Tumbling consumer sentiment and talk of recession paints a grim picture for potential investors, but a booming rental market can help you reach your financial goals and prosper. Furthermore, there are diamonds amongst the rough in Sydney’s property market, which promise to keep investment buoyant.
Rising interest rates often correlate with higher rents as the market adjusts to more expensive interest repayments. However, the increases are not always proportional. Median house rents are at record highs of $620 in Sydney, while units are at $525. Where equities and bonds provide wobbly returns, the opportunities for those seeking an investment property are red hot.
Median house rents in 40% of Greater Sydney suburbs jumped over 10% for the June quarter, with the largest increases seen in the city’s east, northern beaches and Central Coast. This comes as demand for rents increased with homeowners renting after selling their homes to let the market cool and supply falling as landlords have begun cashing in on the booming sales environment.
We are in an economic environment where landlords are still thriving. With vacancy rates currently at 1.5% and building approval rates so sluggish, the upward pressure on rents is unlikely to fall soon.
Furthermore, falling house prices in Sydney do not represent the whole property market. Median house prices in Wyong were up 16% rise, and prices in Gosford were up 13.4% over the year to June. This is largely due to strong demand and limited supply, as people in the area are reluctant to sell.
If this has got you thinking about an investment loan, there are some important things to consider.
An investment loan functions like a standard home loan, providing the essential funding line you need to make your next move, but you can utilise the rental income as a part of your serviceability for the loan. With your deposit, you will generally need 20% of the property’s total value to avoid paying Lender’s Mortgage Insurance. Investors may also use the equity from their existing property to buy the next one. This is up to 80% of the property’s current value, minus the amount owed on the mortgage.
With private property loans, you can borrow up to 70% of the investment property value through a more streamlined process. The interest rate will be higher than the banks, but you can settle property on time without stress – this is particularly helpful if you buy a property at auction or have other time pressures to navigate. A bridging loan or private investment property loan will buy you more time to secure a better facility elsewhere without worrying about getting into the Notice to Complete period, which can be scary if you’ve been there. If you’re planning to flip the property, working with a private lender may also work for you as you can negotiate more flexibility in the repayment structure, such as capitalising a portion of the interest into the loan if there is room.
How will my loan respond to changing property values?
Even if a loan is more expensive than what you anticipated, it might not be a bad thing. Any expenses on the property can be accounted for as a tax offset through negative gearing. As a result, even lost capital on the property due to rising house prices or mounting costs can work in your favour. Australia’s tax system is set up to support investment which makes your decision to purchase an investment property easier.
Buying a property can be a big responsibility, so make sure you do your research before making a decision, including research into lenders that can help you.
If you want to know more about our investment property loans, contact us today. Sparrow Loans is a private lender specialising in property loans, property-backed business loans, and bridging loans.