There are a number of considerations that need to be made whether it ’ s a good time :
1 . Can you afford rising interest rates ?
Rates have been rising quickly and at this point , it ’ s too early to say when they ’ ll start to stabilise . Since last year , banks have been required to factor in your ability to pay a loan three per cent higher than the current rate . Regardless , it makes sense to budget in more rate rises when looking at buying an investment property .
2 . Can you get a loan ?
The largest fall in house prices in recent history was in Sydney following the start of the Global Financial Crisis . A large driver of the decline was that banks were restricted as to how much they could lend . This isn ’ t the case now and with rising interest rates , providing mortgages is even more profitable for banks , making them keen to lend . Provided you can pay back the loan , you ’ re likely to be able to get a loan relatively easily .
3 . Where are you looking to buy ?
Not everywhere is seeing declines in prices and even in areas where prices have declined , these declines will end at some point . Meanwhile rents are still rising pretty much everywhere . Where and what you buy right now can lead to dramatically different investment outcomes even in the short term .
4 . Are you looking for capital growth or rental yield ?
It ’ s very rare to be able to get high capital growth and high rental yield . Suburbs that have high rental yields generally do not see much capital growth while high growth suburbs have low rental yields . Investors typically concentrate on capital growth however rental yield is equally as important , particularly if you ’ re looking to hold long term . Right now , we ’ re seeing low capital growth overall but strong growth in rents .
5 . How long do you want to keep it ?
Now is not a great time to house flip . During the pandemic , strong price growth meant it was profitable to buy and then sell quickly , even with transaction costs such as stamp duty factored in . 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 your alternative investment options ?
Property is often called “ inflation proof ”. This isn ’ t entirely true given how much property investors rely on debt to finance a purchase . However , it ’ s true that rental returns do provide a hedge against capital losses during a market downturn . Right now , investing in anything is risky . 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 .
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