Are You Waiting for the Perfect Time to Buy Property? | FUNdamental Friday

In this Friday Fundamentals episode, Luke Oxenham and Polly Chu unpack a common property investing myth:

Waiting for the perfect time before you start.

From interest rates and market cycles to cost of living, family plans and global uncertainty, there always seems to be a reason to hold off.

But as Luke and Polly explain, waiting for perfect certainty can sometimes leave people sitting on the sidelines for years.

This episode explores how to plan for uncertainty before buying property, including stress testing your repayments, modelling higher interest rates, allowing for rental changes, planning for holding costs, and keeping cash buffers in place.

They also discuss why trying to time the bottom of the market can be difficult, and how big life goals should be considered before building an investment strategy.

Got a question or a “hill” you want us to unpack? Send it through here 👉 https://thepropertycouch.com.au/topics/

Timestamps

00:23 – Welcome back to Friday Fundamentals
 00:41 – The myth: waiting for the perfect time
 00:55 – Why people feel they need to wait
 01:13 – There’s always another reason to hold off
 01:43 – Why uncertainty feels uncomfortable
 02:19 – How planning helps manage uncertainty
 02:22 – Running the numbers before buying
 02:36 – Modelling higher interest rates
 03:21 – Planning for worst-case scenarios
 03:31 – Rental income, holding costs and maintenance
 04:07 – Stress testing your loan repayments
 04:39 – Why cash buffers matter
 05:06 – The danger of using every dollar to buy
 06:20 – Should you wait for a particular time?
 06:38 – Why waiting for the market to turn can take years
 07:08 – The problem with timing the bottom
 08:08 – Waiting for life to settle down
 09:24 – Big life decisions vs borrowing capacity
 10:04 – The big rocks in the jar analogy
 10:26 – Final takeaway: there is no perfect time

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Transcript

SPEAKER_00 0:00

It always feels like there's like one next big thing on the horizon. COVID happened when we saw interest rates flow. Everyone freaked out about that. And then now we've obviously got things that are happening with the budget. We've got things that are happening with sort of global crashes, cost of living and all that sort of stuff as well. So it constantly feels like there is something on the horizon that's always trying to tell you maybe hold up and stay.

Welcome back to Friday Fundamentals

SPEAKER_00 0:23

Hey catchers, welcome to another Friday Fundamentals. I don't know if you're as excited about this one as I am because I don't have Shane here to argue with me for a change. It's a bit of a shakeup. As you know, my name is Luke. I am a mortgage broker and we have here today.

SPEAKER_01 0:37

Yeah, my name is Polly, and I'm a qualified property investment advisor.

The myth: waiting for the perfect time

SPEAKER_00 0:41

Today we're going to cover off uh a little bit of a different one. This one is about investment property myths and that it's waiting for the perfect time before you start.

SPEAKER_01 0:52

Yeah, so I think we sometimes hear you on um

Why people feel they need to wait

SPEAKER_01 0:55

social medias or sometimes my friends come up to me and go, maybe I need to wait until it's a perfect time before I take action in terms of buying property. For example, I need to wait until the interest rates come down.

SPEAKER_00 1:07

Yeah.

SPEAKER_01 1:07

Isn't it? Do you hear that much?

SPEAKER_00 1:09

I hear that all the time. So like the way that I try to say it

There’s always another reason to hold off

SPEAKER_00 1:13

sometimes is that it always feels like there's like one next big thing on the horizon. Like if you think like COVID happened and everybody was freaking out about what that was going to do, then we saw interest rates explode. Everyone freaked out about that, you know, and then now we've obviously got things that are happening with the budget, we've got things that are happening with sort of global pressures, you know, cost of living and all that sort of stuff as well. So it constantly feels like there is something on the horizon that's always trying to tell you maybe a hold off and say.

SPEAKER_01 1:39

Yeah, because uncertainty makes us feel uncomfortable, I guess,

Why uncertainty feels uncomfortable

SPEAKER_01 1:43

right?

SPEAKER_00 1:43

Yeah.

SPEAKER_01 1:44

Um, so I think is always there's always gonna be something that we never anticipate to happen. Whether it's gonna be now, like you said, you know, the uncertainty around interest rates, uh, of course the war, um, right now in the Middle East as well, the conflict there. Um, but you know, say that those all go past. I think eventually we will, there's always gonna be something that we we can't plan for, and that creates that level of uncertainty, isn't it?

SPEAKER_00 2:09

Yeah. Yeah. Do you think there's something with like, you know, the work that you do with your clients that's like trying to future proof a little bit? Like how do you protect people from that?

SPEAKER_01 2:18

Yeah, manage

How planning helps manage uncertainty

SPEAKER_01 2:19

that. I think for me is really just running through the numbers. And I let the numbers do a lot of the navigating of the thought as well. Um, so some of the planning work we do, we, you know, I look at cash flow modeling. We, for example, model interest rates. Um, for me right now, I'm using 7%. That feels high, doesn't it, Luke?

SPEAKER_00 2:38

It's a big uh, I don't know if you've seen the repayments if you're trying to buy a $1.4 million home with the interest rate of 9.4%, but it is a scary number. I would imagine it's not a little number, yeah, that's for sure.

SPEAKER_01 2:48

Um, but in the real world, it's probably unlikely to hit 9% interest rates, right? Um surely our economy would crash. I hope not. We did. But even if I just talk about 7% interest rate last time, I did see that personally, was probably just around the GFC, just around that point, 2007, was probably when I saw that sort of numbers. And since then it's sort of been coming back a little bit. But um today my own investment property mortgage I'm sitting is about six and a half percent, right? So, how do I help in terms of um I guess yeah, help people navigate some any uncertainty? Really plan for worst-case situations, so high interest rates. Um, you know, we have got investment properties. I plan

Rental income, holding costs and maintenance

SPEAKER_01 3:31

for perhaps not 100% of the rental income we get, um, holding costs, you know, we plan for things like your council rates, maintenance, those kind of things. Um, we're sort of put in a plan to make properties it's very expensive to hold or investment in the plan. But if I could sort of run through those numbers and and help clients understand, hey, this is what probably worst case scenario could look like.

unknown 3:53

Yeah.

SPEAKER_01 3:53

This is what best case scenario could look like. But in reality, we probably sit somewhere in the middle. Yeah. Um, and that helps to um, I guess, help clients or my friends to take some action around some of those decisions as well.

SPEAKER_00 4:05

Whereas my focus is mainly about the

Stress testing your loan repayments

SPEAKER_00 4:07

loan, right? While they get assessed with the extra 3%, I think having a bit of a look at what your current repayments are probably going to be and then saying, okay, well, what if it goes up 0.5? What if it goes up 1%? Um, and being able to work out what that does to your cash flow. Because I think, like I always like to say, it's as a mortgage broker, I always focus on what's the worst thing that can possibly happen and try and avoid it so that way we don't have settlements fall over or anything go wrong. Yeah. So I think having that in the back of your mind about, okay, well, what will I do when it if interest rates do explode or you know, something dramatically shifts, then we've got that ready to go.

SPEAKER_01 4:39

Yeah, 100%. And I think also um, you know, you touched on this as well, buffers like cash buffers. Um, making sure after any property purchases, I'd imagine you also focus on having X amount of cash in the bank.

SPEAKER_00 4:53

Yeah, because like the the day after you buy that property, right, is gonna be the worst time for that loan. Because the loan's the biggest it's ever gonna be. Yeah. You've just used all your cash to purchase that that next property.

The danger of using every dollar to buy

SPEAKER_00 5:06

So you want to make sure that you've got a bit of a retainer, a bit of a buffer there, because the last thing we want to do is spend every single dollar we've got. Yeah. We've now got a big, huge giant loan. That's the biggest it's ever gonna be. Yeah. Um, and we have to live on rice and beans for the next six months to get that offset but buffer back up. So I think you want to strike a bit of a balance there where you've got your comfort levels and you've got that the ability to still purchase the asset you want, but you're also not just, you know, exhausting all the fuel in the tank when you do it.

SPEAKER_01 5:34

Yeah, and I agree with that. And I think we come from a very conservative mindset, don't we? Um, that I think you it's just sort of focused back on that worst case scenario because uh say you bought the property, you've got these big repayments, um, you probably never had them before. It feels uncomfortable from that cash flow perspective. And if, you know, you have a pet who might have been ill, and then suddenly you've got some kind of bet built up.

SPEAKER_00 6:00

You've got a pet that's exactly like my dog Petey, absolutely. I feel like I am personally funding my vet's Christmas party every year. So yeah, no, I I think that's a good idea.

SPEAKER_01 6:10

Yeah, cash buffers is thin as well.

SPEAKER_00 6:12

So knowing all that that we've got where we've built our buffer up, we know sort of what that looks like, we've stress tested ourselves.

Should you wait for a particular time?

SPEAKER_00 6:20

Like, is there a particular time that you would wait for? Or is it just simply open blanket, just go whenever you can?

SPEAKER_01 6:27

Oh, great question. Um, I think in life, it depends. Yeah, no, all great. I think it just depends on what is your next property goal, if it's as well. So I I would think certainly for me, I I feel like waiting for the market to turn, uh could could mean you could sit into sidelines for many years.

SPEAKER_00 6:46

I think it I think it's real hard to try and like time that market too. Cause it's yeah, I I know like when my wife won't and I b bought our first home, the market was decreasing at the time. Yeah, which was advantageous when you're trying to put an offer in. But I think if you were waiting for it to hit the bottom, I think there's there's a lot of different factors and it's very like location

The problem with timing the bottom

SPEAKER_00 7:08

specific. And I think you'd you'd get paralysis analysis by trying to time, yeah, time it's like you're you're missing out on having owned the property and building the equity of the property and seeing like I think securing that stronger asset like now and then being able to see the growth in it, you know, from the outset from there, even if it is, you know, partway through and you see a bit of a a decrease in it. Cause I think the like it's about what's important, right? So if we're holding that property for the longer term, buying part way through that cycle isn't the end of the world. Because we're thinking about that longer term hold.

SPEAKER_01 7:38

Yeah, longer term. And I yeah, I I I completely agree with that. Um I think a lot of the times when you realize something is at the bottom of the market is already turned. Yeah. You've already missed it. So I'd much rather be taking action in something that is going downward because then I know I haven't bought at the peak. Um, but it gives me a bit of comfort as well. Yeah. What about um the questions? Like um, you know, some some of my friends go, well, I'll I'll buy I'll invest or I'll buy properties once life settles down. Um do you see

Waiting for life to settle down

SPEAKER_01 8:08

do you see that much?

SPEAKER_00 8:09

Uh sometimes from some clients. I think again, and it's different from person to person. I think everyone's got different versions of what they think settle down needs. So, like in terms of, you know, whether it's like work or um, you know, like family life or similar as well, I think.

SPEAKER_01 8:24

Um, but I suppose it depends on what your goals are. So I think if you sometimes I meet clients and and their plans are to start a family, for example. Um, so it's just really asking, unpacking that question with them when e when are you looking for for baby one? Um is it is it in the next six months? Is it next three, is it five years away? Um, I think understanding that time frame becomes important. Because if there's something like in the next six months, maybe we should blame until we we know where you want to live, if this is your you're looking at, I don't know, an occupier.

SPEAKER_00 8:58

So we've got that clarity rather than just brushing in my property, not really thinking about clients sometimes try to as well to take into account borrowing capacity when they're making big life decisions, as opposed to making big life decisions and then understanding what their capacity is. Do you see something similar when you do like plans through a boob? Are they like, okay, well, I've got to I want to hold off on holding having a family because I need that second property first, or

Big life decisions vs borrowing capacity

SPEAKER_00 9:24

do you see a bit of that?

SPEAKER_01 9:25

Um actually no. Well, sometimes case by case, but that's the reason why I do what I do, because I ask those questions. And I sometimes have clients who will sort of think, I need to buy these investment properties before like start a family. But then I will always navigate and try and ask them, flip, flip the conversations around. Yeah. Because I think at the end of the day, if you invest, you you basically put all your cash flows um, you know, into investment properties, it means there's not much for left for starting a family. If you got go from two income to one income, childcare costs, and then one day the owner occupier. So I guess it's a bit like that big rocks in the jar we keep talking about, isn't it, in the pod. Uh, you know, you've got your sand and then you've got your rocks. If you put all your sand in and the jar is already up this year, there's no room for the rocks anymore, isn't it? Whereas if we want to be doing is thinking about putting the big rocks in the jar, starting a family, having a home, those kind of things. And then where possible, the investment property, i.e., the sand. Yeah. And then go

Final takeaway...

SPEAKER_01 10:26

in.

SPEAKER_00 10:26

So, long story short, there is no perfect time. Hope that answered everybody's question about that. Got it.

SPEAKER_01 10:34

Okay, on that note, um, we do have a webinar coming up next Tuesday, um, 28th of July. Uh, 7 30 is going to be a webinar about new versus established properties and what you should be doing as your next property going today's market.

SPEAKER_00 10:50

So that's another Fundamental Friday in the bag. Again, if you've got questions, feel free to send them through. Um, it's been good having a chat with you, probably being able to go through it and not having to do any arguments, we're not mentioning chain anymore. That's fine. Um, but yeah, thanks for sticking around. We will see you next time. See ya. Welcome to another fun uh welcome to another fun Friday Fundamentals. I think I said that right that time. Welcome to another Friday Fundament Oh man. This is gonna be a blippers one, it's gonna be good.

SPEAKER_01 11:21

It'd be great, Luke.

SPEAKER_00 11:22

I'm trying.