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It may seem obvious that what goes up must come down, but there are some property owners out there that are learning this the hard way. Quite simply, the appreciation of real estate is not a guaranteed birthright, nor a foregone conclusion.

In boom times, many of your friends and acquaintances may be sharing with confidence and bravado their two cents worth of real estate insight over the dinner table. You may hear such claims that “real estate prices only go up,” “everyone has got to live somewhere,” “the population will never go down” or, and this is the time your alarm bells should be ringing, “trust me!”.

As we are experiencing now, when economies and markets come under pressure, together with buying too high and borrowing too much, there is almost an inevitable period when property prices will head southwards.

Over-eager buying and over-zealous lending has meant that in lots of cases real estate prices in the short-term have had nowhere to go but down. Buying or selling is a stressful enough period in one’s life without facing additional pressures.

Figuratively Speaking

The costs involved with selling real estate can be around five per cent of the total sale price when you factor in sales fees, legals, taxes, moving costs and other selling expenses.

That means that a property must therefore appreciate by the same amount for you to break even on your initial investment.

Go one step further and if you’ve paid perhaps ten per cent too much for the property, you must somehow recoup 15 per cent just to return to “Go”: there’s no advancing and you can’t even collect $200, to use Monopoly language.

Making money can be a challenge at the best of times, but finding an extra 15 per cent just to forego it is an awful lot of extra padding and cushioning to build in to an initial purchase price.

On the plus side, and there is still plenty of positive news, those that can weather a less than booming economy, who bought well, borrowed sensibly and paid off plenty will be rewarded, as over the longer term real estate prices have traditionally shown excellent appreciation and will no doubt do so in the future.

If you can buy AND sell at a time of YOUR choosing, not your banks, your accountants, your employers or anyone else’s time you will be handsomely rewarded.

Constantly educate and re-evaluate yourself, your wants and your needs. This will ensure that you have a full appreciation of your financial position and make well informed choices if, when, and why ever you need to make them.

“Be a property intellectual” by frequently visiting our blog and the many other resources on the internet: they will stand you in great stead for the future.

Simon Turner