I agree with all of those saying YES!
We’ve bought our first three investment properties, all in the last 3 months and all within 7 km of Melbourne CBD. Our strategy is to buy the worst “median” property in the best street/suburb, renovate it quickly and rent it out. The first one we bought was already renovated by an over-capitalised developer. We got it for nearly 20% less than the original asking price and it rented out 2 weeks before we settled, and for more than what we thought it would. The second property will be renovated by next week and the third is just about to be renovated. After all costs are accounted for, we are almost neutrally cash flowed.
There WILL be another rate drop, probably before June this year, and we will be locking all our mortgages in then. I don’t care whether there is another rate drop after that (although I doubt there will be) because we will then be negatively geared and positively cash flowed (after tax rebate on interest and depreciation from the renovations). We are getting a rental yield of 4.9% from our first and 5.2% from our second and third post renovations.
I frankly don’t care if our portfolio goes down in value in the short term; we intend to buy and hold. Just make sure you can afford the shortfall or use a strategy like renovating CBD properties which will get you very close to neutral or even positive cash flow, after tax deductions are taken into account, whilst protecting you from big drops in capital value.
With the right strategy, there will be some very wealthy individuals, come boom time. With the wrong strategy, there will be the opposite outcome.
Bottom line: get lots of advice from strategists who are active investors themselves. If your financial strategist doesn’t drive a Ferrari, (or equivalent) then find another strategist! Stay away from the outer suburbs, they are the mortgage belt and the most losses will be seen out there.
This is Margret Lomas's view today 10/02/09;
"Statistics just released this week by the ABS shows that perhaps some of the analysts have been incorrect after all. As recently as late 2008, many of them were predicting spectacular falls in property prices, some saying it would be as much as 40%. Instead these figures indicate that lowering interest rates, a shortage of construction and an increase in rental demand has all resulted in an improvement in the figures for housing growth. While no area is really showing an increase in housing values, the big losses predicted by some economists seem to have been halted, for now at least.
During a recession people have less disposable income available, and so the first thing which suffers is investment back into the country. As unemployment ramps up, home ownership usually falls, and so the values of property become immediately affected.
While the dynamics of this economic theory cannot really be challenged, and plenty of empirical evidence exists to suggest that, in fact, our property markets will be greatly impacted by a recession, falling property prices should not be seen as a reason not to invest.
Recent data suggests that rental yields are increasing at the rate of around 8 per cent per quarter across the nation. While interest rates also continue to be cut, the natural effect of these two occurrences is that the gap between rent and expenses, especially after your tax cuts are taken into account, will continue to grow on many properties. As I have been saying for around two years now, the return to positive cash flow property has indeed already begun. For those who had faith in this forecast and purchased during the short period of time that cash flows were negative, the benefits gained from getting in early are now starting pay off with a reduction in, and in some cases reversal of, the negative cash flows that were accepted.
During our last recession, when unemployment tipped over the 10% mark, the country saw one of its greatest increases in rental yields, as more people were forced out of the buyer’s market and into the rental one. Put simply this means that, for those willing to buy property now, the chance exists to wait for the next growth phase without suffering financially in the mean time. Property everywhere will not do well however, and great risk still exists in many areas.
To work out where to buy, investors must be able to establish both the economic vibrancy of an area and the intrinsic growth drivers which may be in existence.
An increasing population in areas where little opportunity exists for new construction will place pressure on existing housing, both in the rental and the buyer’s markets. Where council is meeting its population growth with planned infrastructure to improve the lifestyle of those living within the area, the growth in resident numbers will continue. In areas where new business is thriving and services are all freely available within town, people will spend their money and work within the area, which adds further fuel to the economic engine. Where an area contains plenty of housing in an affordable price range, families will be attracted and subsequently grow with the area, laying down the foundations for a solid economic future.
Times of recession can also bring times of great opportunity to investors who are willing to commit.
Investing only during the good times is easy, but seeing the opportunities for what they are during the hard times takes courage. Be comforted by the fact that the costs will be small, worry less about short term growth and get started now before everyone else works out what a great time this really is to buy"
I have a small portfolio of 45 properties and have been buying in Brisbane since i arrived in 1993.
I am so glad that i didnt hesitate back some 16 years ago because in SE Qld prices were flat and interest rates where high.
There was no such thing as the First Home Owners Grant.16 years later with a LVR now of 13% i can pay the annual rates and land tax bill from a month's rent.
But as has been said before in an earlier post unlike the stock market it is Time in the market and not timing in the market.
This is not to say that you rush out and buy a property in an area where prices have been declining steadily but do your DD and accept that over the time of ownership market conditions will change.Richard Taylor | Australia's leading private lender
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