At the beginning of February we saw the Reserve Bank of Australia (RBA) announce a further cut to the official cash rate by 0.25% reducing it to 2.25%, the lowest rate in four decades. In this article we look at the role interest rates play when considering an investment property, current population growth pushing the demand for property upwards and how today could be the best time in history to get started on building your property portfolio.
From August 1990 to last month’s decision, the RBA has cut interest rates by a staggering 11.75%, bringing the current cash rate to 2.25%. Now we could spend an entire university degree trying to understand the economic indictors that force interest rates up and down, but when it comes to investing in property, interest rates are still the major determinate when understanding the cashflow of the investment. While it could be argued that it is the capital gains that will make you wealthy, understanding the cashflow of a property is critical in your ability to hold that asset long term and hence experiencing that growth.
As to whether property is a good asset to hold, Australia is currently undergoing a population boom, with an increase of more than 364,900 people living in Australia in 2014 (ABS, 2014). The number of people who migrated to Australia in 2014 was almost double the number who left and this trend doesn’t seem to be slowing down. In a time of record low interest rates and population growth, there are simply too few new dwellings being built to house this growing demand. When you add a shortage of land to the equation, this presents a clear benefit to why people thinking about investing in property should get started now.
The key is to surround yourself with the right team, who will not only find you the right property but can also ensure you are structured for success. To support our clients and in partnership with the Aspire Network, we have listed the 7 Essential Factors when considering purchasing an investment property:
- Set Clear Financial Objectives: Ensure that you set yourself clear tangible targets around things like; return on investment, cashflow and timeframe.
- Treat Investing Like A Business: Your investment must be structured correctly, is supported by the right team, resources, technical knowledge and experience.
- Seek Help: Friends and family aren’t always the best people to get advice from, and therefore it’s important to surround yourself with expert independent advisors like mortgage brokers, property advisors and financial planners.
- Research The Market: Your aim here is to ensure you’re buying the right property, in the right place, at the right time and at the right price.
- Cash Is King: It’s extremely important that you don’t overcommit financially and that you can afford to own, manage and maintain your investment property. A cash flow analysis here is a must.
- Purchase For Capital Growth: Look at what drives capital growth, such as population growth, employment opportunities, government spending and an increase in local facilities (such as shopping centres, schools, sporting facilities, etc)
- Track Your Results: Sit with your property investment advisors at least once a year to ensure your investment is still on track with your strategy. One of the most common reasons that people don’t accomplish the results they desire is that we tend to get distracted.
With interest rates at 40 year lows, now is a perfect time to look at what is possible. Don’t leave it till tomorrow, ensure you make hay when the sun shines – get started and take action today.