With rising interest rates continuing to dominate headlines, it’s a tricky time to enter the property market. As many buyers are discouraged by interest rates and changes to their borrowing capacity, there’s no question this is a buyer’s market for those prepared to make the move.
Rising interest rates have also pushed down house prices, making it a prime moment to jump on. This is a big contrast to the pandemic property boom experienced across the country, which saw vendors in a stronger position.
Are you left wondering how you can navigate this topsy-turvy moment in the Australian property market? Despite the uncertainty, there are definite advantages for buyers – whether you’re looking for a new owner-occupied home or an investment property to build your equity.
In addition to reduced buyer competition compared to this time last year, rental vacancies are at a record low and rental yields are stronger after COVID, which is good news if you’re looking to buy a property to put on the rental market. Buying now could also contribute to stronger long-term capital growth on your investment property, including the potential for a tax deduction as interest rates rise.
If you’re eager to grab this moment but don’t know where to start, these four tips should get you moving.
Consolidate debts and make your money work for you
Working with a broker to consolidate your existing debts may strengthen your borrowing position. It’s also important to make your money work for you, whether that’s allocating $5000 to a high interest savings account or working with a financial adviser to invest in shares.
Check your accounts and look for fees on accounts or credit cards you never use and can get rid of. These decisions might seem small, but they add up to improve your position with lenders.
Widen your search and consider ‘rent-vesting’
On the property search, it’s easy to get laser-focused on your favourite postcodes at the expense of all others. However, by widening your search, you’ll get a clearer picture on what’s out there and how the prices compare.
If you’re set on living in a certain area, consider ‘rentvesting’ – buying an investment property where you can afford, and renting where you want to buy. This means you don’t get stuck looking for your dream home while missing out on potential income from a tenant in your investment property.
One tip for rentvestors – avoid ‘mates rates’ and always rent your property at market rates. Avoid renting for cash, so your rental income can be used for future property purchases. And finally, be sure to declare your full income on investment and rental properties on your tax return to maximise your returns.
Be tax-smart
After you’ve popped the champagne to celebrate your new investment property, make sure to order a depreciation schedule. A depreciation schedule is a report that can help you calculate the tax depreciation to claim on your residential investment property, which is very handy come tax time.
Another tip is to avoid using your redraw facilities for personal use, because:
- Some lenders will charge you fees to redraw the funds.
- Some lenders may restrict the total extra repayments you make in that year, which will reduce how much you can redraw.
- Some lenders may restrict the total amount that you can redraw.
- Policy terms can suddenly change.
- Your monthly repayment and loan amount will increase.
If you need to access funds more regularly, an offset account is a better option, as it gives you access to the funds whenever you like. And remember – property investors can no longer claim rental property travel expenses incurred while inspecting, maintaining or collecting rent from rental properties, so leave that off your tax checklist.
Do your research
If you buy a property to put on the rental market, always do your research and don’t automatically go with what your property manager tells you. In many cases, a property manager’s top priority is to rent your property as quickly as possible.
Take the time to look at sites like Domain and realestate.com.au to find comparable properties in the area, as you might find there’s a $50 or $100 difference in weekly rent from what your property manager has quoted.
You should also do your due diligence before purchasing a property, such as checking for public transport and access to local schools and facilities that will be attractive to potential renters. Also find out whether rental yields are high and if it’s in a good growth area. Doing this work upfront can make a big difference when it comes time to make an offer.
Stay tuned for more property tips and tricks to help you navigate the ever-changing economic environment and property market.
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This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.
