Buying early may be the smartest and most profitable decision for investors looking to begin or expand their property portfolio this year.
Substantial rental income and a strong flow of immigrants into Australia continue to pressure rental markets across the country.
Predictions that property will experience 2% to 3% in value growth this year indicate investors can be optimistic about prospects for capital growth.
Rental incomes have shown significant growth trends, too. Average national rents over the past three years registered rises of 9.6% in 2021, 9.5% in 2022, and 8.3% last year.
As a result, rental yields are becoming more attractive, returning to a desirable 5% to 8% range. Yield is a fundamental performance criteria for investors. It represents the difference between rental income and overall costs. The higher the percentage difference, the greater your cash flow and return on investment.
Check out this list of factors to consider if you are looking to invest in the property market.
Cost of ownership
An early question to settle this year is the Reserve Bank’s approach to increasing interest rates. It’s left enough hints to suggest there might be one more rise to finally hit inflation on the head.
Rental strategy
If mortgage costs rise further, mum-and-dad investors will take some short-term pain before seeking more cash from their tenants. The RBA affects not just homeowners but renters, too. On the plus side, rate cuts are expected by the middle of the year.
Immigration
Australia continues to attract tens of thousands of immigrants, adding to the demand for rental availability. In some centres, that availability is at historic lows of 0.1%.
Staying away
While existing investors are expected to stay the course this year and not divest, higher rates may dissuade new investors just when the nation needs more rental accommodation.
Capital growth
Investors will be watching how house prices track through 2024. While predictions suggest modest growth of around 2% to 3%, it’s worth remembering that 12 months ago pundits were gloomy on prices yet market values jumped 8.1% in 2023.
Bottom line
Work the numbers to ensure any future investment works for your financial goals. Pay attention to the yield. Convention suggests a 5% to 8% yield is a solid performance.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.