March Newsletter
Positive cash flow property is back!
You’ve probably heard the saying: it’s time in the market, not timing the market, that produces the greatest gains. But that doesn’t mean timing isn’t important.
You've probably heard the saying: it's time in the market, not timing the market, that produces the greatest gains. But that doesn't mean timing isn't important.
Timing is often a critical factor, as it can make or break the financial performance of your investment.
If you buy when the rental market is oversupplied, you could have trouble finding a tenant.
If interest rates are through the roof, your holding costs will be high.
If you purchase a property at the height of a boom, it takes you longer to build equity.
None of these scenarios reflect today's market conditions, so despite the fact talk of a recession is on most people's lips, could now be the right time to buy?
The first question to ask is, is your job secure?
While it's becoming an unfortunate reality that thousands of people are losing their jobs in the economic downturn, the truth is that even if the unemployment rate doubles to 10 per cent in coming years (many believe 7 per cent is more likely), that still leaves 90 per cent in the workforce.
Also, consider the fact that while superannuation funds and shares have been in meltdown, Australian property prices have held up admirably in comparison, with multiple data collectors reporting that at a national level values fell by only 2 to 3 per cent in 2008. The total returns on residential property Australia-wide were actually positive once rents were factored in.
Meanwhile, rents across the country rose by more than 8 per cent in the past year, the fastest rate in almost 20 years, and interest rates have fallen to their lowest levels in 45 years with further reductions expected over coming months. This factor alone is delivering a huge boost to the cash flow of variable-rate mortgage holders, with a saving of about $450 a month on a $250,000 loan.
CommSec chief economist Craig James has cleverly likened recent rate cuts to someone on the average wage receiving the equivalent of a 15 per cent lift in income. He also points out that homebuyers with secure jobs and little exposure to the sharemarket must be wondering what all the fuss is about in terms of the global financial crisis. No doubt he's right.
If your heart wants to invest but your head isn't confident, then perhaps this month's cover story can help. It's all about the return of positive cash flow properties.
Now, who can argue with that?
Eynas Brodie
Editor
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