Most media outlets are now talking gloom and doom. Many are saying the Westpac rate increase will lead all banks to increase their rates and therefore stop people buying properties. Many bloggers and print media point to median prices beginning to slow and in many capital cities, apart from Melbourne and Sydney, already in negative growth territory. And the startling reason for this. The vast majority of people will read an article a lot further through if it is negative rather than positive.
So at the possibility of not having anyone read the end of this article – Melbourne median price for houses is up 14.2% over the last 12 months according to RP Data. This upward trend is shared by every data collection company, including REIV and Domain Group. This has followed on by increases the previous year as well.
If you paid fair market for a house or Villa unit/townhouse before 2014 then it is extremely likely that you have built substantial equity in your home. An average $700k property could be worth as much as $850K or greater now. And now is the time to have it revalued by your bank. Banks are still lending money to anyone with reasonable equity and an income. If you are waiting for the market to fall then firstly, you may be waiting a very long time and secondly when the market falls the banks valuation tend to be tighter, especially for existing homes without a recent contract of sale.
If you have good equity in your current home then you can think about further investment properties. With current interest rates and long term trends for static or lower rates, it is not difficult to find revenue neutral investment properties that have reasonable capital growth. If you heavily negatively gear a property, in other words the yield and tax concessions do not equal the interest payments and outgoings, and the capital growth rates level off, then effectively you are losing money. However, if you target a revenue neutral property, when capital growth rates slow the property itself costs you nothing to hold. When the capital growth rates pick up again, the property you held onto during quiet times, because it cost you nothing to do so, starts to make you good money.
There is no single one type of property fits all investors. A balanced property portfolio is easily achieved with some simple planning. If you have a couple of properties that are high in yield, then it may be time to look for a development block. If you have a couple of properties that have had excellent capital growth but very poor yield then it may be time to look at the higher yielding, lower maintenance options.
If you have owned a property for the past couple of years in Melbourne and you want to start thinking about making enough money to retire, call us now for a free chat. We can help you find a property that will suit your goals and wants.
Ian James
Director
JPP Buyer Advocates