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.

Stock market volatility highlights benefits of property investment

Greater confidence in the global economy has seen a sustained improvement in the Australian stock market over the last several months with the S&P/ASX 200 breaking through the all important 5,000 mark this month.

However, this positive development was followed last Thursday by the market’s biggest one day drop in nine months which saw more than $35 billion wiped off its value.

The market has since recovered but the ongoing volatility of the asset class and its hyper-sensitivity to global events highlights to investors the importance of balancing a portfolio with more stable asset classes.

Property, historically shown to be less volatile than shares, is a solid option. When the Australian share market crashed during the GFC, 54% was wiped off its value. In comparison, property values and rents overall remained relatively steady, with house prices falling less than 5% from peak to trough (RP Data).

The debate over which is the better performing asset class will always be a popular one but according to the ASX’s 2012 report on long-term investing, shares and property have actually produced similar returns over the last 10 years, when taking into account tax and costs. But property did come out on top.

It returned the lowest and highest marginal tax rate for the 10 year period with returns of 7.2% pa and 5.8% pa respectively.

Shares achieved 6.5% pa and 4.6% pa at the lowest and highest marginal tax rates, respectively.

Both assets have their pros and cons.

Shares are more liquid making it easier to access your cash if you need it. They can deliver more capital growth over shorter timeframes – but investors need to be aware that gains can be lost just as quickly.

Property on the other hand is less liquid but will typically deliver more stable growth. And as the sole owner, rather than part owner, as is the case with shares, you have complete control over the management of your asset giving you the power to improve it and increase its value.

Investing in the share market without the expertise of a financial advisor can also be challenging – many investors simply find property easier to understand.

Regardless of your personal preference and appetites for risk, what is key is a well researched strategy, a diversified portfolio to reduce risk and a long term view to ride out any booms and busts.