It’s August, 2018. Should you invest in property now?
The property market has changed quite a bit since last year. Finance is getting harder and harder to come by and prices have started dropping across Sydney, Melbourne, Adelaide and Perth.
Should we be scared? Hell no.
Now is the time to pick up some bargains.
Vendors are discounting prices.
According to CoreLogic, the week ending June 24 2018, saw an average -6.3% vendor discount rate for Sydney houses sold by private treaty and an average -5% rate in Melbourne.
In fact, Sydney house prices have dropped by 4.5% over the past 12 months, which has been the largest annual fall since 2008.
The finance market is to blame.
The downturn in property prices has been partly due to the finance market. Lending has become more expensive for banks and more difficult to obtain for borrowers.
This has resulted in less buyer activity – which has caused a major slowdown in growth.
The benefits of buying when others are fearful.
According to Nathan Birch of Binvested, when prices start dropping like this, buyers tend to become fearful. They pull out of the race or sit on the sidelines, waiting for prices to go up again.
If you don’t want to be buying at asking price for a property, now is a great time to get stuff under market value. While buyers are standing back, vendors are becoming more desperate to sell – and less competition usually leads to a better deal.
What markets have the best opportunities?
According to Nathan, some housing markets are still strong. Those dominated by first home-buyers are still seeing good results, while more investor driven markets are getting hit the hardest.
“I’m finding a great opportunity there by being able to lay the foot into the owners that are selling the properties, in order to get the properties as cheap as possible.”
“I’m finding opportunities in certain locations where you can get into the markets for as little as $150,000 purchase price with rents at $250 to $280 a week.”
He says south-east Queensland is still one of his favourite regions to buy in. It is one of the most undervalued markets in Australia, which has been the least affected by the market slowdown.
“When the finance situation changes, I personally feel that we’re going to see that market have the greatest rebound.”
“It’s like an elastic band ready to take off.”
“Looking at the Sydney market, the opportunities are starting to show their heads.”
He says, instead of getting scared, buyers should take advantage of the falling prices in Australia’s most expensive city.
Will the finance situation ease?
Nathan believes the start of 2019 will mark a time of even tighter lending. It will be more difficult to get finance, and those with a property portfolio will find it especially tough.
“If you think you’re going to wait six or 12 months, it may be too late.”
No one knows what changes are coming, we just know that there will be further changes before the finance situation does start to ease.
If you have equity available, the best time to release it could be now. There may come a time in the near future where you are unable to. This will be the difference between flourishing during the GFD and not.
Looking ahead to future growth.
Australia’s population has just topped 25 million. There are more and more of us as each year ticks over and this should be a good thing for property.
While construction has slowed down and investors have been stopped in their tracks, demand for rental properties is likely to rise. Nathan believes there will be an increase in rental values in the near future.
In the 2007 to 2009 market, rents went up by 50% over 12 to 24 months.
“Picking up those cheap rental properties where investors are doing it tough … you might be able to pick them up 10 to 15% cheaper than what they were 12 to 36 months ago,” says Nathan.
All this with “the benefit of rents going up in the not too distant future.”
“That’s a really attractive option as an investor.”
In the current market, Nathan has seen metropolitan properties for sale with a rental yield of almost 10%.
How to negotiate a bargain.
In order to avoid overspending on a downwards sloping market, it is essential to look at the fundamentals.
“I always look at where the value lays in the property,” Nathan says.
“For example, if I can pick up the property cheaper than what it would cost to build it.”
“If you are picking up a $150,000 or $300,000 investment property and it’s going to cost you more than the cost that you are paying just to lay the bricks down and build the dwelling, there’s strong value there.”
“If the cash-flow is strong enough to look after itself and cover its own expenses then it represents good value on that basis as well.”
Having the right mindset is key.
You can’t become successful without the right attitude. Instead of being fearful – which will only stop you from making logical decisions – it is important to be pragmatic and decisive.
Read between the headlines and see what is really happening in the market. Identify value when you see it and take advantage of good opportunities to buy below market value. The slowdown won’t last forever. Now is a good time to get ahead and increase your portfolio before the next cycle of growth begins.
Three things investors can do to put themselves ahead:
1) Educate themselves about the market and where the best value is.
2) Get their finances in order and access equity before valuations become softer.
3) Take advantages of the opportunities that are out there.
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