Buying at the bottom of the market, when prices, competition and confidence is low, could be a lucrative strategy. You’d be able to cherry-pick the best property at a rock-bottom price and then ride the upward swing in prices.
Todd Hunter, buyer’s agent and founder of wHeregroup, says it’s the only way to invest.
“When a market tapers right off, developers begin to delay their projects, because there’s no one buying. This means there are no new properties hitting the market, but there are still people moving into the area, which lowers the vacancy rates and puts pressure on the housing market,” he explains.
“Once a market has been flat for three to five years, you’re going to start to see the rebound, and when the market starts to increase again, that’s when I stop buying and move on.”
“This has happened recently in Southeast Queensland. We had been active in that market, but when there are fewer discounted prices, and there are multiple offers on the table and properties start selling really fast, that’s a sign to leave a market,” he says. “It’s great news for us, though, as it means all of our properties are going up in value and we’re making money, so it’s time to move on.”
How can you tell when it’s time to move in?
Hunter’s method for acquiring bottom-of-the-market properties that are set to surge certainly seems appealing. But how can everyday investors follow his lead and time various property markets for themselves?
It can be difficult isolating a market in the ‘sweet spot’ – that is, post-slump but pre-boom – as you have to truly invest in due diligence and understand the market inside out.
“You have to understand the cycles and make sure you’re buying in an area that is trending sideways or rising,” explains Mark Kelman, investor and founder of Achieve Property in Sydney.
“Ideally, you want to buy in an area that is trending up, because if the market drops further you lose your advantage, even if you buy below market value. No one wants to purposefully buy in a market that is going down.”
Your first step is to gain an understanding of where each market sits in terms of its property cycle.
“There are many groups that assess data and have good reporting on market cycles. CoreLogic RP Data provides market data reports on peaks and troughs in the cycle, and Herron Todd White also provides a monthly report.
“Historical trends can be helpful. For instance, if a market has been very quiet, it’s a good sign that you may get growth. Rental returns and yields are also a great sign, because in a flat market at the bottom, there is not much construction happening as there are no buyers. The rental market is starved of choice and therefore the rental returns are strong.”