It’s true that the one unknown element in property investing is the rate of interest you will pay over the term of owning a property.
We’re currently enjoying a 14 month record low of 2.5 per cent, with no change made for October. Analysts are expecting this long period of rate stability to hike in the first half of 2015, so let’s have a look at some of the ways you can safeguard yourself and your investment from interest rate rises:
Many investors will opt for fixed interest so that they know exactly what they’re paying when their repayments are due. This isn’t a bad strategy, especially with your first one or two properties when your margin is a little tight.
One way to cope with climbing investment costs, such as rising interest rates or increasing council rates, is by upgrading your property. While this may sound counter-intuitive at first glance, when you analyse it, the strategy is quite sound.
An interest rate or council rate increase may see your mortgage repayments climb by $50 per month, which means you’re looking to recoup a shortfall of around $12 per week. By trying to recoup that with a rental price increase, you may very well take your property out of the competitive market, leaving it vacant for several weeks and ultimately costing you more money in the long run. You may even end up lowering your intended increase after all, just to get the property to let.
Upgrading so the property can be rented out at a higher return could help you recoup some of those interest rate increases. It doesn’t have to be a full-scale renovation, but could perhaps involve installation of a new amenity, such as a dishwasher, dryer, air-conditioner or carport shade sail.
Instead of upgrading to a different property, renovating the property you have can increase your rental returns as well. Depending on your budget and the scale of your renovations, this could add anything from $20 to $100 per week to your rental income!
Now, you’re probably thinking, “why spend more money when I want to charge more money?” Good question. There’s a strategy behind this theory and I’ll be answering that in my next few blog posts so you can understand exactly where I’m coming from.
These blog posts will appear in the renovation blog category – we’ll be looking at different renovating strategies and then I’ll follow it up with exactly how to deal with the cost of the renovations.
In the meantime, keep working towards your investment property goals.