Time to invest in the property market?

By Lisa Montgomery, Head of Consumer Advocacy

The planets are certainly aligned for some savvy borrowers keen to take advantage of the investment opportunities that currently exist in the property market.

This is because of a combination of three key factors.

1. Official interest rates in Australia are the lowest they have been for more than forty years.
2. Property prices have already dropped in most metropolitan and regional areas.
3. Rental prices and demand are still strong in most areas.

This unique combination means the gap between the monthly cost of a mortgage and expected rental returns has narrowed - and in some cases, rents are even exceeding the cost of mortgage repayments.

And this is where the opportunity lies for prudent borrowers.

We hear so often about negative gearing in respect to investment property but the present climate means, in some areas in Australia, it is now possible to purchase a positively geared investment property, or in the least, a cash-neutral one.

So how can you make this work for you?

If you are among the seasoned borrowers who have been diligently paying off your mortgage during the period when interest rates were climbing, you have probably put yourself in a relatively comfortable financial position in relation to the equity you now have built up in your home.

And that equity is the important component in this investment strategy as it can be utilised as a deposit for a loan on a second property.

By using your equity as a 20% deposit on another property you won’t be required to pay Lenders Mortgage Insurance, and can look at a range of principal and interest or interest only loans, depending on what best suits your circumstances.

Many Resi customers have already acted on this timely opportunity, by firstly speaking with their local Resi Lending Specialist to look at all their options.

These borrowers had been investigating all types of asset classes and the opportunities each presented in the current economic climate and closely considered which ones would be less volatile, yet still viable in the long term.

Once they reviewed all their options, they felt most confident about putting their hard earned money back into bricks and mortar and into an asset class that had previously been good to them. Read below stories about two Resi customers that have done just this.

Even if you do not have enough equity in your existing property to finance a 20% deposit but you do have some savings and some equity, now can still be a great time to invest in property so speak to your Resi Lending Specialist who can help you make a decision that is right for your situation.

If you are considering taking advantage of the current conditions for property investing you should consider the following:

•Think long term: Regardless of whether you are looking at taking out a standard variable or fixed loan, you need to acknowledge that interest rates work on a cycle and will eventually rise, and that your financial plans can accommodate those changes.  Ensure you discuss your plans with your accountant or financial planner.

•Income and cash flow: You should be confident with the long term sustainability of your household income level and cash flow so that mortgage repayments over the term of each loan can be maintained. Even if your investment property is positively geared, you should still allow for money for repairs to the property as well as any taxation implications that the property may entail.

•Where to buy: Whether you are already familiar with the area in which you are looking to buy or not, you need to carry out extensive research to ensure that the property can deliver reliable yields in the long term. Look at whether the area has decent infrastructure including transport networks, shopping centres and schools etc.  You should also make sure you check out all the previous prices paid for properties within the area and draw comparisons with other similar areas.

For those long term investors in the appropriate position - now can really be the time to act.

Resi Home Loans offers an ideal range of home loan and home mortgage products to suit your every need. To find the best home loans for you, check out our mortgage calculators and our current home loan rates today.