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Should I Buy an Investment Property in the current market?

Should I Buy an Investment Property in the Current Market?

 If you’re thinking that there is A LOT going on in the property market at the moment, you’re right. House prices are down, interest rates are up, and we have a new government whose policies aim to make owning rental properties a bit easier. 

During a time like this when house prices are down, you may be wondering whether it’s a good time to buy an investment property to build up your wealth. But how do you know? Everyone seems so hesitant – do I go for it, or wait until the market seems more certain?  

In this article, we’re going to talk through the different factors to consider when it comes to buying an investment property so that you can make a well-informed decision as well as the common mistakes buyers make when jumping in that you need to avoid.  

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It’s Time in the Market, Not Timing the Market  

The thing to remember with property investment is it’s like a KiwiSaver account; a long-term investment. It’s not about timing the market, it’s about time in the market, and that’s where you make your money. Questions like “Are we at the bottom of the market?” or “Is it going up at the moment or will it go down?” Are all irrelevant, provided that you’ve got a long-term mindset and you’re going into property investment with a mindset that you’re going to hold on to this property for 10, 15 or 20 years because it’s going to be time in the market which is far more important than timing the market.  

Affordability 

Because of the reasoning above, it basically means that it’s always a good time to invest in property; provided that you’re prepared to give it time to mature and, most importantly, provided that it’s also affordable for you right now. At the moment, we are in an environment of higher interest rates and so that means that buying an investment property is not going to be affordable for everybody at this point in time.  

Firstly, you need to check your affordability i.e. are the banks actually going to lend you this money, what will your repayments look like, and what other costs do you need to account for.  

Top Five Costs to Consider for an Investment Property 

  • Mortgage repayments 
  • Insurance 
  • Rates 
  • Property Management Fees 
  • Maintenance 

Depending on your lending situation, some of these costs may be covered by your rental income but you need to ensure that you can afford to carry the shortfall (whatever is not covered) mid to long-term before interest rates drop and rental incomes increase; in which case you’ll then get to a point of being cash flow neutral. But you’re very likely to be cash flow negative if you buy in this current market – some buyers jump in without having properly researched the costs associated with owning a rental property which is a big no no as that can leave you strapped for cash for hte foreseeable future as you are pouring it into making your rental property viable.  

 The Perks of Buying in the Current Market 

The good thing about buying in this current market is that the price of housing is low currently, but we can see that it is starting to make it’s way back up. If you can secure an investment property at a lower price now, then you’ll win big once they’re back to where they were, or go up even further. This is a great thing provided that shortfall and high interest repayments in the meantime.  

Guy trying to make a decision

How Can I Know Whether I can Afford It? 

There’s no point in shopping for a property to find out later that you cannot afford to buy so first things first, schedule a chat with your Mortgage Advisor. They’ll be able to take a brief look into your finances to see whether or not you can comfortably invest. We also advocate to do an annual spending plan so you can see where your savings are at before you even consider investing. If your equity position is strong, but you don’t have enough to cover those additional costs discussed above, we can put some guardrails around your spending or see where you can pay down some debt so that you can start growing a bit of a savings account to top up those additional rental property costs every so often.  

If you’re thinking, yes! This looks like a good time to buy and I’m confident in my serviceability, book a 15-minute chat with us and we can go through your numbers to see whether or not you’re ready, and if you’re not ready, how you can get there.