My advice for buying in a "hot" market? Don't: Terry Ryder

I’ve seen many articles over the past few weeks advising people about how to buy in a “hot” market.

 
Amid all the “expert” commentary the only sensible advice I’ve read came from Perth property professional Gavin Hegney, who said: “My first thought is that buyers should not be aiming to buy in a hot market.”

 
Hegney’s thoughts mirror my own advice to investors on how to buy in a boom market: “Don’t.”

 
It’s really that simple. The only explanation for investors buying in a sharply rising market is the herd mentality, otherwise known as stupidity.

 
Here’s how it is for property investors at the moment. Australian has many different property markets. Many of them are rising at the moment. Very few of them are “hot”. Only a few have anything ressembling boom conditions and the jury is still out on whether these areas are genuine boom markets.

 
Investors have the whole of Australia from which to choose. Only a fool would choose to buy in one of the few markets where competition is extremely high and buyers are paying silly prices to secure properties.

 
Warren Buffett, arguably the most successful investor ever to have lived on planet Earth, preaches the simple philosophy that you buy when others are selling and sell when others are buying. It’s the opposite of the herd mentality that drives most Australian property buyers.

 
Buffett also said: “Profit from folly, rather than participate in it.”

 
The greatest folly current occurring in Australian real estate is Sydney’s auction frenzy. People participating in it are, by Buffet’s definition, fools. They are people with more money than sense. Buy in haste and repent at leisure is the unwitting catchcry of such people.

 
If you don’t have to buy in these areas but are buying anyway, you’re part of the folly.

 
Possibly there are home buyers who need to buy now and have little choice but to compete with other frenzied punters.

 
But investors have no such excuse. They have no pressing need to buy in these locations. The whole of Australia is their market and those with common sense and a healthy research ethic will be looking elsewhere.

 
There are hundreds of locations around the nation where investors can buy well with good prospects for future growth.

 
One of real estate’s oldest cliches is that you make your money when you buy, not when you sell. This means you buy at a good price, when the market is down.

 
You cannot buy well in some of the Sydney markets where people are paying way above the reserve price at auction or making a high offer before auction to secure a property.

 
This sort of folly has happened before in Sydney and Melbourne. It’s always the same scenario. Auctions get on a roll in the millionaire suburbs, people afraid of missing out pile in and buy at inflated prices and, after five or six months of frenzy, it all fizzles out.

 
Then prices fall. Often the decline in values is as much as the previous rapid rise.

 
Don’t be part of the folly. Look elsewhere. There are many hundreds of better options for well-researched investors from Darwin in Adelaide and from Perth to Townsville.

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Terry Ryder is the founder of hotspotting.com.au and you can contact Terry via email or on Twitter.