The property boom years prior to the Global Financial Crises of 2007-2008 saw everyone and their dog becoming property investors. It was a crazy time for many with people buying anything to get ‘on the property ladder’ and the ‘reality’ TV shows of the day making it seem so easy. All you had to do was buy a dog at an auction for well below street value, then do ‘a reno’ and sell it, again at auction, for way over the reserve. Simple!
The reality was that while not as easy as that, it wasn’t that hard and part of the reason was that banks were virtually throwing money at anyone they felt could make the payments and even if they couldn’t, they were re-selling soon so no problem. At least that was how it often looked. It is true banks and lending institutions did relax considerably the lending criteria they had applied for decades and it was simpler to get a mortgage. Of course when interest rates soared in 2008, although nowhere near as high as they had in 1986-87, many were left holding paper on properties that were not fetching anywhere near what they were mortgaged for.
For those who had bought investment properties and were renting them out the property suddenly became, if it hadn’t been already, negatively geared. This means the money the owner is paying in mortgage is less than they were receiving in rental income. The difference was attractive in boom years when they might be in a high salaried job and the loss was used to offset the high personal income tax they would otherwise have to pay. Now we had a situation where many had lost their jobs due to the GFC or, an increasing number had been lured by the potential to make a lot of money doing investing full time and no longer had income other than their rents as banks were clamping down on new loans and nobody was buying the places they were renovating and ‘flipping’ anyway.
Five years can be a long time in property investment and now, in the latter half of 2013, it appears banks are once again keen to lend money at realistic rates of interest, there are more people looking to get their feet on the first rung of the property ladder once more and there are still bargains to be had in some postcodes. Bargains which with a little TLC and some investment in paint and what have can be made to offer good returns for the smart investor.
The keyword here is smart. Those who remember the heady days of the last property bubble also remember the plummet into the abyss when the bubble burst and they don’t plan to go back and repeat their mistakes. People are far more internet aware and make even more use of it today than in 2004-2005 at the height of the bubble. Mobile apps allow them instant access to information on suburbs, markets, materials, selling prices and much more. This information needs to be accessed and applied when deciding how much to risk in a property investment.
It is still risky, always has been but it is once again returning to a more balanced, fair proposition for all sides and with the lessons of the bubble kept well in mind, there are bargains to be had, opportunities to be seized and fortunes, albeit perhaps smaller, to be made.