Case Studies

Equity - Real estate agent holding up calculator and gesturing to a model house on their desk

Using Equity To Buy An Investment Property

Using Equity To Buy An Investment Property 1000 612 Andrew Stone
Equity - Real estate agent holding up calculator and gesturing to a model house on their desk

Take a look at the below and tell me if it sounds like genuine property investment advice or a Ponzi Scheme:

  1. Buy a property
  2. Wait for it to increase in value
  3. Drawdown equity from that property to use as a deposit on another investment property
  4. Wait for them both to increase in value, then repeat.

I know some people make this work, and congratulations to them, but it’s always felt like a Ponzi scheme to me.

The critical flaw in this approach is obvious – what happens if the property market doesn’t go up?

Is the investor expected to fund the rental shortfall each week indefinitely? And, when interest rates eventually rise, as we’ve seen this year, what happens then?

We know that high and/or rising interest rates adversely affect median $ price growth, so things can get very tough very quickly for people subscribing to this approach.

I know an awful lot about real estate, but there are still so many forces that impact the broader property market: interest rates, exchange rates, unemployment rates, consumer and business confidence, immigration and new housing supply, GDP growth in Australia/China/US/Europe, fluctuations in natural resource prices, government budgets, taxation policy, etc, etc.

All these factors and more can affect how much your property appreciates and how much equity you get access to.

So, how do you build equity independent of current market forces? 

Our property investment consultants in Melbourne are here to explain, including a case study of how it can be done.

The Basics of Equity

For the uninitiated, let’s quickly run through what you need to know about equity.

What Is Equity?

Equity is the difference between what your property is valued at and what’s remaining on your loan.

So, if you’ve bought a property for $1 million with a 20% deposit of $200k, then that $200k is your equity (assuming you haven’t paid overs for the house).

If you’ve paid off more of your loan and have $600k owing, then your equity jumps to $400k.

How Much Equity Can You Actually Use?

The above numbers look great at first but keep in mind that banks will often lend you equity based on about 80% of the total value of your property.

Or in other words, your property drops from $1 million to $800k in value for equity purposes, but the amount owing is not recalculated.

So, if you’ve only paid the 20% deposit and owe $800k, you can’t access any equity. And if you have $600k owing, your $400k equity drops to $200k.

This is what’s known as useable equity.

If you want to buy another million-dollar investment, you’re going to need $200k in useable equity for a 20% deposit plus all the funds you need for stamp duty and other fees.

So, What Do Smart Investors Do to Build Equity and Hedge Against the Market?

Satellite street view highlighting a 710sqm block

Making a few extra repayments or having an offset account isn’t going to net you the equity you need to properly invest.

And just waiting for your property to passively appreciate is problematic, as we said off the top. 

So, what do you do?

  1. First and foremost, it’s about buying that first investment in the right area. Our buyers agents serve Templestowe Lower and Melbourne’s hottest suburbs. We know how to purchase in areas that are statistically likely to outperform the market in the future – not necessarily those areas that have performed strongly in the current market or in the past.

  2. Next, it’s about buying the right type of property in that growth area. For example, why buy a small apartment in a suburb with a great school zone that attracts families looking for family homes? You can read about what to look for in an investment property here.

  3. With the first two criteria ticked off, I strongly advocate for property development as a means to manufacture equity growth and build a portfolio more sustainably.

Why Property Development for Equity Growth?

I’m not just spruiking property development because I’m a property development consultant in Melbourne.

I’m doing it because I’ve seen with my own eyes – and my own hard-earned money – what property development can do.

Even in poor market conditions, you can dramatically improve your equity position and Loan to Value Ratio through modest townhouse developments.

Once you’ve found the right property with development potential, you can build equity and make good money.

Just take a look at the below development opportunity that I set up with Aden.

CASE STUDY: Aden’s Dual Occupancy Development for Equity Building

Zoomed out Satellite street view highlighting a 710sqm block

I helped Aden purchase a ripper little development site that really set him up for long-term investing success. Let’s walk through that process.

Getting to Know Aden

Aden lives in Singapore but visits Melbourne every month or so. We started out by trading emails back and forth for about six months.

Aden is a smart guy – pretty conservative by nature but full of insightful questions and legitimate concerns. He’s exactly the kind of person I like dealing with, and I was very happy to build a dialogue and mutual trust over time.

He met with a few other buyers advocates, and in the end chose to appoint us – mainly, from what he said, due to the analytical approach we take with everything.

Aden’s Brief

  • $1.2m – $1.5m purchase price
  • Reasonable-sized block not too far from the CBD
  • In an area statistically likely to outperform the market
  • Rentable as-is with the option to develop in the short- to medium term.

The Moves We Made

Ahead of Aden’s regular visit to Melbourne, I inspected about 20 properties that fit the brief, eventually narrowing things down to 3.

Each was in a different suburb, with each suburb offering something slightly different:

  • One had great growth drivers and was slightly undervalued in my opinion
  • Another had experienced strong growth in recent years, primarily due to East Asian demand, but what it lacked in near-term growth prospects it more than made up for in potential development gains
  • And, the third was very popular with families, tightly held, and being further from the city, offered more value for money.

In the days before he visited, a couple of other properties came up for sale (one off-market) and we inspected all 5 together.

The Dual Occupancy Decision

Of the five properties we inspected, we both decided on the one that allowed for immediate dual occupancy.

A dual occupancy development is one where you keep the existing dwelling and build a second in the backyard. This is an ideal scenario for a buyer whose main motive is long-term investment.

Dual occupancy provides rental income that kicks in immediately and continues throughout the construction phase. Meanwhile, the new dwelling provides tax benefits through depreciation.

The existing dwelling could ultimately be demolished at a much later date, meaning that you continually maximise the potential of the site.

When considering a site for dual occupancy, you can generally afford a higher purchase price than a typical home buyer or property investor.

How the Numbers Stacked Up

  • Market value @ time of purchase = $1,400,000, with Minimum Equity @ time of purchase = $280,000 (20% of Value).
  • Estimated Market Value with Permit for 2nd dwelling = $1,600,000.
  • Equity with Plans & Permits = $480,000 (30% of Value)
  • Estimated Fixed Price Build Cost = $485,000
  • Estimated Bank Valuation of completed development = $2,300,000, with Total Debt for Purchase + Build = $1,605,000
  • Equity Position = $695,000 (30%)

The Future Is Bright for Aden Thanks to Proactive Equity Building

  • Within 12 months, Aden will increase his equity by $200,000 by spending about $25,000 on design and permits. His 20% equity turned into 30%.
  • That 30% equity allows him to engage the bank regarding construction. In this scenario, the bank will look at his income, credit history, and strong equity position, and should lend him 100% of construction costs, based on our conservative property valuation for a completed development.
  • In 24 months, Aden will have two properties (1 brand new) and will have increased his equity position by over $400,000. The rental return on the brand-new property, combined with the depreciation benefits, will make it an ideal long-term investment.

All of the above assumes 0% growth in Median $ House Prices over 24 months. With sustained demand from investors, homebuyers and foreign purchasers, that is extremely unlikely in Melbourne.

We purchased the property for $1.385m at a competitive auction. It has nearly all the growth drivers we look for in an area: very desirable primary and secondary state schools, strong and improving demographics and socio-economics, close proximity to transport and hospitals, widespread gentrification, etc.

Yes, Aden bought his property in a great area and at a good price. But importantly, he’s taking control of his investment by proactively growing his wealth, all with the help of experienced industry professionals.

Equity FAQs and Final Thoughts

Word Equity Made With Wood Building Blocks

So, How Do You Build Equity Fast?

By improving your loan-to-value ratio/debt-equity position. Most people can’t do that by quickly reducing their debt. But they can do it by choosing their investment wisely and significantly increasing their property value.

Renovating a bathroom or kitchen is one thing – but property development is where the real money is (just ask Aden!)

How Exactly Do You Get Access to Your Equity?

You can access your equity via an investment loan/construction loan from your existing lender, or you can refinance with another bank for a better deal.

Instead of a separate loan, you can also get access to equity funds by applying for a home loan top-up or home loan increase. This essentially uses the equity to extend your current home loan limit. You can then use that extra cash to fund your investment or development.

Cross collateralisation is another strategy that allows you to leverage the value of your property by using it as collateral for your next investment property loan, rather than withdrawing the equity directly.

Can You Buy an Investment Property Using Only Equity?

If you have enough equity in your current property to cover a deposit, stamp duty, and all your other expenses, then equity is all you need to buy an additional investment. Just keep in mind that useable equity offered by lenders may be based on up to 80% of the value of your home. You may need additional cash or Lenders Mortgage Insurance (LMI) to supplement your equity.

Is It Better To Use Equity or Cash?

Using equity to grow your property portfolio effectively allows you to borrow 100% of the funds required. You will not need any cash deposit if you have access to sufficient equity. This is the big advantage of equity over cash. Seek financial advice on the best decision in your circumstances.

Does Using Equity Increase Repayments?

Withdrawing equity from your home means adding to your current home loan balance. This can result in higher repayments.

Final Thoughts 

Here’s the bottom line. You should not leave yourself at the mercy of market forces when it comes to building equity. This article has demonstrated how you can build equity through smart property investment and development.

I firmly believe that property development is less risky than property investment. As your property investment advisor and buyers advocate serving Kew East and all of Melbourne, I can help you find high-value investment properties and development sites that supercharge equity growth and stimulate your investment portfolio. 

Interested? Ask me how I can help.

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How To Develop Property in a Joint Venture

How To Develop Property in a Joint Venture 1096 688 Andrew Stone
Joint Venture Concept: Three tiles with the letters J and V and a handshake symbol

Are you thinking about getting into property development?

Maybe you own a property with development potential but don’t want to tackle a real estate project on your own.

If you want an experienced, credible partner to assist with your development, then a Joint Venture could make sense for you.

Property Joint Ventures work well when the partners complement each other. You’ll want to work with someone who has something you need and who needs something you have. 

Complementary skills, backgrounds, and assets not only make property development easier but also lead to greater clarity around roles and responsibilities, as well as better teamwork overall.

Read on to learn more about developing property in a joint venture structure. I’ll explain the key facts you need to know, including a case study on what it’s like to work with Property Analytics on a Joint Venture.

Why Do Developers and Property Owners Choose Joint Ventures?

Property development concept: Transparent man holding a model house in his hands, cityscape in the background

Profitable property developments are hard to pull off at the best of times. They’re even more difficult when you’re missing key assets – whether that’s the land itself or knowledge of how to get the job done.

Sometimes you just want someone else to take care of the process for an equitable split of the profits. Here are some common JV scenarios that our Melbourne property development consultants see all the time:

  • You have the capital required to fund a real estate development but want a partner with industry knowledge and experience. An experienced Joint Venture Partner can take care of everything from identifying profitable sites to project management and sale of the finished development.
  • You already own a property with development potential and want to maximise your profits. You can either sell to a developer and pocket the immediate profits or enter into a Real Estate Joint Venture with an experienced partner. Your JV partner can take care of everything from start to finish and the final profits can be significantly greater than if you just sold to a developer – even when splitting profits!
  • You have some real estate development experience and want to be involved in the process, but don’t have the time, expertise, or appetite to take care of some parts of the process. A JV partner can handle those things you don’t enjoy – like site search, feasibility studies, design, etc.
  • You want to gain hands-on experience in property development for yourself or your children. Or you want to build multi-generational wealth by establishing a property development company of your own but need someone to learn from and guide you through that first successful project. A Joint Venture partnership could be perfect in this case.

What to Establish Before Entering into a Property Development JV

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All of the following considerations and more can be ironed out in your Joint Venture contract, and they’re worth thinking about before you get started.

Each Party’s Responsibilities

Generally, the developer will provide the skills and expertise to carry out the project, including selecting the best development site if necessary. They may also co-fund parts of the development.

The land owner will either provide existing land with development potential or the capital to secure the development site. The land owner will typically cover the majority of the development costs, from deposits and stamp duty to building reports, designs, surveys, property taxes, and insurance.

Property Ownership

Real Estate Joint Ventures are typically structured in a way where the property is held in one partner’s name only, usually the non-developer partner (i.e., the person who owns the development site or funds its acquisition).

Sharing Profits

Profits will usually be split according to a percentage that’s agreed upon before entering into the Joint Venture. Profits will be determined by sale prices (or sworn valuations if the properties are being retained).

Profits can also be split by dividing ownership of each developed lot upon completion. Each party can then choose to live in, sell, or retain their property as a rental.

In some cases, the owner of the land receives a set amount for the land and the rest of the profits go to the developer. Conversely, the developer can receive a set amount for their services and the rest of the profits go to the land owner.

Other profit split models include performance bonuses or management fees for the developer, which can be paid throughout the partnership or upon completion.

Appointing Experts and Consultants 

The developer partner will usually be responsible for appointing lawyers, draftsmen, town planners, etc. The developer may also cover these consultants’ fees.

If both parties are hands-on, appointments and fees may be shared between parties.

Dispute Resolution

Joint Ventures are all about one shared goal – profit for both parties, and plenty of it. But we’re all human and disputes can occur. Usually, these problems can be resolved through a conversation, but if this fails, you can always fall back on a well-written contract.

My approach is to operate in good faith and look after one another. We’re all in this for maximum profits, so let’s work it out together and keep the lawyers out of it.

Naming Rights and PCGs

If a landowner is partnering with a developer, these considerations usually aren’t worth a second thought. There won’t be any squabbling over who can ‘claim’ the development project as their own, and you probably won’t need a Project Control Group (PCG) to make major decisions on your behalf.

But if both parties are hands-on developers or real estate investors and you have a larger-scale project, these considerations might come into play.

What to Do with the Completed Dwellings

Sometimes, owners choose to keep one of the completed dwellings to live in themselves. Others choose to sell up completely and move on, while others like to hang on to some or all of them as long-term rentals and/or family beneficiaries.

You don’t necessarily need to decide this at the start of the process. We’re flexible – and as long as all parties are transparent and act with goodwill, then happy days. 

Joint Ventures with Property Analytics – How We Help

The most common Real Estate Joint Venture we enter into is one where our partner is happy for us to take the lead on things. They provide the property (or the capital required for acquisition), and we make both parties a lot of money.

In these projects, we look after everything from end to end, including:

  • Identifying quality sites in areas that will outperform the market in coming years (if you don’t already have a property)
  • Doing the due diligence to ensure your land is suitable for a JV property development (if you already have a property)
  • Conducting comprehensive project feasibility studies to determine potential scope, costs, returns, profits, etc
  • Liaising with key professionals prior to purchase to confirm all assumptions
  • Bringing in legal experts to structure the Joint Venture Agreement (including ownership, liability, KPIs, profit share, etc.)
  • Securing finance for each stage of the development
  • Negotiating the purchase of the site at or below market value, on the best possible terms
  • Managing the design, planning permission and build tender process
  • Project managing on-site construction
  • Overseeing end sales and/or rentals

CASE STUDY: We’re in a Joint Venture Property Development Project in Melbourne. This Is How It Works.

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Our partner owns the property, and we’re managing the development from end to end: everything from conducting full project feasibility to development design, planning permissions, build specifications and appointments, finance, construction oversight, and sales marketing.

Our partner contributes the property, whereas we’re buying in with a mix of sweat equity, payments to third-party professionals (we pay the Town Planner, Surveyor, Draftsman, etc.), and additional capital required by the banks for construction. 

We sought advice from a good accountant and lawyer, and we’ve structured things so that our partner maintains ownership of the property all the way through. We act as a Development Consultant whose fees are deferred until project completion.

Once the project is complete, our partner will decide whether he’d like to sell all, some or none of the new dwellings, and we will split the profits (determined by sale prices or by sworn valuations) equitably, based on the legal contracts that we agreed upon at the beginning of the process.

Why Give the Profits to Someone Else When You Can Reap the Rewards with an Experienced Partner?

If you’ve got a property with real estate development potential, don’t sell your land and potential profits to a real estate developer.

And if you’ve got the capital to get started and are keen to develop with a partner, don’t take a backwards step.

Thinking about getting into Property Development in Melbourne, Australia? Get in touch with Property Analytics. 

As Licensed Buyer’s Advocates and Property Investment Advisors in Melbourne, we look after all aspects of purchasing profitable property developments in high-growth suburbs.

And as experienced property developers, we regularly project manage entire real estate developments. We are respected property professionals and credible Joint Venture partners.

Regardless of your background, circumstances or objectives, we’re always open to establishing new relationships.

And if a Joint Venture Agreement doesn’t make sense, then we can probably help you in another way. There are plenty of different types of partnerships and financial arrangements that might be right for you. Reach out for a chat about property development and JVs – coffee is on me!

Model house with money on one side and a calculator on the other

Capital Growth vs Rental Yield: Which Strategy Should You Choose?

Capital Growth vs Rental Yield: Which Strategy Should You Choose? 1000 438 Andrew Stone
3D rendering of gold and silver gears with the words real estate investment

Some people invest in property to generate rental yield and increase their monthly income. Others invest to build long-term wealth, and they do this by targeting properties that are likely to generate capital gains.

One person looks for “positive cash flow properties” while the other is willing to accept “negatively geared properties”.

At Property Analytics, we know that long-term wealth is best created through asset appreciation, not through positive cash flow. Our best advice for clients is to purchase the property that will grow most in value over time

In other words, prioritise capital growth over rental yield.

What… that’s not enough info for you?

Read on for key reasons why our Melbourne property investment advisors put capital growth first.

It’s Land That Appreciates in Value Over Time, Not Dwellings

Even the best brick-and-mortar dwellings will depreciate in value over time if left untouched. That’s why we have depreciation schedules.

But the same thing isn’t true for the right block of land.

Your land can increase in value simply due to supply and demand dynamics. Everyone wants a block of land in certain Melbourne locations, and over time, it becomes harder and harder to get one, sending the value of your property through the roof.

To demonstrate the power of capital growth and this type of strategy, let’s look at the performance of an apartment purchase compared to a house purchase.

Graph showing apartment value and debt-equity position over eight years

This graph shows the performance of an apartment purchased for $600k in April 2013.

An apartment like this could be a great buy if you’re solely focused on a rental yield strategy. With the right features and the right location, you could attract a steady supply of high-paying renters.

Let’s assume this apartment was purchased with $153k in cash. That’s a 20% deposit plus stamp duty and all the legal and financial costs.

Over nearly 9 years, the “Equity Required” section of the graph has reduced from $153k to $91k. This means the investor has generated $62k in rental income.

Over the same period of time, the apartment has experienced capital growth, increasing in value from $600k to $888k.

The rental yield and capital growth combine to put the investor up about $350k. That’s great, but now let’s compare that to a house purchased at the same time for the same price.

Graph showing house value and debt-equity position over eight years

In this case, the “Equity Required” has increased, meaning the investor has contributed about $36k to cover the difference between rental yield and the property’s holding costs.

But the house also increased to $1.179m in value thanks to the land it sits on. So, even with the negative cash flow, the investor is up about $540k.

The apartment investor would be pretty happy with their investment. But think about making about $200k more just by investing in a house.

That’s capital growth – significant passive income that you didn’t need to do anything extra to achieve.

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The Snowball Effect of Capital Growth Strategies

Now that we’ve demonstrated the power of capital growth, let’s take a look at what happens next.

  • Your high capital growth property generates plenty of equity
  • You can use that equity to build your property portfolio by targeting another high-capital-growth investment
  • Or you can choose to use that equity to fund value-adding renovation work on your investment property
  • Meanwhile, you can enjoy tax benefits like negative gearing (to soften the impact of rental losses) and delayed capital gains tax
  • If you need to sell or choose to sell, a property with proven capital growth potential will be more liquid than a property that only has a strong historic rental yield. 

Questions to Ask Yourself Before Pursuing a Capital Growth Strategy

While it is the preferred strategy, capital growth – and property investment in general – is not for everyone. Depending on your financial position and your overall investment goals, capital growth may or may not be for you.

Ask yourself:

  • Can I afford higher entry costs?
  • Can I afford to cover holding costs if the property is not cash flow positive?
  • Am I willing and able to retain the investment property in the long term in order to make significant profits?

The Types of Property to Buy for Capital Growth

Properties that are metropolitan, residential, and titled tend to achieve strong price growth over time.

Why?

They are sitting on residential land, and there is a scarcity of residential land available in Melbourne’s suburbs.

Meanwhile, regional, commercial, and multi-unit properties tend to grow at weaker rates.

Why?

Because new apartment developments are dime a dozen and these properties aren’t sitting on a block of suburban residential land.

They might be great for generating some rental income, but with so many other apartments flooding the market, they have nothing that will significantly increase their value to offer in the long term.

The Bottom Line on Rental Yield vs Capital Growth for Property Investors

Model house with money on one side and a calculator on the other

If you focus only on rental performance and your investment fails to deliver, you will have nothing to fall back on.

But if you carefully select your investment for capital growth and it doesn’t deliver strong rental returns, you still have the promise of future capital gains and a stronger equity position.

So, if you can afford a higher purchase price and you can budget for ongoing payments to supplement rental losses, we strongly recommend prioritising capital growth.

You will be much better off financially in the long term.

Property Analytics are independent investment advisors and licenced buyers advocates serving Kew East, Kew, Doncaster, Ivanhoe, and all of Metro Melbourne.

From strategy to purchasing, we offer a proven process for securing quality investment properties that offer strong long-term capital growth rates.

Reach out today to discuss your investment goals and start generating real wealth from the Melbourne property market.

interior-designer-decor-ideas-furniture-stores-home-design-room-executive-decorating-modern-homes-Simple-home-office-design-with-white-color-and-panoramic-views

How to Find and Buy Off-Market Properties in Melbourne

How to Find and Buy Off-Market Properties in Melbourne 1200 799 Andrew Stone

If you’re looking for a specific property type for your investment or development, then yes, it is important to establish relationships with local agents.

That’s because some of the best properties never hit the market, and you need to build relationships with people who know how to find them.

In this article, I’m talking about off-market properties and off-market sales in Melbourne. What are they, where do you find them, why are they valuable, and why do “off-market” sales happen in the first place?

If you’re looking for answers to any of these questions, or you want to read a real-life case study that covers off-market buying in Melbourne, then you’re in the right place.

Off-Market Properties Explained

Man pointing a magnifying glass as a house-shaped puzzle with one piece missing in the centre, revealing a question mark

Off-market property sales occur when a vendor is selling their property without going through conventional advertising streams. An off-market property is still for sale. You won’t find them on listing sites like Domain or other real estate websites, but they will typically be listed on the selling agent’s website. Off-market properties might not have publicly advertised open for inspection times, and some of these properties don’t even have a for-sale sign!

But make no mistake, these properties are definitely for sale and the vendor is often very keen to sell their assets.

Some other terms for off-market sales include pocket listings, silent listings, unlisted properties, and quiet listings.

If the Property Market Is So Competitive, Why Would Anyone Sell Off-Market?

It’s a fair question to ask. In a hot property market like Melbourne, real estate agents will go a long way to help their clients’ properties stand out. Keeping your sale quiet doesn’t sound like a good strategy to achieve this, so why would vendors or real estate agents pursue this strategy?

In most cases, off-market listings are actually just pre-market listings. In other words, the real estate agency is still preparing the floor plan, staging the property, taking photos and getting ready to launch the advertising campaign in earnest. 

In the meantime, the real estate agent still has a property to sell, and if they can do it before the whole office gets involved, they don’t need to share the commission.

So, they pick up the phone, call their best clients (often property investors and property investment advisors in Melbourne), and see if they can close the deal before the property formally hits the market.

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But what about true off-market sales, where the property never hits the public market?

Not all unlisted properties are just pre-market listings. True off-market property sales are becoming more common in major real estate markets like Melbourne, as well as other major cities on the eastern seaboard.

The main reason to sell off-market is to avoid advertising costs and the circus that comes with marketing your home.

Property marketing can cost buyers tens of thousands of dollars, and it involves opening up your home to hours of public property inspections for weeks on end. Some property owners don’t want to disrupt their existing tenants with constant inspections, and other owner-occupiers simply don’t want to take out their young families multiple days and nights a week.

For some potential sellers, their property might not be in very presentable condition due to bad tenants or young kids and paying for additional renovations or professional property staging might not be something they want to do.

If auction clearance rates have been low and the vendor is nervous about auctions and the general selling process, they will often opt for private sales or an off-market listing.

Pride and privacy are other major reasons for off-market property sales. Selling property sometimes means a death in the family, the separation of a couple, or financial difficulties, and vendors want to minimise their distress by getting things done quickly and quietly.

Speaking of which, a quick and seamless sale can be another benefit of selling off-market. A good selling agent will know their most reliable buyers well and may be able to close the deal by matching a keen buyer with the right property. All this can be achieved with a quick call, a private viewing, and some swift negotiation.

Sometimes, a buyers agent can even complete off-market purchases by contacting local residents who own properties that their clients might be interested in.

Satellite Google Maps view of off-market properties

I once purchased a property directly from the vendors after they responded to a letter we mailed to them. An 18-month settlement period allowed the owners to make plans and gave us the time to get planning permits prior to settlement.

What Are the Advantages of Off-Market Properties for Buyers?

The relentless cycle of property inspections and auctions isn’t just exhausting for vendors. If you could avoid all this and find your target property as a buyer, why wouldn’t you? If you know exactly what you’re looking for as a buyer, it just makes sense to explore property off-market as part of the process. 

Off-market properties can be a godsend for property investors and developers, but they can also save you a lot of time as an owner-occupier.

More importantly, getting access to off-market properties allows you to:

  • Get a full picture of the Melbourne property market: Even if an off-market listing isn’t right for you, it’s good to know everything that’s out there, not just what’s advertised publicly.
  • View properties that others will never see: Most buyers won’t have access to off-market opportunities, which gives you the edge and allows you to cut down your competition.
  • Buy your ideal property for less: Off-market deals can sometimes be cheaper for buyers for various reasons, no matter the type of property you are targeting. The money a vendor saves in advertising fees often means they are willing to let the property go for less. In other cases, the priority is a quick, quiet sale, not necessarily maximising the price. 

3+ Ways to Find Off-Market Properties 

1. Build Relationships with Real Estate Agents

Real Estate Agent Inviting Couple To Enter House For Visit

Look, I get it. Nobody wants to be hassled by real estate agents who are trying to offload every old property in their portfolio. But if you want access to the suitable properties that real estate agents are trying to sell off-market, then you need to talk to those real estate agents.

Visit real estate agencies in person, attend open homes and tell the real estate agent exactly what you’re looking for.

Divulge your target area, the property types you’re looking for, the number of bedrooms you need, the nearby amenities you’re interested in, any other must-haves on your list, and what you’ll be using this property for (owner-occupier, investor, developer).

This one might make you flinch, but you should also tell them your price range.

When you are highly specific about your needs and you make it clear that you are a serious buyer, you are more likely to end up on the selling agent’s speed dial and not just on another automated email list.

2. Go Through a Buyers Advocate

A series of white model houses in a circle with a magnifying glass over one red house

Real estate agents are the best and most direct way to get access to off-market properties, but there is one major problem.

These selling agents are sometimes talking to hundreds of would-be buyers every day, and you have to make a pretty big impression to get on top of their calling list.

Professional relationships aren’t built in a day, which is why it’s beneficial to go through a buyers agent or buyers advocate in Melbourne

Buyers advocates are professionals who provide an end-to-end service for buyers. Basically, they get to know your needs, shortlist and visit potential properties, and even bid at auctions or negotiate at private sales on your behalf.

Most importantly for off-market listings, a good buyers advocate will have strong relationships with local real estate agents. Selling agents also know that advocates work with serious clients who are hot buyers, so they are often the first people that get called to view and buy off-market properties.

The image on the left below shows a 975m block that I purchased through an agent I know well. I negotiated a 9-month settlement period and my client secured a 3-townhouse planning permit in the meantime!

The image in the middle is a similar story. This older property was bought off-market thanks to strong relationships with agents. A 7-month settlement was negotiated and my client secured a planning permit for three townhouses!

Finally, the image on the right is a satellite view of another off-market property I purchased through an agent. I secured this property on a 12-month settlement period at the beginning of a capital growth cycle. Just one week later, a nearly identical property sold for $120k more!

Buyers advocates will charge for their services – usually 2-3% of the purchase price, so it’s important to find the right buyers agent for your needs.

For example, let’s say you’re an investor looking for buyers advocates in Kew East, Kew or surrounding areas. You don’t just want agents who help people find their dream homes, but rather, you need buyers advocates who are also property investment consultants in Melbourne

This way, your advocate will be able to find local off-market opportunities that are specifically matched to your investment goals and designed to generate profit.

3. Look at Off-Market Websites

A phone and laptop both browsing properties for sale

With the rise of off-market listings, it was inevitable that a few off-market websites would pop up. For vendors, these websites promote themselves as a way to test the market and sell their homes without the advertising fees – either on their own or with the help of an agent. Vendors can typically create their off-market listing for a small fee while buyers can register for free.

Some of these off-market websites include Property Whispers and Listing Loop, while Domain’s off-market offering involves creating an account and getting alerts about relevant properties – both off-market and publicly advertised listings.  

Of course, it’s also valuable to check individual real estate agency websites, which will often list off-market and pre-market listings alongside publicly advertised listings. Find out which real estate agents are most active in your area and see if their websites have any listings that you can’t find elsewhere!

Keep in mind that if you’re looking for an investment property in Preston, for example, you’ll probably hear about it first through your real estate agent contacts or your buyers advocate in PrestonAdditionally, there will be off-market properties that aren’t listed anywhere online, and you will only hear about them through your contacts.

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Other Ways to find an Off-Market Property for Sale

As I’ve already touched on, networking and word of mouth are generally the best ways to find off-market properties, whether that’s through a buyers advocate serving Thornbury or a local Thornbury real estate agent.

However, this also extends to other people working in the real estate industry who might have inside knowledge, including conveyancers and solicitors, property wholesalers, contractors, and fellow investors or developers. Use your family, friends, and professional network to your advantage when looking for the perfect property.

Other ways to find less advertised properties is through services like State Trustees. Owned by the Victorian State Government, State Trustees is the Public Trustee for Victoria and is often responsible for selling properties such as deceased estates and properties that are being managed under an Enduring Power of Attorney. You can also keep an eye out for foreclosure properties, pre-foreclosures or short-sale properties, and other distressed vendor properties that may not be listed publicly.

As we touched on at the top of the article, you can even contact property owners to see if they would be interested in selling their property – all for the right price and the right settlement period.

To find suitable sites in your target area, use cadastral maps that identify property and land information like zoning details, overlays, land size, frontage, and more.

Property map showing zoning, overlays, block size, frontage, etc.

Case Study: How Property Analytics Finds and Buys Off-Market Real Estate

This is the story of a project I was working on about 10-odd years back. A lot may have changed in that time, but this is still my approach to finding every opportunity that’s available on (and off) the market today.

In search of a townhouse development project, I introduced myself to agents at opens and explained my specific requirements (price range under $500k budget, corner block, dual occupancy, etc).

Of course, as a result, I got hammered with emails and calls, but before I knew it, I became an expert in the local area. I was always honest with my feedback, and agents respected my straightforwardness and became forthright in turn.

Eventually, an agent contacted me regarding a deceased estate. The trustees wanted to sell quietly, quickly, and without a fuss, so naturally, I was all over it. I made sure to inspect the property the same day. (That’s a lesson that buyers often learn the hard way – be quick to jump on opportunities because good ones don’t last!)

Immediately following my private inspection, I worked through my feasibility. The next day, I visited the site quietly with my draftsman and talked through restraints, options, risks, etc.

The day after that, I wrote an offer for $410,000. I put it in writing, with a clause that it would expire within 24 hours. The vendors wanted no fuss, and neither did I. Of course, I wanted to put a bit of urgency on them and keep them from showing the property to more people.

The agent called me (on speakerphone) at the 23rd hour and explained that another offer had been made. I stayed firm on price, but knowing the family was likely listening, offered complete flexibility with other terms. The deceased’s son wanted to rent for 6 months after the sale, and another sibling wanted to transplant some much-loved rose bushes… My genuine openness sealed the deal!

I got the place on a 90-day settlement for my original offer of $410k.

To cut a long story short for those who are interested, here’s what the rest of the process looked like (and what it might look like for you if you choose our property development consultants in Melbourne):

  • Worked with an experienced draftsman to attain Council permissions for two 2-bed, double-storey townhouses
  • Managed a cosmetic renovation of the existing dwelling and entered into a fixed-price building contract for the townhouses
  • Sold the renovated weatherboard at auction, immediately after conditional planning approval
  • Sold both new townhouses off-the-plan the next financial year, about halfway through construction
  • Achieved over $220,000 in gross profits (a 150%+ return on equity)

Many learnings came from the project, but the most important was to repeatedly engage with local agents at opens and be absolutely clear about my desired property characteristics.

You don’t just want to go on an automated database mailing list. When an agent is interviewing for a vendor’s listing, you want them to speak about you – a serious buyer who they can call immediately to explore an off-market sale (no advertising, opens, etc).

This is a win-win-win for the seller, agent, and buyer. 

Keep in Mind… Not Every Off-Market Property will Be a Great Deal

Off-market listings could be an absolute steal for potential buyers, or they could be nothing more than highway robbery. In some cases, real estate agents try to sell you the opportunity alongside the property. In other words, you’re paying for the privilege of getting access to the off-market listing and then you need to negotiate your way down to a fair selling price (or should I say a real market price).

Off-market listings that are really just pre-market listings might end up being advertised and sold just like any other property, so the vendor might not be as willing to lower the price for a quick sale.

At the end of the day, off-market properties are often just like any other on the market. Finding the right development site or investment property that promises profitable capital growth in a high-demand area will come at a premium – especially in Melbourne.

Some of the Best Investment and Development Properties Never Hit the Market…

…But you can find them with our buyers advocates serving Brunswick, Northcote, Ivanhoe, Bulleen, and every in-demand Melbourne suburb.

If you’re looking for an investment or development property in Melbourne, partnering with a buyers agent from Property Analytics just makes sense.

I don’t just find off-market properties. My team and I will parse through property data to hand-select the best asset for your investment or development goals. We will also conduct proper due diligence and feasibility and negotiate the best price for you.

Whether you’re investing or developing, Property Analytics leaves you in the best possible position to profit from real estate.

My name is Andrew Stone, and there’s nothing I love more than acquiring high-growth investments and profitable development sites for my clients. Learn more about me or get in touch to find out how Property Analytics can help you achieve your real estate goals.

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How to Bid at an Auction, 10 Simple Strategies for bidding, buying and winning at Auctions

How to Bid at an Auction, 10 Simple Strategies for bidding, buying and winning at Auctions 1000 500 Andrew Stone

I bought a property for a client the other weekend with a simple but effective auction strategy: Quietly study the competition until bidding hits the reserve, wait for things to slow down a bit, and then bid hard.

Every property, campaign, and auction is different, so this isn’t a one-size fits all approach (i.e., I use different strategies depending on the circumstances). But I reckon the following advice is useful for professionals and non-professionals alike.

In the points below, I’ll delve further into this approach as well as a few alternatives, so you have access to 10 simple bidding strategies that you can use at your next auction.

I’ll also provide a real-life case study to demonstrate how many of these strategies can work together to help me (and you) confidently and effectively buy a house at auction.

Understand This: Auctions in Melbourne Are Designed To Benefit Sellers!

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I’ve been working as a property investment advisor and buyers advocate in Melbourne for years, and if there’s one thing I know for sure, it’s that all auctions are designed to benefit sellers.

Firstly, it’s the vendor who is calling the shots. Going into an auction, nobody knows what price the vendor wants – even the selling agent sometimes! The unknown keeps everyone interested and on edge.

Secondly, most auctions are conducted in public, in front of a large crowd. The vast majority of people attending aren’t there to bid; they’re simply looking to enjoy a show. But serious buyers see everyone as potential opposition, and their competitive instincts go up.

I could go into 5 more reasons why property auctions favour sellers, but really, it comes down to two simple facts. Auctions are all about emotion, and buyers don’t want to miss out!

So, here’s what happens. Emotional and inexperienced buyers compete with each other, and many bid much higher than they originally intended. What is another thousand dollars? Five thousand? Ten thousand?! The motive can often evolve into beating the other guy instead of securing the property.

So, how do you break this cycle and secure your investment property for a good price?

Try These 10 Real Estate Auction Bidding Strategies

1. Tell the Agent You’re Seriously Interested Immediately Prior to the Auction

One key thing to understand as a buyer is what happens if the bidding doesn’t reach the reserve price. Generally, the vendor will be forced to negotiate in a more rational environment. This involves the seller and agent putting their cards on the table and ultimately saying “We want $X for the property”. Their proverbial pants get pulled down, ideally without a single bid being placed.

Auctioneers make a big deal of affording the highest bidder the first opportunity to negotiate with the vendor if the property passes in, and this can be a risk for those who don’t have that last bid. 

A good way to alleviate this risk is to tell the real estate agent prior to the auction that you are seriously interested in purchasing the property. If it passes in, and negotiations with the highest under-bidder commence, the agent will advise the vendor that they know of another interested party who may be willing to pay more.

By making your intentions clear, you do two things. You increase the likelihood that the vendor will not settle because they know there’s another party who may be willing to pay more. And you keep yourself in the race when the property is passed in, even if you’re not the highest bidder.

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2. Don’t Bid Until the Property Goes on the Market

There are a few schools of thought on exactly when you should bid, and we’ll explore some of them in the points below. But this strategy pairs perfectly with our first point, so this is where we’ll start.

When a property is “on the market”, it has reached the vendor’s reserve price and the house will sell when the hammer falls. 

The auctioneer does not need to tell you when the property is on the market, but you are definitely entitled to ask and ask, and ask again. 

When you know the property is on the market, you can bid with conviction. You will know exactly how close you are to your budget, and you will understand you’re playing for keeps.

Once a property goes “on the market” the highest bidder will secure it under the hammer, there is no room for negotiation after. Sometimes you may jump in with a bid immediately, other times you may wait a bit for other bidders to drop off. Try to assess whether there are other bidders waiting and what will give you the best psychological edge.

Bidding only when the property is on the market is one way you can set your own pace during an auction. The auctioneer will be looking to you as a serious bidder because you’ve already told them as much. Holding back until you have all the facts lets you understand your competition and bid your way.

3. Bid with Authority, Quickly, and without Reducing Your Increments

Another way to set the pace during an auction is to know your bid increments and make bids quickly, authoritatively, and consistently.

I’ve seen an auction go up over $100,000 on $1,000 bids alone. An emotional, non-professional bidder can get consumed with the thought of not losing out on a property for a measly $1,000. Never mind the $90,000 over budget he’s already gone!

By maintaining set increments when other potential buyers start to wane, you give the impression that you’re capable of bidding much higher, and even the illusion of deep pockets can be powerful.

This approach prevents you from getting caught up in a back-and-forth mirror match with other bidders, and it doesn’t allow the auctioneer to dictate your bid increments. There may be times when auctioneers don’t accept your bid (“Sorry sir, I’m only accepting $10,000 increments”), but they will always come back to you and accept your bid when it comes to crunch time.

This strategy isn’t about making that “knockout bid” or befuddling others with odd increments. It’s about consistent, confident bidding and the power that can offer you.

 So, that’s a simple but effective strategy for auction bidding in Melbourne:

  • Tell the agent you’re seriously interested immediately before the auction
  • Don’t bid until it goes on the market
  • Bid strongly without reducing increments.

You can see how these three strategies work together. Telling the agent that you’re a serious bidder means they know your intentions even before you start bidding. Once you know the property is on the market, you can start bidding, letting you set the pace. Bidding only when the property is on the market also reinforces your intent with the auctioneer and other bidders.

Now that you’ve started bidding, you can bid confidently and consistently, knowing that the property is going to sell and further increasing your edge over other bidders as they begin to wane.

And if the property never reaches its reserve and passes in, the agent recognises you as a genuine buyer. Yes, you run the risk of missing out while the vendor negotiates with the highest bidder, but the agent knows about you and will tell their client about another serious party. With this information in mind, the seller is less likely to strike a deal, and they will most likely come back to you later in the afternoon or early Monday.

Now let’s look at a few more solid bidding strategies.

4. Understand Your Budget

Whether you’re teaming up with a buyers advocate in Fitzroy or you’re bidding for yourself, you must understand your budget as part of your bidding strategy.

Your budget shouldn’t just be one number, but a few numbers:

  • The Perfect Price: This is the price you’re dreaming of paying for the property – the lowest price you’re likely to get!
  • The Realistic Price: How much you think the property will go for. Remember that while underquoting is technically illegal, many property agents will give you a price up to 20% to 30% below the sale price. This might be where the auction starts, but it won’t be where it ends.
  • The Price of No Return (Absolute Maximum Price): Every bidder needs to know the number that causes them to walk away, no matter how much they want a property. This is the most important number to have in place. Never restrict yourself unnecessarily, but don’t bid beyond your comfort levels or financial capabilities – I’ve seen many shell-shocked buyers who look far from happy after buying at auction.
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5. The Opening Bid… When to Pull the Trigger

I’ve already told you that it’s often best to withhold your bid until the property is on the market, and I stand by that. But if you want to employ the strategy of the opening bid, here’s when you might want to do it (and how).

When you get to the auction, try and size up your competition and figure out how many genuine bidders there appear to be. If there are more than half a dozen, you’re either looking at a hot property or a large swathe of bidders who have been duped into thinking the property will sell for far less. Or it could be a combination of both.

Making a comically low bid is pointless and the reaction could hurt your credibility. Making a bid that’s too high could see you paying overs if you’ve misjudged the competition.

But making a strong opening bid in these circumstances could have just the right effect. You show serious bidders that you’re in the hunt and you immediately knock out those early bidders who were never really in the running.

I’ve been to auctions where early and mid-auction bidders have driven up the price only to find themselves out of the race long before the hammer falls. A swift and decisive opening bid can wipe these filler bids off the final price and put you in a stronger position.

A big opening bid can also take the air out of the auction, which shifts the power away from the auctioneer and the vendor and firmly in your direction.

Of course, knowing just how much to bid comes down to diligent property market research, an understanding of interest in the property, and an insight into the expectations that the vendor’s agent has set.

6. Arrive Early and Assume the Position 

Getting to the auction early lets you select your bidding position. It’s a small part of your strategy, but it can play an important role. You want to select a spot where you have a good view of the crowd, and you can monitor your competition for signs of distress, hesitation, or resignation.

If you’re the first to arrive, you can also scope out the different groups and estimate exactly how many active bidders you might be up against. Many people just come to auctions to observe, but if they’re greeting the agent like old friends or they appear to be a professional buyers agent, this is a sign of serious competition. 

7. Master Your Body Language Skills

You don’t want to be the one at the auction who is constantly hesitating. You don’t want to find yourself on the phone every five minutes, and you don’t want to be looking at your partner or an agent and having a conversation in between every bid.

Little tells like this can stall your rhythm, embolden your competition, and ultimately be self-defeating. Conversely, if you see these signs in your competition, you might be in a good position.

So, make sure that you’re confident and authoritative and watch for other bidders who may be off their game. Alternatively, if you’re hoping that the property will pass in (ideally with no bidding at all) then it can be helpful for you to look disinterested so that other parties don’t consider you as competition.

The auctioneer and sales agents will likely be in full control of their body language. Be aware that their actions are likely a deliberate ploy to manufacture urgency and don’t get drawn into their games. Most good auctioneers will deploy the “going once, twice..” routine several times throughout an auction in order to stimulate action. Hold your nerve.

8. Try This Bidding Strategy at a Slow Auction

A slow auction or a complete non-starter is a sales agent’s worst nightmare. As a buyer in this position, it’s worth remembering that vendors will often lower their expectations, and their price, mid-auction.

It’s up to you to take advantage of the unique dynamics of a slow auction. 

  • If there are little to no bids being made, consider throwing one out there. This should be a fair number but a price you know is on the lower end of the range. The vendor will then likely provide a counter bid, giving you more information about whether or not you would like to keep pursuing the property.
  • As the highest bid at a slow auction, you can even ask the auctioneer flat out to reveal the reserve price. They won’t like this, and they might not oblige, but the more facts you can get, the stronger your next move can be.
  • Remember that the agent will be trying to get the sale over the line. They will do this by trying to bring your price up, but they will also try to bring the vendor’s price down if the auction has stalled.
  • If you end up negotiating as the highest bidder, you want the vendor to drop their reserve to meet market conditions, but don’t go too far. Leave your ego out of it and remember that you are pursuing a fair lowered price, not daylight robbery. The vendor always has other courses of action they can pursue, including bringing in other interested buyers, going back to auction, or relisting their property for private sale.

9. Ask a Buyers Agent to Bid for You

If you’re serious about buying a property, you hire a lawyer to handle the conveyancing and a building inspector to check for serious structural issues. 

So many people believe they are on their own when it comes to bidding, but they’re not. Because auctions are designed to drive up emotional bidding, it’s important to do all you can to detach yourself from the process. I’ve bid at a lot of auctions, but even I had someone bid on my behalf for my family home – I didn’t want to be the emotional buyer who stretched beyond his limits.

If you don’t have the time, you don’t have the confidence, or you just want the best chance at success, you can hire a buyers agent or buyers advocate to bid on your behalf. Even if you understand a range of different bidding strategies, you might not be able to pull them off yourself in a high-stakes, high-pressure environment.

Buyers advocates feel like an optional extra for so many people, but we leave many other matters in the hands of professionals, and very few of those matters are valued at the million-dollar mark.

You might say that I’m biassed, and maybe I am. As a buyers advocate serving Kew East, Kew, Northcote, and the wider Melbourne area, I’m always going to recommend a buyers agent.

But I’m also honest, so I won’t always recommend myself. The Property Analytics team specialises in finding and securing investment properties and sites with high potential for residential development. If you’re looking for someone to find your dream home, I can help you, but not if you’re willing to pay way over market value to secure it. I will be hard headed about where your budget numbers should be.

If you want someone to find and successfully bid on properties that generate the sort of profit that investors dream of, consider hiring Property Analytics as your buyers advocate.

10. Have the Fundamentals Sorted Before Auction Day

I won’t dwell on this point, but it’s worth mentioning briefly. For your bidding strategy to be truly effective, you need to have everything else covered before auction day. A buyers agent can assist you with many of these fundamentals, and other professionals can guide you through the rest. Auction purchases are Unconditional, meaning you must have everything in place beforehand.

  • Have your finances in order, including pre-approval or conditional approval
  • Make sure the Contract of Sale has been reviewed inside and out
  • Have your deposit locked and loaded 
  • Understand the auction process or hire someone who does (this includes any specific auction rules and conditions, such as the deposit required and the settlement period)
  • Complete a detailed property analysis and feasibility report
  • Get a head start on development planning (as much as practical before securing the property)

Case Study: How Things Played Out When I Bid at Auction on Behalf of Greg in Melbourne

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Now that you know a few more bidding strategies, let’s see how they play out in real life. In the study below, I implemented the first three strategies on this list.

I informed the agent of my intentions, waited for the property to hit the market, and bid without reducing my increments.

Here’s what happened.

In this particular situation, I knew the selling agent pretty well and was open with him immediately prior to the auction. I told Jack that my buyer wanted to purchase the property, but I wanted it to pass in. He replied that I better be the highest bidder so that I could be the one to negotiate. This wasn’t my intention, but I planted the seed in his mind.

The auction started with a vendor bid of $900k, and after a big song and dance, someone finally put in a bid of $920k. It went back and forth slowly between 3 bidders, up to $1.116m, and then it faltered.

The auctioneer pointed to me, saying “Andrew, you’re awfully quiet mate?! I’m sure you’re interested”. Without missing a beat, I replied “Is it on the market yet?”

That little interplay helped me enormously because it told the vendor that I was a serious 4th bidder, interested in getting involved – but only on my own terms.

If the vendor wanted the auction to continue, he had to put it on the market. If he didn’t put it on the market now, then it would most likely pass in, and the leverage would swing towards me and the other buyers during post-auction negotiations.

After another song and dance, Jack conferred with his vendor inside and came out excitedly exclaiming that the property was on the market at $1.116m (clearly a bit lower than the vendor wanted, but it was in his interest to take advantage of the emotional environment and keep the auction going).

I went straight in at $1.120m. Bidder #2 went $1.121m, but I bid straight back at $1.125m and knocked him out of the bidding.

Going once, going twice… then bidder #3 came in at $1.126m. Me at $1.130m. Him at $1.131m. Me at $1.135m. Him at $1.136m. Me at a winning $1.140m – we secured the property under the hammer, for $10k below budget!

Bidding at Real Estate Auctions: Where to From Here?

If you are preparing for an upcoming auction – I wish you the best of luck! I hope the tips, strategies, and real-world experience outlined in this article give you the confidence and direction you need to win the day.

If you are looking for buyers advocates in Brunswick and Melbourne-wide for investment properties and residential property development, talk to Property Analytics.

My name is Andrew Stone, and my team and I offer end-to-end buying services, from shortlisting properties to feasibility studies to negotiating the best price at auction, private sale, or off-market negotiations. 

Our property buying process is data-driven and specific to you. To save big money on auction day and generate real wealth through real estate investing, get in touch today for a chat.

property investment when prices fall

How to Buy an Investment Property When Prices Fall

How to Buy an Investment Property When Prices Fall 2560 1808 andrew stone

We know from experience that you can buy a good investment property when prices fall and markets soften. Be smart – know your values, negotiate well, and add value proactively.

The price boom we’ve experienced over the last couple years started running out of steam a few months ago. The Reserve Bank of Australia have lifted rates, and they’re indicating that rates will likely rise further.

House prices are down from their peak and tipped to fall.. Would you purchase an investment property in this market?

Remember when house prices fell significantly in 2018-2019? That was the sharpest market correction in living memory – the below graph shows that really clearly.

Investment property when prices fall

The market started to soften in late 2017, and prices began falling early the following year. Around that time, a builder that we had come to know asked us to keep an eye out for a development site.

Russ is a really sharp guy. He recognised that the market had shifted and that prices would potentially fall (though few people predicted them to fall by 10%!).

But, if we could buy him a good investment property, under market value, and with value-add opportunity, then he could succeed even if prices fell.

Russ said “If you’re standing still then you’re going backwards”. We totally agree, but put it a slightly different way…

  • If you’re able to accurately assess market values, then you’re able to recognise bargain prices.
  • If you understand leverage and motivations, then you can negotiate purchases on exceptionally favourable terms.
  • If you know how to add value to properties proactively through planning and design, then you can make serious money.

There are a lot more off-market properties in a softening market.

In late June, an agent we know came to us with a large block in Ringwood East. Without going into personal issues, the vendors were very motivated to sell. They needed a settlement of exactly 6 months, and were aiming for a price between $1.0 to $1.05m.

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Recent nearby sales pointed to good value at under $1.1m. The existing dwelling was in pretty good condition and would rent well. We ran a feasibility and a development of 3 good sized 4bed houses would deliver strong profits. Was Russ interested? Absolutely.

The market was clearly softening, and who’s to say that the property would be worth the same in 6 months?

The vendors didn’t want to advertise, they needed to get a signed contract quickly. After some serious haggling, we secured the property for just under $0.98m.

Russ cracked on immediately with the planning and design process. After settlement, he got a good renter in. Eventually, after a typically hard slog with Maroondah Council, he attained a planning permit for 3 houses. Once working drawings and engineering were in place, he costed the job up.

The problem was that Russ was bloody busy building for clients. He struggled to fit the build into his program of work. The market started to pick up considerably through 2020-2021…

Why not sell the property as-is with the plans and permits?

I recommended a good local selling agent for Russ to talk to. They decided to take the property to auction in October 2021, and it sold under intense competition for over $1.4m.

Russ trusted our advice and made really good money through a smart property investing strategy when prices were falling.

  • We demonstrated that the property was worth more than what the vendors were asking – both by looking at comparable nearby sales and by conducting a comprehensive feasibility study.
  • We understood the vendor’s motivations and applied leverage through negotiations to secure it for well below market value.
  • Russ secured really good plans and permits, designed to appeal to the increasingly affluent demographic of young families in the area.

The market ran extremely hot from 2020-2021. A lot of buyers overpaid for properties (not our clients!).

We’re entering into a challenging market. Even though strong employment and savings levels mean that widespread forced sales due to interest rate rises are unlikely, most analysts are predicting price falls.

There will be really good property purchase opportunities in coming months.

Particularly off-market with favourable settlement terms. Be smart about values, negotiation tactics, and planning permits, and you could make a couple hundred thousand dollars profit like Russ did.

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A property development project we’re managing from end-to-end for a client

A property development project we’re managing from end-to-end for a client 2560 1664 Andrew Stone

Andy approached us in mid 2020 with a common brief:

Find him a profitable development project site +/- $1.3m, oversee all planning and design, tender the build and oversee construction.

We quickly zeroed in on a few suburbs that suited his parameters at the time (note: very few areas in Melbourne promise profitable projects, and these areas change regularly due to trends in land prices, construction costs, supply/demand, resale values, etc) and we identified a couple suitable sites within a fortnight.

Our preliminary feasibility studies provided high level estimates of market values, site yields, costs, equity/debt requirements, and profitability.

Being interstate, we provided Andy with detailed suburb profiles that explained why these target areas suited him. Below is an example of some of the info we include.

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Andy, being a relative novice to property development, had plenty of questions, and we were very happy to explain everything to him:

  • zoning impacts to yields (number and size of dwellings) through coverage calculations, setback requirements, private open space v secluded private open space, etc;
  • how local area buyer demand and demographics impact upon optimal yield and build specifications;
  • how we determined resale values based on comparable sales and local agent advice;
  • the difference between town planning documents, architectural drawings, and plans of subdivision;
  • the key milestones of development projects and how much savings he would have to deploy throughout the project;

After running through the projects in detail, we agreed that this property at 27-29 Grove Street, Vermont was ideal for him https://www.realestate.com.au/sold/property-house-vic-vermont-133375694.

I quickly firmed up our feasibility study, with feedback from Council, our preferred Town Planner, Arborist, Land Surveyor, Conveyancer and a couple local agents.

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The numbers stacked up really well, and the unique nature of the Vendor Statement meant that we could quickly subdivide the property into two separately titled lots prior to any planning, which would dramatically de-risk the project.

Via Sale by Set Date negotiations with the selling agent, I secured the 1230 m2 property for a bargain price of $1.241m.

Importantly, I knew the agent pretty well, and, while ethical throughout, she was definitely more forthcoming with information than she would have been with a typical buyer.

Andy duly paid us our Buyer Advocacy Fee of 1.8%. We then provided a Fee Proposal for overseeing the Planning & Design for two large Hamptons Style detached houses, each on their own title and with street frontage.

We liked Andy, and offered him a heavily discounted rate of $15,000 to secure a planning permit and complete all build documentation required for build tender.

I assembled the team of all property development planning consultants required.

Each consultant prioritises my work at a discounted rate because of the mutual respect we’ve built up over many years. They would invoice Andy directly for works, but report to me.

I project managed the entire design process and tied Andy in when his input was required. But given that he is a busy IT Professional and I develop property for a living, he was happy to let me run it with maximum discretion.

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Whitehorse Council were unnecessarily difficult, and we copped some stupid delays associated with some trees that their own Arborist agreed were of Low Retention Value and should be cut down (they were weeds FFS!), but we eventually attained the permit for our ideal plans.

We moved onto completing build documentation – architectural drawings, civil and structural engineering, build specifications, etc.

Andy duly paid us once all approvals and documentation was complete. He then appointed us to project manage the build tender and construction on his behalf at a heavily discounted rate of $40,000.

We selected two suitable builders, and went through a detailed tender process for a complete turnkey product that included demolition, landscaping, and everything in between.

Andy accepted my recommendation, and entered into a fixed price build contract with a great builder who we have several projects with.

The strength of my relationship with the builder meant that even though construction commencement was delayed by months due to finance and other issues, he has absorbed the crazy construction cost escalations that have hammered the market over the last year.

Construction is progressing well, notwithstanding COVID-related challenges. I have just made all the detailed specification selections on Andy’s behalf – floorboards, kitchen cabinetry, stone, carpet, colours, etc.

Recent local agent feedback on resale estimates is well above even our most optimistic predictions at the time of purchase.

Andy’s objectives have changed several times throughout the project, from retaining both dwellings, to selling both dwellings, to retaining one dwelling and selling the other off-the-plan. Regardless of what he chooses to do, he will make well over $600,000 profit from this project – after all of my fees.

He will do extremely well out of this quality property development that we have managed for him.

I am really proud of the work that me and my preferred consultants have done for Andy.

We’re looking after the entire project for him for end-to-end while he continues working full time as a busy IT Professional. He’s no doubt learned a lot through the process.

In fact, he’s so happy with the job that we’ve done, he appointed us to find him another property. We got him another ripper a few months ago!

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Our Services to Property Developer Buyers Explained

Our Services to Property Developer Buyers Explained 928 569 andrew stone

It’s pretty clear to us how you can best build wealth through real estate:

Purchase a property suitable for a profitable development, and complete the project with trusted consultants.

Easier said than done obviously. Successfully complete a development, and you’ll have another crack; fail, and probably not. The rewards to development are great, but the downside potential is real. Below I’ll explain how we help clients succeed.

How to find profitable property development sites in Melbourne.

Assessing project profitability is a pretty extensive process that involves studying planning schedules, construction costs, sale results, and much more. We’ve conducted hundreds and hundreds of feasibility studies, and our advice to anyone seeking to get into property development is – appoint a professional to do this work (whether it’s us or not).

A piece of wisdom that all experienced developers know… Just because you can develop a property doesn’t mean that you should.

Most uninitiated developers don’t really understand this, and it’s why so many fail to succeed. The truth is that of all the development-friendly properties on the market across Melbourne at any one time, fewer than 5% of them deliver a strong profit. No kidding. By the time you factor in stamp duty, professional fees, holding costs, council contributions, construction, selling fees, GST, etc, etc, the opportunity for +/- 20% profitability is very rare.

So much of our resources go into continually analysing project profitabilities across hundreds of Melbourne suburb.

We have a database of all properties sold across all of Melbourne, and we update this every month, and analyse it to determine the relationships between the prices of land, houses, and townhouses.

At any given time, we know the areas that deliver the strongest development profits for particular budgets and project types.

Over the last couple years we’ve purchased sites from as low as $0.9m up to $3.0m+. The types of projects we’ve attained for clients include renovations, knock-down rebuilds, dual occupancies, duplexes, multiple townhouses, and full land subdivisions. Each type of project was selected and attained based on specific client budgets and objectives.

The most common briefs we get involve purchase budgets of $1.5 – $2.0, with the objective of resale profits.

This type of budget typically lends itself to residential developments of 2-3 townhouses in affluent areas where the completed dwellings appeal to affluent 2nd/3rd homebuyers and downsizers (buyers who will pay a premium, as opposed to investors and first homebuyers who are more budget conscious).

In late 2020, a client appointed us to find a profitable 2-3 townhouse site for +/- $1.5m. The existing dwelling needed to be rentable, should they wish to sit on it for a while. And, the area needed to promise strong capital growth, should they choose to retain some or all of the completed townhouses.

We missed out on a couple suitable properties – one at auction from a bidder that wouldn’t stop, and the other because my client prevaricated through private negotiations (he kicked himself after). Having examined these properties in detail together, Chad and his brother were confident of our processes in assessing sites. At a high level:

  • determine project yield (e.g. number and size of dwellings), draft a mud map concept, and seek feedback from Council and a private Town Planner
  • estimate all costs based on similar completed projects, likely timelines, interest rates, rental yield, etc
  • quantify the cash and debt required to purchase and then complete the project
  • predict likely resale values of completed dwellings, which is arguably the most difficult part of feasibility analyses because you don’t have plans, permits, or build specifications to draw on when analysing sales and conferring with local agents
  • pinpoint current market value of the site based on nearby comparable sales, local agent advice, and project profitability scenarios

I found a ripper off-market that suited, Chad and I met the agent on-site together, and we literally signed up the $1.3m offer in the kitchen. Looking back, it was one of the best purchases we’ve made for a client – not only because it was well below market value and profitability was massive, but because we had established such a strong level of trust with our clients that they were comfortable acting upon our advice with the urgency needed.

How to complete a property development project.

Good property development consultants are bloody busy these days. Call an Architect or Town Planner or Builder out of the blue saying that you want some help developing your first property – good luck! The sad reality is that those consultants who jump at working for you are probably the least equipped to do a good job for you (why aren’t they busier?!). And the fee proposals provided will likely be much higher than what an experienced developer receives because you’re not a known quantity.

Over 15 years of developing our own projects and clients’ projects, we’ve established Director-level relationships with every consultant needed to complete a successful development.

They prioritise our work at discounted rates because we have history – they know we’re not time wasters who don’t understand the planning process and how everything fits together. We make decisions quickly, and don’t circle back to them once made.

Black and white, right or wrong decisions are pretty rare in property development.

Do you cut the tree down prior to application? Do you push for 3 back-to-back townhouses or for 2 larger side-by-side houses? Modern, contemporary, traditional? Downstairs Master or no? If yes, is a secondary Master upstairs required? Is a lift needed? What type of build spec will buyers pay for, and at what point do we reach diminishing returns? The list goes on and on.

The majority of clients appoint us to oversee the planning and design process.

Some want to be heavily involved, whereas others are happy to simply be in-the-know. The same clients usually appoint us to manage the construction tender process.

Immediately after Chad purchased the property described above, he appointed us to project manage the planning and design process.

The feasibility we conducted prior to purchase made clear the size and spec of townhouses that we wanted, so our brief to two of our preferred Architects was straightforward: three double story, semi-detached, street-facing, contemporary townhouses about 28 squares in size, each with downstairs GUEST suites and upper story MASTER suites, plus two further bedrooms and an upstairs LEISURE.

In addition to the Architect, we briefed in a Surveyor, Arborist, Town Planner, Traffic Engineer, Landscape Designer, Civil Engineer, SDA Consultant, and a few others. We attained and reviewed fee proposals, and recommended the appointments that Chad made.

All invoices went directly to Chad, and he was involved in all major decision making and design iterations throughout the planning process.

After a lot of frustrating back-and-forth with Council, we eventually attained the permit that we intended. Since Chad purchased the property, local median $ prices have increased 22%. The resale values we estimated at the time of purchase are now much higher, though cost escalations in the construction industry have amounted to about 15% over this period.

We are now working to finalise all construction documentation and will tender the build to two of our regular builders.

So, this is what we do for buyer clients looking for profitable development projects.

A lot goes into purchasing a property suitable for profitable development, and, it’s hard work completing the project with so many consultants to manage and a myriad of difficult decisions to make. But, we love our job, and we’re proud of the wealth we help clients make through real estate.

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How we regularly purchase properties directly from vendors

How we regularly purchase properties directly from vendors 1178 808 andrew stone

Harriet and her partner have owned their property for nearly 25 years. With their children all grown up now, and the place falling apart a bit, they started talking about selling. Fortuitously, it was around the same time that my team sent Harriet a letter in the mail expressing interest in their property.

Would they be open to selling to me or to one of my clients? Or, alternatively, Would they consider developing their property together in a Joint Venture?

We traded a few emails – no, they don’t have an interest in developing, but yes, they’re open to a simple sale.

The first and most important step in any business dealing involves establishing mutual trust and respect.

Harriet visited my office in Ivanhoe, and asked me about my business as a Real Estate Analyst and Buyer Advocate. I shared some analyses on Melbourne and Heidelberg property trends, and some stories about recent clients I’ve represented, properties I’ve purchased, and developments I’ve completed.

And, we spoke openly and honestly about the pluses and minuses to her property:

  • Good sized block of 1260 square meters, with a regular shape; dead-end street; close proximity to shops, trains and parks; within an important school catchment zone; reasonably progressive zone for development
  • But, close enough to the main road to cop some noise; neighbouring properties are older unit developments that look tired; decent slope to the block, as well as a couple very large trees that would need to be designed around
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She was obviously interested in what I thought her property was worth, and I showed her the written feedback I’d attained from local agents that put the value at about $1.4m. I also pointed to a few recent nearby sales that supported this estimate.

Harriet appreciated how open I was with all the information I’d gathered, and was relieved that I wasn’t behaving like a pushy sales agent.

She, in kind, told me a bit about her family circumstances: kids heading off to post-secondary schools; her and her partner easing into part-time employment with an eye towards retirement in the next 5 years; their need to get their financial house in order; and, her anxiety about selling their biggest asset without a clear plan as to where to move to next.

She was hesitant, but open to selling to me, so we agreed on some simple next steps needed to move the discussion forward…

It was important to both of us that that we get as much advice as possible to inform the transaction.

I certainly didn’t want to take advantage of her, and equally, she wanted to approach things methodically and carefully. So, Harriet committed to contacting 2-3 local agents over the coming fortnight in order to attain independent advice around the market value of her property. And, she said she’d contact a Conveyancer to put together the Vendor Statement and associated Contract of Sale (which she’d need to sell her property to me or to anyone else down the track).

I committed to examining the property in more detail, with advice from my Town Planner, Architect and Arborist, and with reference to the Vendor Statement she’d provide. The aim was to catch up again in two weeks time to talk seriously about sales terms.

The best negotiations lead to Win-Win results, and we achieved this together

The two main terms that need to be agreed upon between buyer and seller are: price, and settlement period.

Harriet spoke to 3 different agents over the fortnight who all came to her property and assessed its value. One agent talked mid $1.3m, another $1.4m, and the last tried to persuade her that he could get her $1.6m!

Now, Harriet’s no mug, and she recognised that the young bull of an agent was probably a bit optimistic (and, may actually be full of it!). She knew that selling directly to me would save her about $10k in advertising expenses and $30k in agent fees, and would also spare her the painful experience of opening her property to inspections and the stress associated with auction day. But, she obviously wanted to sell on the best possible terms.

My detailed analysis of the property went well. A few nasties were uncovered around Tree Protection Zones and Aboriginal Cultural Sensitivity Reports, but ultimately, my team had done a good job in identifying this as a suitable development site.

Was I going to pay $1.6m? No, absolutely not. But, I was willing to pay a bit of a premium for a long settlement period of 18 months.

Would Harriet accept 18 months? Yeah, the long settlement period actually appealed to her – it would give her enough time to ‘get her sh!t in order’ as she put it.

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I’m quite happy to negotiate face-to-face, but in this situation it didn’t feel right. This was a massive decision for her (for me too, but I’ve bought and sold dozens of properties, so was confident), and we agreed to go away and think on things.

Ultimately, our negotiations lasted over 2 months. During that time, we traded a fair few emails, and I met with her at her property with an Arborist to firm up assumptions around the trees. After much discussion between them, they agreed that the long settlement was actually in their interest, as it would provide them the time and freedom to plan her family’s next steps.

Harriet eventually determined with her husband that they would feel comfortable selling the property for $1.47m on an 18-month settlement.

The $1.47m price was a bit more than I wanted to pay, but the settlement period would allow me to attain plans, permits, build contracts and finance before ultimately settling on the property. I would allow the 10% deposit to be released to her after the required 28 days, and she would accommodate me with times in which my professional team (surveyor, town planner, arborist, architect, etc) could attend her property.

We’re both satisfied with where things have ended up. But, perhaps as importantly, we’re both really happy about the whole experience.

It went unsaid during all the back-and-forth, but we each approached the negotiations with honesty and goodwill. Not everyone is trying to screw you! And, not every negotiation has to result in a winner and loser.

Selling your property directly to a purchaser does indeed carry its risks, and I wouldn’t recommend it to everyone. But, if your property is suitable for development, and you’re willing to take the time and expend the effort into getting advice from multiple independent professionals (agents, conveyancers, etc), then it is a great option.

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The most common property investment strategy of the past will not work in coming years.

The most common property investment strategy of the past will not work in coming years. 1200 627 andrew stone

Purchase a property, rent it out, watch the market do its work… Once its value has increased enough, pull some of the equity out… Purchase another property, rent it out, watch the market do its work…Repeat.

When the market is booming, it’s happy days, but what happens when the market is flat? What happens when prices go down?

That’s what we’ll explain here with actual client case studies.

Melbourne’s last price growth cycle ran from 2012 to 2018, during which time Median $ House Prices increased by an average of +74% across Inner & Middle Melbourne. Property investment was pretty easy. But, since the peak in 2018, prices have decreased by an average of -11%.

The typical investor with one or two rental properties, with a strong debt-equity position, and with a long-term perspective, wouldn’t be bothered too much. More active investors (often supported by ‘property investment experts’) with a large portfolio of highly leveraged properties purchased with a speculative approach should be rethinking their strategy in a serious way right now.

Without strong medium-term price growth, property investors need to get smarter.

Recent events will help the market stabilise: federal election results, interest rate drops, APRA lending requirements, etc. And, a number of indicators suggest that the market is bottoming out: increased attendees at open for inspections, improved auction clearance rates, shortening days on market. But – and this is very important – no serious analyst is predicting a return to the double-digit per annum price growth that we saw from 2012-2018. 

The following 3 real-life examples will demonstrate why a more sophisticated and proactive approach will be necessary to succeed in the real estate market in coming years.

In 2015, we supported three very different clients in purchasing properties that suited their objectives and parameters:

Linda: First-time investor with a limited budget, looking for a set-and-forget property that she could rent out. Aiming to secure a long-term asset, with no dramas.

Rob: Intermediate investor with a slightly bigger budget, looking for a property with development potential that he could rent out. Aiming to manufacture equity through permits and to create options (e.g. leverage to purchase again, sell with permits, proceed to build).

Mick: Experienced investor with a similar budget, looking for a property to develop ASAP. Aiming to manufacture equity through permits and construction, with an eye towards retaining the completed dwellings over the medium-term, primarily for tax benefits (e.g. negative gearing and depreciation).

Over the following 30 months, the market performed pretty well, driving the value of each property up by about +21%. 

Linda bought a lovely little detached house on a modest block, close to shops, transport, parks and schools. It netted her a typical yield of 3.2%, and it rose in value by $135k over the period, from $645k to $780k. Her total equity contribution (including 20% purchase, stamp duty, mortgage payments less rental income, and outgoings) was $191k.

By investing $191k and watching the market do its work, Linda grew her equity by +52%.

Rob bought an older house on a corner block of about 1000m2, in a reasonably progressive residential zone. Due to the dwelling’s condition and the large block size, the property netted him a smaller yield of 2.2%. A golden rule in real estate is that it’s the land that appreciates in value, not the house; the property rose in value by $189k over the period, from $900k to $1.089m. 

Rob took his time working through a very tasteful development concept, and eventually attained planning permits for 3 detached houses, at the cost of $25k. His total equity contribution amounted to $318k.

By investing $318k, and proactively adding value by attaining a planning permit, Rob grew his equity by +78%.

Mick bought a shocker of a house on about 650m2 in a great suburb. The house was in terrible condition, and he rightly determined that it would cost him more to make it rentable than he’d get back in rent. With no rent coming in, he saw the land value rise by $194k over the period, from $925k to $1.120m.

Mick immediately got stuck into design, and secured a planning permit for 2 high quality detached houses, each with its own street frontage. Once he attained the permit, he completed all documents necessary for construction: architectural, engineering, landscape, drainage, traffic. Together with build specifications, he tendered the job to a few local builders, and landed on a fixed price build contract of $920k. His total equity contribution, including a modest $20k required by the bank for construction finance, amounted to $530k. Upon completion, the new dwellings were valued at $2.660m combined.

By investing $530k, and proactively adding value through development, Mick grew his equity by +142%.

All three of these clients did really well, but, how would they fair in this current market, where very little price growth is expected over the next 30 months?

Assuming Median $ House Prices rise by a modest +7% over the next 30 months… 

If Linda deployed the same strategy today, she’d build her equity by just +4%. She might as well just keep her money in the bank instead of purchasing a set-and-forget rental property.

Rob would be far better off than Linda. By proactively attaining planning permits (while sacrificing on rental yield), he would grow his equity by +34%. Importantly as well, he’d create options for himself – now and into the future.

Mick’s expected return in a flat market would still be far greater than what Linda achieved in a hot market. By seeing a development through from start to finish over 30 months, he’d achieve a Return on Equity of +85%.

Perhaps the most powerful lessons are learned in a falling market. How would each client fair in the market we’re just coming out of, where property prices fell by -11%?

Linda would likely be forced to sell, seeing her equity in the property shrink by -56%, from $191k to $84k. If the banks came knocking, she’d be hard pressed to maintain the required LVR.

Rob would be slightly better off, but he’d still be fuming by a loss in equity of -22%. His equity position would shrink from $318k to $248k. Not good, but he’d live to fight another day.

And, Mick? He’d be the only one to make money. Even with the market crumbling around him, he’d end up growing his equity by +10%, from $530k to $582k. Sure, nowhere near what he was hoping to achieve, but by hiring good professionals and working hard to add value proactively, he’d ultimately be in a better position.

Sceptical about Mick’s – or any other developer’s – ability to make money during a market downturn?

Consider another client of ours, who purchased at the top of the market 16 months ago. With construction now commenced, and against conservative resell valuations, he will achieve +14% ROE upon completion. Did we want more for him at the time of purchase? Of course we did. But, he’s a positive and highly experienced businessman who appreciates that we’re all at the mercy of the market to some degree. That’s why he takes it upon himself to hire good people, and rip into ventures with enthusiasm. 

Real estate investment will not be the same in the future as it has been in the past.

Reach out to Property Analytics to find out how we can help you make the best possible returns in a tough market. As fully qualified Buyers Advocates we specialise in looking after the entire development process for clients: from budgets, feasibilities and negotiations, through to design, planning, and construction and sales oversight. Judge us by what our clients say. 

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