Fishing at the bottom

A friend of mine is puzzled why I keep warning others to beware of buying overpriced properties in an overheated market.

“Didn’t you make your bucks from people who bought recklessly at the last peak of the market?”

“If all buyers are so cautious, where can you find good deals next time when the market crashes?”

I was speechless. You won’t go warning the fish about the bait when you also want some fish for dinner.

And I did make my first bucket of gold buying cheap from owners who bought at the last peak of the market, and reselling their properties later with a decent profit.


Pick only the best

I love to shop in a buyer’s market. But that doesn’t mean that I just buy anything there.

It is true that there are many owners who are forced to sell during a difficult time. Yet I can’t buy from all of them.

I prefer to buy from an investor who sells to cut loss, rather than from an amateur who is forced to sell his home. Although both have bought at the wrong time, you can easily tell from an investor’s place that it is chosen with market insights and experience; while the amateur’s place is most likely not a good choice — a bad project, a poor location, an odd layout or a wrong facing.

Do your research well in advance. When the market is bad, go in and buy things for far less than what they are worth. And pick the good ones only — those with top quality, the best location and good rental potential.

There are two reasons why you should be picky when fishing at the bottom:

1. If prices dip further, with more good bargains on offer, you will regret that you haven’t chosen the best.

2. Once the market recovers, the prices of good properties will pick up earlier and faster than the rest of the market.


How to tell it’s the bottom

Nobody can tell what will happen to the market next. But you can tell when the market is bottoming-out when:

1. You see very short listings of properties for sale in the paper and property sites.

2. You call up property agents and they have all the time in the world for you.

3. You are the only one who comes for the viewing and the owner begs you to buy.

4. You talk about property, and people look back in pain or in contempt.

5. The market is gloomiest, everything looks depressed and everybody is pessimistic.

Jim Rogers said, “Successful investing means getting in early, when things are cheap, when everything is distressed, when everyone is demoralized.”

(Just earlier this week, a reporter from Straits Times asked me whether I would consider buying now in a buyer’s market. I immediately corrected her that I didn’t think it is a buyer’s market yet. It is at most a market slowdown. I told her that I would be more conservative because I don’t want to see prices drop further after my purchase. Read article Home prices continue to dip in Q2.)


Be patient

To invest against the property cycle, you must have the patience to wait.

Great investors like John Templeton advocate buying at the point of maximum pessimism. You must wait until the ninety-ninth person out of a hundred gives up. Buy only when all signs of funds (whether hot money or hard-earned money) are drained from the property market.

Similar to buying undervalued stocks, buy after a major market correction. Look for undervalued properties and wait for the market to recognize their true value. When you buy way below the fair market value, the risk is lowered substantially.

Have financing ready before you need it so that you are able to act promptly when a good opportunity swings by.


Buy low and hold

In a bear market, it is important to buy with a buffer. Even if you are buying at the bottom you must be prepared for prices to drop further.

Try your best to bargain for a safety margin of 15 to 40 percent below the current value of your target property. And always keep a positive cash flow from the monthly return of your property.

You don’t have to follow my strategy to buy at the bottom. You may just look for a value buy. Use your own strategy and go for it. You might benefit from your niche purchase with less competition and earn a higher profit.