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If you’re just getting started with real estate investing, you might hear terms like “market cycles,” “hotspot,” or “vacancy rates” thrown around left, right, and centre. And honestly? It can feel a bit overwhelming at first.
That’s why we’ve come up with this beginner-friendly guide. We’ll discuss everything you need to know about the property market cycles. From what they are, the phases they move in, how to spot where a market currently sits, and how to make smart moves as a beginner in real estate investing.
At InvestorKit, we’re all about giving you the edge you need with the latest industry insights, expert advice, and proven strategies that actually work.
So, let’s begin and make property investment for beginners a little less confusing.
What are property market cycles?
Ever seen a suburb that was a “hot pick” last year, struggling to attract buyers? Or, witnessed some property markets explode with activity while others remain dead silent? That’s the property cycle in action.
Property markets are just like seasons, they are constantly changing. There are periods of growth, stability, and slowdown all influenced by factors like infrastructure, demand, and location.
Whether you are looking to buy your first home, your first investment property or just exploring real estate investing for beginners, understanding these cycles is crucial to knowing when to buy, sell, and hold your property for maximum returns.
The 3 phases of the property market cycles
Each property market (like a city or suburb) goes through three major phases. While the timing varies, the pattern remains the same.
Let’s break them down in a way that’s easy to understand:
1. Early Adopter Phase
Characteristics:
This is the first period of the growth cycle for a location (city or suburb). At this point, the location isn’t getting much attention. Prices are relatively low, there’s little demand in the area, and locals often feel there’s nothing special going on.
But, things start to move.
It is in this phase that the government planning begins, they start focusing on new infrastructure initiatives for the area like roadways, hospitals, schools, and even airports. While most people often overlook these developing locations, savvy investors start to pay attention and try to snag good deals for maximum returns.
Strategies:
The strategy followed by most experienced investment buyers is to start buying land in these areas at relatively low rates. But to people new to real estate investing, it feels a bit risky as they are not sure if the area will generate the expected demand.
However, with good research, data-driven industry insights, (about infrastructure projects like schools, hospitals, airports etc,) and housing market predictions, you can actually tap into a market before it becomes saturated, and make a substantial return. Sounds great, right?
To do that, you just have to look for:
- New transport connections
- Vacancy rates getting tighter
- Population growth projection
2. Hotspot Phase
Characteristics:
This is where the real game begins.
In the hotspot phase, the area in question starts grabbing media attention, homebuyers and investors rush to secure their spot, and suddenly it’s known as “the next big thing.” Real estate agents start pushing the listings hard.
In most cases, you’ll notice rents increasing, vacancy rates dropping further and everyone competing to get their hands on the land.
Strategies:
If you’ve already bought property in this area– congrats! You’ll see a rapid increase in property prices. But if you’re still on the lookout for a property, make sure you are not overpaying or getting caught in the hype.
If the numbers make sense, this could still be a great opportunity to invest.
Just ask yourself:
- Is the rental yield strong? (Rental return vs purchase price)
- Are there any growth indicators? (More infrastructure, population growth)
- What are the Days on market? (Properties sell fast in a hotspot)
This phase is often ideal for beginner investment buyers since there’s plenty of information, visible growth and lower risk involved.
Just remember, confidence is great, but smart investments always win the game.
3. Second-Wind Phase
Characteristics:
Once the hype is over, property prices begin to level off, or even drop. But that doesn’t mean the area stops developing. Even though the competition is low compared to the previous phase, rental demands may still hold strong as new schools open, businesses move in, highways are constructed etc.
What does this mean for you as an investor? More room to negotiate and get your hands on hidden gems.
Strategies:
As we said, this can be a solid opportunity for property investment beginners looking for long-term stability. You’re less likely to buy into hype, and more likely to find good deals.
Just focus on cash flow here– solid rental returns over flashy capital gains. Also, keep an eye on any new infrastructure plans that could spark another mini-boom and you’re good to go!
How to identify which stage a market is in?
Now that you know the phases, how do you figure out which stage a market is in right now?
Start by looking at the data. Property investing isn’t about guesswork– it’s about reading the signs. Here are some key data signals to watch out for:
Key Data Signals To Watch
1. Price Growth Trend
Monitor the rates at which property prices are rising.
- Steady or Low growth: Signs of early adopter phase
- Sharp increase over the last few months: Most likely it’s the Hotspot phase
- Rates begin to decline and become stagnant: Likely the second-wind phase.
There are free tools like CoreLogic and realestate.com.au which you can use to track trends, or just check out our property investment podcasts.
2. Days On Market And Vacancy Rates.
Days On Market: How long is it taking for a property to sell out? If it’s shorter, the demand is high.
Vacancy Rates: If they’re low, it means rental demand is high, this is a good indication of an emerging hotspot.
Best to look for:
- Days on market dropping below 30 days
- Vacancy rates below 2% (a sign of strong rental demand)
3. Supply Pipeline and Sales Volume
Frequently check how many properties are being built and approved. If construction is happening at a rapid pace without sufficient demand to support it, it could lead to a slowdown in property prices. So, be careful.
Also, keep a check on the number of properties being sold each month or week, high volume means big investors are interested in this area and it’s a good sign that prices will eventually go up.
P.S. Use local council websites, development applications, and data-driven insights by InvestorKit to track this.
Tips For Navigating Property Market Cycles As a Beginner
Moving on, here’s how to approach real estate investing for beginners, keeping the cycles in mind:
- Don’t chase the hype
It is not always necessary to invest in an area just because the rates are booming. Sometimes the hype is fueled by temporary external factors like a sports tournament or an upcoming concert.
- Understand your goal
Understand your investment goal: is it capital growth, rental yield, or both? This will help you decide which phase makes the most sense for you as each one has its own advantages and limitations.
- Do your research
Don’t rely solely on the media headlines. Check data on units sold per month, vacancy rates, and infrastructure plans and do remember to check the property laws of the area.
- Have a strategy
Different phases require different approaches. Early adopters need courage and vision. Hotspots need discipline. Second-wind areas require patience and cash flow focus.
- Network, network, network
Join property groups and meet real estate agents and other industry experts to ask them for insights. Due to their vast experience, these individuals can spot market trends early on and provide insights that most people aren’t even aware of.
- Treat it like a business
This is key for any investment property. Emotion has no place in numbers. Run the math, check the data, and make informed decisions.
Final Thoughts
As you can tell, understanding market cycles is similar to having a road map before going on a road trip. It doesn’t guarantee success– but it definitely helps you avoid the wrong turns.
For property investment beginners, this knowledge is a game-changer. It allows you to predict where opportunities may arise, avoid overpriced markets, and make better long-term decisions.
At InvestorKit, we don’t just help you spot a great deal, we help you build a strategy AND buy the right investment property that fits your budget and aligns with your long-term goals.
It doesn’t matter if you’re buying your first investment property, growing your portfolio, or just curious about real estate investing, one truth remains: markets move in cycles.
And now, you’re ready to move with them– smartly, strategically, and confidently.
So, book your free 15-minute discovery call today and learn more!
References
[2] – Investopedia.com – A complete guide to real estate investing
[3] – Investopedia.com – Understanding market cycles to maximize returns