Thinking of upgrading to a bigger home, but can’t decide if you should sell your current property, or rent it out as an investment property?

WA has just recorded the strongest rental expectations in Australia for the next 2 years, according to the 2019 NAB Residential Property Survey, coupled with the lowest vacancy rate in six years. So if you can afford to, now is a great time to upgrade into something bigger, and keep your current home as an investment property.

 

“Provided you can afford it, you could make yourself an extra $40,000-$60,000 more, if you hang onto your home and sell in the next two to three years, thanks to the state of the WA market and economy.” – Brendan Leahy, CEO of Naked Real Estate

 

Hear Brendan’s top #3 considerations to help you make the best decision for your situation…

1. Can you afford to keep your home as an investment property?

If you do decide to rent out your home, you will still have your usual rates to pay, plus ongoing maintenance and repairs. With a rental, hot water systems can fail, and air conditioning systems may need work. So provided that these costs won’t stretch you too thin, I would recommend holding onto your home for another two years or so.

 

This is because the core fundamentals (namely commodity prices) are in place for the WA market here to have some significant gains over the next couple of years. Keep in mind it is a different case over on the east coast. The market over there has slowed down – and I think it still has some slowing down to do.

 

WA is a mining state, and we’ve recorded strong iron ore price exports of $100 per tonne for the last six months, and based on WA treasury estimates, with every US$1 increase in the iron ore price, WA receives an extra $81 million.

 

The AUD exchange rate is helping as well, each time the Aussie dollar drops by just one US cent, WA’s royalty income is expected to jump by $101 million.

 

2. Can you afford to upgrade without selling your current home?

Ideally, the choice to maintain your property and rent it out will still allow you to upgrade and afford the home you want. Sometimes by selling the property you could borrow an extra $100,000-$200,000… so maintaining your home and renting it out may reduce that capacity.

 

But you might find you can still afford the home of your dreams in that price point. It is a buyer’s market at the moment, which is great for upgraders because house prices have dropped far below home values – and this market will not last long. There are homes in the Perth hills that were previously worth $900,000+ now available for $650,000.

 

It’s a great time to see what’s around, and speak with your lender to see what you can afford. The cash rate is also at an historic low of 0.25%, so it’s an opportune time to get your finances in a position to upgrade, and secure some long-term capital growth.

 

3. Is being a landlord for you?

If you find you can afford to keep your home as an investment property, consider whether you have the time, patience, and desire to manage your rental yourself, or if you’d like to hire a property manager to do it for you.

Some of the most important tasks of a landlord (or property manager) are:

• Finding a reliable tenant that pays rent on time and maintains your property.
• Collecting and lodging the correct tenancy bond with WA bond administration.
• Conducting regular routine inspections on the property.
• Organising prompt maintenance and/or repairs on the property.
• Ensuring all legal paperwork and documentation are filled out correctly and signed (e.g. tenancy agreements, property condition reports, inspection reports, repair requests etc).

If you work full-time and have a family, you may find it difficult to give your tenant and rental the time and commitment it needs – it totally depends on your circumstances, and headspace.

 

If you’d like more information on how a property manager can help you protect your investment, feel free to get in touch with our sister company, We Love Rentals on (08) 6254 6300. They only do property management, and have 10+ years experience in the industry.

 

And if you’d like a second opinion about whether to sell or rent your property in the current Perth market, feel free to call Brendan on 0439 998 867. He’d be more than happy to answer any questions you may have.

WA real estate is holding strong.

The number of homes currently on the market has continued to drop and is creating competition for buyers. In the last two months we’ve been flooded with enquiries, private inspection bookings and have had 12 Perth homes go under offer.

I don’t have a crystal ball, but history shows us that after a major event like COVID-19 markets tend to rebound, and rebound very strongly.

Here’s five things insulating Perth from the impacts of COVID-19 compared to other capital cities in Australia …

1. Listing numbers are down dramatically (and continuing to drop)! In April there were just 6,534 homes on the market. Which is roughly 1,000 homes less than the month before in March (that’s a massive drop in such a small time frame) … And as I’m writing this blog post, that number has dropped even further to just 6,067 homes (according to reiwa.com data). To put that in perspective, this time last year we had just under 12,000 homes (excluding land and units) on the market in Perth. This is creating lots of competition for Perth buyers, because there aren’t enough homes for sale to meet the demand.
2. When COVID-19 hit, WA was in the recovery phase of the property cycle. This is completely different to over east who were at the peak of their market and will likely see home price declines of 10% and maybe even 20% over the next year or so. Meanwhile, Perth has just come off the back of a 5-year economic slowdown and our property prices have already corrected (we reached the bottom of the market in 2019). As long as we don’t see many distressed sales flood the market (which the mortgage ‘holidays’ and jobkeeper payments are helping with), Perth property prices should remain insulated.
3. The Perth vacancy rate is very low, currently sitting at 2.2 per cent. When the vacancy rate is this low, renters look to buy their own home, as it is cheaper for them to pay their mortgage than it is to rent. On average people spend 18 months to 2 years to buy a home, and as the Perth rental market began its recovery three years ago, we’re now starting to see more and more renters move into buying their own home. This will increase Perth buyer competition, and again, protect Perth home prices from declining.
4. WA doesn’t rely heavily on tourism and immigration. Out of the 239,000 people that came to Australia in 2019 under immigration, only 15,000 of them came to WA. While in NSW, Victoria and QLD, 202,000 migrants. You can see how this will have a big impact over east, but little effect on WA. So, when you hear media reports about the Australian real estate market, be mindful that most of the commentary will be coming from over east, and be about national numbers, not local, WA numbers.
5. Iron ore prices are ramping up again. Prices are currently sitting at $100 per tonne and looking to continue as China ramps up their economy after the pandemic. Brazil and India are two major sources of iron ore and they’re currently having big issues with COVID-19.  So much so that they’ve needed to close down their mines. This lack of global competition should keep iron ore prices in Australia high.

So, if you’re a Perth home buyer my advice is get in and buy now because if you’re waiting for prices to drop then you’re going to be disappointed!

The only thing that I would watch out for is the end of September/October when people start paying back the loans they currently have on hold. But again, I think this is going to be more of a problem over east than in WA. If something was to happen to iron ore prices, then it may be a different outcome. None of us can say exactly what is going to happen, but if we go by history, 2020 is feeling a lot like it was in 2005/06… right before the last Perth property booms.

As always if you or your family have any questions about buying, selling or renting feel free to give me a call any time on 0439 998 867, I’m only too happy to help. Stay safe and healthy!

Want to see recent home sales in your suburb?

You can watch our market update videos for each suburb on our YouTube channel! Simply choose your suburb from the links below…

1. Bedfordale
2. Kelmscott Hills
3. Mount Nasura
4. Mount Richon
5. Roleystone
6. Seville Grove

Ready to find out how much your home is worth?

Book your obligation-free appraisal with Brendan here. He’d be happy to have a chat and answer any questions you have.