HOW TO BUY IN A RISING MARKET WITHOUT ANY CASH

The latest Core Logic data has revealed Sunshine Coast median house prices have now surged past Melbourne’s, with an increase of 48 percent from March 2020 to now. While we note that median prices aren’t always the best measure of a region, this new data provides a great base to start a conversation around the current market.

According to Core Logic, the 48 percent increase brings the median price on the Coast to $968,308, compared to greater Melbourne’s 27.2 percent increase to $941,000. We caution against the use of medians in any market without context as the value of the information can be very misleading. Not to mention that if you look at other data houses, their information (median prices) can be quite different. So why raise it? As the start of a bigger conversation. Seeing the mainstream headlines flaunt the median house price, while not very helpful, lead us to review and question the growth that we are seeing here with better data inputs and insight.

Mere months ago we foresaw a time in the near future where it will be commonplace for homes to be over a million dollars in every suburb on the beachside of the Bruce Highway and in Nambour, and (depending on the data you follow) we are far closer to this eventuating than even our positive outlook forecast.

In the last year, we have seen almost every market increase in price, the first time this has occurred in recording national property market information. Which is causing some to claim the ‘inevitable’ decline (‘what goes up must come down’) or ‘I’m too late’. Both have some truth in certain markets, but as a whole, neither statement is correct. What is evidenced is that discussion is changing.

The conversation about ‘what next’ is occurring in many parts of the country, but nowhere like the Sunshine Coast which is why there are such volumes of media attention on our beautiful region.

To the outsider, the Sunshine Coast is evolving to far more than fish and chips on the sand – we now have upmarket restaurants, trendy cafes, and boutique experiences. When you couple this with our year-round warm weather, amazing backdrops, and continued infrastructure spend resulting in an ever-increasing jobs market, you could argue it’s a no-brainer the scales have shifted our way.

So, what does this mean for homeowners and investors?

Now is the perfect time to explore investment opportunities. With a strong increase in home values over the last two years, many people will have equity available in their current home that can be used to purchase another property.

How do I calculate my equity?

In order to do it correctly, you will need to order a bank valuation on your home and then subtract your mortgage amount from that number.

Bank valuation – what you owe = equity

If, for example, your home is valued at $800,000 and you only owe $350,000 then you will have $450,000 equity. There is another equation which is ‘available’ equity; which is the amount you can, or want, to leverage (borrow against) the property to. Using the above example and an 80% Loan to Value Ratio (LVR) means the borrowing against your home would be $640,000. So increasing the loan by $290,000 to release those funds for investment purposes. Also known as an equity release or ‘unlock’.

You can then use this equity as a deposit on your investment property. So if the investment property is being sold for $600,000 you could possibly only need a deposit of $60,000 (or a 90% LVR), so your equity of $290K could have you well placed to fund the deposit and fees to see you build your property portfolio without having to dip into savings.

With current lending rates, the right properties are cash positive even when the deposit and fees have been borrowed also. This is likely to be the case for some time to come, even with the potential for rising interest rates – but that is a detailed discussion for another time.

What is most important when it comes to investing is ensuring you are choosing the correct property type and location. You wouldn’t get in your car and guess how to get to a destination you’ve never been without a map, or attempt to cross a croc-infested river without a boat (hopefully). The same goes for your property path – it’s important you arm yourself with the right tools, knowledge, plan, and team to minimise the risk of failure. Keep in mind, all risk comes from a lack of knowledge!

We are in an extremely unique market at the moment. If you’d like to know more about how you can leverage this and build wealth through property, contact us today for a no-obligation, free chat.