Reasons not to invest right now
So you are sitting on a bunch of equity and it feels like its time to put it to work. The key factors which could mean its the wrong time to invest could include.
- You have other compelling uses for your equity on the horizon such as, you are also considering renovating your home in the coming years
- You have other needs for your income on the horizon, such as possibly the need to buy a bigger home to live in. Trading up can demand equity as well. Especially important with growing families – is there a need to switch school zones in the coming years?
- You have some income changes approaching – such as going down to one income while having a baby
Remember property is a long term commitment as sometimes the cycle can enter a flat period or even declining prices. So you have to try and understand your needs for the next five to seven years.
Ways to make it safer
This is why cashflow is king. You can mitigate the above by ensuring the property can “wash its own face” as in it does not require a lot of cash input from you. You can do this by buying in a area where rents are high relative to the purchase price. You can also at times achieve this by spending some money on a do-up before renting.
Understand how much of your home equity gets frozen for the investment property. This could have an impact if you want to trade up your home in the coming years. Over the long term this is mitigated somewhat when values increase. Could be another good reason to separate the properties by using two banks.
Cashflow or capital gain?
There are areas where the capital gain may feel like it could take longer but the cashflow is strong(rent). The opposite is true for more owner occupier type areas. Different types of property can also forego one for the other, as in units or apartments. It is important to think about which side of the coin is important for you at a particular point in time.
Best way forward
Property investment still make sense over the long term(I might be a bit biased as I derive my income from this industry). There is one thing which makes property investment so appealing. Leverage. You are borrowing the money long term to invest and inflation over that period can make the debt lighter.
It is best to talk to a good financial adviser(such as ourselves) to understand the actual costs of getting into that investment early.
