Tags: investment finance
In a recent announcement the prudential regulator has decided to relax stringent lending restrictions on banks and other financial institutions.
APRA's decision was the outcome of a consultation process with key property stakeholders. These include the Australian Banking Association (ABA), Housing Industry Association (HIA), Customer Owner Banking Association (COBA) and Property Council of Australia (PCA).
These lending restrictions were put in place at the height of the last property boom, but as market conditions change, so should the regulatory guidance.
Despite these restrictions being in place since April 2015 property investors still account for nearly a third of all residential loans. Australians clearly think property is still part of their wealth and retirement strategy.
In this new landscape of relaxed restrictions, combined with low interest rates, it’s still important to make smart investment decisions.
Investors can make smarter decisions by implementing tools and strategies to ensure ongoing success.
Identifying positively geared properties in areas that were set for growth may sound impossible, but many investors use this strategy. They look for an area that they feel is undervalued then try and find a property within that area that they can maybe negotiate a discount on. Many would argue your strategy should have enough cash flow to retain the property, but capital gain is what creates wealth. Investors should aim to strike a balance between a sustainable rental return and a steady increase in value over time.
Reading reports and recommendations are essential but equally important is spending time in the suburbs you’re interested in. If you’re not a local you really don’t know what it feels like in that area, are the shops busy? Are locals dinning out at local restaurants and cafes? Are there schools in the area? These are all good indicators of a healthy suburb. Talk to the local café or newsagents about the neighbourhood. Is the demographic changing? Are younger people moving in? It doesn’t have to be an area you want to live in rather a suburb or areas ability to attract new people.
Most people invest in property to accumulate wealth. So what happens if you hold a property that doesn't perform?
A poor performing property could mean below-average capital gains or vacancy rates higher than acceptable, or it could include limiting your ability to buy more property and the opportunity cost of having your money tied up in a property that is not growing in value.
In our post APRA/Royal Commission world, borrowing capacity is now a scarce resource and we need to use it wisely and having an underperforming asset will limit your dream of being financially free.
We're here to work through the different rates available from our wide range of lenders to ensure you have the right financial solution for your circumstances. If you’d like to have a chat about property investment and your finances, please don’t hesitate to get in touch with Lee.
Any advice contained in this article is of a general nature only. It should not be relied upon as investment advice. Further professional advice should be sought before any action is taken in relation to investing.
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