The property market has been getting a lot of attention in recent months after a surge in house prices, auction clearance rates and home loan approvals. And with the Reserve Bank of Australia set to drop interest rates to a record low of 2% within the next six months, we are being told that property investors are generating more equity from their investment properties than ever before!
The mixture of low interest rates and rising rental income proves the perfect recipe for generating cash - and with media outlets hyping about property investors buying properties that are almost paying for themselves, it’s a wonder there are any properties left on the market!
It’s fantastic that consumer confidence is on the rise, but we all know interest rates are not going to stay this low forever. So it’s important to be realistic. There is so much conflicting information out there; all you can do is make sure you are prepared for rising interest rates and inflation. As we always advise our customers, they key is to: plan, plan, plan, do your numbers, talk to the experts… and did I mention - plan!
When working out your figures add an extra 1–2% onto your outgoings. This will prepare you for rising expenses in the future – meaning you won’t be caught short and find yourself entering the negative gearing roller-coaster. It’s called a contingency and will be more useful than you ever imagined.
So the process to planning is – whether it’s a new investment property you’re buying, or you have taken a new loan for an existing property – now all the costs that are likely to occur so you’re prepared.
Simply add up all your expenses such as council rates, water charges, repairs and maintenance and property management fees, add into it the loan costs. You can then compare the total monthly costs, or annual costs against expenses.
Here at HomeSource; our new service RentSource is designed to help property investors make more out of their investments in a hassle free way. RentSource can manage all your repairs, maintenance and property management fees at half the price to anyone else in the country.
The moral of story is to always be prepared! The Global Financial Crisis has been a hash reminder of the dangers people can face when borrowing too much money. The RBA recently advised banks to maintain ‘a strict lending criteria’ in the low rate environment to avoid an unrealistic property bubble.
Don’t get me wrong, there’s no doubt it’s a great time for property investors who are reaping the benefits of low interest rates.
Just be mindful that it can be a double edge sword! The rates can work for you or against you – the key is to be prepared to make sure they work for you!