Waiting to find "the perfect deal" could be losing you money and you just don't know it yet.
In theory, waiting until we reach the bottom of the market, or waiting until you find the best deal makes a lot of sense but is this achievable?
It's important to remember, we never know where the bottom of the market is until we've passed it. No one has a crystal ball and picking a winner is impossible, so picking the perfect time in the market just isn't feasible. Time in the market always beats timing the market.
Therefore, the best time to invest in property is when you're in a financial position to do so.
Obtaining finance is often the hardest part of any property transaction, and this is exemplified now with such stringent bank lending policy. Understanding your finances is the key to unlocking your investment potential and working with experts in the industry is Step 1 to making this a reality.
Once you know your budget, it's time to get to work and look around for some investment listings that are most appropriate to your situation because waiting too long could be killing your buying power.
With bank lending restrictions being so strict, it is important to take every opportunity you can get with lending approvals. It's not uncommon to see investors who are pre-approved lose a large amount of borrowing capacity because they waited too long for the bottom of the market to arrive while the lending restrictions changed. When you're in a position to act, you should act.
Let's look at an example of what bank lending policies can do to your borrowing power:
Here's the situation:
· Single investor looking for his first investment property
· Currently owns his own home worth $800,000 with a $300,000 mortgage left outstanding
· Household income of $140,000 before tax
Let's assume the banks are currently imposing a debt-to-income (DTI) ratio of 6. This means the banks will lend you up to 6 times your income (minus any existing debt). Since this person earns $140,000 per annum, we can calculate his buying power:
(140,000 x 6) - 300,000 = $540,000
With a potential budget of $540,000, this investor has plenty of options to secure a high-quality investment property in some of the main centers in New Zealand.
If the banks then decide to change the DTI to 5 while the investor is shopping around for "the perfect deal", this will have a material impact on this investor's borrowing capacity. Have a look:
(140,000 x 5) - 300,000 = $400,000
All of a sudden, this investor has lost $140,000 worth of borrowing capacity from the banks' point of view which means he is now going to struggle to find a quality investment property in the main centers of New Zealand.
This is a situation that is all too common for investors who believe they can pick the bottom of the market. In any case, the best time to invest is when you're in a financial position to do so because you can take advantage of your current situation and leverage your assets.
It can take years to put yourself in a financial position to invest in property so taking advantage of the situation as & when it occurs is an essential part of building a successful property portfolio.
Talk to the team at The Property Factory to find out what is the best investment property for your situation.