The interest rate rises of late 2009 and the predicted rises through 2010 means that investors will be very keen to maximise the rent they achieve throughout 2010. Falling stock levels of properties to rent, particularly family homes has increased competition considerably and will ultimately lead to increases in rent prices. We’ve included below a few tips for investors to maximise their returns this year.

• Ensure your property is attractive to great tenants – if the property needs repainting or recarpeting, do it;
• Adopt the attitude that saving money by not maintaining the property costs you much more in the long term;
• Speak with your accountant or tax adviser about whether there are tax advantages to renovating your property; the answer to this question will depend on your overall financial position and requires specialist advice;
• Have all expenses ie. council, insurance, repairs paid from your funds by your managing agent so that everything shows on your statements and nothing is forgotten at tax time;
• Ensure your property is professionally managed; do they conduct regular routine inspections and provide a written report with pictures? do they assess the rent regularly?;
• Take your agent’s advice on the rent to ask for a vacant property. If you don’t trust their advice they shouldn’t be managing the property for you and getting a tenant today at 5% under what you’d ‘like’ normally beats getting a tenant in a months time.

For professional property management advice please feel free to contact me on 02 4980 4400 or email jane@omeara.com.au

Recent comments from the majority of financial commentators indicated that the RBA would raise rates by 0.5% based on increasingly positive employment and spending data in an effort to ensure inflation doesn’t soar. Personally, I see the 0.25% rise as welcome news rather than a sudden sharp jump. The property market will better accept a moderate rise in rates over a sustained period of time. Certainly, the buyer activity around the area in recent weeks shows that buyers have a very strong opinion of the local proeprty market at the moment and a couple of moderate rate rises isn’t expected to have an adverse effect.

Of course, when the RBA lifts official rates the race is on between the banks to get their rates up. The winner this time round? ANZ lifted their variable rate by 0.25% within minutes of the RBA. No word from the other major players yet but they’re all expected to announce rate rises with the next 24 hours.

The increase in interest rates is unlikely to see any real burden placed on recent borrowers as banks have been quite ‘gun shy’ lately and will most certainly have assessed loan applications based on a higher interest rate than what we see at the moment. With most lenders lately requiring a minimum deposit of 10% and a track record of genuine savings the banks have been showing a much more considered approach to lending. Current mortgage arrears rates are reported to be 0.5%, the lowest rate in quite some time.

The number of investors entering the market is increasing solidly as first home buyers continue to taper off and there are still plenty of owner occupiers looking to buy. According to information provider RPDATA the number of properties going onto the market in the past three weeks is the highest in many months but the total number of properties for sale is decreasing. A clear sign if any that sellers are showing confidence in the market and demand from buyers is increasing at a faster level than stock coming onto the market; the next six months could be very interesting!

In most areas there has been a rush on dwellings that fall into the first home buyer category now that governments are offering grants to help first home buyers get into the market. As a result, many investment property owners are thinking of putting their properties on the market for sale while the chances of a high price are looking good.

Is this the best way for them to go?

In fact, selling too soon often delivers the opposite of what investors are hoping for. Every real esate sale incurs costs which eat into the profits, so selling too soon often reduces the overall gain especially if they sell before they have held the property long enough to see serious capital appreciation.

It seems that investors who get itchy feet have lost the sense of deferred gratification that led them to invest in property in the first place. They are tired of making sacrifices to pay the extra mortgage and they expect too much too soon. Maybe they have forgotten that the most effective way to enjoy their increasing wealth is to let capital appreciation and rent increases do their job over time. Holding investment properties long-term means greater wealth when it is needed (usually on retirement when income from work ceases.)

Instead of selling, investors who really want to improve their long-term wealth would be better off increasing their loan and buying a second investment property (provided they bought sensibly in the first place of course!) Astute investors keep buying more properties as their borrowing power increases with the rise in equity that accrues with capital appreciation.

It is true that some short-term self-sacrifice is involved in this strategy. Investors buying their first property are usually stretching themselves just to get a foot on the investment ladder and there is little money left over for luxuries. It is not until their portfolio grows in size that they will be less stretched and more able to increase their lifestyle spending without selling a property to do it.

The best strategy for most investors is to embark on a program of planned property investment at their earliest financial convenience – usually when the equity in their family home reaches a fairly high level and after consulting their accountant.

Then they simply keep adding to their portfolio until they increase their assets to the level that suits their aims and aspirations.

Throughout Australia the average standard variable home loan rate sits today at 5.75% so a 0.25% increase will certainly be seen as affordable by the vast majority of borrowers. There is speculation however, that by February 2011 we’ll be seeing the official cash rate reach 5.23% which on exisiting bank margins would give us a variable rate of almost 8% and meaning that the average home owner will be paying roughly $100 more than they are today off their mortgage.

Of course, all of this is fine if you’ve factored in rate rises when applying for loans or extending existing loans. Based on the speculation about at the moment, you should be counting on paying between 7.5% to 8.5% interest within the next 18 months.

Investment income
With prices at the bottom end of the cycle, rental returns are at probably the maximum you’ll see for many years.

Cost of borrowings
With 5 year investor mortgage loans available at around 7% and with rate rises being telegraphed pretty clearly by the Reserve Bank, there is a clear cut path to locking in costs for the next market cycle.

Demand
Continuing population growth, increases in immigration, first home buyer subsidies, historically low mortgage rates, state government stamp duty packages and continuing stock shortages say it all really.

The simplest law of economics states that when demand exceeds supply prices will increase.

Add value and keep control
When I buy shares in BHP Billiton (fine company that it is) I have zero ability to change the way they do business. When I buy a unit or house I know exactly what I have to do to increase both its rental value and ultimately its resale value.

Location
There are libraries full of data about each and every post code in Australia. You have access to council, state and federal government data that may impact the value of your investment. You also know how much each post code averages in both rental yield and capital growth.

Although we seem to be heading towards economic recovery faster than everyone expected, some market commentators are still predicting rough weather in the next few years as many corporate and sovereign debt issues have yet to be resolved.

Either way just keep quietly investing  in quality residential property. You’ll be richer for the experience.