Is now a good time to buy a residential investment property?

Interest rates

Posted 39 days ago by Admin

Is now a good time to buy a residential investment property?

There are various reasons to buy an investment property so it's hard to say if there is ever a good time or bad time.

Some people want to build up a rental portfolio as big as possible, some are happy with one or two.

You do wonder if the attraction of owning rentals would be less if capital gain wasn't such a big factor.

Many seasoned property investors hope to get strong cash flow, then have all the loans on interest only. In simple terms what that does is give them a surplus of cash every month across the portfolio of money in, versus money out on expenses. The bigger the portfolio, the bigger the potential surplus creating "passive" income. Of course capital gain is just the icing on the cake!
Many property investors will try to add value to a property thus increasing cash flow and subsequently increase the surplus. A good strategy if you can sleep at night with the level of debt and have plenty of emergency money for repairs, bad tenants etc. Though an increase in interest rates can constantly affect your surplus or passive income.

Most "mum and dad" investors will just be in it to reap capital gains and prop the investment shortfall up from personal income.
Since paying off my own personal mortgage I have struggled with borrowing more money for investment properties (but I did so anyway!). Once you get mortgage free or nearly mortgage free, it's a good feeling and getting more debt on board can be a psychological hurdle.

So is now a good time to buy an investment property? I can't really say yes or no, but if you already have alot of debt on your personal property, even with a low loan to value ratio, I would think twice about it. Unless you have a high income and thus alot of surplus cash every month and are already paying down debt quickly. The gross return on a residential property on average is quite low at the moment, so unless you have alot of spare cash to not notice a low return, then go for it!

If you have a really good income and low or no mortgage, then now could be a good time to buy a rental. For example (amongst many!) let's say you have a freehold house worth a million or so, income over 150k per annum and thus a healthy household monthly surplus. You've paid off your mortgage and now need somewhere to put that surplus cash. It does make sense to consider a rental purchase and pay down the mortgage as quickly as possible just like you had previously with your own home. Also using rental income to help pay it down and build equity to boost your retirement planning.

Try not to rely on capital gain to be the sole reason to invest in property and have a plan to pay down the debt as quickly as possible.

There are many scenarios and everyone's financial position is different, so please call us to discuss your situation and whether buying a rental is right for you.

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