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In This Video:

00:27 How do the property market works?
00:53 How does commodity or property curve affect property prices?
05:30 The reasons why good property investors never sell

Good day everybody Daimien Patterson here from Integrity Property Education. If you are looking for property investment advice, property investment strategies and general property investment knowledge, then you come to the right place.

How do the property market works?

Today, we are going to talk about the commodity curve or what I call the property curve. First thing to understand about property is that it just doesn’t go up all the time. If you think that it is going to be the case, you’re on drugs and you need to think about it totally differently. The way it actually works, it really relied to supply and demand. If supply is restricted or demand is increased, then we see prices go up, if we have an oversupply and a lack of demand, then we see prices go down. Very simple!

How does commodity or property curve affect property prices?

Well every property cycle follows this commodity curve. There are some people described it as a commodity clock but it’s not a very good description because, you are not really thinking about how the factors truly work. It all comes back to supply and demand.

So how does it work? Well it starts when supply is equal to demand i.e. the number of buyers is the same as the number of properties available for purchase. When that happens, the curve is basically flat, so we don’t see any increase in price over time.

Then something will trigger our BOOM and then you will see prices going up. Boom can be trigger by one of two types of factors:
1.) an increase in demand
2.) Drop in supply or a restriction in supply.

Some examples of the things that could increase demand are:
1.) A major infrastructure project that starts employing a lot of people that therefore need to move to that area 2.) A completion of an amenity type infrastructure like a big shopping centre, a new railway station or something like that, which makes an area more of a sudden more appealing and therefore attracting more buyers.

Now a decrease in supply could occur due to geographical features such as: water and swampy ground, and also, we can see man-made features that have a significant effect in supply such as: council zoning of areas, mining leasers, average of the land claims and the like, can severely restrict the land available for building therefore, will put upward pressure on prices. Any of those things could trigger the boom.

What happens during the boom is quite interesting. All commodities follow this curve and when the prices start to go up, whoever makes the commodities, big houses, iron or coal will start making more of that commodity, because with their profits if they just keep their profits, there will be tax on it, so what they will do is to re-invest their profits to their business and increase their production to try and sell more and make more money. Invariably no one knows really what the limit of the new demand is, so they will just keep making more and more until the demand is met. Then you get to the peak.

The peak is where the supply now equals to demand again. But invariably, we will have over supplied ultimately the market because, we won’t stop producing more product, more houses until the prices actually stop moving up. When they start, they will all indeed go down again, so we have this sausage machine effect, where building houses or any other commodity takes a lead time. So inside the sausage machine, we said go on one point and we got to feed the rest of it through. What happen is that bid inside that sausage machine, when we find and turn the machine off, or will stop putting anything in the front end but still has to come through and that over supplies the market, and that seize prices drop and this is what we call a correction. Then we go back into a flat period where supply is equals demand again.

So the four phases of the curve are: FLAT, BOOM, PEAK, and CORRECTION. If you are a savvy property investor, you would know that this is going to happen and at the end of every boom, there comes a correction.
Now, today tonight at the current affair, sensational media sources, will seek to scare everyone and say that “Property bubbles is going to burst!” and “it is finally bursting and the sky falling in!” that is not the case! If you are a mature sophisticated investor, you will expect that in the end of every boom there will be a correction maybe 5 maybe 10% in some cases or it could be more severe if it is in regional mining town area or something like that, then the show will go on. But the key thing to remember is this, after the correction, the price point will still be much higher than what was the beginning of the last boom so you are still in front. This is one of the reasons why good property investors NEVER SELL!

The reasons why good property investors never sell

They never sell because, if you play a short game and you try to trade it in and out of the market, then you are susceptible to the curve. If you buy at the wrong point and sell it at the wrong point, you can lose a large amounts of money. But if you are taking a long term view and you never plan on selling those properties at all, then this effects won’t bother you! Because you will simply just ride the waves and in 30 years time when you are retiring 20 or 30 years, you will still make money regardless of what is happening. So this is why we don’t sell.

If you are still wondering, how do I then get money out of my properties? Then you need to understand two things: 1.) You need to understand that rents go up and then eventually your rent will fire out strip your cost of home or property and that surface rent will become a passive income for you. 2.) You must then understand Financing. There is nothing wrong with getting an equity loan from an investment property using that increase surface rent to service that loan going to the future, pulling a hundred grand out of the property, and use that for whatever you want. You might want to use it for a new investment property deposit or you might just want to go around the world holiday. Remember if you use it for personal reasons, you won’t get a claim an interest on that loan, but there’s nothing wrong by doing that, because if you would never going to sell and the rents are keep going up, then will service you definitely and you will be fine.

So that’s it for me today. Now remember the curve. Some people call it the clock, but I don’t like the clock because it doesn’t make any sense but the CURVE does. The time and money we’ve got a flat period, a boom, a peak, and a correction. If you remember that, you are going to get much better off and your anxiety level is going to get much lower. You are going to make the right decision with your property investments.

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