What’s Your Property Investment Strategy?

Source:REIV

Melbourne Market Wrap September 18th, 2016

The Melbourne auction market appears to be going from strength to strength hitting the magic 80% clearance rate, something not seen for some time and definitely a reflection of how tight stock levels remain in the inner/middle suburbs. Pent-up demand from buyers appears to be still driving these high clearance rates.

The good news though is that stock levels appear to be on the increase with more than 1000 auctions being held next weekend before the market eases Grand Final day. One particular inner city agent I spoke with over the weekend said their office is down 25% on the number of listings, compared to last year. Vendors seem to be very nervous about selling their property without the prospect of seeing something else coming on the market, so it’s a vicious cycle at the moment.

Another indicator worth keeping an eye on is the number of days a property is on the market, recorded for a suburb. According to the REIV for private sales, the Outer East and South East performed best at 32 days while the following suburbs were the worst – Heidelberg, Strathmore, Flemington, Melbourne, Maidstone, Brooklyn, Point Cook and Derrimut taking more than 45 days and up to 76 days on market to sell. A closer look at the numbers would show many of these areas are oversupplied with apartments or new housing/ land.

Source: Shutterstock

What’s Your Strategy For Investing in Property?

I’m not sure whether it’s me or whether everything I’m reading about at the moment is on superannuation and property, maybe it’s the fact I’m 50? You see these are basically the two main vehicles for retirement which, in my opinion, are unsophisticated and for the most part illiquid.

By illiquid I mean they can’t be readily accessed and cashed in within a short period of time, say one day. Selling an investment property may take a few months or even up to a year if there is a tenant, depending on the current lease terms.

Personal Super Funds are similarly illiquid as they are locked in until retirement age. Like property I see both these vehicles as the strongest form of saving and capital growth mainly because they can’t be easily accessed and sold by the individual.

Why is this so important? Statistics show property and shares double every 10-15 years. The challenge most people face when investing is being able to keep these assets for a long period of time through a number of cycles.

Personally I have always taken a very conservative view when investing, I guess because during my lifetime I have witnessed a recession, seen first-hand mortgagee in possession sales and witnessed my parents suffer through interest rate payments of 18-21% in the early 90’s.

So when I saw the latest new five year fixed rates released by Westpac last week I thought wow! Five year rates at 3.88%, just unheard of. Does this mean banks think we are heading for lower interest rates globally? Who really knows, but what an opportunity!

Every investor should have a strategy, mine has been to place a safeguard against sudden interest rate shocks. Past experience has shown that interest rates are very quick to rise but very slow to fall. Being able to sleep at night and knowing my repayments for me has been more important than playing Russian Roulette with variable rates, especially for investment loans.

There is however a very serious downside to locking in rates. Interest rates can go against you or you may need to sell an investment and therefore break the mortgage loan, which can be very expensive.

I’d love to say I locked in my investment loans at the new 3.88% for 5 years but I didn’t’t, instead choosing to lock them in at 4.59% last year, which at the time looked like a masterstroke. My cash flow projections over the next five years have been managed around a 4.59% interest rate so that’s fine, crying over spilt milk won’t help my cause, so onwards and upwards.

Over my 20 years of property investment experience, my lock in  and hold strategy has proven successful, especially during high interest rate periods.

As each individual’s financial circumstances may vary it’s important to seek independent advice and to have a relationship with a bank manager or mortgage broker and financial advisor. Let them be your eyes and ears on economic markets and ensure they keep you informed of any changes which could drastically affect you financially.

We’ll be back again after the Grand Final week!

Street Advocate Client Reviews

Peter,

Just a short note to thank you once again for your help in selling the property.

Dealing with you Peter was a pleasant experience, you were very professional with all aspects of the sale including:

·         Your knowledge of the real estate industry

·         Negotiating down the agents fee.

·         You understanding what marketing campaign was needed and directed the agent accordingly

·         Keeping me up to date by communicating via phone, text , email and weekly meetings

Not only will I use you in the future but I would have no problem recommending other vendors to you.

Thanks once again, Arnie Nuzzo

6 Highett Rd, Hampton

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Peter Sarmas on 0418 740 606.