Finance advice
Paul Wilson

3 mistakes property investors make when interest rates are low

By Paul Wilson

Interest rates are very low and real estate markets are on the move, which can only mean one thing – it’s a great time to buy an investment property. But before you dive in, be careful that you’re not making one of these three common mistakes that many investors make when interest rates are this irresistibly low.

Blogger: Paul Wilson, Educating Property Investors, We Find Houses and We Find Finance

Mistake #1 – Failing to see the real deal
When you’re evaluating a potential property deal, you should look carefully at the numbers to make sure it achieves your goals. For instance, let’s say you’re looking for a positively geared investment – in this instance, you would work out all of the costs of owning the property to make sure that the rental income exceeds the costs.

If your home loan interest rate is 7% and you crunch the numbers, the deal may or may not stack up. But when you can get a mortgage at just 5%, there’s a good chance the deal will be positive or at least neutral, once tax deductions and benefits like depreciation are taken into consideration.

And this is where investors can run into trouble. Low interest rates can actually make a fairly average property seem like a great deal. This can leave you in a world of pain when interest rates do eventually increase, if your positively geared property suddenly starts costing you money each week.

Of course, if low interest rates have helped you to secure a capital growth property then when interest rates can and do increase, your property will ideally have grown in value and the positive cash flow will be your secondary benefit.

My advice is to use low interest rates as an opportunity to secure a growth property knowing that it is underpinned by the right fundamentals to grow in value and keep you at a neutral perspective, if and when rents increase. Also, calculate the figures based on an interest rate of 7% to ensure the property still works for you at a higher rate, so you don’t accidentally invest in a dud property.

Mistake #2 – Locking in a fixed rate
There are some incredible fixed rate mortgage offers on the market right now, with some three-year rates under the 5% mark. These mortgages represent incredible value, but that’s only the case if you plan to hold the property for the foreseeable future.

The problem for some investors is that low fixed rate offers are often so tempting, they hurry to fix part or all of their loans, without thinking about the consequences should they want to break the loan. Loan break costs can be heavy – I’m talking thousands or even tens of thousands – and there are also other considerations.

For instance, what if you want to pay more than the minimum mortgage repayment each month? Some fixed loans don’t allow additional payments. Fixed rate loan products are not very flexible, so it’s important to weight up all of the loan features you need (now and in the future).

Also keep in mind that if you have any bad debt – such as credit card debts, personal loans, even your own home mortgage – then you want to target that first for repayment. When you fix, you may lose an opportunity to offset your funds against bad debts. These can be complex situations to review, which is why I believe developing a relationship with a qualified mortgage broker is a must.

Mistake #3 – Rushing in
I know what it’s like when the property bug bites – real estate is nothing if not addictive! As a result, we can tend to rush into deals in an effort to tap into that unique adrenalin rush that comes with locking in a great property investment.

Here’s the thing, though – rushing into anything is never a good idea, especially if that thing happens to be the purchase of an asset worth hundreds of thousands of dollars! There will always be more properties, more deals and more opportunities, so don’t go skipping essential research and number-crunching, or you may rush into something you regret down the track.

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About the Blogger

Paul Wilson

Paul Wilson

Paul Wilson is an Independent Property Investing Expert who's been educating and coaching investors since 2001. Author of 7 Deadly Mistakes Property Investors Make and How to Avoid Them, he also manages www.educatingpropertyinvestors.com.au, www.wefindhouses.com.au, and www.wefindfinance.com.au

Through his books and websites, Paul provides valuable, independent guidance and support by teaching strategies on how you can invest successfully, while protecting yourself from the common mistakes that trap many investors from reaching their full potential.

Paul doesn’t promote cookie cutter strategies, instead he demonstrates how you can create wealth as a property investor regardless of your budget, location, strategy and risk profile. Paul makes his home on the Gold Coast and spends his leisure time enjoying adventures, surf and sun with his wife and five children. Protect and grow your portfolio with knowledge. Contact Paul today for a complimentary consultation: 1800 690 890 and ask for Paul, or email [email protected]

FROM THE WEB

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In this episode of the Smart Property Investment Show, Dominique Grubisa joins host Phil Tarrant to share her personal story which saw her hit rock bottom with excessive debt during the GFC.

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Dominique unpacks how, by relying on her background in law, she was able to overcome that debt and in doing so develop a unique investment strategy which she believes many can utilise today.

Dominique discusses distressed properties, and how she goes about finding them in order to buy property well below market value. She shares the process of identifying distressed properties as well as the controversy surrounding this buying method.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

3 big property investment myths busted open
5 steps to take on low-risk property developments
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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune into this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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    In this episode of Property Showcase, Michael Beresford joins editor of Wealth James Mitchell to unpack why recent political changes are not reason for concern for Australian investors.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:<\/p>\r\n

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Many investors who would have been successfully approved for finance last year are struggling now to either begin or continue their property investment journey because of the current financial climate.

In this episode of the Smart Property Investment Show, broker John Manciamelli and Momentum Media director Alex Whitlock joins host Tim Neary to discuss how APRA changes and the royal commission have resulted in a tighter lending economy and what that means for Australian investors.

They discuss what traps investors should avoid if they are trying to obtain finance, the four key growth drivers in a property market and unpacking trust structures while revealing one type of trust that you should miss.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

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AREAS MENTIONED:

Hobart
Bondi
Deception Bay

 

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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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Getting finance approved in this tightening lending environment

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