The sentiment of doom and gloom out there might tempt many of us to hide under a rock until the economy takes a turn for the better. Very few of us realise, however, that a sluggish economy can actually present hugely attractive opportunities for those of us who have the capital to invest.
The property outlook
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Take a look at the current property market. In recent months it’s been exposed to:
- Falling mortgage interest rates.
- Low vacancy rates in many areas.
- Rising rents.
- Buyer uncertainty.
Even though the Federal Government has boosted the first home owner’s grant, many real estate agents report that buyers are continuing to resist until the market looks more certain.
Profitable times for investors
If you’re looking to invest, however, you couldn’t have picked a better time to do it. While there is a lot of negative sentiment and uncertainty in the market, cashed-up investors with a long-term strategy can secure some reasonably priced investments.
The potential for good profits is promising – mortgage rates are falling towards the 6% level, and some banks are now fixing mortgage rates for under 5% for three years.
At the same time, rents are currently at 4.5% to 5% in the coming year. This could make the gap between rents and mortgage to less than 1%. For a property investor, this translates to a net cost of less than $5000 per year on a $500,000 property. It rarely gets better than that! Previously, properties were costing investors up to $20,000.
The time is right
At the same time, demand for median priced property is still strong in the inner-city rings of most capital cities. And the fact that there isn’t much available land to increase supply will very likely translate to rising prices.
It’s also potentially a great opportunity for new home owners that can take advantage of the first home buyers’ grants. As long as you can pay your mortgage, even if property values do drop slightly in the short term, you can secure a better property now than when there’s more confidence in the market.
My own strategy
I buy median-priced property within five to 15kms of capital city CBDs. These appeal to the majority of renters, ensuring consistent yields, and can easily be resold for a fair price in case of an emergency. While there are bargains to be had in many states, it’s often worth paying a fair price for a blue-chip property than get a discount for something that is not in demand now nor may not be in the future.
Chris Gray is a leading property expert who provides opinion and commentary regularly on Sky Business News, A Current Affair and other news media. He is a regular columnist for Real Estate Journal (REINSW), Queensland Property & Lifestyle (REIQ) and other property media. A property investor since age 22, Chris today builds property portfolios for time-poor investors – searching, negotiating and renovating on their behalf. For a FREE copy of his latest book, The Effortless Empire: The Time-Poor Professional’s Guide to Building Wealth from Property, visit www.yourempire.com.au