6 questions to ask before investing in property

With property prices falling and interest rates rising, you might be wondering if now is a good time to buy an investment property.

Ray White chief economist Nerida Conisbee said there were six questions to ask yourself as part of the decision-making process.

1. Can you get a home loan?

Your ability to qualify for a loan depends on your unique circumstances. Still, Ms Conisbee said that with rising interest rates making mortgages more profitable for banks, they're keen to lend. "Provided you can pay back the loan, you’re likely to be able to get a loan relatively easily," she said.

2. Can you afford higher interest rates?

The Reserve Bank has signalled that further rate rises are coming, announcing in November that it "expects to increase interest rates further over the period ahead". So if you're going to buy an investment property, you need to be confident you can afford higher loan repayments.

3. Where do you want to buy?

Australia is not one big property market; rather, it has lots of different markets, where prices and rents perform differently. This is something you need to consider during your due diligence, Ms Conisbee said. "Where and what you buy right now can lead to dramatically different investment outcomes even in the short term," she said.

4. What's your strategy?

Ms Conisbee said there's generally a trade-off between capital growth and yield: a property that delivers more of one will generally deliver less of the other. "Investors typically concentrate on capital growth, however, rental yield is equally as important, particularly if you’re looking to hold long term. Right now, we’re seeing low capital growth overall but strong growth in rents," she said.

5. How long will you hold the property?

This is not a good market for house-flipping, according to Ms Conisbee. "With price increases slowing, and in some cases falling, it’s far less likely you can make a profit in a short amount of time," she said. "Holding long-term means that it matters less what part of the cycle you buy in."

6. What are your other options?

Investing in property is not without risk. But other asset classes also have downsides. "Shares are highly volatile, putting money in a term deposit yields very little return and alternative investments such as Bitcoin are seen as even higher risk than normal," Ms Conisbee said.

Interested in property investment? If so, get in touch. I’ll be happy to explain the pros and cons, crunch the numbers on your behalf and help you get finance.