How to make money in a post-boom property market
Influenced by factors like interest rates and economic rhythms, the property market naturally moves in cycles. Most property markets in Australia are in a well-publicised ‘come-down’ after a long period of strong growth - and it has many buyers feeling anxious.
A question I get asked a lot is: Is it still possible to make money in this post-boom market? And the answer is: yes, it certainly is.
When it comes to property, looking at the trends over a period of a few years can be extremely misleading. For example, 15% growth in a short amount of time does not necessarily represent the overall equity of a property - and some inexperienced investors will jump into a high percentage during a short period to try to make a quick gain, only to get cut short. Equally, the numbers the media report on post-boom always look alarming and cause many would-be investors to panic, but only when you look at them in isolation.
The key to remember is that both booms and busts even out long term. You need to look for the overall trend over a long period of time (10+ years) to get an idea of whether an area is a ‘good’ or ‘bad’ investment. If you take a big picture view you’ll reduce your overall risk and be able to make a better decision.
Ideally, you’d want to see a rise of 7% over a long period of time. 10 - 15 years or more.
Be careful of getting over excited about high jumps and sharp drops in short periods of time. Property is not a slot machine where you can gamble to get rich quick. However, if you’re willing to be patient, then property - especially in Australia - is a pretty reliable long-term investment.
Key Tips In A Post-Boom Market:
- One of the ideal times to buy is during a flat or slow market, because the buyer competition is reduced and you can potentially pick up a bargain.
- If you’re going to own property, you need to come to terms with the fact that property will have times of flat or no growth - as always the best philosophy for investing in property is patience.
- Always aim to buy in a growth-stable area (long term), no matter what the current market looks like. Even if the area is going through low growth at the time of buying, equity can be improved through property improvements.
- When thinking about buying property, take the big picture view and look at market trends in your desired area over 10, 15 and even 20 year periods. It will tell you a much more reliable story.
- There is no better investment than the time you spend researching the area and asking questions.
- During low growth, you should also consider options to revalue and refinance.
Tips In A Boom Market:
In a peaking market, be careful not to push the envelope too far: looks can be deceiving. Think about an overall strategy instead of jumping on the first exciting property.
If you already own property and you've had good growth, sit back and congratulate yourself but don’t just sell just by default.
If you did sell, ask yourself what would you do with the money? If you left in it property it could still give you good growth and yield long-term. You might as well have slow growth instead of no growth at all. Rather than flipping, consider holding and refinancing to extract equity to buy your next property.
During this ‘post-boom’ cycle, remember that statistics can be misleading when looked at over a short period - and yes, in property 5 - 7 years is a very short period!
It’s better to take a long-term view in both a boom or bust market, unless you’re willing to gamble with your investment. When building your portfolio, you ideally want a mix of growth properties and cash flow properties; it’s important to have both.
Finally, speaking to a property professional when making these decisions is always worth it. A good property is the gift that keeps on giving.