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]

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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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 in to this episode of Property Showcase!

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

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

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:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1203 (52) {
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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