Insure your property against economic changes

Feeling ill at ease about investing in anything in an uncertain economic climate? Never fear, says TV property expert Chris Gray. His sure-fire strategy for investing in property is also a proven buffer for any economic condition.

It’s no secret that investing can be unpredictable, particularly since investments tend to be sensitive to changes in the economy and market. When it comes to property, three major forces that can adversely affect investors are increases in interest rates, decreases in rental demand, and a slump in property prices – all of which we’ve seen in recent times.

I borrow and invest millions in property every year – and can’t afford to lose out. The good news is that over the years I’ve developed a ‘protective’ strategy that works in any type of market. They’re outlined in my five steps below:

1. Buy well – the most important step

Buy below market value (and get an independent valuation report before you buy to prove you’ve bought well). This will give you instant equity, which can be used as a buffer against rising interest rates.

If you want to attract tenants in any market, look for factors that will increase the property’s value and desirability: a good location, a well maintained property, spacious bedrooms, proximity to public transport, and a uniqueness from other properties in that street.

2. Choose the right loan for you

Both fixed-interest and variable-rate loans have advantages and disadvantages: banks charge an added premium for fixed-interest loans, while variable-rate loans may keep you worried about short-term rises.

As an alternative, you could switch to an interest-only loan, but continue to make the same monthly repayments (principal and interest). The principal will be an additional repayment that can be withdrawn or used to cover additional interest if you struggle to make the minimum repayment in a few months’ time.

3. Refinance your mortgage

Create an emergency buffer zone by increasing your loan facility. Let’s say you’ve got a $500K property and a $350K mortgage. Most banks will loan you 80 per cent of the whole property – or $400K. As your original mortgage is $350K, the bank would give you a separate facility of $50K. You can use this to cover your mortgage repayments in a time of crisis – if you’re out of work, or if you can’t meet interest rate rises.

But be disciplined – only withdraw the extra funds when it’s absolutely necessary.

4. Create instant equity

Quick renovations, when carried out with the advice of a valuer, create instant equity. Renovations such as a paint job, new carpet, new kitchen cupboard doors, and a garden makeover can often do the trick for very little cost.

Borrowing against the added equity will then give you an emergency buffer zone to cover unforeseen expenses in the future.

5. Re-sign your tenants

Consider tying existing tenants down to a 12-month agreement. To maximise your rental income, consider renting out a property on a 12-month lease from summer to summer, especially if it’s near the water. The greatest demand for property is in summer – that’s when rental prices are often higher.

For more about investing in property and how you can make the most of the current market conditions, download a free copy of my latest book at

Chris Gray is a leading property expert who provides opinion and commentary regularly on Sky Business News, Channel Nine and other major media. He builds property portfolios for time-poor investors – searching, negotiating and renovating on their behalf.

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