Early adopters and those ready to move when the market picks up again will be those who reap the rewards. As soon as lenders start to relax investment lending criteria, investors need to be set to move in order to grab a bargain before the market becomes flooded.
All successful investments are based primarily on timing and getting both in and out of the market at the right time. The only thing stopping the investor market from currently increasing in price, is demand. Demand is low right now since the banks have changed their lending criteria for property investors and some banks like ANZ have closed the door on buyers wanting to invest in Australian real estate using overseas funds.
This is set to change and when it does, demand will increase and so too will house prices.
Make good use of the time now and prepare to be an early adopter
Research your market/suburbs now
Unless you plan on monitoring the property market closely, try and avoid ‘boom’ towns or regions that are driven by industry. For example, Perth and Moranbah boomed during the mining boom but are now seeing rents being slashed (Perth) or houses sitting empty (Moranbah).
Several Sydney suburbs have been ‘blacklisted’ by AMP bank because of an oversupply indicating falling prices, whilst some suburbs on the Central Coast have been increasing in value due to new infrastructure around the Wyong area.
It pays to do your research now and keep an eye on the suburbs and types of properties your are interest in so when the market changes, you’re one step ahead of the pack.
Build up your cash deposit
Use the quiet investing time to put your dollar and cents away so you have your deposit ready to go as soon as lending criteria is relaxed. Better yet, if you have an offset account on your home loan, you can put the cash you are saving into your offset account and reduce your current repayments.
Learn all you can about the risks and rewards of your property investing strategy. Understand the rewards and the risk
- Flipping (renovating to sell) – while flipping can be a great way to turn a quick profit, gain new skills and gain a better understanding of the construction industry, it’s important to know all you can about the location and the current market or you could be left trying to unload a lemon or losing money.
- The short to mid term investment (1-5 years) – a short term property investment will reduce your maintenance and repairs and management fees bill but 1-5 years may not be enough time for markets to rebound, assuming for buy when prices are low.
- The long term investment (5+ years) – a longer term property investment will potentially cost more in fees, outgoings, maintenance and repairs but can sometimes provide the best option for reducing tax and returning a larger profit.
Negative or positively geared property investment
Before becoming an early adopter of property investing you need to determine if negative gearing or positively gearing is the best option for you. With the Australian Government flagging potential changes to negative gearing, knowing how it all works is now more important than ever before.
Pros of negative gearing
- Capital growth
- High depreciation
- Potential tax savings
- Opportunity of development
Cons of negative gearing
- Limits cash flow
- Capital gains
Pros of positive gearing
- Income covers property expenses
- Not as much risk involved as with negative gearing
- Can offer a more balanced portfolio
- More attractive to lenders
Cons of positive gearing
- The income is taxable
- Slower long-term growth
Think about finance now
While lending criteria for investors is tight there are still options for investors. Now is a good time to talk to Mint Equity to get ideas of what is possible now, and how lending criteria might revert back.