Property markets work in cycles, but as a property investor you know that already. Right now we’re in the boom or growth part of the cycle (it could be called something else depending on where you look, but they all mean the same thing) and before it starts to level out – which it will eventually – it’s worth being prepared for what’s next.
That’s what this article is designed for – to help you be ready for when the next stage of the cycle begins and even beyond.
A plateau may still be years away and we should preface where we’re headed in the words that follow with just how optimistic we are about the long-term future of property in our country, but it’s worth being prepared for whatever may eventuate. So, with that in mind, let’s begin …
1: What’s the best structure for me?
There’s no one-size-fits-all answer to this one except to work with someone who has experience in property investment to build a strategic property plan. Our team are very experienced in property investment and finance structure, so we can work closely with you on this. If we think you’d benefit from working with a financial advisor or similar, we’ll also bring someone else in for extra strategic power.
We can’t stress it enough – make sure you have help from someone with experience. It’s very expensive to change ownership structures later and it’ll cause headaches you really don’t want.
Aside from structure, we’ll also be looking at finance and risk management plans as part of your strategic property plan. Done correctly in the beginning, your plan will see you well-prepared for growing your wealth through property, safely.
2: What if my rental income stops or drops?
Since the start of 2020 rental incomes have risen in most parts of the country and they’re likely to continue doing so for some time. Thanks to low vacancy rates and a shortage of good properties for rent, there’s no foreseeable issue with rental income stopping or even dropping (of course we’re talking about the right properties here).
But once again, we’re here to plan. Be strategic from the start, don’t borrow EVERYTHING you can to get your property. Hold a cash buffer in an offset account (or somewhere) that you can lean on. That way you’re going to be fine if unexpected repairs or similar cause a prolonged vacancy in your future.
3: Is the property market(s) at risk of a full-blown crash?
The short answer is: NO.
There has never been a “crash” in Australia since housing market data has been collected.
Prices may undergo a “correction” at some point in the future, but a crash is when people are forced to sell with no-one able to buy … an incredibly unfortunate, but equally unlikely scenario in our country.
So, don’t prepare for a crash, but do consider what happens for your property as the cycle heads toward a “correction” – a potential reduction in rental return, steadying property value etc. Once again though, if you’d like help looking into the future of your investment, speak with one of our team so we can help you plan long-term.
4: What happens if interest rates go up?
Our recent article discusses how rates aren’t likely to go up (from the RBA’s POV) until closer to 2024, but they will … eventually. There’s nothing to scream about here though because they’re very unlikely to skyrocket, and you’ll be prepared for the minor increases as they happen anyway.
It’s impossible to fully forecast how the RBA will react to inflation and the other factors that influence their cash rate in the future. But, understanding what an increase of 1% or 1.5% in the cost of your mortgage means to you, will help you prepare for dealing with it when and if that eventuates.
Depending on the equity in your home or investment, your ability to lock-in low rates (as fixed rates) and even potential increases in your salary should be considered and can impact how you plan. Do some calcs and speak to your finance specialist for help – it’s worth it.
To summarise …
Be optimistic but realistic.
And, plan for the worst and you’ll do the best.