Successfully Sourcing And Negotiating In A Cooler Market
Very much like our weather seasons, you will notice the real estate listings market has times of cooling. In other words, there are less properties listed for sale and vendors are less interested in selling. This is normally due to several reasons, from the time of the year to a multitude of economic factors.
It is quite evident that the real estate market has been in a cool season where listings have certainly been light, so:
How does this affect investors?
How does an investor find good opportunities?
How does an investor negotiate the best outcome in such a market?
What Has Contributed To The Recent Market Cooling?
We have seen a slowdown in listing in the sort after locations that we are currently sourcing from over the last month and we anticipate this trend to continue a little longer.
We believe that the slowdown is a result of:
Higher interest rates that have meant that many people are currently focussing on refinancing their homes and/or getting their household budgets in order rather than moving or investing.
Higher inflation has also deterred many from making any changes to their current financial position as wages get spread thinner.
So, it seems the lightening of property listings is likely a result of household budgets having to be reassessed by families.
At this stage we do not anticipate that there will be a large number of distressed sales due to interest rates or inflation. This is due to the low unemployment rate and the housing shortage that should keep the market buoyant.
We anticipate that the majority of people will buckle down and try to ride out the storm as it were, by cutting down on their spending and/or finding extra income.
How Long Will It Last?
There is no way of telling how long this will last, it could be for a few weeks or a few months.
What Does This Mean For The Investor?
This is great news for the investor who understands their budget and understands their goals.
For many who are ready to buy however, this is a frustrating time as listings get snapped up quickly and for many investors this frustration can lead to bad decisions.
If you are currently searching for your next investment property, this is the time for patience and avoiding emotional decision. Remember that investing is not about finding a property that you can brag to your friends or family about. It should be approached as purely a business decision.
That means that you should have a clear understanding of:
Your Parameters – Your appetite for the maximum amount of debt that you want to carry into this investment. The maximum negative cash flow you are willing to carry into the investment being mindful of future interest rates and factoring in all income and expenses for the property.
Your Desired Outcomes – What are you looking to achieve over what period of time. Are you looking for the highest possible capital growth or are you looking for the highest yield, it is unlikely that you will achieve both so be clear on what you are investing for.
“An investor makes their money at the negotiating table”.
Anyone considering investing in the current market should consider the following points when deciding on a property:
The Market – Understand the local market and educate yourself on the true value or Market Value of similar properties in that area.
The Vendors Motivation – Try your best to understand the motivation behind the sale. You may be able to be more flexible on some of the terms compared to other buyers, particularly home buyers where they are usually not as flexible.
Communication – Don’t be lazy. Get back to listing agents quickly and manage their expectations so that you have the best foot forward in achieving a successful offer.
Finance – Ensure your finance is in order and your broker or lending manager have everything they need.
Auctions – Avoid auctions in this environment if you are an investor.
In Summary
Understanding the current market, particularly the area you are researching, allows you to pivot and adapt your approach.
Understanding along with patience will always give the astute investor the best outcomes.
“Sentiment wins the battle, but fundamentals win the war”.
Disclaimer: The views of the author, either expressed or implied, may not represent the views of Astute Property Network Pty Ltd. Every effort is made to ensure the accuracy of the information contained within this document. The information is not intended as financial advice and does not take into account your personal financial position or needs. You should always consult your financial specialist before making any changes to your finances.