5 tips for profitable real estate investing (despite a cooling market)

Written by view.com.au in Investing


Despite the current environment of market uncertainty, there are still many bright spots in Australia’s real estate market. However, there can be no doubt that much of the country is in the midst of a cooling period.

Don’t be fooled into thinking this means you’ve missed all opportunities for profiting in the real estate market. It’s quite the opposite. Consider the following five tips for profitable real estate investing despite a cooling market:

1. Ignore the gloom and doom

For serious real estate investors, the best buying opportunities tend to happen at the times when talk of gloom and doom is at its thickest — so that’s the time to grit your teeth, ignore the pundits and get serious about submitting offers on promising properties. When housing prices have bottomed and homes have been stagnating on the market, that’s exactly when you want to buy real estate.

2. Understand the dynamics of market timing

The problem is, nobody knows with certainty when those bottoms will occur. Finding them is ideal, but it’s not an absolute necessity for successful real estate investing. If your goal is to buy property and resell it at a profit, the most important thing is to buy at a low price and sell at a price that’s high enough to make a satisfactory return.

Some investors swear by waiting out the cooling periods in the market and jumping in to buy as soon as the market shows signs of recovery. The underlying thinking is that you’ll get close enough to finding the market bottom to profit substantially.

Others see more value in searching out under-priced homes to invest in during any part of the market cycle.

Happy family sitting on steps. Parents and son are wearing casuals. They are spending leisure time outside house on sunny day.

3. Know the housing market you’re seeking to buy into

An important part of timing the market is educating yourself about the nuances of the suburb(s) where you plan to buy property. This will help you to recognize the bargains that do come up for sale from time to time. It will also help you to understand whether your chosen strategy is viable for that specific home in that market.

At a minimum, you’ll want to know who lives in that area, whether they’re likely to rent property or buy it, and what their main motivations for renting or buying there are likely to be. Is there a university in the area – and are admissions at that university up, or down? Are major employment opportunities available in the area? Are employers hiring or laying off employees? This knowledge will help you to avoid major investment mistakes. You don’t want to buy a rental property in a suburb where there’s no demand for rental units.

4. Plan for all expenses you’ll sustain

One major mistake investors tend to make is underestimating the expenses they’ll run into. These are some of the major expenses you may need to plan for:

  • Loan establishment fee
  • Interest on your property loan
  • Legal fees
  • Mortgage insurance
  • Property management fees
  • Stamp duty
  • Land tax
  • Council rates
  • Body corporate fees
  • Upgrades and repairs
  • Landscaping: Until you find tenants or sell the property, you’ll need to maintain the landscaping to protect the value of your asset. You can stipulate in your lease agreement with tenants that landscaping is their responsibility. However, you will still probably need to take responsibility for major landscaping endeavours such as tree lopping.
  • Utility bills: Maintaining the landscaping will require water that must be paid for. If you’re using power tools in the home, running an alarm system or turning on any exterior lights, those activities are likely to consume electricity.
  • Vacant periods: There will be times when you’re unable to find tenants to rent your property.
  • Commissions: If you sell the home, the percentage of sales commission you’ll pay differs depending on the location of the property. Agentselect.com.au maintains an updated list of the exact real estate agent commission percentages you can expect to pay.
  • Capital gains tax.

5. Understand your options for investment strategies

Some of the most popular investment strategies include quick flips, buying to rent and buying a property you’ll live in. In a cooling market, you must choose your strategy carefully. Quick flips are possible, but they can be challenging in a stagnant real estate market.

Before you invest with the intention of flipping, carefully consider your expenses. Determine whether you have enough cash to wait it out if your home doesn’t sell immediately. Assuming the market continues to stagnate, and your cash reserves are not sizable enough to guarantee success in a quick flip, buying with the intention to rent or live on the property may prove to be the preferable strategy.

As you can see, a cooling market can be conducive to profitable real estate investments if you have the cash to invest, the know-how to choose the right properties and the courage to make the investments. We hope this information will prove helpful to you if the real estate markets in Australia continue to cool.