LEARNING TO USE THE UNCERTAIN ECONOMIC CLIMATE TO YOUR ADVANTAGE
I’ve always loved Warren Buffet’s approach to investments. He has been a far-off mentor of mine for a long time. One of his sayings has always stuck with me: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” To me, this means we should be swimming upstream when everybody is swimming downstream.
Of course, this is easier said than done! Because there are many valid reasons why everyone is swimming downstream. Mr Buffet also says that when things are going well, people never expect it to go poor again and when things are going poorly, people never expect it to go well again. We often fall into the trap of thinking that when the economy is doing well it will never make a turn for the worst and when the economy is not doing well it will never improve.
It requires a lot of maturity and a different perspective to take a step back and look at things the way they truly are. The thing most people miss is that when things are going poorly, it is often the best time to climb in and start investing! Buffet’s insight resonates with me here as well: “Uncertainty is the friend of the buyer of long-term values.” The truth lies in recognising that economic cycles are inevitable, and wise investors capitalise on opportunities during downturns. We should apply this to property investment as well.
Currently, there is a lot of uncertainty and fear about South Africa as well as about property investment in South Africa. The country is facing an economic slowdown with high unemployment rates and slow GDP growth. Our current political situation isn’t helping either, but I have hope that things will look up with the election in 2024. We are also not immune to rising interest rates and external economic influences that shape the country’s economic outlook.
Read our article, Navigating the Evolving Property Investment Landscape in 2024.
However, it is this very uncertainty and fear that are creating opportunities to purchase properties from panicked sellers who have no regard for the intrinsic value and long-term economic worth of the properties they are selling.
Investors seem to have short memories, and as Warren Buffet states: “What we learn from history is that people don’t learn from history.” I believe that if we heed the lessons from the past and recognise the cyclical nature of markets, there are many opportunities.
Read our article, Lessons We Can Learn from Warren Buffet about Investing.
Think of the 2008 financial crisis when property prices plummeted due to the housing market crashing. The investors with available capital saw the potential for long-term gains and bought property at significantly reduced prices. And when the economy recovered, they yielded amazing returns on their investments.
What I take from this is that investors who remain resilient and vigilant, take calculated risks, and recognise the unique opportunities in the property market, will come out on top every time. Sometimes, we just have to look past the prevailing mindset. Having the foresight to buy properties at lower market prices will likely enjoy better rental income and capital appreciation eventually.
Applying wise strategies to navigate uncertain times is also a must, for example:
- Conducting thorough research on potential property deals, considering location, market trends, and future development plans
- Diversifying your portfolio by investing in different types of properties to spread risk
- Looking into how you can optimise your current portfolio
- Maintain sufficient reserves to get through uncertain economic conditions
My strategy is to buy as many properties as I can get my hands on, while others are selling. Because of the slow economy, I am buying property at great prices. The economy is not going to be slow forever, but I sure hope it stays like this for a while so I can expand our asset base further!
Benefits of buying when others are selling
There are distinct advantages to buying property when others are selling, including:
- Getting property at discounted prices: During periods of economic uncertainty, sellers may be more motivated or desperate, leading to reduced property prices.
- Increased negotiation power: Buyers have more leverage when there’s a surplus of properties on the market, allowing for favourable terms.
- Higher returns in the long run: Properties purchased at a lower market value have the potential for higher returns when the market rebounds. Patience can be a valuable virtue in property investment.
The most successful investors are those who seize opportunities when others hesitate or run away. And yes, the current economic landscape may be challenging, but it also challenges me to invest strategically. Others may think the challenges are too big, but I choose to view these times as golden opportunities.
Read our article, The Risks and Rewards of Property Investment.
Read the entire article in the March Edition of Real Estate Investor Magazine.