Key investment topics we’ve been tracking over the last couple of months are as follows:
RBA Cash Rate – Dropped to 1.5% in August. Most banks will not pass on the full rate cut as returning profit to shareholders is their number one priority. If you’re with a big 4 bank you can expect between a 0.10% – 0.15% reduction at best.
Main reason for the RBA drop was low inflation figures and a higher Australian dollar. Regarding inflation, government and the RBA need higher inflation to keep tax revenues high as well as reduce the value of government debt. When it comes to the Aussie dollar, a higher dollar means we export less and our terms of trade go negative. These numbers aren’t looking at changing anytime soon so there is potential for another RBA cut by year’s end.
Australian Market – Overall the national property market is doing pretty well despite the crash calls late last year and early this year. Some markets are obviously performing better than others and this all relates back to the economy of that region however the number of properties being transacted for less than $400K is declining. In summary:
• Sydney is at its peak with approximately 6-12 months of growth left before it stagnates
• Melbourne still has opportunities for capital growth but lower rental yields
• Brisbane (SEQ) and Adelaide present best prospects for both growth and yield
• Darwin and Perth still correcting. Will need to revisit once the commodity price-cycle smooths out.
Strategy – The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2million portfolio at 90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The types of properties Catherine and I recommend are considered investment grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.
DHOAS – Food for thought: if you currently have a DHOAS home loan it may be worth investigating looking at non-DHOAS options particularly when owner-occupied rates are below 3.80% with other lenders. Each individual case will vary however for someone on a Tier 3 subsidy and $400K loan, the difference in interest saved at 3.80% is slightly more than the $350/mth subsidy received at the higher DHOAS interest rate of 4.4%.
Of course there are many other variables like offset accounts and a credit card facility which are crucial for those with multiple properties and the subsidy tends to pick up more slack in higher interest rate environments. But if anything, it might be worth using the above to negotiate a better rate with NAB, ADCU or Defence Bank if you’re currently paying above 4.4%.
Don’t forget that Simon and his team can assist you in all lending and finance requirements as well as that of family and friends. If you or someone you know is ready to start building genuine wealth through property then please get in touch!
Quote – Money is not wealth just as a clock is not time