As rate rises start to bite, and with the promise of more increases this year, investors are swinging towards properties with higher rental returns. Seeking to reduce their cash flow risk if rates rise further, they are changing the game-plan so they can keep investing without fear of mortgage stress.
Before the rate rises started, the go-to property investment strategy was a balance between rental yield and growth prospects. With low interest rates and increasing rentals, investors didn’t have to worry too much about cash flow and could target properties with strong capital growth drivers, despite their lower rental returns.
This is still a great strategy, where you have a solid home earning you a good rental, but you also have capital growth potential, and where possible, add-value prospects too.
CHANGING MARKET
But the market is changing and along with it the favoured strategies for property investors. With rising interest rates, this popular strategy requires robust cash buffers to manage the potential expense shortfall.
On 4 May 2022, the Reserve Bank of Australia (RBA) commenced a series of cash rate rises to combat inflation and the banks followed by raising interest rates.
This caused home buyer mortgage payments to increase, with the expectation of further rises until the RBA is satisfied they have inflation under control.
NEW STRATEGY
Many investors, feeling the Perth property market is still in a growth phase and not wanting to miss out, are now focussing more on rental return so they don’t run into concerns about mortgage affordability if rates rise further.
To arm themselves, they are willing to give up some capital growth potential in exchange for stronger rent.
This means they may buy a little further out of the city than they would normally, with a newer, perhaps bigger home to yield the higher rent, and the block sizes might be smaller to enable them to afford the better house.
With this formula, investors feel they can still grow their portfolio for future returns, whilst avoiding the stress.
This strategy may not suit everyone and some buyers are more focussed on growth, while for others it’s the right time for add-value investing.
Whatever your strategy, it’s this adapting to change that sets apart those who thrive in the long-term.
FIVE TIPS FOR PERTH BUYERS
Follow these essential pointers to ensure you succeed in this (or any) market:
- Before looking, pre-qualify your finance, allowing a healthy buffer for unforeseen expenses
- Check what rent you’ll need in order to feel financially safe, without mortgage payment stress
- Ensure the house is in good condition, to avoid excess maintenance expenses
- Then buy the very best suburb you can afford, with good amenities for tenants and growth
- Use a professional who represents your best interests to buy well and help you avoid the pitfalls
GETTING STARTED
If you’d like access to the latest information our professional Buyer’s Agents have sourced on Perth property, feel free to call us on (08) 9381-7450 or fill in this no-obligation Getting Started form to get the ball rolling.
If you’d like to learn more about property investment strategies, or you’d like to clarify your own strategy and goals, why not request our 4 Strategies Download to get the ball rolling.
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Established in 2004, Property Wizards works with local, interstate and overseas home and investment buyers seeking to buy property in the greater Perth metropolitan area.
Property Wizards takes away the stress of buying property and saves you time and money. Regardless of market conditions, our research, knowledge, and access to silent sales means we find and negotiate properties with potential to outperform the market in capital growth and rental returns. Importantly, we provide homebuyers and property investors with the same level of representation that property sellers have benefited from for years.
