Tag Archives: investment strategy

The Right Ripple Effect on Property Prices?

“What is The Ripple Effect and How To Predict Property Prices…” 

Investing without fear, will the right ripple effect on property prices your purchase?  What if you ride ripple effects to maximise your property profits?

Yes, ripple effect applies at any stage of the property cycle.

Researchers call it the ‘ripple out’ effectproperty booms usually start in the inner city or prime areas and radiate outwards…

Prices rises in suburbs close to CBD, then spread out to middle-ring suburbs and later to outlying areas.

property prices
Most property investors rely on hope and a prayer…

The ripple effect is when demand for property outstrips supply.

We see property prices rising in a given area (often sharply)…

Generally buyers set a budget and they’re restricted.

This budget restriction results in some buyers being forced out of their original target suburb as prices rise.

Usually buyers want to stay close to their original target suburb so they move to the next suburb they can afford as a compromise.

Trend continues, pushes up prices in adjacent suburb…

This forces buyers that originally targeted adjacent suburb as their primary suburb to move on again.

It means targeting the subsequent adjacent suburb which is based on affordability.

Some factors and stats point to ripple effect as the most powerful driver of all in determining why suburbs increase in value…

This ripple trend continues out to the regional cities as more buyers investigate or weigh-up price discrepancies across towns and cities.

And begins to make lifestyle choices…

Most people underestimate the significance of the ripple effect.

So many aspire to live in a suburb of their choice and they can’t be accommodated.

They end up having to go elsewhere and this usually means moving further out.’

As a savvy property investor it may be possible to take advantage of this demand and trend within the ripple effect.

Just be aware  the ripple effect also works in both ways.

When buyers, for example give up on ‘higher priced suburbs and switch to buying quality in the inner city.

The best way to identify outperforming suburbs and the next best suburbs that haven’t yet surged is to analyse price data.

And target suburbs likely to benefit in near future as a result of the right ripple effect.

For example…

What if you identified a suburb that hasn’t yet shown any significant price movement?

And yet the adjacent suburb has already shown strong growth?

Would it be worth checking out further?

It could be a pointer to increasing capital growth, right?

Property buyers target suburbs which in the past year have shown under-performance in context to five-year growth averages.

If these suburbs are located beside others with higher growth rates in the past year, they almost always experience a catch-up effect.

Always check council’s website for what’s happening in the zones.

For example…

Check planning permits applications submitted and if freeway is not about to slice through an area before you invest.

You should also check whether shopping centres and schools are earmarked for closure.

That could affect the supply and demand plus demographics of the area, which would skew all the price data.

What fuels the ripple effect is any low or medium-income household has to move, either to outer suburbs or switch to a different type of accommodation…

Are ripple effect suburbs an excellent opportunity for property investors?

Property Prices

How to Avoid Over Finance?

How to avoid over finance? It’s a common mistake in a property investment strategy and with the introduction of 90% to 100% loan to value mortgages on investment properties, many property investors are taking opportunity to refinance their properties at a higher percentage of value than ever before…

Many real estate investors are taking cash out at the closing for personal use and are thinking of this borrowed money as a profit.  Do yourself a big favour and avoid the temptation (and the strong come-ons by some lenders) to do this…

over finance
How to Avoid Over Finance - financial fears and if your money be safe?

Avoiding over finance…here’s why? If you over finance your property, you might not be able to sell it for what you owe on it. We get calls from landlords in this position literally everyday.

Last week we talked to a guy which paid over $780,000 (full value and his first mistake) for a home last summer. He borrowed $676,000 to buy the property (close to full value and his second mistake).

Now his tenants are driving him crazy and destroying the investment property and he wants to sell. He really can’t sell to another property investor because no educated investor will pay him what he owes for this property.

He can’t sell to home buyers because the property is too damaged. His choices are to keep it until appreciation and mortgage pay-down bring value of property and debt into line or spend another $15,000 restoring the property so he can sell to a home owner for retail value.

If you over finance your property your cashflow suffers and your property suffers. We got a call yesterday from another long time property investor which got a second mortgage a few years back to take some cash out for personal reasons.

Unfortunately, the total of the two payments plus taxes, insurance and other expenses are more than total rent tenants pay. He’s taking about $250 a month out of his pocket to own the property and hasn’t been able to keep up with repairs.

Now the city has placed work orders on the house and he doesn’t have the money to complete them and he doesn’t have any equity to borrow against.

Two of the 3 units are vacant because of the condition of property and he’s trying to unload it because he can’t afford to make his mortgage payments. In all likelihood, he’ll lose the property.

In the short and long term, you’ll pay an arm and a leg for the additional money you borrow. If you’re offered a 100% cash-out refinance of an investment property, ask the lender what costs are associated with the loan.

You’ll find many mortgages like this carry costs of 5-10% of loan amount in points and fees. Get out a financial calculator and check out the difference in total interest payments between a $700,000 property financed at 80% of its value over 20 years.

Do the same calculation for the property financed at 100% of its value. At 100% financing you’ll pay additional interest payments and this is money which comes straight off your bottom line. Please don’t think you should never pull cash out of an investment property.

There are some great reasons to do exactly that when you want to buy more investment property. Keeping your total debt to less than 80% of value of property is the safest and most profitable way to manage your cash flow and portfolio.

How to avoid over finance? Spotting the mistake before it happens like borrowing more money than you can afford may make you feel richer in the short term, however it’s a financial recipe for disaster.

http://en.wikipedia.org/wiki/Rollover_(finance)

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Over Finance