Now is always the right time to buy for some home buyers: Mark Armstrong

I am always fascinated by people who say now is not the right time to buy property, because a comment like this fails to recognise property is primarily used as shelter. It is a necessity, and as our lives evolve over time the location, size and style of accommodation needs to evolve with us.

Telling a young couple who are living in a one-bedroom apartment with a baby on the way that now is not the right time to make your move is simply not helpful.

What is helpful to these people is to understand how they can strategically make their moves in and out of the property market. They must ensure they secure a roof over their head that provides the accommodation they require but also maximises the investment potential for their future.

There are always opportunities in any market regardless of where we are in the cycle. This spring is no different, as it will present numerous opportunities for buyers who are able to find ways to use it to their advantage.

Although some home buyers need to relocate for work or other reasons, in the main there are two types of home buyers in the market: those who need to upsize and those who need to downsize.

Let’s tackle the upgraders first. Say you own a property currently worth $500,000 and need to spend $800,000 on a new home. Over the last couple of years the market has come off by around 10%, meaning you could have sold for $550,000. However, the $800,000 was also worth 10% more and has come off by $80,000 since the market peaked. By selling and upgrading now you will be up $30,000.

For the home owners who are comfortable for the time being but know they need to move soon, buying the new home now and renting it out for a couple of years is worth considering. Although this will put cashflow under pressure, they will get the benefits of negative gearing and be in a position to sell the old home in a stronger market.

For those moving in the other direction it is a different story. They incur a loss from selling the more valuable property compared with the cheaper one. Downsizers need to be thinking about pouring as much money into a tax sheltered environment such as super to help fund their retirement. Their home is the ace up their sleeve because every extra dollar they sell for is completely tax-free.

Downsizers really have two options, one more aggressive than the other. In a weak market it does not make sense to sell and buy a cheaper property, so it is better to hold your ground for as long as you can.

However, people who have lived in their home for many years usually have little debt and a significant amount of equity at their disposal. For those who have the stomach for it the current market is a great time to buy the retirement property, rent it out for a couple of years and then sell their home when the market picks up. This strategy will allow them to negatively gear the property in the short term and maximise the value of their greatest tax-free asset at a future date.

Mark Armstrong is a director of iProperty Plan, which provides independent analysis and tailored advice to investors and home buyers.