I'm sure by now you've all heard on the media how quickly property prices have been growing and many suburbs across Australia are hitting record selling prices, despite the current Covid pandemic - so should we wait for it to 'cool down'?
I've always been a firm believer that no one has ever become wealthy by sitting and waiting. Playing the waiting game is a high risk strategy, in my opinion.
I saw a lot of people take this approach in 2020 whilst many economists were predicting price crashes of up to 40%, however the exact opposite has happened. We've seen many markets grow as much as 15% - 20% across Australia in less than 12 months and now those people that chose to sit and wait have been priced out entirely from their desired suburbs.
Whilst there are many markets that may be overpriced right now, your focus should be more on buying the right property. Doing your due diligence and looking at the long-term prospects of the property is important - real estate is not an overnight investment.
Do research on the area, is there government spending and infrastructure going in, perhaps a new school, university campus or hospital, is there a way where you can add-value to the asset such as a renovation rather than just relying on the organic growth of the market? These are all strategic ways of mitigating the risks on your property purchase.
Will this market ever cool down?
Another great question which no one has a firm answer to, however I do believe it's going to cool down eventually. It's not sustainable for property prices to continue growing as quickly as they are now, as it's far exceeding employment pay rises and increasing the level of debt to the greater Australian population.
Unfortunately I don't have a crystal ball to predict when the property markets will soften, however we may see another 5%, 10% or maybe even 20% price growth before this happens. So if you were to wait for this 'cool down', then you would need property prices to retract by much more than what they've gone up - will this happen?
We may see some interest rate hikes over the coming years to help control the high growth rate so by waiting until say 2022 or 2023 to buy a property, might mean that you're paying an extra 0.5% or even 1.0% interest on your loan compared to someone who bought a property in 2021 and fixed their rate. This may put you further behind and burden you financially month-to-month with the higher loan repayments.
So what should I do then?
This is not an answer I can provide unfortunately, however I'm happy to give you my thoughts. Everyone's circumstances are different and only you know what they look like. I always tell me clients that if you're in a comfortable financial position to buy property, then it could be a great opportunity to do so now.
The first step is to ensure you have a budget planner in-place. In this planner you can keep track of your incomes and all of your outgoings (rent, food, utilities, insurances, subscriptions etc). This is great starting point to see where your money is actually going and how much you have left at the end of each week, month or year. You can now begin to see your financial position.
Speak with a mortgage broker to determine how much money you can borrow from the lenders and find out how much the monthly repayments will be - whether this is an Interest Only loan or Principal & Interest loan. They'll discuss all of your options with you to determine the best loan structure moving forward.
If you're looking to buy an investment property, then you can also take into account the rental income from the tenants. I usually allow a buffer to this depending on the area and market, averaging the rent return at around 10% vacancy giving yourself a small buffer for any of the time the property may be vacant or for minor maintenance.
Now that you have all of the numbers in front of you, it'll be much easier for you to determine whether you can comfortably afford to buy a property and pay-off the mortgage, or whether you may need to wait a little longer to save up a larger deposit, or increase your income etc.
I hope this info was helpful....until next time!
Disclosure: The information contained in this blog is my personal opinion only and is not to be taken as financial advice. Please speak with your accountant for advice based on your personal circumstances.
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