Why Buying an Investment Property in a Downturn Makes Sense

Jayde Ferguson

While buying an investment property in a downturn may go against your instincts, there are a number of advantages to jumping into the market when everyone else is sitting on the sidelines. Unfortunately, many people will follow the pack when it comes to property investment.

When property markets are hot and prices are rising, many investors, regardless of age or experience, will feel inclined to buy a property for fear of missing out. On the other hand, when a market begins to slow and prices plateau, or even fall, many investors maintain this herd mentality and delay their acquisition, waiting for better conditions to prevail. However, there are inherent advantages to growing your property portfolio in a slower market, which should be seriously considered by investors.

Firstly, you’ll face fewer buyers, and subsequently less competition, as many people will retreat from the market until there are signs of better times ahead. Although many people will try to time the market to buy at the end of a downturn and gain full exposure to the ensuing upswing, the reality is that no one can 100% predict the bottom of a market.

What’s more, if you’re taking a long-term view with property investment then the benefits of trying to time the bottom of the market are likely to be negligible. Furthermore, you have to consider the opportunity cost (i.e. the benefit that you could have received, but gave up) if you try to time the market. When investors attempt to time the market, they will typically will wait too long and miss the initial price increases in an upswing. Subsequently, they miss the opportunity and now have to buy a property in a rising market.

In addition to facing fewer buyers in a slower market, investors will also have a wider choice of properties, as sales listings typically rise during these times. For investors who are active in slower markets, the rise in listings gives them a much better opportunity to find the most suitable type of property, whether that be a particular type of development site, specialised block shape, or specific local amenities.

Thirdly, buyers in slower markets are likely to secure more value for their money. This is because sellers are forced to price their properties more competitively as there are less buyers in the market and more stock available.

These factors also give buyers more control over contract negotiations to ensure clauses and terms of sale are weighed in their own favour. This might include more favourable settlement periods, the ability to negotiate harder on maintenance issues that need rectifying and additional benefits, such as early access to the property.

Some of the world’s most savvy investors only invest counter-cyclically. While this strategy isn’t for everyone, there are definite advantages to buying an investment property in a downturn, which investors need to consider. A specialist property investment company will be able to advise you on best approach for buying your property.

As a general rule of thumb, it’s best to invest when you are ready, rather than trying to time the market, particularly if you’re taking a long-term view with your investments. A licensed buyer’s agent can assist you in searching, evaluating and negotiating the purchase of your property.

Author Bio:  

Damian Collins is the founder and managing director of property investment consultancy Momentum Wealth. Offering market leading research and advice on the Australian property market, the company helps clients accelerate their wealth through property investment by assisting them in the strategic planning, financing, acquisition, management and development of their commercial and residential investment properties.

Damian has completed a Bachelor of Business at RMIT University and a Graduate Diploma in Property at Curtin University. Damian is a board member of the Property Investment Professionals of Australia (PIPA) and is the Deputy President of the Real Estate Institute of Western Australia (REIWA).