Three smart property moves for investors in the face of falling house prices

With signs pointing to flat or falling house prices on the east coast and rents following suit, it’s hard to imagine property investors can still find ways to make money.

But falling prices can create opportunities, and Sydney and Melbourne aren’t the only places to invest. Experts suggest other markets might be entering a growth phase, marking a prime buying opportunity.

Even investors and home owners without the cash to splash on another property can still focus on their own assets, although certain strategies for adding value might be more effective than others.

1. Take advantage of buying opportunities

A downturn in prices would affect some properties more than others, but for buyers, it’s not necessarily bad news, according to Anna Porter, founder of property advisers Suburbanite.

“There will be particular pockets hit harder,” she said. “Cheap and cheerful locations – some of those pockets can be hit harder than some of the surrounding areas.”

But those who have been waiting in the wings, especially first-home buyers, should be prepared to pounce if properties prove better value than in the past few years.

“This is a really great buying opportunity,” she said. “The smashed avocado generation should be getting ready.”

It’s not just owner occupiers who should be watching prices closely, according to Wakelin Property Advisory director Jarrod McCabe.

“Slowing markets can provide a great opportunity for investors, because markets can start to level off,” he said. “It creates less competition for buyers in the marketplace.”

But he warned bargain hunters to continue exercising proper due diligence. “In a down market asset selection is absolutely vital,” he said. “Properties that might seem to be a bargain compared to today’s prices may actually be poor-quality assets.”

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2. Look beyond Sydney and Melbourne

Markets that have seen ongoing price declines may be finally be starting to stabilise, and the surge in Sydney and Melbourne property values in the past few years has equipped many home owners with the means to invest, according to Porter.

“The real opportunity will be for mums and dads with a lot of equity,” she said. “Now is the time to look at those strategic steps.

“They can take that equity to then go invest in interstate markets that are growing, so they come back to the Sydney market in three or four years time and use that extra $200,000 or $300,000 in equity to buy their dream home.”

Porter suggested Perth could be back on the radar for east coast investors. According to Domain Group data, Perth median house prices declined almost 16 per cent between March 2015 and March 2017, but only 2 per cent between March 2017 and March 2018.

“Perth has been going backwards for a couple of years, but we’re starting to see it stabilise,” she said.

Property Mavens founder Miriam Sandkuhler said changing economic conditions and low prices were putting Perth on more investors’ radars.

“With the Perth market, it’s started hitting the bottom and things are starting to pick up,” she said. “There are more employment opportunities starting to happen again.”

3. Add value with smart updates

Updating your own home or developing an investment property can increase its value, lessening the effect of broader market falls, according to Porter.

“If you’re looking at under $10,000 for a spruce up, paint is going to be the best investment because it makes the house feel really renewed and refreshed,” she said. “Paint and carpet are two best ways to spend money to add value.”

Bigger budget structural renovations create the potential for bigger profits, but changes need to be in the right areas.

“Where some people might go wrong is they add a lot of bedrooms, but they’ve only got one living area or one bathroom,” Porter said.

“Usually when you get over three bedrooms, you do need to consider adding an additional bathroom or additional living area.”

The type of property can dictate the best changes to make, according to McCabe.

“You don’t ever need to go overboard with investment properties,” he said. “Cosmetic works are always a good way to add value without having to spend too much. Carrying out major structural works is not always a good idea.”

During the height of the property boom, selling a house with zero or minimal updates, and only a development application (DA) for future renovations was a common technique of property flippers.

But with price weakness allowing buyers to be more picky, it’s not necessarily a fool-proof strategy, according to Porter.

“Having the DA option isn’t what adds a lot of value when it’s just a renovation or extension,” she said, adding most buyers of a renovation project would want to have their own plans drawn up.

“Where DAs add a lot of value is where you start doing major changes, such as converting a single dwelling to a dual occupancy.”