Creating Wealth Through Property: The Buy, Hold, Sell Strategy

Success with property requires just 3 moves: Buy, Hold, and Sell.

To help with these three moves, we need to study cause and effect within the economy. In other words, the more you can predict what influences inflation, the more you can understand the direction of interest rates, and therefore where property prices may be heading.

1. Buy

Timing is Key: Unlike the share market, where it’s incredibly difficult to time the market, when you buy matters. If you aim to purchase properties that are poised for significant appreciation, the sooner you can buy these, the better. The ideal scenario is pushing the limits (not financial advice) when your income is high and on an upward trajectory – Using the largest mortgage suitable for your situation, you can grow capital gains to harvest later on.
Interest Rate Advantage: Enter the market when interest rates are trending downwards. This positions you advantageously when the broader public begins to see that owning might only marginally increase costs compared to renting. Always try and be ahead of the pack, if you can.
Multiple Properties: If possible, owning more than one property can accelerate your wealth-building process. The capital growth from one property can be useful in reducing debt or generating passive investment income down the line.

2. Hold

Long-Term Perspective: Property generally appreciates in price over time. Why? Because the economy is most healthy, when credit expanding. Over the long term credit expands (ie, there is more money in the economy over time) and rising property prices are merely the symptom. The strategy should be to hold onto your most valuable asset for as long as possible, and not being led into temptation of never-ending renovations which might not yield proportional returns.
Market Vigilance: While holding, you need to monitor market conditions. At some stage you’re going to sell but ideally after the market has risen in price, not right before things take off.
Hedging: Effective holding involves managing your mortgage’s interest rate risk and preparing for income fluctuations.

Some definitions

Inflation: An increase in the general level of prices for goods and services over time, reducing the purchasing power of money. Inflation happens because there is too much money in the economy chasing down a limited (or even falling) supply of ‘stuff’ to buy.
Deflation: A decrease in the general price level of goods and services, where the value of money actually increases over time. Deflation can lead to reduced spending, because consumers wait for lower prices in the future. Technology creates ‘good’ deflation, and recessions create ‘bad deflation’.
Disinflation: A slowdown in the rate of inflation, where price levels continue to rise but at a slower pace than before. Rarely will central banks allow disinflation to persist, as it eventually turns into deflation, which makes the job of monetary policy harder.

3. Sell

Cycle Understanding: The best time to sell often coincides with the lowest point of the interest rate cycle, or shortly thereafter. Lower mortgage rates makes it easier for the homebuyer to pay more for property. In this way, lower interest rates causes property prices to rise.
Boom Understanding: Gauging how low rates will go and for how long can give you insight into the length of a market boom. Watch for signs of inflation persisting, or even rising again in 2025 as a sign it’s not yet the best time to sell.

Thou Shalt Not Sweat the Technique, Nor Disregard Nuance

The property market is a bit of a complex beast, but interest rates are [arguably] the primary driver. Prices will always follow interest rates. So, figure out what moves interest rates, and you can predict prices.

Property is a significant portion of wealth for most Kiwi families. Mastering when to buy, hold, and sell, is mastering our financial future.