Property investment has often been thought of as hard to achieve by everyday Australians, but right now with interest rates low, bargain priced property and excellent rental yields being achieved in some areas property investment it is well and truly within the reach of many.
In regard to interest rates, both fixed rates and variable rates are the lowest they have been in years, with some interest rates sitting below 5 per cent. What this means for investors is that loans are easier to service. For reassurance investors can lock in fixed interest rates with some sitting at 4.99% over 3 years.
Adding to this rental yields are strong and investors have the opportunity to earn rental yields between 5 and 10 per cent in some areas.
This means that the yield gained from rent will cover the mortgage repayments. It gets even better when you combine it with depreciation, which gives you the ability to get tax back from your depreciable assets, such as the building, its fittings and furnishings. The depreciation claim can be added to a tax variation so you get the tax back on a weekly basis.
High yields combined with depreciation can be of great benefit to investors who have less disposable income and can use the cashflow to pay the property’s associated bills. In some instances investors are generating cash flow positive properties and using the income generated from their investment property to pay down their mortgage at their principal place of residence.
Every day Australians can now seriously consider moving into the investment property market and have the rent cover the mortgage. In effect they could ‘set and forget’ having an investment plan for their future.
For example if you consider a brand new property purchased for $400,000 which achieves around 5% per annum yield or $20,000 in rent per year, add to this $11,565 building, fitting and fixtures depreciation. Less interest costs based on 4.99% and other property holding costs can, structured correctly, come to be a cash flow positive property returning up to $100 per week.
Or if you look at compounding growth, a property bought by an investor for $100,000, 20 years ago has increased in value and is probably now worth $400,000 it’s yield will be 5% but the costs of holding are significantly lower giving the owners a whopping $400 each week.
Consider if, this investor had purchased a handful of five carefully chosen properties over 20 years with similar returns their weekly cashflow would be $2,000 a week, an excellent retirement income.
With the latest interest rate cut the chances of securing cash flow positive properties is even greater and an excellent time for everyday Australians to consider purchasing a well selected investment property.
Author: All the latest insights and opinions from the Real Estate Investor team.