Tips to maximise your position should rates fall

The ongoing eurozone crisis may force the Reserve Bank to introduce further interest rate cuts before Christmas. So if this year the RBA decides to dress up as Santa instead of the Grinch, a leading property investment group says investors need to reconsider their financial position to make sure they capitalise on the move.

Kevin Young, CEO and founder of The Investors Club, has insight into the effect an interest rate drop will have on investor behaviour and attitudes, and shares his strategies for investors in maximising their financial position from a rate drop:

Use the extra cash wisely: Put the money you save on holding costs into paying off non-tax-deductable loans e.g. the mortgage on your own home or credit card debt.

Don’t fix your rates yet: With banks and credit unions offering fixed rates as low as 5.99% for 3 years, the banks must predict further rate falls. Kevin says, “The big banks are predicting a record $24 billion profit for next financial year. They don’t make these profits by offering investors a fixed rate that they lose money on.”

Time to consider your next property purchase: When rates drop consumer confidence bounces back. Westpac reported a spike in dwelling approvals in its latest report and the rhetoric from the RBA is they will continue to drop rates. This makes it a great time to buy before people start to really clamour back into the market.

Invest your super in property: Super funds have suffered a 5 per cent in the September quarter[4]. They will need to grow by 11 per cent to get back to where they were pre-GFC in 2007. With a fall in interest rates, property becomes even more appealing as an asset class. In a 2010 report issued by the Australian Stock Exchange, residential property achieved a higher return for the past 10 and 25 years when compared with the share market.

Time to start investing: “We have investors with properties worth $400,000 paying only $30 a week to hold it,” says Kevin. “If rates drop 25 basis points, as they are predicted, some investors will be cash flow neutral. Having less to pay on holding costs puts investors in a great position to pay off other debts to consolidate their position before making their next investment.”

by Article | The Investors Club

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