Economy Bounce-back Better Than Expected, What Investors Need To Know
It’s not only the great weather and beautiful beaches that make Australia the envy of the world – it’s also our strong economy which is currently kicking some serious butt compared to many of our global counterparts.
Bouncing back much faster – and stronger – than predicted post-COVID, the Reserve Bank of Australia (RBA) is anticipating a good end to 2021, and a great 2022.
But with so much uncertainty over the last 12 months, it’s hard to know if this economy is here to stay, and if so, how it will impact property investors in the long-run.
WHAT DO THE NUMBERS SAY?
In May this year the RBA updated its economic calculations, estimating that instead of growing by 3.5%, the GDP will actually increase by 4.75% in 2021. It also stated that the jobless rate will likely drop from 5.6% to 4.5% by the end of 2022.
In simple language? Let’s break it down.
The GDP – gross domestic product – is the amount of money made from all goods and services in a specific time, in this instance, 12 months.
The greater the GDP, the stronger the economy. An active, vibrant economy means more jobs and less unemployment.
In short, Australia’s economy is in good shape and is creating more jobs.
This is surprising, because of the devastating impacts of COVID-19 on other global economies, and important, because Australians are facing a rise in inflation and continually rising house prices.
Inflation – when the price of goods or services go up – occurs when there is a lack of stock. We are seeing this now as the cost of bringing goods into Australia from overseas has drastically increased post-COVID.
So, while the Australian economy is doing well and more of us are employed, the cost of living is rising faster than our wages, and house prices show no sign of dropping.
WHAT DOES THIS MEAN FOR PROPERTY INVESTORS?
There are pros and cons for property investors as a result of a strong economy, low interest rates and rising house prices.
With some state-linked incentive programs ending, there has been a drop in first-home buyers. This gives investors greater access to stock and less competition at auctions.
The downside is that with borrowing being so cheap, smart home owners and real estate agents are inflating the cost of their property, meaning we are paying more for a property than we would have a few months ago.
It’s important that property investors take the cost of investing and servicing loans, and the rising cost of living, into account when purchasing properties.
Significant wage increases to ease the effects of inflation are still some way off, and if people’s wages don’t rise, rents can’t rise. If investors can’t increase rents, we can’t increase cash flow and it will be harder to purchase further properties, gain a passive income and decrease any debt.
Before you buy, make sure you know your numbers, can service your loans and have a buffer for each property in case your own situation changes.
WHAT DOES A SMART INVESTOR STRATEGY LOOK LIKE NOW?
Changes in economies and national and global markets aren’t a reason to change your investment strategy.
But, some of the golden rules of real estate investment become even more important when you take all of these factors into account.
One such rule is location. While we always need to buy property in a location with good infrastructure, high liveability and walk scores, and appealing green space, in the face of rising inflation, certain locations are less volatile than others.
A general rule of thumb is, the older the suburb, the less volatile. This is because older Australians have paid off more of their debt. In newer locations, people tend to have bigger mortgages and high debt, so are more sensitive and vulnerable to rate adjustments.
Another golden rule is quality of tenant. As investors, it’s going to be harder to pass on the cost of a rates rise via rent increases to tenants whose wages aren’t increasing. Buying property in more affluent areas, where worker’s skill sets are adaptive, will allow for rent increases, despite inflation.
Overall Australia is in great shape, but it’s important to stay informed about how economic factors can affect property investment.
GOOD STRATEGY IS BASED ON KNOWLEDGE
You can’t build a solid strategy on guesswork. It’s about understanding the current market landscape and how to optimise it for long-term and sustainable growth.
Here we can discuss what other trends will impact your real estate in this new age and how to determine the right plan for you.
Spaces are limited so register now.
Before equity lock, comes equity. Equity happens when your property is worth more than you paid for it. Maybe the average area price has gone up thanks to an improvement in local infrastructure, or there’s a lack of stock so people suddenly need to pay more to live in your location.
Whatever the reason, your property is now worth more than you spent buying it.
Capital growth, as we’ve said before, is a vanity exercise. It’s great to swan around feeling smug that your $450,000 apartment would now sell for $500,000. But unless you do something about it, how does it really serve you?
Equity lock is the one financial tactic that a property investor needs to know how to use to grow their portfolio faster.
Once your property has equity, the smart thing to do (making sure you can still service the loan) is to revalue the property and draw out the increased amount. Property investors then use that cash as a deposit on the next one or two properties, which also yield rent income and capital growth.
IS THERE FALSE EQUITY?
Markets are constantly changing. Over the 20 years that you own a property you can expect the value to go up, go down and plateau. That’s how real estate works.
So, imagine if impacts like COVID-19 or a lack of stock or low interest-rates, push up the value of your property, above what even you think it’s really worth? Even if you eventually lose some of that capital growth and have to wait a few years to get it back, as long as you can service your loan, you still need to act fast and lock your equity in.
Property investors don’t live on capital growth. The income from rent and regular increases in that rent is what allows people to work a three day week. The more properties you own, the greater the passive income.
Locking in equity means you can buy a second, third or fourth property that much faster, which equates to more passive income.
Let the experts at Positive Real Estate teach you about equity lock and how to make it work for you at one of our free property investing seminars.
Sign up for one of our information and education events, where you’ll be equipped with the tools, resources and support to thrive, and not fall behind on your path to financial freedom – whatever that may look like for you.
Book your spot now and find out what you need to know about the current market landscape and how you can make it work for the ultimate wealth creation opportunities.
Hey there, do you enjoy the Positive Real Estate Blog? If you did, why don’t you book into a Property Information Night in your area and get more information from our team. You can do so here.
Welcome to the BEST of ‘21 series on the podcast! This is week 3 of my four week holiday – and I can’t wait to bring to you my predictions for 2022 in the coming weeks. For now, here’s one of the most downloaded episodes of 2021.
Only 1% of people really succeed with real estate investing. So why do 99% of people fail – and what do you need to do to ensure you’re not one of them? If you own real estate already, today’s show just might burst your bubble. We explore property management and reveal what type of buyer you actually are. Nobody really wants to own anything, because when you own something you have to be accountable for it. So in this episode, we will talk about how to navigate the property owning journey. Because often the conversation in real estate is centered around buying and selling. But what about the big part in the middle? Welcome to Episode 78 of the Urban Property Investor!
Laura Chugg first started paying rent from the age of 16. Ever since then – out of necessity to begin with – she’s been magnificently obsessed with managing money smartly. From the early days of earning $5.88 per hour to now coaching and helping people invest in real estate, Laura has seen a wave of change and growth. With investment properties in her portfolio that have quadrupled in value (buy well never sell), and a raft of lessons learnt along the way, Laura shared with us some of her most powerful Property Investor Tales.
Welcome to the Best of 2021 – Urban Property Investor style! Today’s episode – the Secret Language of Real Estate – was the SECOND most listened to episode in 2021, and it’s a doozy!
There is a secret language to real estate that most investors do not know. Knowing that most real estate is not worth touching, how do you then listen to the “secret language” of properties that are desirable. This episode explains this secret language so that you buy desirable real estate that will not only provide quality housing to people, but help you crack the code of real estate. Enjoy!
Rose Pengilly had done a lot of real estate investing before getting professional coaching with Positive Real Estate. In her own words, Rose felt like “a bit of a mess” with “no real plan”. “I was just doing my own research and I didn’t have any professional coaching.”
Rose shares the challenges of a messy portfolio, and also the challenges of cleaning that portfolio up. After purchasing three pieces of real estate in Brisbane, Sydney and Melbourne, Rose shares the anxiety and lessons from her experiences.
This is an incredibly honest and real conversation from a successful property investor, and one that anyone – beginning, intermediate or advanced investor – will be able to relate to in one way shape or form.
Welcome to the BEST OF ‘21 series for the Urban Property Investor!
Episode 33 was THE MOST DOWNLOADED Episode of 2021 by far. You voted with your earbuds! So if you’re new here, this is the one that everyone wants … and if you’ve already listened – then I reckon you’ll pick up some more nuggets the second time around.
Here’s what I said at the time –
Do you want to beat the banks at their own game? In this episode, I want to show you how to master financing your property portfolio. Yes, finance is the key to capital, and the more you can borrow sensibly, the faster you get to crack the code of real estate wealth.
Carolyn Weston has always desperately wanted to invest in real estate. Growing up in a modest family, she didn’t believe that hard work would necessarily be enough to create wealth. In her marriage, she was constantly rebuked for wanting to invest. After separating, her low income, marital status, and two young children made it extremely difficult to get a loan. But that didn’t stop her.
Not only did Carolyn make some incredibly tough decisions in order to enter the investment market, she has stuck to the task for over 10 years to the point where she is now one of our coaches at Positive Real Estate. A single mum who couldn’t afford becoming a client of PRE to begin with, to now being one of our team and a mentor and coach to so many Australians who enjoy the riches of Carolyn’s experience.
This is the last show of 2021, and what a year it has been. We had lockdowns, vaccinations, hysteria, and massive changes in the real estate market. And now we are left in a pretty bizarre place as real estate investors as we go into 2022. So what can we expect from the upcoming year? That’s why we are dedicating the final episode of the year to 2022 predictions.
Melissa Cowan is 31 with two investment properties. After buying her first IP off the plan, she very quickly purchased her second. How did she do it? It’s a great story of risk management and understanding your threshold for stress. So many of my previous guests have said “I wish I started investing earlier” – well here is that investor – and what a great story it is.
Once you’ve listened to this episode, I’d love it if you hit the subscribe button so you get notified every time a new episode drops.
This is the Christmas edition of the Urban Property Investor. Is your portfolio set up to handle market kryptonite? On this episode, I discuss 13 ways to get more cashflow. From spatial transformation to hotelification, this episode will get your imagination buzzing over the Christmas period. This is one of the best lessons I can possibly teach you, so I am giving it to you as a Christmas gift, whilst I’m swimming with turtles on Lord Howe Island.
Dani & Craig Skinner have an incredible life and investing story to tell. Dani was born in Ghana and grew up in Zimbabwe, and met Tahree-born Craig in Newcastle before they courted in Sydney, got married, and moved to Brisbane.
Before I knew of Dani and Craig, they had already purchased four investment properties. But they weren’t happy with their portfolio, which was a mix of older real estate in low performing areas. But having the wrong type of real estate didn’t stop Dani and Craig from keeping their eyes on the prize. Having felt like the bank “owned” them, Dani and Craig transformed their portfolio into higher performing assets and now have a sensational range of assets that is helping achieve their family, financial and lifestyle goals.
You can’t help but be inspired by this power team. Enjoy!