Many people ask us, ‘Is now a good time to buy an investment property?’ and for the most part we’d probably say yes. Because it’s never necessarily a bad time to buy an investment property.
This question tends to be spurred by what’s happening in the economy and housing market. When the wheels of the property cycle start to turn, people can get a bit sketchy. Prices go up, and people worry that houses are too expensive (and that the market will crash). Prices go down, and people want to wait until they hit rock bottom so they can ‘nab a bargain’.
But as Will Rogers once quipped, “You don’t wait to buy real estate, you buy real estate and wait.”
So, if you’re considering purchasing property as an investment, that might not quite be the right question to be asking.
Rather, that question may need to be, ‘Is now a good time for me to buy an investment property?
And to answer that question, we’d need to dig a little deeper.
First, you’d need to understand whether you could afford to buy an investment property
And this really comes down to: do you have enough cash or equity to use as a deposit on the home, and are you able to pass servicing criteria set by the bank?
While in most instances you’d be wanting to be on an interest-only loan, the bank is still going to stress test you based on a principal and interest loan, the test rates are higher than actual interest rates, AND they don’t take all the rental income into account when deciding on your ability to pay back that loan.
Then we’d need to establish whether you would be able to hold it for the long term
This comes down to having enough extra cash to cover any mortgage top-ups. This will often occur if the amount you’re able to charge for rent doesn’t cover mortgage payments and other costs associated with holding the property.
For this, you’d need to make sure the rest of your financial foundation is tight as can be and that the additional cost of holding the property won’t impinge on other financial obligations or send you into debt.
Knowing your financial position will help you navigate the market confidently – no matter where it’s at in the cycle.
The nice thing about buying near or at the bottom of the property cycle is that while interest rates are high, they are likely to come back down, and you’re not being lulled into a sense of security that holding an investment property is going to be super easy.
If you’re able to cope with additional pressure from the start, holding that property could become a little easier over the following years as interest rates drop.
Of course, buying near the peak of the cycle could mean you have additional time to bolster your financial resilience while interest rates are low so it’s easier to manage the increased costs when interest rates inevitably begin to rise.
The thing is, there will always be pros and cons and perceived obstacles when it comes to purchasing an investment property – regardless of the stage of the cycle and what the economy may be doing. So, rather than focusing on whether it’s the most favourable time, focus on what buying that investment property is going to help you achieve in the long term, and whether you’re in a position to make that purchase now, or whether you still have work to do to get you there.
From there you’ll be able to take that next step towards making the purchase or get yourself into a position where have the resources to do so.
If you’re keen to dig a little deeper into why now is as good a time as any to invest in property, join enable.me founder and financial adviser, Hannah McQueen, and Momentum Realty General Manager, Hamish Cowan, in the upcoming webinar on Thursday the 22nd of June at 7:30pm.
Register to confirm your attendance and find out what you’ll learn by clicking here.
Disclaimer:
This blog post is for informational purposes only and does not constitute individual financial advice. If you’re interested in receiving financial advice, you can book a consultation with an enable.me coach. Costs apply.