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The stars are aligning for property investment

If a property investment has been on the cards for you, it may be time to get serious about it.

As we know, interest rates are about as low as they can possibly go and are set to stay that way for now. In addition, property values are strong and are forecast to rise. Investment lending is also reasonably relaxed, although we could see standards tighten if credit growth accelerates.

The icing on the cake is that rental demand in many areas appears to be recovering nicely.

According to REA Insights*, rental demand continues to grow in every state and territory (except NT). After a 5.8% national increase in the week to the 14th April, demand increased again by 2.8% in the week to 21st April. The biggest increase was in the ACT (10% in one week).

While demand remains 20% below the peak seen in January, it is still much higher than prior to COVID-19, even as foreign students – usually a strong component of demand – are missing from the mix. Once our vaccination roll-out stabilises and borders reopen, it is expected that rental demand will return in earnest, particularly in inner-city areas where students abound.

The cherry on top is vacancy rates. While rates in Melbourne and Sydney remain high, in many regional areas and most other capital cities, vacancy rates are below 1%.

Here's an example of what a borrower could potentially achieve with an investment property.

Let's say they borrowed $300,000 to fund a $400,000 investment property purchase. Assume the rental income is $350 per week. A 3% interest rate on an interest-only loan would mean weekly repayments of $173.^ Assuming other expenses of $80 per week (e.g. agency fees, maintenance, rates etc.) and a net annual tax increase of $1640 (a tax deduction is often possible for investment expenses), the borrower could potentially earn around $3410 profit per year from their investment property.~

Get in touch if you would like us to go through the calculations to determine the investment possibilities for your personal financial position.

 

* www.realestate.com.au
^www.moneysmart.gov.au
~Assumes an annual income of $100,000. These calculations and outcomes are an example used for illustrative purposes only and may not take into account all costs.

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