When You Should and Should Not Invest in Property

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09:00 AM

It’s an often-asked question - when should you invest in property? The trite answer is when you are ready! What do we mean by that? Let’s take a look below.

Key Signs You’re Ready to Invest in the Property Market

Deciding when to enter the property market is a very personal decision and it will be based on numerous factors. However, as a general guide, you’ll want to make sure you’re ready to invest, by being able to tick of these three key attributes: 

  1. You have a stable, permanent job and/or access to significant capital. Unless you’re already sitting on a large pile of cash, you’ll want to be reasonably confident you have some degree of job security before investing. Mortgage stress is a real issue in Australia. Even just in the year prior to the pandemic challenges of 2020, over a million Australian households were experiencing mortgage stress. Of course, as the Covid-19 pandemic illustrates, economic upheavals resulting in mass unemployment are hard to predict; but entering the market with the best job security possible gives you the best chance of managing your loan.
  2. You understand the art of property investment – the Australian housing market has experienced a capital gain over roughly the past 25 years equating to an annual growth rate of 6.8%. However, as property investment guru Michael Yardney points out, that figure is an average. What this means is that some properties will increase in value much more than 6.8% and others, will increase much less. You need to have some investment savvy to appreciate which way your investment property is likely to swing! This requires a good understanding of the property market and of what suburbs are likely to experience higher than average increases in house value.
  3. You’re financially ship-shape - if you scramble to find enough money each month to pay your phone bill, it’s likely you’re not ready to invest in the property market. If you can demonstrate to yourself that you can manage your expenses and importantly, save a good chunk of your income each month then you’re probably ready to look at investing in property.

When Should I Hold Off Investing in Property?

If you can’t tick off the above three criteria, then it’s likely that you are not ready to invest in property just yet. You may need to work on other areas financially, like seeking to improve your credit rating, or reading up on budgeting and financial planning. You may also want to hold off investing if you’re not sure you can keep your money invested in the property market for a long period. Five years is really the absolute minimum you’d want to commit to, so if you require more liquid assets, then property investment is probably not your best option.

Should I Time My Entry into the Property Market?

This is a tricky question, because predicting market peaks and troughs is something of an art rather than a science. Even experienced investors get this wrong all the time! Some experts recommend investing during a trough, however, other experts suggest investing purely when you’re ready, so long as you are intending to hold the property for a significant time period. If you do your research and buy a property in a good location, and undertake value-for-money renovations, you are very likely to see a solid return on investment over the years, regardless of what stage of the market you entered at.