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Top tips for investing in an emerging market

It’s almost safe to say that we have weathered the financial storm and we are now seeing more positive signs appearing in the market. There are still great opportunities available within the marketplace and now is the time to reassess your position and take advantage of the current conditions.

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1. Know your goals

With the government’s first homeowners grant phasing out in the second half of 2009, we can expect more investor property opportunities to emerge. Establishing some clearly defined goals will enable you to determine the best investment property for your needs. While you may have already set your financial and investment goals previously, these might have changed in the current economic climate.

For example, if one of your goals is to have certainty in the current marketplace, a brand-new property, rather than a property off-the-plan may be more suitable, since you can lock-in low interest rates. Additionally, if you are seeking an investment property with strong rental returns, a rental guarantee from the developer may be something you would like to consider. Your selection ultimately comes down to your personal needs and financial goals.

2. Restrategise and regroup

Assess your current financial position and determine if there are any opportunities that you can take advantage of. You may start this process by visiting your mortgage broker and/or financial planner.

Your loan structures are a prime example of how you may be able to benefit from the current marketplace. There are a number of strategies that may be applied. Depending on your financial goals, fixing the interest rate on your investment loans or a portion of these loans for extra security may be something worth considering. You can still currently obtain a sub 7% five-year fixed rate loan - with interest rates expected to rise next year, taking advantage of a low fixed rate loan now could make good sense. If you are considering refinancing be wary of exit fees and charges that you are likely to incur and determine if you are on the right side of the exercise.

3. Reduce your personal debt

Reducing your personal debt is one of the simplest and best ways to get ahead. Despite the economic crisis, most employed people are actually better off now than 12 months ago, when you take into account lower tax and interest rates and the overall cost of living.

This makes now the perfect time to look for ways to reduce the amount of interest you pay on personal debts such as credit cards, store cards and personal loans. One of the best ways to reduce interest is to pay off as much of this debt as possible, as quickly as you can. By doing so, you are reducing your interest payments and in the long term you will be much better off.

4. Pay down your owner-occupied residence

One of the most successful ways you can advance your investment goals is to reduce or preferably pay-off all non tax deductible debt as soon as possible. The debt on your own home is usually the largest non tax deductible debt you have. If you make a conscious effort to repay this debt as soon as you can, the opportunities to invest as a result of your additional capacity to borrow will astound you. Most successful people understand this and work hard to get the most effective financial structures in place. A good accountant will explain how you can benefit and why the banks, even in this market, will rush to lend you money to invest. With interest rates still currently at historical lows you should try to pay as much as you can into your home loan.

Even a simple strategy such as not buying a coffee every day at $3.50 will save you an additional $24.50 a week. If you put this additional cash towards a $400,000 mortgage you will save  $28,611.96 and will take 1 year, 6 months off your loan!* It doesn’t require drastic changes to your lifestyle to set yourself on track to achieve financial independence, just some small adjustments to your everyday spending habits. Do it now and take advantage of the opportunities the current market is presenting.

5. Research & know the market

Never invest in something that you don’t understand. To maximise your profits research the location, tenantability and overall returns. Real estate investment is not an exact science, however research and knowledge will certainly help to protect you.

Knowing the current market also comes down to knowing a property’s value. If you are buying a new property the rate per square metre in a soft market should be more competitive – make sure that you do your comparisons on properties in the same area and of a similar quality, as this will allow you to pinpoint the best value.

Subscribing to property-based websites is often worth its weight in gold – there is a plethora of information available including individual property prices. Remember though, unless you’re comparing apples with apples, this information can be misleading. You should start by researching the historical prices for properties in a particular area, then research the current prices. Remember new properties always cost more than old ones but it will be much longer before you need to spend any money on the property.

6. Understand the cycle

Understanding the property cycle is crucial for both the beginner and the astute real estate investor. Knowing the best times to sell and buy property can greatly affect your returns. If you are in the right financial position, take advantage of a downturn by expanding your portfolio – in a soft market you have more bargaining power.

Investing in the current downturn is one of the best investment opportunities we have seen in years. Despite the fact that interest rates are beginning to increase, they are still very low by historical standards. In addition the population of Australia is still growing rapidly creating an enormous property undersupply. Despite the current global financial uncertainty, Australia is outperforming most of the rest of the world. This means that Australia will remain a magnet for overseas migration and our population is going to continue to grow, creating an increasing demand for property.

7. Look for opportunities

While consumer confidence is low, investment opportunities are enhanced, especially for those who know where to look. Stressed stock and reduced pricing on stock in high growth regions like South-East Queensland are all prime examples. Opportunities are often not only reflected in price but through additional incentives offered by developers, including rental guarantees and discounted furniture packages. Please remember however that you still need to be selective with the property you purchase - no level of incentive can make up for a poor selection of property.

At present there are also good opportunities in the prestige property market, with buyers able to make savings of up to 10 per cent, and even, on occasion, 15 per cent. If you are looking to buy in this segment of the market, perhaps as an owner-occupier or future owner-occupier, then you can set yourself up for excellent capital gains in the coming years.

Some of the best deals you may find available are in the areas most affected by the current financial crisis. Discretionary properties in areas such as beachside locations provide excellent opportunities. With the baby boomers looking to move to these locations, now would be considered one of the best opportunities to enter this market and take advantage of the reduced pricing or additional incentives.

In conclusion, the top tips for investing in an emerging market are not really that much different from the strategies an experienced investor would always use. The problem for many, if not most of us, is that we get a little more lax in our attitude when markets are buoyant, when what we really need to do is to always remain disciplined in our approach to investing. This includes correct financial structuring and remembering that the most important requirement always when investing in property is the property selection itself.

Notwithstanding the general pre-requisites for investing in property, the current environment provides investors with some special incentives to invest now. Prices for quality property now represent extraordinary value with some properties being sold at prices well below replacement cost. This is at a time when interest rates are low and the shortage of property in Australia, especially in those areas experiencing massive population growth, continues to become more acute.

*Based on a $400,000 property on a 25 year loan term @ 7.25% with extra contributions starting after 5 years.

DISCLAIMER: Whilst the publisher and author believe that the information contained in the publication is based on reliable and researched information, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. Anyone who intends to use the information as the basis for making financial or business decisions should first obtain advice from a qualified professional person. This article is published on the understanding that neither the publisher nor the author - is responsible for the results of any action taken on the basis of the information published; and is not engaged in rendering legal, accounting, professional or other advice or services. The publisher and author expressly disclaim all liability and responsibility to any reader of this publication as a consequence of anything done, or not done, by a reader relying upon any part of this publication. (C) This article may not be reproduced in full or in part without the specific written consent od Which Property? and the Author.

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