How to time your property purchase

The market’s running hot and you want to get in and purchase another property before it becomes too expensive.

The right time to buy your property should not be dependent on the movements of the broader market, this isn’t an effective or efficient strategy to grow wealth through property!

How do you know when it's time to jump back into the market?

Regardless of how the state or national markets are performing overall, there will always be pockets of growth and high yields to be found – in both urban and regional areas.

The best time to buy your next property is as soon as you’re financially ready to do so!

If you are ready – financially – to buy, then you mustn’t waste time waiting for the broader market to correct on the assumption that you’ll secure the lowest price and the best deal. You need to seek out the pockets of growth that are out there now and go for it!

Wasting time while you wait for Australia’s alleged housing bubble to burst, will only see valuable profit-making time lost. Waiting for the national market to reach its bottom before investing is also pointless.

Chances are, that by the time you hear from the property economists and researchers that it’s reached its bottom, prices are already on the up and you’ve missed your window of opportunity.

There is no need to be at the mercy of the broader market. With the right advice, research and property selection, you can profit, regardless of the property cycle being in boom or correction phase.

Here are the four steps you can take to determine whether you’re ready to buy – regardless of where the broader market is at:

Check how your home loan compares

Step 1: Review your useable equity position.

How much useable equity (for new buyers, this is equivalent to how much deposit you have) do you have stored in your existing property assets? You can work this out by having your property or properties valued and then deducting the balances of your loans from 80% of your property value.

Be mindful of a couple of things if ordering your own valuation. Your lender will not accept that valuation and most likely order their own and valuers are inherently conservative and can at times value down a property.

Depending on your lenders policy, they will restrict access to a portion of your equity, usually around 20 per cent, so you may find that your calculations and the banks may not align if their valuation is different to what you received.

Step 2: Determine your loan serviceability limit

It’s critical that you only borrow what you can afford – you must make sure that you’ll be able to maintain reasonable lifestyle with your new debt. You should start with a borrowing power check yourself, before getting a more formal confirmation from lenders. You can use our borrowing power calculator here.

If you’re pursuing a strategy of negative gearing, this is particularly important. You will need to work out the maximum you can afford to be out of pocket each month.

If you’re seeking a neutral or positively geared investment, you will be in a much more secure position. However, you still need to be confident that you’ll be able to service the loan should the rental market deteriorate or if interest rates rise – two factors that will negatively impact your cash flow.

Step 3: Set your budget

By this stage you should know how much deposit or useable equity you have and the maximum price you’re able to pay for your next property (your borrowing capacity plus any cash you have, minus cost associated with purchase).

You should also know how much you’re prepared to pay towards the interest repayment on the loan each month as this will determine the rental yield you need your next investment to generate.

Step 4: Property search and selection

Based on your strategy (negatively or positively geared), you’ll now be able to begin your property search, which will ultimately determine whether there are any good investments out there that fits your budget and loan serviceability.

If nothing fits the bill, then you need some more time to create a bigger deposit and look at ways in which you can improve your borrowing capacity.

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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.