Bullish property prices and high rental demand are creating renewed interest in the investment property market, but warns all categories of borrowers to take the time to determine firstly if they really are investor property ‘ready’ before they take the plunge.

The current conditions for investing have not only peaked the interest of established borrowers but also first home buyers and ‘upgraders’ who have re-directed their attention to the merits of investing instead, because of recent rate rises.

Existing owner occupiers who have built up enough equity in their own home to purchase an investment property are now feeling confident about investing in an asset class they feel they understand, so the reasons for those borrowers to invest will be quite different to other borrowers.

However for first home buyers and others looking to ‘upgrade’ their homes but concerned about the impact rising rates may have on their lifestyle and their plans, their reasons for investing in property may be more driven by using the investment to build the financial platform they need to eventually own the dream home they’ve always wanted to live in. 

Whichever category of borrower you fit into, there are still several key questions everyone should work through to determine if you’re really investor property ‘ready’:

 

Do you have a defined financial plan or retirement structure – and does an investment property fit comfortably within that structure?

With many people still not confident with the level of stability provided by other asset classes in the current market, property can offer reliable long term investment potential – which is why it regularly remains a key component of the retirement plans for many Australians who like the stability that bricks and mortar offer.

For those who may be re-evaluating their retirement and financial strategies in the wake of the last two years, it’s important to stick to the following principles:

• Research all of your options from a range of reliable and independent sources to ensure you’re not taken in by optimistic salesman or marketing spin;
• Be flexible with your strategy so that it can accommodate any changes to your personal circumstances;
• Be realistic in your expectations from your investment as part of your overall strategy;
• Invest your time in finding the right lending partner who can provide you with the genuine level of service you can readily access when you need it, and remember;
• Property is not a set and forget investment – it will require ongoing management and maintenance to maximise its potential.

It’s also important to remember that it’s never too late to revise your retirement plan. In fact – baby boomers are arguably in one of the most appealing positions to take advantage of the current market.

Not only are they cashed up, but they are generally confident than with their level of financial literacy and more attuned than most to identifying their life goals – as well as the commitment and discipline they need to apply to achieve them.

 

Have you attained significant equity in another property which will allow you to comfortably borrow against that property?

As a result of the rising property market over the ten years prior to the credit crunch there are still many homeowners who before that time had built up substantial equity in their own home and are now feeling comfortable with servicing their current repayment levels.

If you find yourself in this position and provided your employment, income and lifestyle remain stable – now could be an opportune time to apply that discipline, knowledge and experience in the market to purchase another property.

However, ensure you go into the transaction knowing all the additional costs and possible expenses that it may entail, such as Lenders Mortgage Insurance, which may apply if your total loan amount exceeds eighty percent of the total value of your property.

 

Are you currently in a situation where you are able to funnel any surplus cashflow into your mortgage or a savings account?

Surplus money could allow you to either build up enough funds to pay for the deposit and initial costs to purchase an investment property, or if you already have enough equity in your home and can borrow against that – the extra money can provide a reliable buffer for when rates rise again.

When calculating projected figures for any property purchase, potential buyers should always allow for a rise of two percent in interest rates at any point in time, so that they can continue to meet the financial obligations of that property – as well as any others.

If your comprehensive research has been completed, purchasing an investment property can be readily factored into your long term financial plans as long as you’re realistic about crunching numbers on:

• Current and expected yields: Don’t rely on the latest figures. Carry out a thorough historical audit of what prices in your target areas have commanded and can continue to in the future.
• Effect of rising and falling interest rates: Be familiar with the nature of rate cycles and what can occur and how this will tie in with your projected financial plans.
• Effect of an un-tenanted property for any period: Properties can become untenanted for many reasons and the risk of that occurring should always be deemed a possibility. You also need consider lower than expected rental yield.
• Paying for repairs and other expenses for the property: Only repairs deemed ‘essential’ are tax deductible so ensure you don’t get caught up in the total renovation bug without any due thought of how you will justify them.
• Taxation implications: Consider carefully how property related issues such as depreciation, repairs, tax deductible expenses and the long term value of the property can affect your immediate financial situation and your long term retirement plans.  

 

Are you in a situation where you may be likely to come into a sum of money?

Whether it’s through an inheritance, a lump sum payment or a work bonus, if you do receive an expected or unexpected lump sum and that money can be spared, consider whether you may be able to put it towards securing an investment property.

As long your current financial commitments can continue to be comfortably met, this allows you to put that extra money to more effective long term use – rather than blowing the money on a holiday or item that won’t give you any financial return.

It’s an exciting time to be a potential property investor – as long as you apply a healthy dose of realism and restraint to your research and decision making.

Tags: Budget, Equity, Home Loan, Home Loans, Interest Rates, Invest

This entry was posted on Friday, February 19th, 2010 at 12:28 pm and is filed under Buying to Invest, Interest Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.