With low interest rates here to stay for quite a while, those with home and other loans are rejoicing in being able to pay off their debt faster. For the borrower maintaining their previous repayments, this also produces a buffer, should things go pear-shaped in the future. It can also substantially reduce the time (and total cost) of repaying the loan. For the banks it means less defaults in payments from those customers when rates do eventually rise again. New borrowers would be well advised to make an allowance for future rate rises and maintain access to a cash or credit buffer. At Investment Property HQ we build this safety buffer into our clients’ property strategies from the beginning.
But spare a thought for the retiree. They have endured far higher interest rates over past decades and just as they get to relax and live off their savings, they are dealt a cruel blow. Most are lucky to be receiving 3% return on their term deposits. With inflation currently at 1.3% (and 2.35% for underlying inflation) there is precious little left to meet living expenses.
The result – retirees are living on their capital.
This is clearly a temporary solution as it erodes their capital and results in a dangerous situation. Retirees have less and less capital to generate the cash they need to live on and our social security system will have an increasing burden of age pensions to pay out in future years.
Although retirees prefer risk free investments, most will have little choice but to consider higher returning alternatives. It’s no surprise they lean towards the perceived safety and security of property. Property is understandable, tangible and fairly predictable which suits their conservative investment style.
Rental yields are generally in the 3% to 5% range but higher yields are available in certain areas. Currently, many parts of Queensland boast yields over 5% on rental properties. Southern states are showing reduced yields, not because rents there have fallen but because property prices have risen. As SE Qld property continues it’s increase the same will occur, producing capital gains for those astute investors who have bought in SE Qld.
Retirees with enough cash to buy a rental property outright should seriously consider their alternatives. At Investment Property HQ we have noticed an increased enquiry rate from retirees and have identified appropriate properties with excellent monthly returns as well as capital gain prospects. If this sounds sensible enough to discuss further for yourself (or your parents), then contact me directly on 1800 767 332 or email@example.com
Investment Property HQ
Mobile: 0412 542 316