{"id":1710,"date":"2022-02-04T04:36:55","date_gmt":"2022-02-04T04:36:55","guid":{"rendered":"https:\/\/royabhishek.in\/urbanbuyer\/5-questions-to-ask-that-will-make-you-a-better-prepared-property-investor\/"},"modified":"2022-02-04T04:36:55","modified_gmt":"2022-02-04T04:36:55","slug":"5-questions-to-ask-that-will-make-you-a-better-prepared-property-investor","status":"publish","type":"post","link":"https:\/\/royabhishek.in\/urbanbuyer\/5-questions-to-ask-that-will-make-you-a-better-prepared-property-investor\/","title":{"rendered":"5 Questions to ask that will make you a better prepared property investor"},"content":{"rendered":"

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Please use the menu below to navigate to any article section:<\/p>\n<\/div>\n

We are moving into the next stage of the property cycle.<\/strong><\/p>\n

\"PriceAfter just over a year of very strong property price growth, where the value of many properties around Australia increased by more than 20%, our real estate markets are now facing some headwinds.<\/p>\n

Affordability is starting to price some buyers out of the market due to soaring house prices at a time when, even though the official cash rate hasn\u2019t increased, banks are increasing their long-term fixed rates making owning property a little more expensive.<\/p>\n

And there\u2019s plenty of talk about further interest hikes now that inflation is creeping up both overseas and here.<\/p>\n

\"Apra\"Then let\u2019s not forget APRA\u2019s intention to slow down our housing market by increasing the serviceability buffers required by the bank before they lend you more money.<\/p>\n

While I\u2019m not suggesting we\u2019re anywhere near the end of this property cycle, I believe moving forward house price growth will slow, and then eventually, like in every other cycle, we will reach a temporary peak and the value of some properties will plateau while the value of other properties will fall.<\/p>\n

That\u2019s just how the property cycle works.<\/p>\n

So, are you prepared for the next stage of the property cycle and the one after that?<\/strong><\/p>\n

\"PropertyDon\u2019t get me wrong, I\u2019m very optimistic about the long-term future of well-located residential real estate in our capital cities, but I\u2019m a realist and that\u2019s why I hope for the best, yet I\u2019m prepared for the worst.<\/p>\n

While I know that the long-term trend for well-located properties is strongly rising prices, I also now understand that, at times, property values fall.<\/p>\n

If, like me, you plan to be in the property market for a long time, here are five questions you should ask yourself to make sure you\u2019re prepared to ride the ups and downs of the cycle.<\/p>\n

1. What if interest rates rise?<\/span><\/h2>\n

It\u2019s really not so much a case of \u2018if\u2019 as \u2018when\u2019 will interest rates rise.<\/p>\n

The Reserve Bank uses interest rates as a tool to either stimulate our economy or to slow it down, and the current historically low levels of interest rates are stimulatory.<\/p>\n

However, once our economy picks up and inflation remains within a band of 2 to 3% and wages rise strongly, that\u2019s when the RBA will raise rates.<\/p>\n


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How much?<\/p>\n

No one really knows, but it is said a neutral interest rate would be an RBA cash rate of around 1.25% to 1.5%.<\/p>\n

In other words, the cost of your mortgage may rise an extra 1 to 1.5% as the cost of funds for the banks increases.<\/p>\n

When that time comes, will you be prepared?<\/p>\n

While many homeowners and property investors have significant equity in their properties, no doubt there will be some who have recently entered the market and bitten off a little more than they can chew.<\/p>\n

Hopefully by the time interest rates rise their wages will have gone up and their investment rental income will have increased making their repayments a little easier, however, some will feel the pinch when rates rise.<\/p>\n

Others will protect themselves by locking in some or all of their loans to fixed interest rates; not to beat the banks, but to give themselves certainty over their cash flow.<\/p>\n

2. What if the property market crashes?<\/span><\/h2>\n

\"PriceCrash\"As I explained, at some stage we will experience a cyclical property market correction, but there is no need to worry about a house price \u201ccollapse\u201d like some property pessimists are suggesting.<\/p>\n

House prices \u201ccollapse\u201d when people are forced to sell their homes and there is no one willing to buy them.<\/p>\n

I accept that properties are expensive at present\u2013 but that doesn\u2019t mean property values will crash, especially in our capital cities.<\/p>\n

In fact, they\u2019ve never crashed since housing market data has been collected in Australia.<\/p>\n

Instead, what tends to happen is an orderly correction, with prices only falling slightly, because homeowners choose to simply remain in their home and ride things out, while most property investors also try and hold on rather than realising their capital loss.<\/p>\n

On the other hand, a true\u00a0collapse<\/em><\/strong>\u00a0in house prices would require a significant external shock such as:<\/p>\n