It’s a daily conversation for the team at Wendell Property as property owners work to keep afloat in an increasingly expensive market. With so much noise and advice, it’s hard to know what to do. Nothing replaced speaking to experts to ensure you’re doing all you can to weather the storm, Threefold have given us their top tips. I share their expertise with you, read on for more.
Navigating the Market: Key Strategies for Property Investors
In today’s fluctuating property market, many investors find themselves facing negative cash flow, leading to a growing consideration of selling their properties.
With changes to the bright-line property test coming into force on July 01, meaning that the test will now only be applied if property investors on-sell a property within two-years, rather than the current 10-years for residential property (or five-years for new builds), selling-up potentially looks even more appealing.
However, with potential Official Cash Rate (OCR) cuts on the horizon, at Threefold we believe it’s wise to hold on a bit longer. We anticipate the first OCR cut around November, which could trigger a reduction in interest rates, clear the high stock levels, and potentially lead to a market rebound by the summer of next year. Some commentators even project a 10% increase in property prices by the end of 2025.
Given this outlook, it’s crucial to adopt strategies that will help you retain your property long-term, or at least until the market conditions improve for a more favourable sale.
For investors considering their options, here are some effective steps to maintain positive cash flow and protect your investments in this challenging environment.
1. Transition to Interest-Only Mortgage Payments
One of the most immediate ways to reduce your monthly expenses is to switch your mortgage to an interest-only payment plan. This can significantly lower your payments, providing some much-needed breathing room for your finances. Although you won’t be paying down the principal, this strategy can help you maintain ownership of your property until the market improves.
2. Extend Your Loan Term
Another practical approach is to extend your loan term. Many investors have less than 20 years remaining on their mortgages, which can result in higher monthly payments. For instance, if you have a $600,000 mortgage on a rate of 6.89% with 17 years left, your payments would be $5,000 per month. By extending the term to 30 years, you could reduce your monthly payments to $3,948 per month, making it easier to manage your cash flow.
3. Establish a Revolving Credit Buffer
A revolving credit buffer can be an invaluable tool to cover shortfalls during periods of high interest rates. While it might be more challenging for investors facing a cash-flow crunch, it’s crucial to have a buffer in place for future high-rate periods as it can help to manage temporary cash flow issues without the need to sell a property prematurely.
4. Optimise Loan Structure for Tax Efficiency
Work with your mortgage adviser and accountant to ensure your loan structure is tax efficient, especially with the changes the current government is making to rental income tax deductibility from July 1st.
5. Refinance Your Mortgage
Consider refinancing your mortgage to take advantage of current incentives offered by banks. Some banks are offering up to 0.9% of the loan amount as a cashback for new lending, which can provide a significant financial boost. Depending on your current rates and term, refinancing your debt may also offer you better terms and lower interest rates, helping to improve your cash flow.
6. Remove Security Properties
If you have multiple properties secured against your mortgage, look into removing a security property. This can give you more control over the proceeds if you decide to sell a rental property. Having lending with multiple banks can also provide more flexibility and negotiating power.
7. Consolidate Personal Debt
Review your personal lending and consider consolidating short-term debts or extending loan terms. This can improve your overall cash flow, allowing you to allocate more funds to maintain your rental properties. Once interest rates drop, you can increase your payments again to reduce your debt more quickly.
8. Reduce Personal Expenses
Take a close look at your personal expenses and identify areas where you can cut costs. For example, if you’re paying for an unnecessary storage unit or other non-essential services, eliminating these expenses can free up additional funds to support your investment properties.
9. Consult a Professional Property Manager
A good property manager (such as the team at Wendell Property) can help ensure your rental properties are achieving their maximum potential. Many self-managed properties are under-rented. By consulting with a professional, you can make adjustments to increase your rental income. Additionally, property managers can provide valuable advice on small improvements that can boost your rental yield.
10. Consider Property Portfolio Adjustments
Sometimes, selling a property that is no longer suitable as a rental and purchasing one with a higher rental yield can be a smart move. This strategy can help optimise your portfolio for better returns and improved cash flow.
Next Steps
Maintaining your property investments during high-interest periods requires strategic planning and proactive measures. Even if some of these steps aren’t immediately applicable, having a plan in place can help you navigate challenging times and position yourself for success when the market rebounds.
At Threefold, our team have decades of experience in helping property investors to not only maximise yield and build a portfolio, but also in helping them to weather the cyclical storms that inevitably hit the market.
If you are interested in a complimentary review of the lending attached to your property portfolio, book a time to speak to Jonathan Michell, Director of Threefold Group, by clicking here.
Jonathan’s strength is helping you structure your lending and financial affairs to achieve maximum financial benefits. He has more than two decades of industry experience, distinguishing himself as one of the top mortgage advisors in NZ. He possesses a comprehensive understanding of tax and legal structures relating to property investment and is quick to collaborate with financial experts to ensure his clients receive the specialised advice when needed. To schedule a free consultation with Jonathan, click here.
About Threefold
Threefold is a specialist mortgage, insurance and KiwiSaver advisory firm.
Our team is here to help you achieve your financial aspirations and protect your future by providing clear, straightforward and tailored advice.
What makes us different?
We see your financial life as a connected whole, where each piece matters.
Our expert advisers work in sync to provide you with comprehensive advice on how best to achieve your financial goals and safe-guard your hard-earned assets.
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The content of this article should not be taken as financial advice, or a recommendation of any financial product. Threefold is not liable or responsible for any information, omissions, or errors present. We recommend seeking advice from a qualified financial adviser before taking any action.