Real estate investing has long been one of Australians’ favorite ways to build wealth. If you want to join the 2.2 million Australians who already own one or more property investments, it’s important to start by getting an accurate picture of the property market.

The headlines may focus on rising interest rates and falling house prices, but rental market conditions remain favorable to investors, with national vacancy rates continuing to decline as rents rise across the country. all capitals.

Figures of CoreLogic show that the National Rent Index increased by 2.9% in the June quarter, while year-on-year rents were 9.1% higher in Australian capital cities and 10.8% in areas regional compared to June 2021.

Dr Michael Baumann, executive managing director, Home Buying at Commonwealth Bank, says sophisticated investors watch rental market dynamics, not interest rates. “While interest rates may rise, demand from property investors continues to increase as they seek to take advantage of a tight rental market and strong rental yields.

“Looking ahead, we foresee further growth in this area, with demand likely to be driven by the gradual return of international students and overseas migration,” he adds.

Australian Property Investment Solutions founder Julie Crockett agrees. “As interest rates have changed, some in the market are more hesitant,” she says, “and yet there are others who want to enter the market when they can still borrow a sum of money. decent money – before the lending criteria change again and they are able to borrow less money.”

Head of Australian Economics at Commonwealth Bank, Gareth Aird says rapid increases in the exchange rate by the Reserve Bank of Australia (RBA) are putting downward pressure on house prices, which is likely to continue over the next six months.

“The more they raise the rates, the lower the prices will go,” he says. “At CBA CommBank, we believe the RBA will raise the cash rate by a further 0.50% over the next few months, and we expect interest rates to start falling in the second half of 2023.”

So how do you navigate real estate investing in today’s real estate market? According to Julie Crockett, conventional investment principles still apply. Here are the top tips to consider.

It’s not about ownership, it’s about strategy

“Not having a strategy is like having an idea for building a house but having no plan for building a house,” says Crockett. “Unpacking your strategy is very important because it means the difference between owning a property for a long time or giving it up after a few years.”

Whether your strategy is to be a rentinvestor (buy an investment property but continue to rent in a neighborhood you love), buy a property you can add value to, or grow your wealth for retirement – being clear about what you want to achieve is crucial. “The more you can target your strategy, the more likely you are to buy the right property,” says Crockett.

Know your area

It is not a good idea to buy an investment property in an area without researching its rental supply and demand, as well as the growth projections for capital gains. Ideally, you want to invest in an area with high demand for rental housing, close to transport, universities and schools, all attractive offers for tenants.

“Research the area you’re shopping in as much as possible,” advises Crockett, “and even look at which streets have better prices than other streets.”

The old real estate adage “location, location, location” is more relevant than ever, as Dr. Baumann explains. “The location of an investment property can impact both potential capital growth and rental yield,” he said. “Across Australia, properties that are close to public transport, healthcare, restaurants and retail, childcare, education and other amenities are generally more Although these properties may cost more upfront, it can make a big difference in the amount of rent.”

Lending specialists can provide useful information about potential properties, potential prices and suburban breakdowns to help real estate investors in their research and auction preparation. There are also plenty of tools online that can help you research, including suburban comparisons and how house prices and rental demand will follow over the next 10 years.

Be realistic about costs and cash flow

There are the initial costs associated with buying a property, but there are also ongoing costs such as maintenance, rates, insurance and property management.

Dr Baumann says: “Investors need to do their research, talk to their lender or broker and understand the process, including what they can afford to spend; what the initial and ongoing costs associated with buying and owning an investment property; and which home loan might be best suited to their particular circumstances.”

Julie Crockett’s advice is to make a list of all associated costs before taking the plunge. “Use an online calculator to determine stamp duty in different states, and also to determine if a property will be trending negative or cash flow positive,” she says.

Consider your options before negative gearing

Although negative debt has tax advantages, it can lead to financial stress if you don’t have enough money to cover the costs of home ownership for whatever reason.

Crockett says, “I encourage people to have as much positive cash flow as possible. Yes, you pay taxes, but you’re more likely to have a much better bottom line if the money works with you rather than against you. With negative gearing, you have to make up the shortfall each month with mortgage payments. This works well as long as you have a solid, ongoing income, and are confident of it.

All in all, reaping the financial benefits of a real estate investment is important and takes time, so you should be prepared to hold a property for 10-15 years. “The time you spend in the market will give you options and you’ll be in a better financial position,” says Crockett.

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