Why you always need to be thinking ahead

This week’s RBA decision has created some hope that interest rates might be potentially falling sooner rather than later.

While we can’t control what goes on inside an RBA board meeting, we can make sure that we are prepared for the times when opportunities do arise.

One of the biggest mistakes I’ve seen people make over the last few years is not being proactive enough and preparing for higher interest rates when they came along. Only a few years ago, we had been in the incredibly strong Covid market and prices were rising at a rapid rate.

One of the key drivers of this was the fact that interest rates were at a record low level and you could get a mortgage and pay just 2% interest. What this did was give home buyers a huge boost to their borrowing capacity.

On top of rising equity in their homes and investment properties, banks were also able to lend very aggressively. Unfortunately, it was also during this period of time where a lot of investors dropped the ball.

We all knew that interest rates were going to rise because a cash rate at virtually zero isn’t something that is sustainable. However, we didn’t know when rates might rise and clearly, neither did former RBA Governor Phillip Lowe.

But that wasn’t actually important.

What was far more important was the need to think ahead and make the most of those good times.

For borrowers, they needed to be going out and tapping into their equity and capitalising on those low rates.

You didn’t need to be buying necessarily, but you did need to access your equity and then go and put it in an offset account. That way, when you needed it in the future, you had it ready to go.

On the flip side, when mortgage rates quickly rose to 6.5%, that meant a whole lot of investors couldn’t access their equity anymore. The only thing you could really do at the time if you wanted cash was to sell down a property.

That was even worse given it was at a time when prices were generally falling and the market was weak.

Had people been thinking more about the long term and preparing when the opportunity was ripe, they could have been in a far stronger position today.

Property is very much a game of finance, and you need to be doing everything you can to capitalise when times are good. It’s also critical that you don’t find yourself making big mistakes.

Not pulling out equity when you can isn’t a huge mistake, but it is enough of an error that could potentially cost you the ability to add another property to your portfolio. Over the long term, that could be a lot of money and there is certainly a large opportunity cost as well.

Going forward, always think about the small things you can be doing to build your portfolio. 

Being proactive on finance is one of the most important.

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