Tips For Investors While Borrowing Money Is Cheap
Several lenders have cut their investor mortgage rates already this year, despite there being no change to the official cash rate since October 2019.
According to Canstar, one Big Four lender is now offering some package rates to investors that are lower than those for owner occupiers, which is rarely seen.
Latest finance figures from the Australian Bureau of Statistics indicate owner occupiers are by far the dominant buying force in the market today, with investor activity rising at a much slower pace as the nationwide recovery continues.
One of the key factors pushing up buyer demand is better accessibility to credit. In 2018, the banks really reined in new lending and the national market was directly impacted.
Things changed mid-2019 when APRA loosened the rules and since then, would-be buyers have gone back to their mortgage brokers for a new loan assessment and discovered they can now borrow enough to make their next move up the property ladder.
It’s going to take a while for this pent-up demand to work its way through, especially with stock levels so low. Due to this, prices are likely to continue rising; and with term deposits offering woeful returns, it’s only a matter of time before more investors come back to property.
If you’re considering investing in 2020, start the process now. With these recent reductions in interest rates for investors, it’s clear the banks want your business.
Experienced investors will tell you that the first five years of a new loan are the most expensive and buying when interest rates are this low gives you a huge headstart.
In terms of what to buy for investment, here are my top 10 tips for 2020
- Stick to areas you know. You don’t have to target the same suburb you live in but go for a ‘drive-by location’. On-the-ground research will be much easier and you’ll feel more peace of mind if you can physically get to your property whenever you need to
- Go for areas with new infrastructure, either newly launched or under construction and due for completion within three years, as these suburbs will outperform
- Houses will outpace apartments as we’re not creating any more land, particularly in Sydney
- Apartments suit passive investors and have the advantage of greater depreciation benefits, lower maintenance and better yields
- Houses suit active investors as they need more maintenance and provide more opportunity for value-adding through renovations, particularly structural improvements
- Target the better quality properties by buying at or above the median price for the suburb. Choose the best street of a suburb you can afford over the worst street in a more expensive suburb
- Don’t be afraid to pay more for a better aspect, floor plan or position in the block
- Avoid apartment buildings with a high ratio of investors to owner occupiers
- Avoid commercial buildings recycled into residential offerings
- Avoid rental guarantees, as the yield tends to drop as soon as the guarantee ends
See you next week. JM
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This article originally appeared in The Real Estate Conversation (Feb 24, 2020)
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