How interest rate rises create opportunities for WA investors

Yes, rising interest rates can mean opportunities for Perth property investors.

After near-unprecedented lows, rates in Australia have jumped several times in a row, going from a cash rate of 0.10% to 2.35% in September, with more rises forecast to follow.

The cost of borrowing money is rising and banks and lenders have changed their variable interest rates accordingly. This is forecast to swing the property pendulum in Perth to a buyer’s market but the change can mean good news for investors on a number of levels.

Take a look at the silver lining that comes from interest rate rises and some tips to help you stay ahead financially.

A buyer’s market

When the property cycle favours buyers, there are more homes on the market and fewer people who have the budget to pay a premium for them.

For Perth property investors, this presents the opportunity to make a strategic purchase. The goal of an investment property is to see it rise in value, usually over the long term. If a unit or home can be purchased at a competitive price, there is more potential to earn strong returns.

As Perth Now recently reported, Perth’s property market is currently defying the odds with house prices up 0.07 per cent in August. While it’s hard to predict the future, this gives an indication that the city is still an excellent place to invest.

Anyone who has been in the property market for a long time will tell you to ‘zig when others are zagging’. When it’s a buyers market, it is because people are nervous or holding back and choosing not to invest in property. This gives the people who do go ahead the benefit of less competition and more investment properties to choose from. There is also more flexibility to negotiate when it comes to contracts and settlement terms.

Stronger rental returns

As mentioned, when interest rates force the market to slow down, fewer people invest in homes.

The result of this is fewer investment properties on the market. This comes down to the basic economic equation of supply and demand; the fewer homes available for rent, the more landlords can charge for them (within reason of course).

In August, Perth rental vacancy rates sat at 0.8%. As explained on REIWA.com, typically, a vacancy rate between 2.5 and 3.5 per cent represents a balanced market.

The benefit to landlords in a tight rental market is good rental yield, meaning the cost of holding an investment property will be lower.

Rental yields have increased by close to three per cent in Perth recently. If you already own an investment property and haven’t had a discussion with your property manager about adjusting the rent you charge, now is the time to do so.

Before you invest in property in Perth, work with the right advisors

When interest rates increase, savvy investors rely on the support of a few different professionals.

Firstly, a tax accountant can ensure you claim the maximum deductions as a property investor. This won’t impact the money you spend on your investment property over the course of the year but it can ensure you pay less tax when the end of the financial year rolls around.

The next person is your mortgage broker. Contact them to check if you are paying too high an interest rate and see what you can do about locking in a lower or fixed amount. This can give you more financial breathing room.

Remember, a change in interest rates doesn’t mean you can’t invest. Speak to your broker about your timing and budget; you may find you are placed to take advantage of a buyer’s market and make a purchase.

Finally, your Perth property manager is in your corner to help you identify Perth investment opportunities, take excellent care of the properties in your portfolio and show you how to maximise rental yield.

Need a Perth property manager with their finger on the pulse? Speak to D Residential today.