What Do Rising Interest Rates Mean To Property Investors?
Dilleen Property Group 2022
Interest rates have been on the rise lately, causing panic for many active and aspiring property investors as they believe this will be followed by negative impacts on their property portfolio. Interest rates rise as a result of central banks trying to minimise inflation. However, as we have seen throughout history, this can only be done in small increments. Rising interest rates too quickly or too much can risk a housing collapse. Hence banks have a limit on how high they can raise the interest rates at a time.
Here are some ways to minimise the negative effects of interest rates for property investors:
Increase Rent
With interest rates rising, property investors are more likely to increase their rents to counteract the effect it may have on their repayments and cash flow of their portfolio.
More Tax Deductions
With the extra interest repayments, there will be more tax deductions to claim on this.
Playing It Safe When Investing
Although increased interest rates generally hurt renters more than landlords, it is crucial to follow the 3 key rules when purchasing investment properties to minimise risk as much as possible.
The 3 keys you must follow to reduce your risk:
Good Cash Flow - You should aim for your property to have at least 5% rental yield, having a higher rental yield will also help with your home loan servicing for future properties.
Under Market Value - You should ensure that you purchase your property 10% - 20% below comparative sales to gain instant equity.
Metro Location - Your property should be located in a fast-developing area near the CBD rather than in regional towns.
If you require assistance or have an inquiry about building your property portfolio during this period of rising interest rates, you can contact us here to learn more about our investment strategy during this time.
Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
