property investment

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.


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.

house sketch 2

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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