6 Reasons Why I'm Gearing Up to Invest More

Posted by Ed McKnight on 18/03/20
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6 Reasons Why I'm Getting Ready to Invest

Why I'm Gearing-Up to Invest

Introduction

Andrew, why are you so bullish?

If you're reading the newspapers at the moment, you'll see stories that make it seem like the world is going to hell in a hand-basket.

Naturally, you're probably asking yourself “should I really be investing in property right now?”

For me, this is the moment I've been waiting to invest in more property. And I want to walk you through my thoughts about the impact of coronavirus so you have another perspective to consider.

Ultimately this will allow you to make the most informed decision possible, and the right financial decision for you and your family.

Here’s why I’m gearing up to invest in property myself:

The cost to be a landlord is going down

1) It has never been so cheap to be a landlord

Yesterday the Reserve Bank cut the OCR by 75%, from 1% to 0.25%.

Banks immediately followed suit and announced decreases to their floating interest rates by 0.75%.

On a $500K mortgage that means landlords can save up to $3,750 a year, or $72 a week.

This decrease in interest rates has the potential to make the property you currently have under contract significantly cheaper as the decrease in interest rates will flow through to the fixed interest rates by the time you settle on your property. 



Interest rate cuts make property more attractive

2) Property Is Becoming More Attractive Due to the Interest Rate Cut

The interest rate cuts will make keeping money in term deposits less attractive.

As of yesterday, the major bank's term deposit rates sat between 2-2.6%.

These interest rates will likely decrease over the coming months directly because of the cut in the OCR.

People who have invested in these term deposits will be looking for better returns. So, what are their options?

The bond and share markets are in flux and carry considerable uncertainty, and many investors will be wary.

That will likely lead many of these investors towards property. That's because while a decrease in interest rates harms deposit-holders, it makes property relatively more profitable.

Let's say the 1-year interest rate drops by 0.5% by the time you settle. That can turn a property that returned 2.75% yesterday into a property that nets 4.75% (on a 20% cash deposit).

As property becomes more attractive due to these cuts, I expect more investors to consider it as an option.

The market is still hot

3) The Property Market It Still Rocketing Along

New stats released by the REINZ late last week showed that the median New Zealand house price increased by 14.3% in the previous 12 months and homeowners made $80,000 from these properties.

The market is incredibly hot. Will the virus kick some confidence out of the property market? Probably. But we will likely see heat come into the market due to decreases in interest rates.

The government's stimulus package is massive

4) The Government’s Stimulus Package (announced today) is 3.5x the size of Australia’s

As of 5 minutes ago (at the time of writing) the government had just announced a $12.1 billion stimulus package. That works out to be $2,523.99 per man, woman and child.

Compare that to Australia’s $17.76 billion (NZD) package. Australia has a much larger population, and that works out to just $721.95 per person.

That makes our stimulus package significantly (3.5x) larger than the Australians.

Any business who can show they will be significantly impacted by the virus can claim up to $7,026 per full time employee. This is going to be a massive help for business owners and I would expect confidence to recover because of this.

The virus changes a lot – but not everything

5) What the Virus Doesn't Change

While it might seem like Covid-19 has flipped the whole world upside down. Consider what it doesn't change.

It doesn't change the fact that New Zealand still isn't building enough houses to keep pace with demand.

It doesn't change the fact that people always need homes to live in.

And it doesn't change the reason why I invest in property – to build my wealth and sort my retirement.

I want to share something that caught my attention on Facebook yesterday. There were a group of property investors considering whether to invest. Here is what one said:

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There is opportunity in this market, and some people will be brave enough to take it.