5 tips to help you invest in the current property market
Should the interest rate hike stop you from investing? The short answer is no.
Given the Reserve Bank of Australia (RBA) has raised interest rates as predicted, many new investors are likely wondering whether now is the right time to start their investment journey.
The reality is that despite what's happening in geopolitics, financial markets or the broader property market, there is always a chance to find high-quality investment opportunities.
The real key is to understand how to buy in the current market and what factors to consider.
Affordability is relative
With house prices having risen by 20.6% in the past 12 months based on CoreLogic data, many experts are now talking about how affordability is a key issue.
While it certainly is tough to afford a property in the likes of Sydney and Melbourne, the advantage investors have is that they are not limited to any 1 market.
Affordability is poor in many markets that have seen huge surges in growth in a short period. However, there are others where growth has been consistent and still trending higher.
Look to identify suburbs where houses are still affordable relative to average household incomes.
There are over 15,000 suburbs across the country. Not all of them have moved to the point where they are not affordable for local owner-occupiers.
Time in the market, not timing the market
We all pay attention to media commentary around house prices, but the reality is it's very difficult to time the market with any degree of accuracy.
Eighteen months ago, the RBA and economists were suggesting house prices would fall by 40%. What played out was virtually the exact opposite.
As an investor, your goal should be to buy into areas with strong growth fundamentals.
Historically, house prices have risen over many decades and if you're buying with the goal of making yourself financially secure in 10 or 20 years, you can manage the ups and downs that come with price fluctuations.
Look at the micro level
In property, there are a few more important fundamental concepts to understand than supply and demand.
While we often hear the property market spoken about in terms of the overall Australian market, you need to narrow your focus to the micro level to buy effectively as an investor.
When you examine a suburb and look at how much supply and demand there is at any moment, you can quickly assess what the likelihood of growth might be.
If a suburb has very few listings, strong annual sales, a low pipeline of new stock coming onto the market and solid fundamentals such as good schools, infrastructure and access to jobs, you can be confident that you've found an area that will likely see good growth.
It's not uncommon for these types of tightly held owner-occupier areas that might be in a good school zone to see consistent growth through all market conditions.
When you're buying properties, you can look at ways to increase value above and beyond capital growth alone.
It's possible to identify properties that have additional upside potential such as the ability to renovate or undertake a subdivision.
This is another layer of potential growth you can find in a property that is available regardless of what the broader market might be doing.
Be prepared to negotiate
When markets are hot, your ability as a property investor to identify opportunities below market value is greatly reduced. Stiff competition will keep buyers on the back foot.
When markets begin to cool down, there is a lot less pressure on buyers. That gives you more opportunity to negotiate aggressively and secure yourself a high-quality property at a great price.
In property, there are always going to be opportunities to enter the market and outperform the averages.
If you consider that property prices have grown by 6.8% per annum between 1993 and 2018, that means 50% of properties have outperformed that figure. By identifying the right property in the right location, you can achieve an excellent return regardless of the overall market conditions.
Rasti Vaibhav is the author of The Property Wealth Blueprint and CEO of Get RARE Properties, a bespoke independent buyers' agency that has been helping hundreds of clients across Australia secure their financial freedom through property. For more information, visit www.getrare.com.au.