Over the last few weeks, lenders have aggressively cut fixed rates, particularly for investors that borrow on an interest only basis. Three and five year fixed rates now range between 3.18% and 3.40% p.a. This means the cost to hold an investment property is as low as it’s ever been.
This doesn’t mean we all should run out and buy an investment property.
The cost to hold a median property
The graph below charts the annual after-tax holding cost of a median value house (average of Melbourne & Sydney) expressed in today’s dollars. As you can see, a property’s after-tax holding costs have typically ranged between $10,000 and $30,000 per annum over the past 40 years.
The red line is the estimated annual after-tax holding costs based on current fixed rates.
A $800k apartment will cost $500 per month to hold
Let’s look at the cost to hold an $800,000 investment property (apartment) using actual data as an example.
Therefore, this property, for example will cost you circa $505 per month (after-tax) to hold.
Low rates will likely inflate property values
It is a commonly accepted economic principal that lower interest rates typically lead to an increase in asset values (i.e. the value of equities and property rise). The reason being is that the lower cost of debt means higher profits to owners which means assets are worth more.
The graph below charts three variables:
§ The rolling average capital growth rate over 20 years for median houses in Melbourne and Sydney; and
§ The cost to hold an investment property (as charted above). This is calculated as the annual after-tax holding cost of a median house based on prevailing interest rates at that time, expressed in today’s dollars; and
§ The average rolling 20 year growth rate between 2000 and end of 2019.
Do you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts
If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/
If this episode resonated with you, please leave a rating on your favourite podcast platform.
Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/
Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/
DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/
IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.
Investopoly