Interest rates are important, but they should not be your only investment criteria

Yesterday’s decision by the Reserve Bank to leave interest rates unchanged preserves what is a prime residential investment environment. The anomaly is that most potential investors are not seeing the signs.

Essentially there are four drivers to affordability for investors: income levels, rental yields, house prices and interest rates. And a case can be made that each of these factors is currently biased toward the residential investor.

Wage levels are showing growth, supported by low unemployment levels, which provides security in terms of attracting and retaining tenants. Additionally, rental yields are up, underpinning investor confidence.

Residential prices are currently flat and have even shown declines in some areas, and the stable interest rate environment, which has now remained steady for nearly 12 months, combines to create an ideal investment landscape.

Nevertheless, there seems a degree of reservation among investors, and buyers in general, given broader economic uncertainty. This is understandable but not necessarily advisable.

Investors in residential property can be classified as either ‘foresighters’ or ‘hindsighters’, and the latter often miss the boat. Those waiting for a rumoured decline in interest rates may find that the other drivers of affordability skew to a less favourable position.

The long-term nature of residential investment means the importance investors place on interest rates is sometimes over-emphasised.

While interest rates are obviously a factor investors need to consider, sometimes they are the subject of too much concern, or even paranoia.

Most investors will have a mortgage, but investors who have done their research and taken a measured, discerning approach can observe rate fluctuations without their hearts in their mouths.

However, a successful investment relies on more than just doing the research, it hinges on doing the right research and taking a long term view. A quick glance at recent sale prices and current vacancy rates in a given area opens investors up to numerous risks down the track.

Aviate considers over 100 points when evaluating a residential investment opportunity to mitigate risk and ensure long-term success.