There’s no doubt that higher interest rates are making life more difficult for homeowners. Despite the RBA deciding to leave rates on hold this week, many borrowers have already seen their mortgage repayments surge, and that is something that will slow some buyers down.
We’ve also seen recently that there are a number of investors who are selling up. According to CoreLogic, the long-term average percentage of investors selling sits at around 25 per cent of listings.
Currently, that number has spiked to 32.7 per cent of listings, with some suggesting it’s interest rates that are pushing investors out. While that might be the case, it’s also highly likely that many investors who are selling could have changed some of the things they have done with their property and might have been able to hold onto their property.
Here are three things investors should think about when buying a property.
Right asset and right location
If you have bought well in the first place, then you would more than likely be very hesitant to sell your investment property. More often than not, investors who have purchased an underperforming asset are probably very happy to see the back of it. Think about all those property investors who bought in Perth between 2005 and 2015. They are only now finally seeing values ahead of what they might have paid for their property. With the market moving higher, you can bet they are ready to part with those properties.
The key to not buying an asset that is going to underperform is to focus on buying the right type of property in the right types of areas. To do this, you simply just need to look at how an area has performed over the past 20 years.
If you look at the house price growth in many areas of Perth, you’ll find it’s been nonexistent for 20 years. Compare that to the Eastern Suburbs of Sydney or Northern Beaches, and the level of growth is off the chart. When combined with buying the type of property owner-occupiers want in those high-growth locations, you are giving yourself the very best chance of success as an investor.
The other issue that many investors face is usually around finance. Many people buy one property and effectively max out their borrowing capacity in one go and have no plan for how they are going to continue to grow.
This often comes down to planning and also being prepared to look at how you are going to grow your income over time. If you own a business or have a well-paid professional job, then it’s likely that you will be able to keep on increasing your income while the value of your property increases. This means that you will be able to keep growing your property portfolio over time and also handle periods where interest rates might move higher.
If you’re struggling with your repayments, look at ways you can improve yourself and earn more income. It’s not always a matter of selling off assets when times get tough, but rather it’s about trying to find ways to improve yourself as a person, and from that point, your income will also likely improve.
There are also other things you can do to help better manage your ability to borrow, through things like rentvesting.
At the same time, if you have bought well in the past, you can also use some of the equity in the property to help with your repayments until you see more rental growth or rates ease.
It’s been well-documented that many of the people selling are ones that have purchased in the past few years when interest rates were at their lowest levels on record. While these rates were great when we could access them, it’s important to understand that this was also not a normal level.
Interest rates were always going to be headed higher, and understanding that as a property investor, you will likely have to deal with those changes when you get into an investment. I always like to check that if someone is purchasing a property, they have the ability to hold onto it for a decade.
When you buy and sell quickly, you’re not going to be maximising the capital growth potential, and you’re also racking up transaction costs. Property is a long-term proposition, and you need to treat it in that same way.
Take a long-term perspective on anything you do, and you will likely find that the way you approach it changes as does your planning. Chasing short-term success and short-term gains is usually not how the most successful investors operate.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.