Understanding markets - a trader's approach
Buying and selling my first house for significant profit added additional insights on the psychology of trading. Trading cryptocurrency, almost threw everything one thought one knew about markets out of the window.
This is not financial advice, and we must always value homes as places we live and value.
General principles when buying and selling property
My opinion - buying a property and owning it is one of the best things you can do. The data shows that property appreciates over time, but to believe that you can downsize with profit in retirement needs closer inspection.
Understand costs and potential costs of ownership
Owning a property is a very complicated matter. Maintenance can prove expensive, sometimes additional taxes can be levied and remortgaging can prove expensive.
Always look at other markets - understand other asset classes
It is not a choice of buying a house or Tesla stocks, a house is a home. Looking at markets and understanding them will help you time buying and selling your home.
Learn to become less emotional about property
Love for your; neighborhood, home, environment and heritage is a fantastic thing. Sometimes, if we have followed market cycles, it can be time to sell.
Similarly, chasing a dream as the price is steadily increasing may not be a wise move.
Working in finance was a huge introduction to markets. Buying my first home and negotiating a 10% price reduction - at the second time of asking, was a massive win. We put so much energy and time into finding and creating our home. Keeping calm and not rushing into decisions is essential.
Understand other markets
Trading cryptocurrency shows that the inconceivable can happen, more than once - over and over. Markets can collapse. Housing is too important to collapse, but that houses can keep going up in value is something we should always question. Trading stocks shows many companies can go bust, and by understanding other markets we can evaluate risk.
You don't determine market events
Whilst outside the scope of this document, it is important to understand that you don't decide when the right time to sell a property for profit is.
Imagine you purchased a property for £100k, expect to pay £220k for it with mortgage costs, and sell it for £380k when you retire early at 55. Should you sell? Imagine it was worth £450k when you were 53? By looking at the market, your time horizon may have to change.
A home under mortgage is a liability, not an asset
As strange as it may sound, as Robert Kiyosaki explains - a mortgage is a liability to the owner and an asset to the issuer. Too many people fall into the trap that a home is an asset whereas renting is a liability.
One friend has multiple properties through his businesses, and uses interest only leverage on the properties (debt). They willingly ignore capital appreciation (house price increases) as they see yield (cash flow) as more important than capital appreciation.
Learn Technical Analysis
Technical Analysis is looking price charts and using certain rules to try and understand where you think the price is heading. This may sound a little strange, but having a set of tools to try and understand house prices can reduce the level of cost and fear when making a buy. Brexit - caused many people to stop looking for properties because they thought house prices would collapse. This hasn't happened and many have missed out.
Learn about markets fundamentals
Our example of Brexit is an example of a market fundamental, another could be unemployment rates, or inflation rates. My personal lesson is to not read what the newspapers say. Always go to better sources of data to try and understand what is happening.
A very important example is the role of price inflation - if we take what the official Consumer Price Indexes state are, we would be forgiven for thinking price inflation is low. I attached a link to Shadow Stats to highlight this point.
Apply common sense to prices
Taking a look at Trading Economics website - they are showing house prices have never been higher. If we looked at other economics, is this sustainable? Maybe it is if we consider many people may be wishing to switch locations due to the changes from the pandemic.
Remove myths in property
We have all watched these TV programmes such as "Under the hammer". The dream is to buy a house, renovate it and sell it for big bucks. Sometimes extending a property is perceived to add value and yet, down to how house prices are valued this may not be realised.
Taking a look at Trading Economics website - they are showing house prices
Key takeaways when buying and selling a house
My personal opinion is I like to make a profit when selling a property and like the price to be fair for the buyer and seller. We must enjoy the home we own and live in, but be conscious of timing selling and buying.
findigl is creating tools to help add insights for buyers and sellers, feel free to contact us with your ideas.
House Price Index
Alternate Inflation Charts (shadowstats.com)
Trading view prices charts for technical analysis
Written with StackEdit.