With housing markets seemingly headed in one direction only here in Australia, and interest rates heading in the opposite direction, is there any plausible reason you'd consider buying an investment property at the moment? I'm not up to speed with all of the taxation considerations, but it just doesn't seem logical to me.
Why Would You Buy an Investment Property Right Now?
comoprode on 16/10/2022 - 12:33
Comments
People have their own metrics around finances. What may seem crazy to some, may seem sane to others. Especially if considering additional factors such as trusts etc.
We could be close to the bottom now. If so, better to buy now while there is little competition. You just never know, the government could announce some home buyer scheme next week that puts another rocket on the property market.
- Property prices lower
- Rental prices higher
- Negative gearing
Why not positive great so you qualify for more credit to buy even more houses?
This is the part I am particularly curious about. Isn't the idea of buying an investment property often to negative gear, but with the idea the property will go up over time and therefore make the interest payments worthwhile? So if the market is going to go down for another year, which I can only assume is likely given that rates seem to keep going up, then property investors may as well hold off?
If the rise in the value of a home + rents is more than the interest paid on the loan, then I thought it would make sense to positive gear the home so you can borrow more money to buy even more homes.
1 year is not a very long term investment.
Buy investment property. Get people in to rent it, paying off the mortgage. Sell property when you want to retire, pocket the capital gains, while not having to make any/minimal repayments.
At the moment rents are way above mortgage payments so every week creates a profit. The days of doubling your house value over 20 years is probably over but if someone pays your house off then it's literally a free house
IMO: No one can predict the future, but long-term house prices will go up eventually (based on historical data) and in the real-estate industry, technically…. usually, right now is a good time to buy. There will be dips but waiting for those dips may hurt your buying power. For example, from a shallow point of view, 3 years ago you could have purchased the house at 600k, covid hit now its 850k, a slight dip happened and it's now at 800k and you decided to buy at the slight dip but when in reality you could have got it 3 years ago at 600k.
So many unforeseen factors will shift the market and waiting on a "good time" is quite illogical in the real-estate market. When you hear stories about people buying at the lowest point in time and possibly bragging about it, are you 100% sure they knew it was going to be the lowest at all times, or they just got it at the right place / right time?
If you have a lot of savings or access to a lump sum (and therefore don't need much of a loan) it is an excellent time to buy
Why wouldn't you consider it?
Buy when the prices are low, not when they're high.
Brand new for tax
Can you elaborate on this please? Is a new home more tax deductible than an old home when purchased as an investment?
Yes. Mr Google will explain it best.
You can't claim depreciation for second hand assets for residential property
No, there's a housing shortage at the moment and plenty of people who want to own their own homes. The last people who should be looking at them are those who are well off enough that they can buy more houses. I mean, remember what happened with toilet paper.
I don't know of too many people buying extra toilet paper as an investment though :D
Should've seen (profanity) selling them on gumtree after loading up on it. Capitalising on human rights through outbuying them is one of the most twisted things ever. I don't care about shares, cars, or weird art selling at crazy prices but when it comes to things people need, that's what I stay away from.
You're also making an assumption that sellers will take a lower price and not withhold from selling
Because property doubles every seven years, everyone knows that!
About right.
Our property's value has increased at a compound 7% p.a. for the 25 years we have owned the house.Probably 80% rise in the last 2.
I would not buy residential property as an "investment" thanks to ongoing government meddling with tenancy laws, and the high chance of getting a deadbeat tenant stack the odds against a landlord.
A commercial investment property is far more attractive as the tenant also has a vested interest in properly maintaining the premises, particularly retail.Tell me your from Victoria without telling me your from Victoria..
I don't think property is a good investment now, but if you want to add some real estate to a portfolio of investments, it's not a bad time, IMO.
Everyone seems sure prices will fall further, but there isn't high unemployment, and rates are unlikely to rise much more - we've seen the worst of the inflation, I think. International students are returning, and rents are rising. It isn't particularly gloomy.
That said, I think there are better returns elsewhere, but I certainly don't see substantial property price declines ahead.
Spite?
If you're playing the long game then a cyclical adjustment shouldn't matter much over a longer horizon.
If you’re taking on decades of debt to purchase an investment property, be prepared for the psychological effect. There are risks that not everyone considers until they become aware of them. And those risks prey on your mind.
The burden of decades of debt creeps up on you. You cannot lose your job if you have decades of debt and it’s not positively geared. You are limited in your ability to try something new or work for yourself or change your life massively, because you need to keep earning.
When my dad sold his place and paid off his debt, he felt like a massive burden had been lifted from his shoulders. That burden had affected decades of his life, and I believe it limited his happiness to a degree.
Studies have found a negative correlation between happiness and debt levels, especially in older people.
Your post doesn't really make sense.
When you rent you still can't lose your job and are limited in your ability to try new things because you need to pay rent.
If anything, an investment property is the most stress free debt as you can rent it to cover most of your income and you can always sell it as you don't live in it.
When you rent you still can't lose your job and are limited in your ability to try new things because you need to pay rent.
Not really. You have no obligations at all, other than the few months remaining on your rental contract. And it’s easy to break the lease nowadays due to the extreme demand. You could literally quit your job and leave the country temporarily/permanently within 2 weeks without any hassle at all.
If anything, an investment property is the most stress free debt as you can rent it to cover most of your income and you can always sell it as you don't live in it.
Not really. Your 2nd property just increases your debt levels, and who knows what will happen. Tenants from hell. Flooding/bushfire. Global financial crisis. Loss of job. Changes to the law that reduce your ability to get welfare from the ATO, etc. Changes to the law that allow tenants to live rent-free, or that eliminate your ability to evict tenants when needed. Nowadays the rent will barely cover the interest repayments, so you still need to pay off the principal. If housing prices drop and you need to sell, you could end up $100k or $200k out-of-pocket, not including the costs of buying and selling.
Half the problems you mentioned is solved with landlord insurance, the other half is rare and ignores the fact that you are free to sell your house whenever you want and without major downsides as you would have been renting it for x years.
Being 100k out of pocket just doesn't add up, it would have to drop by 100k + all your equity, I'm sure it could easily happen if you purchased at peak covid house pricing surge and then you lost your job and needed to sell at the bottom but this would only be someone who had not owned their house long enough to benefit.
@samfisher5986: Your equity is irrelevant, because if you didn’t have a mortgage, you could have saved an equivalent amount instead of putting it into a mortgage.
If house prices drop $100k and you have to sell, you will lose $100k + the cost of buying and selling. The cost of buying a $ 1 million property is about $40k, and the cost of selling the same is about $30k. Total loss is $170k.
@ForkSnorter: Your maths are completely ignoring the fact that an investment property is rented.
Many people rent close to, match or even exceed the mortgage cost in some situations.
Did your dad seem an investment property or his residence?
I presume the former would not be as burdensome since you can always sell it (admittedly potentially with a shortfall)
Hold off until the US FED stops increasing US interest rates. See where the ecomony is going to land. Assests have been pumped for 2 years, alot are going to be dumped. Maybe not properties, but maybe.
Buy now think later, property prices will just correct a bit, it wont actually go down ever
Every day is a good day to buy. Can’t treat the property market like the stock market.
So long as you’re paying the best price for the current market. That’s just my opinion