How to Profit From The Property Market Cycle in Australia
There’s a reason people get involved in the residential property market or residential property development. And that’s profit. At the end of the day, it all comes to income.
We’ve discussed before the difference between investing in property and turning a profit by developing. And how the property developer always comes out on top.
One thing that both savvy property investors and clever property developers consider is the property market cycle in Australia, and how to leverage it to make a return on investment.
In this article, we’re going to bust a few myths about the property market cycle in Australia, and learn how with a decent model of operation, a good boutique real estate developer can make money at any point within the cycle.
Side note, if you are interested in a real-life project that was purchased at the height of the Melbourne property market and sold at the bottom. Yet it still made a good profit. Check out this trusty case study.
What is the Property Market Cycle in Australia?
The property market is like any market in the world of economics and trade. It is prone to variations and fluctuations depending on both internal and external market forces. While over the last few decades the value of real estate has been rising, there have been downturns within this period of growth. In fact, there have been five downturns already in a 20-year period of growth in Australia.
A major influence on the Australian property market is the wider Australian economy as a whole.
Economic downturns, such as recessions, tariff wars or stock market plunges can all negatively impact the value of residential, commercial and industrial property.
It always pays to know that the Australian economy is in turn impacted by the world economy.
Just look at the Global Financial Crisis a few years ago – Australian households, investors and businesses were all hit by it. The idea is that, while property values rise, within these rises they sometimes dip.
The Myth of Buy Low and Sell High to Make a Profit
If you keep an eye on the market and read about investment and how to make money from property, then you’ve probably come across this myth before.
Some people will advise you to wait for a downturn in the market, and buy property at a low price, develop it and then sell it when the market turns around.
Here at Little Fish, through our years of experience in both good and bad markets, we’re happy to tell you that this is a myth.
If you have the right systems, processes, experience, resources and knowledge you can make money in all markets.
Of course, buying low and selling high will make a larger ROI but if you dedicate yourself to development full-time you end up with a refined step by step process that makes you money no matter where you are in the property cycle.
And the whole point of a full-time gig is a steady stream of income, right?
And that’s the difference between rookie developers who sit and wait for the market to “be at the right place” and professional developers who are always on their A-game.
The Similarity Between Investing in the Stock Market and Developing Property
There is a close analogy between investing in the stock market and developing residential property.
A smart investor in the stock market will tell you to never worry about trying to pick the timing of the top or bottom of the market because the market fluctuates so much that you’re never going to see the absolute bottom or the peak.
The idea is to consistently buy and sell shares and always have an active hand in the market. This is so you can weather the downturns and profit of the upturns.
If you take this approach and look back over a decade you will have done well for yourself, as your ROI would be average over ten years.
This will always beat sitting on your hands waiting for the perfect moment. The analogy in residential property development is clear.
If you’re actively acquiring and developing land over the years you are guaranteeing a steady stream of profit and income.
Where if you just buy a site or two and wait for the market to boom, you’re essentially hamstrung, while other players around you are in the game and making money.
Before I move into the next tip, if you are thinking about kicking off your first development project you need to understand these specific pitfalls of property developers and how to avoid them.
Pick Your Locations, no Matter the Market
Here’s a hot tip that we’ve picked up along the way. No matter what the market is doing at any one time, you need to take a strategic approach to acquire land. Ideally, you want to buy a site this is scarce. Large, corner sites or large sites in suburban areas are great.
There is a high demand for these sites as more and more people are becoming “armchair developers”.
A simple search on the REA website will give you an idea of what is out there and available. Pick something that is in high demand and has a low supply is the name of the game when trying to identify that perfect residential development site.
For example, a prime site in a suburb that hasn’t seen too many homes go on the market in recent times. Think outside the square and don’t just follow the jones’s – challenge everything, never stop learning and back yourself in.
Side note – to learn about the timing and costs involved in a real estate development project check out this case study I completed on a three townhouse corner site.
Win Some, Lose Some, But You’ll Win More than You Lose
It’s worth mentioning that if you take this approach and attitude of making money no matter the market that you will see some variations in your profit.
This is because during a downturn your returns will be lower than during a peak. It’s simple maths and economics.
Yet if you look at the Australian property market cycle over the last few decades there has been more growth than downturns.
Following this logic, if you’re always in the game you will see more wins, and more profit than you will see losses.
Want to Know More?
If you’re interested in learning about how the property market cycle in Australia can work for you give us a call 1300 799 277.
At Little Fish, we love to share our knowledge and help regular Aussies on their path to becoming full-time property developers.
We also offer our property development consultants service if that is something that interests you.
We’d love to hear from you!