When APRA decided to intervene in the property market by forcing the Banks to curb their investment lending growth, the end result was much more than just slowing the market. It was obvious to anyone interested enough to look that this aim could have been accomplished very easily using specific measures targeted directly at the centre of the heated market, namely Melbourne and Sydney. Imposing temporary LVR limits would have addressed the issue quickly with no other changes being necessary unless other outcomes were intended.
Think about that. Why has every single investor in the country been hobbled by the regulators simply to slow down the market in two capital cities? It doesn’t make sense. The regulators intent was clearly something more wide ranging.
It has been suggested that the existing household debt levels across the country are the main cause for concern by the regulators, especially borrowers with little or no cash in reserve. That’s understandable but is it the regulators job to remove investor risk from the market?
Anyway, let’s take a look at what finance conditions we are working with as investors. There are limits on High LVR’s (Loan to Valuation Ratio), in fact most have virtually disappeared while I/O (Interest Only) now carries a premium compared to P & I (Principle and Interest)which is a direct result of the Banks pricing. At the same time O/O (Owner Occupied) properties have also been lumbered with interest rate margins for I/O and lower LVR’s are the norm now. Borrowing capacity calculators have been adjusted to reduce borrowing power so that equity has now been surpassed by income as the dominant force in borrowing.
Does this look like the actions of a regulatory body trying to slow the market?
All of these changes have one thing in common. They limit the ability of an investor to create wealth through property to the same extent that was possible before. Your ability to create wealth through property is effectively worse today than it was 5 years ago, using credit guidelines as the ultimate measure. Clearly then, increasing interest rates combined with tighter serviceability calculators effectively means income is what’s needed to counterbalance the direction APRA is pushing.
Now we know that, the question becomes somewhat easier to work with. “How do I generate more income from my investments?”
Data forecasting what the future looks like for the property markets highlights low growth for some time to come. What can property provide to an investor to fill the long term income need, or more accurately, what type of property is best suited to fill that need?
Considering the measures APRA has put into place to stifle investment, we believe there is a clear loophole that investors can use to get back on top of the property ladder.
The answer, we believe, is Dual Occupancy or Duplex properties.
Now these types of properties are not new, in fact they have been around for decades, but what is interesting is the way investors can use them to shake up the existing tough conditions they face.
A dual occupancy is simply a property with two sources of income and that means two dwellings or liveable areas. Some Councils will allow a three bedroom and a two or one bedroom apartment to be constructed on the one property. Rental returns for both the short and long term are superior for that reason and this helps investors to generate more income per property.
Dual occupancy properties have advantages over single dwellings too. They produce more income obviously, because they have two lots of tenants and twice the income gives you an improvement when dealing with the Banks capacity calculators because the property has more income.
Imagine the cash flow from having multiple dual occupancy properties inside your portfolio.
Dual occupancy properties are two separate dwellings on one title so, in theory, down the track you could look at sub dividing them to create two separate houses, thereby increasing the value of each property. When you are looking to buy you can make sure that dividing the property into two parts provides two quality homes, rather than one home and one granny flat for example.
As usual, knowing what you will end up with is vital.
Dual Occupancy properties provide plenty of options for reducing debt if you wanted to. Higher than normal cash flow is a very attractive proposition in the current market, especially when you are creating equity and reducing debt.
Naturally, because you are buying two houses on one title there will be a higher purchase price but the benefits are very attractive all the same.
Opportunities to own these cutting edge dual occupancy dwellings are available right now. Why not talk to one of our Property Advisors today and see how you can benefit from boosting your cash flow quickly.
For a personalised overview on your portfolio or to discuss your next purchase, make an appointment with one of our experienced Property Advisors today.