Should rising interest rates keep you from investing? The short answer is no.
Given that the RBA has raised interest rates as expected, many new investors are likely wondering if now is the right time to start their investing journey.
The reality is that despite what is happening in geopolitics, financial markets, or the broader real estate market, there is always a chance of finding high quality investment opportunities.
The real key is understanding how to buy in today’s market and what factors to consider.
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Affordability is relative
With real estate prices having increased by 20.6% in the last 12 months according to CoreLogicmany experts are now talking about how affordability is a key issue.
While it is certainly difficult to afford property like in Sydney and Melbourne, the advantage for investors is that they are not limited to one market.
Generally, affordability is poor in many markets that have seen huge growth spurts in a short period of time. However, there are others where the growth has been steady and still on the rise.
Seek to identify suburbs where homes are still affordable relative to average household incomes.
There are over 15,000 suburbs across the country and not all of them have evolved to the point of becoming unaffordable for local homeowners.
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Time in the market does not time the market
We all pay attention to media commentary on house prices, but the reality is that it is very difficult to time the market with any degree of accuracy.
Eighteen months ago the RBA and economists suggested that property prices 40% drop. What happened was practically the exact opposite.
As an investor, your goal should be to invest in areas that have strong growth fundamentals.
Historically, housing prices have risen over several decades and if you’re buying with the goal of financial security 10 or 20 years from now, you’ll be able to handle the ups and downs that come with price fluctuations.
Look at the micro level
In real estate, there are few fundamental concepts more important to understand than supply and demand.
While we often hear of the property market in terms of the overall Australian market, to buy effectively as an investor you need to focus on the micro level.
When you examine a suburb and look at supply and demand at any time, you can quickly assess the likelihood of growth.
If a suburb has very low listings, strong annual sales, a low pipeline of new inventory coming to market, and strong fundamentals such as good schools, infrastructure, and access to jobs, then you can be sure that you have found an area that will likely see good growth.
It’s not uncommon for these types of tightly held homeownership areas that could be in a good school zone to experience consistent growth in all market conditions.
When buying properties, you can look for ways to increase value beyond just capital growth.
It is possible to identify properties that have additional growth potential, such as the possibility of renovating or undertaking a subdivision.
This is another layer of potential growth you can find in a property that is available regardless of what the wider market might do.
Be ready to negotiate
When the markets are hot, your ability as a real estate investor to identify opportunities that are below market value is greatly reduced as fierce competition will keep buyers on their backs.
When the markets start to calm down there is much less pressure on buyers and this gives you more opportunities to negotiate aggressively and secure yourself a high quality property at a great price.
In real estate, there will always be opportunities to enter the market and beat averages.
If you consider that real estate prices have increased by 6.8% per year between 1993 and 2018, this means that 50% of properties exceeded this figure. By identifying the right property in the right location, you can achieve excellent returns regardless of general market conditions.
Rasti Vaibhav is the author of The Property Wealth Blueprint (RRP $39.95) and CEO of Get RARE Properties, a bespoke independent buyers agency that helps hundreds of clients across Australia secure their financial freedom through to the property. For more information, visit www.getrare.com.au