Another month, another interest rate rise. It’s no surprise what we saw from the RBA this week, but it is no reason to panic. As I’ve said before, it’ll go up and it’ll go back down, and I expect interest levels to get back to 2019 levels sometime in 2024.
Some good news – auction rates around the country last month were over 70% and it’s down to three things – population growth, housing shortage and an inheritance boom. We’ve never seen this combination of factors at this level before and it has incredible potential for us as property investors.
Firstly, population growth.
Australia’s population is booming with over 100,000 migrants coming in per month and it won’t slow down. What’s more is a lot of the international students coming in are from wealthy families who can afford competitive rents and may even consider purchasing. Universities across Australia have been calling for more student accommodation to be built to accommodate increasing international student numbers, but those calls have been left unanswered and any adequate student accommodation won’t be ready for a while.
It was previously expected that only 30% of migrants buy, and the other 70% rent, but with limited rental properties that 70% will be struggling and may be forced to buy.
As homeowners and property investors we can take advantage of this boom to help us manage our increased mortgage repayments after the raised interest rates - rent out a room to a student. The average mortgage in Australia is $538,000 and with interest rates going up, extra repayments are costing approximately $1000 per month. You can make $500 off each room you rent out and easily help manage those increased repayments.
Next up, housing shortage.
The numbers don’t lie – we do not have enough rental properties in Australia to facilitate the number of migrants coming in. At the end of January, there were only 31,000 rentals available across Australia and renters are getting competitive.
Rents are going up over 2.5% each month, trending at nearly 30% per annum and renters are eager to secure a property. We see some offering higher rental payments and offering to pay six months rent in advance. This is vital for us to be aware of as property investors so we can make the most of our investments.
Finally, Inheritance.
I spoke about it last month, and its still relevant this month – Inheritance has never been passed down at this rate. $270 billion is being passed down per annum. Australia is wealthy and the inheritance being passed down is equivalent to half the value of Australia’s properties.
I’d like to move onto a reminder from Seven Steps of Wealth - buy land for growth. It’s the very first step and it is vital. The truth is land is getting smaller and density is going up. When I wrote Seven Steps to Wealth twenty-five years ago people were buying 800m2 lots and now there are lots sold as small as 70m2.
I’ve followed this step myself and it has paid off. In 2021, when everyone else was running for the hills, I bought six lots in Pimpama on approximately 375m2 lots and built a house on each. Now, just across from my properties is a shopping centre and about 600 metres from my property the Pimpama railway station is being built.
This represents an incredible opportunity for me. With population growth and infrastructure being built, I could add on to the backs of these properties and make 12 houses. Alternatively, I could pull down these properties and build a 7-storey building of apartments with 42 tenants. But to invest in upgrading these properties now would be a waste. I’m focused on the big picture. When the railway station is built, I could build a 14-storey building, with 100 tenants. That’s the big picture – you need to build a land bank.
The last thing I want to leave you with is mindset. We have two minds, the mind in our heart and the mind in our head. The heart is giving and loving, and the head is fear and losing. A lot of us get stuck in our head and it is not productive. You cannot control your thoughts, but you can control your reactions, your environment, and your habits.
We need to be driving our actions from the heart and I practice that with the Toogoolawa school. Setting up the Toogoolawa school was the best piece of advice I got from my mentor, and it is now the highlight of my week, visiting the school and seeing the impact and difference I am making for 118 students.
It was great to see so many people involved in CATS last month. We had more people sign up than ever before and I hope some of you will join me in continuing the challenge. If you change your diet, you’ll change your mindset.
JF
