7 Tips to Making a Profit from Cool Markets

I am in Perth. It is 3.00am and I cannot sleep. So, what do all good mortgage brokers do in such instances? Reflect on the diverse nature of Australia’s property markets and where best to invest of course!

According to RP Data, Perth property declined 0.4 per cent last month. And, conversations with WA colleagues indicate that there are more falls to come.

A quick stroll through East Perth last night saw construction sites beavering away, yet there were few fluoro shirts of the Fly-In-Fly-Out workers as the resources boom comes off.

This is a far-cry from the property bubble the media goes on about. This tells me that supply will soon exceed demand; putting further downward pressure on price.

One of the beauties of Australia is that its property markets can be diverse. So while Sydney and Melbourne are hot, Perth is flat (and vice versa on other occasions).

And because Sydney and Melbourne have experienced strong capital growth, other markets offer better rental yields (Darwin 5.7 per cent or Hobart 5.3 per cent). Here is the opportunity for investors.

Let’s say you have a Sydney property whose value has increased by 16 per cent in the last 12 months, you have plenty of equity which you could use as a springboard for another purchase. Here is what you do:

1. Get your mortgage broker to arrange a ‘top-up’ loan which will release the money for a deposit on your new property
2. Leave that money in an offset or redraw facility so you are not paying interest on it
3. Wait
4. Take your time researching possible markets
5. Wait
6. Make a low offer an a property (which is probably not going to be in Sydney or Melbourne)
7. Wait for the sellers to realise that that is the best they are going to get right now

If necessary, keep waiting. Eventually owners of a property in a flat market will appreciate the hard realities of market forces. And for you, the lower the price you pay the better then rental yield.