Hi Mick,

You are in a good financial shape, you are offsetting your mortgage, you have a solid combined income, equity and savings. You really are in a perfect position to enter the investor market. Should you wait for prices to drop? You could, but the wonderful thing about property investing is that you can make money at any stage of the property cycle if you buy the right property at the right price.
As an investor you ultimately want strong capital growth AND strong rental yield as well as low vacancy rates. Sounds like an unattainable perfect formula doesn’t it, but it is attainable – you just have to know the right areas.
You are correct that generally people will either focus on capital growth at the expense of rental yield or visa versa and serviceability is usually what influences the decision one way or the other.
A strong rental yield along with depreciation is what will offset any holding costs (along with tax reduction) if you want a neutrally geared property.
If you are wanting to offset your tax and don’t mind negative gearing for a few years while your property value is appreciating then you may not be so worried by lower rental yields.
But as you mentioned, property may be in for more of a bumpy ride on a downward slide in value, especially in the CBDs and if interest rates rise in a few years time, you don’t want to be stuck with higher holding costs and a property that has dropped in value.
However, it’s not all gloom and doom. If you are wanting to see strong capital growth even in an overall down economy, it’s entirely possible. Now be open here, you need to look beyond the borders of Melbourne. Melbourne has shown tremendous growth and been overheated, whereas certain regional areas are booming.
You mentioned you want to be able to drive to your property. While I understand your thinking (my first investments were within driving distance, now they are interstate from me), it’s important to remember why you are investing in property – to build your wealth and financial security! There’s no point in buying the property next door because you feel safer doing so if the property prices in your area are headed for a slump.
For example, a few years ago, Western Australia was going nuts, and recently Melbourne, however right now regional Queensland is what’s going nuts. The resources boom, growing infrastructure, work opportunity, housing shortage and the QLD gov building boost all make QLD regional property investing where the smart money is. Townsville, Mackay, Gladstone, these have been mentioned for good reason. You can buy and hold or build/develop etc and make money in several different ways. These regional areas are offering strong capital growth and handsome yields, you could definitely build a solid portfolio over the next five to ten years and generate more than enough income per annum through property to send your children to a private school.
Be brave and consider all your options, even if they are outside of the city or interstate. Property investing is fluid, you want to invest where the smart money is NOW, not where it’s easy to drive to. That’s what property managers are for!