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‘Perfect storm’ approaching for investors

03/07/2009

Australian property investors are fast approaching the ‘perfect storm’ of a flattening property market, low interest rates and rising yields which could present once-in-a-lifetime opportunities.

While many of these factors have been in play for much of this year, according to Smartline Personal Mortgage Advisers Executive Director, Joe Sirianni, they could reach a pinnacle later in 2009 when first home buyers are expected to move out of the market as a result of reduced Federal Government first home buyer grants.

“First home buyers and investors have generally been competing for property in the same price bracket – below $400,000 – with first home buyers often prepared to pay a bit more to secure their home,” Mr Sirianni said.

“Owner-occupiers tend to buy with their hearts and will go a bit higher if they really love a property, while investors tend to be much more focused on the financial returns and are less likely to pay that bit more for a property if they don’t see the value there.

“The expected widespread retreat of first home buyers from the market in the coming months could well open up more opportunities for investors to capitalise on the many ideal factors currently in place.”

As a result, Mr Sirianni said that now is the ideal time for investors – and those thinking about making their first move into property investment – to get their financial affairs in order to ensure they can capitalise in the coming months.

He suggests investors look to tidy up their household balance sheets by:

  • Reviewing your spending habits and setting a revised budget. “A budget doesn’t necessarily have to be strict, but it should ensure that you only spend within your means, allowing any excess funds to be channelled into savings or investments,” Mr Sirianni said.

  • Reviewing your existing loans and looking for opportunities to consolidate where appropriate. Easy access to credit prior to the Global Financial Crisis (GFC) led to some bad spending habits in many households and means many people are carrying large amounts of debt on credit cards and personal loans.

  • Considering the best structure in which to invest, for example, avoiding cross-collaterisation (when you give your lender security over other properties, including the family home). Getting this wrong from the outset can be costly, difficult and time-consuming to change later.

  • Plan your cashflow. Consider an indicative cashflow analysis of your investment property over time, including loan repayments, strata fees, rates, management fees, maintenance costs and property taxes to work out all the financial implications from the outset.

Mr Sirianni said the current property market conditions provided the perfect opportunity for investors to review their entire financial position.

“This is the ideal time to look beyond just the loans, rates and lenders – although these are certainly very important considerations – and consider how you use your money and how you can maximise opportunities to create wealth,” Mr Sirianni said.

“This might mean tapping into the equity in your family home to get started.

“However, banking and home loans have changed markedly in the past year or so and for those looking to enter the property market in the next few months may find themselves a bit overwhelmed by the whole process.

“To ensure you are well prepared to capitalise on the approaching ‘perfect storm’, start talking with your personal mortgage adviser now about your individual circumstances.”

 

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