5 Clever Property Investment Strategies That Work in Soft Markets

On the back of the recent interest rate rise from the Reserve Bank of Australia, many property investors are wondering what they should be doing in the current market.

Over the past few years, homeowners were fortunate enough to see the growth of 25.5 per cent in capital cities and 41.6 per cent in regional areas, according to CoreLogic.

But with higher borrowing costs, property values have now declined 9.6 per cent from their highs in capital cities, while regional areas are 7.4 per cent below their peak.

When put in a long-term context, it’s clear that the trend in property prices is up, but when conditions change, many investors elect to sit on their hands instead of actively looking for opportunities. This can be a mistake.

As Warren Buffett said, it’s wise for investors to be “fearful when others are greedy, and greedy when others are fearful”.

Fortunately, there are some clever ways savvy investors can still be involved in the property market, despite what might be happening on a national level.

It consists of strategies that give investors a built-in ‘safety net’ that will hold them in good stead regardless of what might be happening around them.

Here are five clever property investment strategies that work in soft markets:

1. LOOK FOR GROWTH AREAS

While it’s easy to look at the headlines and see that property markets are in decline, in reality there is no single Australian property market.

Across the country, every state, city, suburb and even street will all perform differently. They are all unique markets driven by supply and demand in that local area.

While the national market is in decline, a small suburb in a good school zone, for example, that has improved infrastructure and a tight rental market, is still seeing strong capital growth.

No two locations are ever the same. Focus on the markets that have the best growth potential.

2. NEGOTIATE HARD FOR BETTER DEALS

During the pandemic years, it was fair to say we were in a seller’s market. There were typically multiple bids on all properties, with the final sales price being driven up by extreme levels of competition.

Now that the tide has turned, buyers are in control, which means you have far more room to negotiate.

If you can secure a property without competition, you might get an excellent deal which gives you plenty of upside potential.

3. LOOK FOR OFF-MARKET OPPORTUNITIES

If you’re prepared to do the work and build relationships with selling agents, you might be able to find opportunities to purchase a property before it’s ever listed.

This also means you might face even less competition, allowing you more room to negotiate.

If a vendor needs a property sold quickly, and you’re ready to make an offer, you might find a great deal that gives you some built-in equity.

4. CONSIDER RENOVATIONS

Over the last few years, getting any form of building or renovation done has been challenging.

There’s been rising costs, difficulties in securing the right trades and long wait times. For this reason, many homebuyers have been reluctant to take on a property that needs some work.

Thus, unrenovated properties have been selling at a more significant discount than their ‘move-in ready’ counterparts.

If you’re prepared to do a renovation, you could find good value in this market and even manufacture some equity in the process. Just make sure your numbers stack up.

5. SUBDIVISIONS AND SMALL DEVELOPMENTS

One of the most effective ways to manufacture equity in any market is through undertaking subdivisions and small developments.

When you identify a block of land that has potential, you are effectively creating value out of nothing by subdividing the land or building new dwellings.

This is a more advanced strategy for those with greater risk tolerance and does take additional capital, but it’s a good approach for an investor looking to get active in the current market.

With this strategy, you must do extensive due diligence, ensure your numbers stack up, and bring in the right professionals to guide you along the way.

FINAL THOUGHTS

The property market may present some challenges in the short term, but there are plenty of opportunities for those who approach it with a long-term perspective and are prepared to look for clever strategies.

As with any investment, it’s essential to have a plan, do your due diligence, and seek professional help if necessary.

If you’re prepared to take calculated risks that are in keeping with your risk profile and personal long-term strategy, the current market can still reward you.