Focus on the present with property investment
I’m not going to talk about interest rates and the RBA’s decision not to cut them this week because every man and his dog has an opinion on that right now. Rather, I’m going to talk about being present in your investing.
Being present is what you experience when you are completely focused on this very moment. Often our thoughts and feelings are focussed on the past, which has already gone, or the future, which hasn’t yet happened.
The way I see it, our cash rate is 4.25% at present and that’s pretty damn good in the scheme of things. Yes, it would be nicer at 4%, but let’s not worry about a few dollars in extra costs if you can make a great rental return like most investors are doing right now – in the present.
Australia has escaped a lot of the wrath of the GFC (round one anyway) and we are lucky to have our mineral resources to thank for that. Yes the cash rate is only 0.25% in the USA, but its housing market is up the creek without any paddles. Yes, the cash rate is only 1% in Europe, but Europe is waiting for the GFCs round two, and there is a 10.4% unemployment rate in the 17 countries of the eurozone as reported by Reuters.
Look, I’m no economist, I really can’t comment on what’s happening overseas, and it is unfair to compare our interest rate or economies right now with theirs. All I can comment on is what’s happening in the regional towns Property Bloom is developing in presently.
If I were to give you a quick overview on these towns in the Hunter Region of NSW this is how it go: strong, diverse economies, low unemployment, high demand for rental property, decent quarterly increases in median prices and awesome average annual growth of median prices of more than 12%.
I was taught that paying interest is a cost of doing business and as long as we’re not paying 18% like my parents did in the late ‘80s then I’m happy.
When it comes to property development funding you might (but not always) need to pay a little more, but if you get good accounting advice (and I’m not an accountant) the interest you pay should be a tax deduction together with paying an experienced project manager to manage your development. Consultant costs such as this and others can be taken up in the depreciation schedule.
When it comes to analysing the rental returns once you have completed your development it’s pretty simple. If you are getting a higher net yield than the cost of your borrowings – the interest rate plus any fees – then you are out front. If you decide to lock into a fixed rate and think that your rental return can be increased slowly over time while your rate is kept steady, you will find peace of mind in holding your dwellings and taking advantage of the depreciation benefits that a new build will bring and hopefully some good capital growth to come.
My advice right now – in the present – is not to get caught up in external (and particularly global) events that you have no influence over. Focus on the area you want to invest in and study it. Find out what is happening that will boost the local economy (infrastructure projects, new employment opportunities, etc.) and become an expert in that area. Look at what’s already happened or planned for the short term. Become present in your town and understand the dynamics of now, not of what may be.
Jo Chivers is director of Property Bloom, which manages property development.