You can still get burned, even in the best of markets. Here’s a stocktake of victims.
Can you lose money in a boom?
Now what do you think I’m going to say to that?
A lot of people might think, “Oh Dymphna, she’s such a property tragic. Of course she’s going to say that you can’t lose money in a boom. And she’s probably going to say that property is always booming. Buy, buy, buy and you can’t go wrong sugarplums.”
But of course that’s not the case. You can lose money in a boom. In fact, you can lose money surprisingly easily in a boom – as you can in any market.
(Just as it’s true that you can make money in any market!)
And this is something that people have to find out the hard way, sometimes.
And despite the reputation property owners and investors have for making out like bandits, right now, one in ten are losing money.
That’s what the latest data from CoreLogic is telling us. Their ‘Pain and Gain Report’ shows us that, on the national average, 10% of property owners who sold in the September quarter of 2019, sold for a loss.
But that’s the national average. Some segments in some areas are doing much, much worse.
For example, 52% of people who sold a unit in Perth in the September quarter sold for a loss. In Darwin, it was 62%.
This is how the figures break down:
You might think that this is a cautionary tale about investing in units, but it’s more than that. Take a look at the pain column for detached houses in regional SA at 18.5%, or regional Queensland at 14.1%.
And you would even say that the numbers for detached houses in metropolitan Sydney, at 7.9%, are on the grim side.
And sure, this is partly about the recent correction that we’ve just had. With prices at the national level falling for about 18 months, it becomes more likely that someone is going to sell for a loss.
And if you look at the long term charts, you can see that in the larger capitals, loss making sales have been trending up gently:
While Perth and Darwin’s problems appear to be more longer-term in nature.
But even in the best of times, in the middle of a boom, you can still expect about 4 or 5% of property owners to be selling for a loss.
That is, even in the biggest of booms, one in twenty sellers are losing money.
The only thing I’m going to say about it is this: Making money in property is all about strategy.
This is something most people never seem to grasp. People still think that property investing is like surfing. You wait until property prices are rising, and try and “catch the wave”.
You buy a property and just hope that the market goes the way you want it to.
Often this “strategy” will pay off. Property values go up more often than they go down, historically.
But at the end of the day it’s still a gamble and a gamble I just wouldn’t take.
Making money in property is all about strategy – having a clear idea about how you’re going to create cashflow or capital gain.
It’s not about hanging out the back, waiting for your wave.
So let this be a lesson to all of us. If you’re relying on the market, there’s always a chance you‘ll get burned.
Right now, that chance is about one in ten.
You might like those odds. But I don’t.
We can do better.