Knowing when and where to buy property is the basis for wealth creation. Some investors adhere to a standard principle: rather than “timing the market”, they attribute the financial gain to “time in the market”.

But there is a smarter way, with many preferring to take matters into their own hands.

Successful investors often focus on uncapitalised areas. It is widely viewed that real estate will inflate over time — and astute buyers would rather learn where the market is going to serve them best and buy there.

Capital growth lesson

The real estate lesson for investors is that, if you have capital, you need to work that capital as fast as possible.

Analysts predict that you must move money and follow the upward-trending areas. You need to manage your money by understanding various markets and where to buy next.

Australia and New Zealand are replete with different state-based property market cycles that all have different patterns. This evolution allows investors to move their money to the next must-have location. Check official industry guides in your targeted region.

The counter-cyclical equation

There are two principles that excite or deflate a market. One is affordability and the other is sales volume.

Experts say that sales volume has a direct correlation with the sentiment. We all know that sentiment is the most exciting and dangerous side of any marketplace. It serves to reason that when people aren’t buying, investors can secure a smart deal.

Similarly, when people are buying, they can sell and make a profit. So the psychological purchasing lesson is: you need to run counter-cyclical to the mindset of other buyers.

If you follow the crowd, the market drawback can be harmful. The boom-or-bust economy of the Dubai property market around a decade ago — with skyscrapers rising in line with buyers flipping properties before completion — is a case in point.

Know your limitations

It doesn’t take an expert to realise that everything has a limit; usually, this is because a market can only sustain so much before it either becomes too expensive or oversupplied. The principles of the market will then change.

It is safe to say that local markets don’t suffer the extreme highs and lows of global megacities such as Dubai.

Most markets perform strongly and steadily, without following boom-or-bust patterns. This is true of well-balanced regions with diverse economies, which tend to inflate and deflate — yet still, rise in value. This has been shown consistently, with the current property average at roughly 11 per cent yearly growth (as measured over the past century).

Opportunity knocks quickly 

Research shows that up to 80 per cent of buyers purchase real estate too late in the cycle. The following guidelines indicate future boom areas. This is when smart investors pounce on market capitalisation:

• Interstate investors buying into the area (which will push prices up);
• Auction clearance rates are high;
• Local investors are beginning to return to the market.

Remember that when opportunity knocks, it usually indicates ‘timing the market’, rather than ‘time in the market’. In other words, if the masses are buying, astute owners are selling.

The marketplace is comprised of many volatile components and you need to understand them, and avoid extremes, to analyse market sentiment to the best advantage.