Hedland & Newman

3 tips on how to maximise your ROI with current interest rates

With the RBA’s recent reduction of the cash rate to 2.5%, one of the lowest seen in modern times, the current marketplace presents property investors with a golden opportunity to both grow their portfolio and increase existing returns.

Here are three tips for every day property investors on how they can maximise the current interest rate climate.

Maximise your existing ROI
 
Take immediate advantage of the current low rate environment to reduce your payments on existing property.

Securing a lower rate will increase ROI on existing positive cash flow property and could also be the decisive factor that could turn your negative or neutral investments positive.

The easiest way to address this is to assess your options with your current lender. Negotiating a better rate with your existing loan provider is not only more convenient, but also means you avoid the various costs incurred with a new lender such as application, settlement and valuation fees.  Ideally your starting point should be with a finance broker who understands your strategy and desired investment goals.  Securing a well negotiated interest rate now has the potential to pay valuable dividends for years to come.

Select property based on market factors

The very basis of positive property investing and ROI achieved is based on the gross return of your property versus the net holding costs to service the investment.  Naturally, a lower interest rate environment offers ideal conditions for investors to maximise cashflow returns.

In many positive property locations around Australia, investment homes returning over 9% PA are putting tens of thousands of dollars in their owners pockets. – http://www.crawfordrealty.com.au/property-for-sale

Regardless of where you invest, it is still important to ensure you lock in the best rate possible.  Do your research and consider using a broker. 

An experienced broker will assess your financial situation, understand your investment goals and do the shopping for you by comparing the rates on offer from their panel of lenders – generally all major banks and lenders in the region.

This will ensure you put yourself in the best position possible to maximise your investment properties’ cash flow.

Time to buy

The current market is creating excellent investment conditions.

Lower interest rates are having a positive impact on affordability which is now better than it has been for a number of years. 
Low rates look likely to continue for some time and most economists are forecasting steady growth across national property markets in the coming years thanks to the actions of the RBA. 

Overall housing markets are showing a promise of better times and are offering good rates of return for the level of risk they are presenting.  In fact, they are presenting diminishing levels of risk for the investor as rentals increase and the potential for negative growth abates – John Edwards founder of Residex Pty Ltd.

Keep in mind low rates won’t last forever.

Investors should take action to maximise both their buying position and investment strategy to plan for the future before rates begin to rise again.

BHPB CEO paints positive picture for investors

Encouraging comments from BHP Billiton’s CEO along with the release of two research reports on the Australian resources industry, have provided a positive outlook for the sector and the performance of mining town property markets.

Challenging sentiment that Chinese demand for iron ore is waning and prices are on a downward trend, BHP Billiton CEO Andrew Mackenzie was optimistic last week regarding China’s ongoing demand for iron ore, following a meeting with China Premier Li Keqiang.

Amid media reports that Chinese steelmakers are reducing their output, forecasts of oversupply and a projected falling iron ore price, BHP was reassured of China’s continued growth through urbanization and ongoing need for resources.

At an event in London last week Mr. Mackenzie said: “There was a very clear signal, as far as [China Premier Li Keqiang] was concerned, this is the only way China’s success can continue on a relatively unbroken path of increasing urbanization.

“[Li Keqiang] said  ‘I do reassure resources industry we do need more’.”

With China being the biggest importer of Australian iron ore, this is positive news for the industry, and the Pilbara towns that support it.

The BHP CEO Remains upbeat about the medium to longer-term balance between the supply and demand of bulk commodities, particularly iron ore, a key component in the development of steel.

At the same as his comments, the Port Hedland Port Authority released data showing exports of iron ore to China from Port Hedland – a strong indicator of Chinese industrial activity – surged 21 percent in May, from April, to hit a record high. The port is used by BHP, Fortescue Metals Group and Atlas Iron.

Year-on-year, total shipments were up 24 percent with total iron ore exports expected to exceed 200 million tonnes this year.

Mr Mackenzie also reiterated the global population growth forecast – expected to rise by as much as a third by 2050 to more than 9 billion – and the projected Chinese growth rate of 7 per cent per annum over the next five years, saying,

“Only if we deliver steady, sustainable growth in commodities – from steelmaking, through to metals, energy and energy transfer, to food – can we be sure that by 2030 the global middle class could grow to 5 billion, up from 2 billion today.

“Popular opinion is that our industry is fundamentally unsustainable because the world, they believe, is running out of resources,” he said. “Popular opinion is wrong.”

The comments follow two recent reports released by US research group Wood Mackenzie and the Australian Bureau of Resources and Energy Economics (BREE) which also support a positive outlook for Australian resources.

US research consultancy Wood Mackenzie says it expects resource sector investments in Australia to peak in 2013 at $85 billion, dominated by spending in gas, followed by iron ore and coal. The high investment levels will be sustained over the next three years, surpassing the previous three year period.

Regionally, it says Western Australia and Queensland dominate, making up 83% of total capital expenditure in 2013, driven by large gas and iron ore projects. Investments in iron ore will push resource sector investment in WA to record levels. Committed capital spend for the seven LNG projects that are under construction will ensure that investment remains high for the next three years at least, particularly in WA and Queensland.

The BREE report ‘Resources and Energy Major Projects – April 2013’, stated that over the past 10 years, around 390 resources and energy major projects have progressed to the ‘committed stage’ (i.e. they have passed final investment decision with many now in construction) with a combined value of $394 billion. $268 billion in projects are still under construction and not yet complete.

113 projects have been ‘publicly announced’ with a combined planned capital expenditure spend over the life of these projects of between $121–171 billion.  At the feasibility stage, the stock of planned capital expenditure is estimated at $232 billion from a total of 174 projects.

While 100 per cent of projects never progress to completion, it indicates a strong pipeline of future activity and paints a positive picture for investors regrading the sustainability of the nation’s resources sector and its associated property markets.