Three Steps to Making a Profit in a Cooling Market
“In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets” – Wikipedia
The property market may be peaking according to industry commentators. Do you run for the lifeboats? No!
If you set yourself up from the start, a cooling market may well create an arbitrage opportunity for the successful investor who can get money in a buoyant market, but spend it in a flat market (with lower prices).
But the trick is getting the strategy right.
According to RP Data, Australian property values declined -0.3 per cent last month with Sydney and Perth the only cities with any reasonable growth.
And, with poor GDP figures there is increased pessimism.
If you are switched on, you can make a tidy profit here – particularly against all the ‘Johnny-come-latelies’ who put their property on the market when there was already an abundant supply of homes for sale.
Here is what you do:
1. You get your broker to arrange access to the equity in your home via a top-up loan. You need to do this now, because right now the bank’s valuation will reflect a buoyant market. The bank is therefore more likely to lend significant amounts against your property.
2. You put this extra money bank into your account and leave it there. The best way to do this is to stick it in an offset account, so that it offsets against interest charged on the loan. Or you can also arrange a line of credit, in which case simply put the money back against the loan to reduce its balance.
3. Wait – buying opportunities will start to appear in 2015 for three possible reasons:
• Sellers will realise that they have missed the boat and, at some point accept that they just have to take the price they are offered. They are not going to realise substantial gain.
• A flood of new apartments in our capital cities will mean you will have choice, therefore you can negotiate harder.
• Across the country, if the economy weakens – prices may well drop.
These opportunities won’t occur overnight, but if you set yourself up now you will be pitting strong buying power against weak sellers – and we all know who the winner will be.
Graeme Salt – National Client Finance Manager, Chan & Naylor Finance Australia
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