we get to 4x which would be over 2 million is here at 22 years so for x is 22 years when was 3x was a lot earlier wasn’t it let’s put a year 15 for three on i was actually year 16 alright so 16 years two 3x and to to exhale property that would have happened a lot faster here 10 years and then 25 years or it doesn’t go to 25 years but 24 years our property is now worth 3.1 7 million versus 2.6 million at 27 years in the previous example so here you’re up $500,000.03 years earlier so obviously it’s better to pick the bottom of the market but it’s interesting just to look at these 2x 3x 4x times and if you invest in the worst time it took you 13 years to double the value of your property but if you invested at the bottom of the market or what looked like basically the bottom it will take you 10 years so would have cost you three years will take in three years but 13 versus 10 years you know not that huge difference to three axial property if you buy the worst time it would have taken 23 years you buy the best time would have taken 16 years and then to forex your property will take in 25 years investing in the worst time or 22 years investing at the best time so again only a three year difference there but obviously we ended up with a more valuable property at the end of it if we didn’t go through the downturn but it’s interesting that that seven year like you would expect the numbers to be okay in order to double it it would probably take an extra seven years because actually it took us seven years to get back to where we were but actually we we didn’t lose that but i guess you could adjust this and say okay instead of

buying at the bottom of the market we waited seven years and bought back at the previous peak well then all the figures would be adjusted by seven years so maybe that would be the way to do it but really interesting just to see okay what would happen if you invested at the worst time in the market how long does it take to get your money back or to get the value You have your property back? How long does it take to double and triple and quadruple the value of your property. And again, we haven’t even taken cashflow into account here because this 13 and a half $1,000 per year could actually be added to the value of what the property is worth. And so because obviously, you’re making that money, and that’s profit. So rather than, like this year, let’s just look at the first year just to show you an example, the value of the property minus what we paid for it, were it nearly minus $90,000 there. But if we’ve got 13,500 income, then if we go 88,000, plus we’ve got our income, then we’re only at minus 75,000. And then the next year, we’ve got 30,500. Again, so we’re going to total income. All right, okay, we got a total income of 27,000 in the second year, then you’ve got Okay, sorry, let’s do this equals this minus a purchase price. And then we’ve got equals the loss in value, plus the profit from rental income, you can see that our losses have actually harmed in the second year, rather than being down 62,000, we’re only down 35,000, or about half there. So rental income can come into play as well, if you’re making a profit from the rental income, even buying at the worst time, if you’re making that profit, and you can pay all your expenses and hold the property. So making 13 and a half $1,000 per year, as long as you know how to sell the property and realize that loss, you can potentially wait it out and then get the growth from that property. Plus he making the profit from the cash flow, as well. So yeah, that concludes it. Really interesting to see what would happen if you bought at the worst time, and hopefully that eases some of your minds as well. If you’re worried about Okay, when exactly do I get into the market, obviously getting the timing right is really important. And it’s best to buy towards the bottom. But if you do accidentally buy at the top, it’s not the end of the world either. So this has been really interesting. If you’re thinking about investing in property at this time, then we do offer free strategy sessions, where you can get on the phone with one of the team over at Pumped on Property, talking about your situation where you’re at your property investment goals, and how you want to get from where you are now, doing nothing sitting on the fence to actually jumping into the market and growing your portfolio. So go to onproperty. com. au to learn more about that. Otherwise until next time, stay positive