Property Investment in Today’s Tumbling Market
Apr 3rd, 2008 by Kaushik Adhikary
With a fear of another recession(short time?) knocking at the door, the property market is witnessing a downturn. Prices are crashing around. So does this mean that you should get out of property investment? No, this is actually comes out as a golden opportunity for us to increase your property portfolio.
How? Well, let me tell when you are buying property it does not really matter whether the market is up or down unless you are considering selling it in the short term. If you are able to hold it for long term then you have to accept that the market fluctuation is a temporary phenomenon with an inevitable upward trajectory over the years. If you can afford to buy at the lower end of the cycle that is the best time to buy. But very often it is hard to tell precisely where the market is buzzing around.
If the market is experiencing a severe downturn it is a great time to buy as because you’re in a great position to bargain. Just go and check the foreclosure lists and mortgagee auctions. You may be picking out and buying it at rock bottom prices. A word of caution, just do not get too negatively geared because this is how most investors get themselves into trouble in the first place.
In other words make sure your rental income equals or exceeds your outgoing including mortgage repayments. If you have other income you may be able to stand an extra $100 PM to top up the mortgage but try to avoid it. At least you’ll have a sound sleep at night knowing that the mortgage payments are taken care of. Negative gearing is ok if you have a really good income and a tax problem.
Whenever the property market will be rising rapidly you can be confident that the value of your investment is worthwhile. That is where your profit margin lies, sell it in time. Now the ground reality is that the market has dropped and you need to be able to hold it for a long term without any worries. It may take a few years before we are in a healthy profitable selling position again, during an escalating property boom.
Meanwhile , concentrate on positive gearing and steadily increasing returns. This is a long term game and always has been. Look at property investing from a business perspective and do the math before you buy. You need a decent return on investment and you need the rental return to cover or nearly cover the mortgage expenditure.
Having said all that, there is no getting away from the fact that with good research and due diligence, the down and depressed market presents serious investors with the best opportunities to build a portfolio of profitable properties for long term gains.
