How investors can navigate a challenging market

“The property market across Australia is in a state of flux. Over the quarter to July 2018, there have been dwelling value declines in Melbourne, Sydney, Perth and Darwin,” CoreLogic said.

“Conversely, Hobart, Adelaide and Brisbane have had increases. Yet regional areas – excluding WA – have either had small declines or reasonable increases over the same period.

“Nationally, the number of sales has declined 9.8 per cent year-on-year to July 2018.”

At the same time, the annual change in rent values has slowed, sitting at only 1.6 per cent nationally in July 2018, according to CoreLogic.

“Some areas are stronger than others: Sydney and Darwin rents have declined over the period, while Melbourne and particularly Hobart have maintained momentum to the end of July.

“Demand for investment finance is dropping.

“If you’re an existing property investor or just looking to start your portfolio, it’s important to be realistic about the changing market to determine the best strategy for you.”

CoreLogic’s top 10 tips to help one invest well:

1. ‘Do your homework’

According to CoreLogic, it’s important for investors to know understand the market they’re interested in prior to investing in it.

“The market may be changing, but hidden behind the national, state and city-wide figures are some pockets that still retain their value-for-money appeal – and may surge as investment capital moves away from the rarefied end of town,” CoreLogic said.

“Thankfully, there have never been more sources of useful information for investors to use to make their decisions. Seek them out by making sure you’re well versed with recent sales in your area of interest, and consider your potential return against the amount of time and effort you’re going to have to put into renovations, leasing, management and so on.”

2. Consider the location

CoreLogic advises investors to evaluate potential properties “as if you were renting them”.

“Residential tenants, for example, value proximity to transport, shopping, schools, recreation and good broadband.

“Commercial tenants may not mind being further from the city, but likely place a premium on easy access to roads and public transport, parking, compatibility with neighbouring businesses, and access to good power, water and broadband services.

“Retail tenants will value foot traffic,” CoreLogic explained.

3. Determine whether you’re going to build

“Investing isn’t only about the property you buy, but about the property you want to own,” according to CoreLogic, who noted that there are a few ways of “getting from point A to point B – and the wrong decision can cost you a bundle”.

“Building, for example, allows you to design a single or dual-occupancy property that suits the requirements of the market,” CoreLogic said.

“Buying off the plan requires a little imagination, but there could be savings to be had and you can get someone else to customise the property without having to project-manage it yourself.

“Buying an established property may well cost less, depending on how motivated the vendor is, but you will be more limited by the constraints of the existing property, and land size will determine how much you can expand to maximise your return.”

4. Understand future ROI opportunities

Before you buy, it’s important to zone in on potential opportunities your investment will create.

“Recent state-wide overhauls of planning frameworks have simplified many zoning rules and adjusted permissible designs,” CoreLogic said.

“Consider, for example, Victoria’s focus on high-density development in designated Residential Growth Zones 16 or NSW’s updated Local Environmental Plans.

“You may find that an area now allows duplexes or small apartment blocks where it wasn’t possible to build them in the past – providing new opportunities to generate a return. Scour permit rules to see whether you can add new space to lease such as carports, home extensions or other renovations.”

5. Weigh up the type of investment

To CoreLogic, deciding whether to buy a house and land, or an apartment, “is the $64,000 question of investing”.

“Make sure you weigh up not only the growth potential of the two housing types, but the ongoing costs of ownership and a range of other factors that affect their relative appeal,” it advised.

6. Determine possible renovation work

“The Australian renovator’s dream is to take a few months off work to take care of that little fixer-upper before selling it for a massive profit. In this market, however, you need to do your maths carefully,” CoreLogic noted.

“How much income will you lose by taking that time off? If a worst-case scenario eventuates, will you still make enough profit to make the renovation worth your while? It may make emotional sense to sacrifice your income over several months, as well as the cost of the interest to fund the renovations – but if your return doesn’t match the outlay, you’d be better staying at work. “

7. Consider DIY work

“Home renovation shows have convinced every Australian investor that they are DIY experts, but the reality and the results are usually far less convincing,” CoreLogic said.

“When evaluating a property for potential return, consider whether you have the know-how to do the work that needs to be done.

“Just be realistic – and safe: while you may be good with a hammer and circular saw, don’t even think about doing the plumbing, electricals and so on unless that is your specific vocation. Stick to things your basic DIYer can handle, and you can still save a fair bundle by doing tasks such as gardening, cleaning and painting.”

8. Walk away if you have to

“There are a lot of factors at play in a tricky market, and it may well be that your dream investment just doesn’t make sense despite your best efforts,” CoreLogic said.

“If it doesn’t add up, don’t be afraid to walk away. There is a massive range of properties on the market, and it won’t take much more looking until you find something that will make the numbers work.”

9. ‘Sweat the details’

If you’ve got an existing property, CoreLogic advises you to keep up with your repayments, insurance and other bills. In addition, don’t forget to maintain your property.

“Your tenants will be happy payers, plus if a valuation is required or you decide to sell, you’ll be ready,” it said.

“If you’re entering the market, make sure you are aware of the terms of your financing, as well as any major changes to the area that are occurring that could impact the future value of your property.”

10. Protect your investment

Finally, CoreLogic said it’s essential for investors to make sure they’re not underinsured.

“You undoubtedly know that insurance is essential, but double check to determine you are not underinsured,” CoreLogic said.

“Whether you own or are considering buying an apartment, be aware that improvements made to your lot by you or previous owners may not be completely covered in the strata insurance taken out by the owners corporation.

“For example, some policies may exclude cover for a floating floor where it has been added to a unit after the building was completed, or for air-conditioning units serving an individual unit.”