For at least a decade now – with the exception of a couple of short-lived increases – we have been in a downward interest rate market. That downward trajectory sped up drastically as a result of Covid and we all saw the record low rates that resulted.

What happened from that was a significant increase in asset values – in particular property – and a feast on debt in order to pay for those assets.

That’s now changed and we are very much in an upward rate market. Over the course of 2022 main bank home loan rates have close to tripled, going from the lows of 2.09 per cent to where they sit now, which is over 6 per cent. Outcome: reduction in property prices, property listings and overall a much more negative sentiment in the market.

However, in a market where that negative sentiment is meaning a lot of people (buyers and sellers) are sitting on their hands, we are still seeing a significant number of purchasers taking action – or, taking advantage of the opportunity. In fact it’s becoming very common for my team to tell me they’ve never been this busy.

I’m not a believer in luck. I’m a believer that luck is simply where preparation meets opportunity. And right now, despite interest rates increasing and the property market softening, there is significant opportunity.

So how can you be prepared to take advantage?

Pick your strategy:

Passive

Passive is often more long term, low touch investing and for us that means buying something new (townhouse/standalone) and holding it long term to get capital growth.

The opportunity

Unfortunately, there are a reasonable amount of buyers who, over the last couple of years, have put new build properties under contract and paid deposits without obtaining their full approvals from the bank in order to settle that property.

With interest rates increasing, this leads to those buyers potentially struggling to settle those properties and needing to nominate their agreement to buy. What this means for investors who are prepared is that there is the opportunity to take on those properties and buy at a price agreed one to two years ago. There’s benefit to this for all parties. The developer still gets the property sold; the initial purchaser gets their deposit back (or most of it) and can move on; and the new investor gets a property at below market value.

The advantage

Getting a property at below market value means you get instant equity gain. However, the real advantage to this strategy is all the benefits that come with buying a new build. Interest deductibility; little to no maintenance; lower deposit requirements for lending and shorter bright-line rules, to name a few.

Active

Active investing is for those investors who want to be more involved. Similar to passive, it may be a long-term strategy in that you hold the property long term, but it’s very much short term in that active investing is about buying cheap, renovating to add value and increase rent quickly, and then re-valuing, extracting the equity and going again, and again.

The opportunity

In a market with high inflation, higher cost of living and rising interest rates, there will be those who are put in a position where they need to sell property rather than wanting to. Perhaps they’ve over-leveraged and need to pay down some debt, or they could simply be wanting to adjust their own investment strategy and swap old for new. That need to sell creates an opportunity to purchase below value and find properties where you can add value quickly. In this strategy, you make your money on the way in. The better you buy, the better the end result.

The advantage

This strategy has a clear advantage that outweighs the new build approach. It’s the ability to add value and recycle that equity gain to go again. If done well, adding things like bedrooms, cabins, minor dwellings and simple cosmetic renovations will increase your property’s value, increase the rental yield and allow you to keep buying more quickly.

Pre-approval

Once you’ve got your strategy, get pre-approved. The sooner you do this the better. Remember that when interest rates increase, the banks tend also to increase their test rates. This means that every time the rates go up, your borrowing potential goes down. Therefore, getting a pre-approval sooner rather than later will give you the maximum level of borrowing. It also means you’re in a strong position to take advantage of deals when they come up, which means you could get an even better price.

Revolving credit

The last part of being prepared is about the loan structure itself. Having a revolving credit, or some sort of buffer (offset) set up is crucial. This could be used for things like covering the weekly top-up you need to put into the property costs such as mortgage repayments. While rates are higher, you’ll likely be negatively geared and need to top up your repayments. Understanding what that number is, and having a revolving credit set up to cover it, will mean that as rates go up you won’t be frightened into selling. You’ll stay the course and remember the long-term goal.

The trick with this one is to borrow while you can. Don’t wait until you’re short of cash and needing the buffer in place, to go to the bank and ask for it. By then, it’ll likely be too late.