Six questions to ask before investing in property

It is said that the best investment on earth, is earth – and that landlords grow rich in their sleep! So, with property prices falling and interest rates rising, you may be wondering if now’s a good time to buy an investment property?

Ray White chief economist, Nerida Conisbee, shares the following six questions to ask yourself, as part of the decision-making process.

1. Can I get a home loan? Your ability to qualify for a loan depends on your unique set of personal and financial circumstances. Still, Ms Conisbee said that with rising interest rates making mortgages more profitable for banks, they’re keen to lend. “Provided you can pay back the loan, you’re likely to be able to get a loan relatively easily,” she said.
2. Can I afford higher interest rates? The Reserve Bank of Australia has signalled that further rate rises are coming. Therefore, if you’re going to buy an investment property, you’ll need to be confident that you can afford higher loan repayments.
3. Where do I want to buy? Australia is not one big property market. Rather, it comprises of lots of different markets, where prices and rents perform differently. This is something you’ll need to consider during your due diligence, Ms Conisbee said. “Where and what you buy right now can lead to dramatically different investment outcomes even in the short term.”
4. What’s my strategy? According to Ms Conisbee, there’s generally a trade-off between capital growth and yield: a property that delivers more of one will generally deliver less of the other. “Investors typically concentrate on capital growth. However, rental yield is equally as important, particularly if you’re looking to hold onto the property long-term. Right now, we’re seeing low capital growth overall but strong growth in rents.”
5. How long will I hold the property? This is not a good market for house-flipping, cautions Ms Conisbee. “With price increases slowing, and in some cases falling, it’s far less likely you can make a profit in a short amount of time. Holding long-term means that it matters less what part of the cycle you buy in.”
6. What are my other options? Investing in property is not without risk. But other asset classes also have downsides. “Shares are highly volatile; putting money in a term deposit yields very little return, and alternative investments such as Bitcoin, are seen as even higher risk than normal,” concluded Ms Conisbee.

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Information contained in this document is considered to be true and correct at time of publication. In addition, the information provided is general information only, and does not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.***