At Last - Breakthrough on Investment Property Affordability!
Monday, January 5 2009
Australia’s interest rates have fallen dramatically recently (3% since September 08) and many pundits are suggesting we will have further significant interest rate reductions. Some are now saying the wholesale rate could go to 2.75% or lower in the first half of next year. What does this mean for you if you have a mortgage, or if you’re thinking of buying a home or an investment property? Possibly, interest rates below 5%.
What? - Say that again! - Yes, you heard right, interest rates under 5%!
What exactly would the impact of these rate cuts be if you wanted to invest in property? Well, depending on your gross annual taxable income and if you were to invest in the right type of property, it could be significant.
Too Expensive For Most
At the beginning of this year if you wanted to purchase a 4 bedroom air conditioned house & land package, say in Cairns (Strong growth location and not expected to be affected significantly by the current economic conditions) for say $345,000 and you financed 100% of the purchase price as well as the purchase costs; and you rented it out for $360 per week (current market rent) and your gross annual taxable income was $65,000, then after all expenses and tax deductions were offset against each other, in the interest rate environment at that time your holding cost (out-of-pocket expenses) would have been $157 per week.
Big Sacrifice
Now, not too many people earning $65,000 a year have a spare $600 to 700 per month left over from their take home pay to support an investment property, or anything else. My guess would be that for most it would take a lot of sacrifice and an obvious incentive of strong short term capital gain from the investment to catapult them forward into that one.
That, I Can Afford!
However, let’s take another look at that same investment property in today’s interest rate environment. The weekly holding cost for this property on the same annual taxable income of $65,000 falls dramatically to $26 per week. And per chance your annual taxable income is $85,000 the weekly holding cost is $7, that’s right $7 per week. In fact for you it’s positively cash flowed in the third year taking into account rent increases of 3% per year which isn’t unreasonable for a burgeoning economy such as Cairns, or some of the other areas we know about, such as selected areas in Sydney, or Brisbane.
That’s More Like It, Now, It Owes Me Nothing
Let’s take this one step further, say interest rates go to where we suggested earlier below 5% then, if your taxable income is $65,000 annually, this property would be positively cash flowed from day one by $24 per week. And if your annual taxable income was $85,000 it would be positively cash flowed $43 per week.
This last scenario is not wishful thinking. In fact there is no shortage of evidence straight from the Reserve Bank of Australia themselves, making it loud and clear that they are going to have no hesitation in significantly reducing interest rates sooner than later.
So, it doesn’t take Einstein to figure out, that even with just a modest amount of capital growth you would quickly be showing an excellent profit. And, if you picked the right area where you’ll get more than modest capital growth, then you might have a mini bonanza on your hands.
When Will Be The Right Time?
The secret to taking advantage of all of this, could be acting sooner than later. At the moment, it is what is known as a buyers market (this is created by falling house prices and lack of buyer interest) amidst the strangest set of economic conditions that have ever been and we’re ever likely to see again. Some of the highlights of these conditions are a critical housing and rental shortage all across Australia, already low interest rates, relatively low unemployment (yes, I know. It’s probably going to go up).
On top of this, the natural birth rate is increasing again, immigration is still at record levels, there is a continuing shortage of skilled labour (to build dwellings) and banks are marginally tightening up their credit lending policies (less people qualify to purchase less available housing).
Are You A Trendy?
The secret to all of this is, to do the opposite of what everyone else is doing. You see, and you already know this, most people are ‘Trendies’. They’re going to do what everyone else is doing, that is, they’ll wait until they see everyone else is making money then they’ll make their big move.
Discover Insiders Secrets
Now, for the real insider information, along with all of the above conditions what’s going to happen going forward is the housing shortage is going to get worse because of the market uncertainty. Developers are going to take a breather, go on holiday, renovate their own homes etc, but they’re not going to invest capital until they see the demand picking up. So, any pockets of housing availability are going to dry up. Available rental properties are going to be harder to find (already, anything coming on the market is being leased before the existing lease expires). The time to act is right now!
It Will Probably Slip By Most
Because if you wait, then when interest rates go below 5%, it’s going to be a no-brainer. You’re going to be in there with the rest of the ‘Trendies’ and all of a sudden investment properties are going to be the topic of choice at dinner parties as they were back in 2003 when they all bought at the peak of the market.
The key worth considering is to get in there now as this is not an overnight decision, you need to do your research, get loan pre-approval, go property shopping, educate yourself before they do and buy your property at a bargain basement price while you still can. And when the ‘Trendies’ catch on, you’ll benefit from the capital growth as they drive property prices up.
Don’t Be Late, The Economic Clock Is Ticking
Equity Resource Pty Ltd specialise in locating high performance investment properties for its clients that demonstrate the potential for strong capital growth and high rental yields. If you would like further information or assistance, please let us know. Our service is cost and obligation free as we negotiate a real estate fee with the builder or developer.
See hot spot information on:
• Cairns
• Brisbane
• Sydney
We’re also accredited mortgage brokers and have electronic access to 53 lenders and can assist you with any loan enquiries you may have.
For further info on similar strategies please contact Equity Resource.
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