The Property Investment Cycle
By DFJ Real Estate

You can look at the overall market and property investment cycle and conclude that now is not the time to buy because property prices 'could' go down. Or, if you have accumulated equity from past property price increases, you can utilise this money to expand your property portfolio. You will need to search for areas with a high demand for rental properties (low vacancy rate) that produce an overall good Return on Investment (ROI).

ROI is a metric that helps investors evaluate and compare one investment property with another. ROI (Yield) Calculation:
Net Rental Income/Property Value x 100
($850pw x 52 weeks) = $44,200/$700,000 x 100 = 6.3% ROI
$700,000 loan @ 5.5% interest over 30 years = approx. $917pw loan + expenses.

Knowing your purchase price range versus rent achievable and your affordability to service a loan can help you to target and fast-track your property search. To achieve a good short-term ROI, you may need to expand your online search outside of your current market area.

ROI should not be your only metric. You need to research and factor in supply & demand, fluctuating rents, and average sales growth in the area and compare the property's potential for long-term capital growth. Your initial numbers may reflect a high short-term ROI but produce a lower long-term capital growth return compared to another area. The fluctuation of capital growth between one area and another can be the difference of tens or hundreds of thousands in dollars. Cheaper properties can produce higher ROI but lower capital gains. Therefore, you should factor in multiple metrics when purchasing an investment.

During uncertain markets, there is reduced competition, which is leverage for buyers to negotiate. Investing should be a long-term commitment to hold property during drops and slumps to realise the overall returns and increased capital value