Property Investment with Rising Interest Rates

With interest rates rising, property investment is becoming more challenging to get right. Each rate rise adds to the cost of maintaining a property and eating into returns. This makes it harder to make the numbers work, and many investors are choosing to put their money elsewhere.

That said, there are some benefits to investing in real estate when interest rates are rising. For example, there tends to be less competition for properties, as home buyers will usually be less active. At the same time, demand for rentals will usually be strong, which should help boost occupancy rates and rental yields.

As such, successful property investment with rising interest rates is all a matter of knowing how to optimise your returns. Here we will explore the best ways to get the most from your property portfolio, even when rates are rising. We also share our advice on surviving this difficult time and coming out the other side in a stronger position.

Why invest in property when interest rates are rising?

When it comes to property investment, rising interest rates have one main impact – higher mortgage repayments. Depending on the value of your property, this could mean paying hundreds, or even thousands, of dollars more each month. And, if your property is negatively geared, most of this will need to come out of your own pocket.

However, while rising interest rates mean investment properties cost more to maintain, most should also produce more income. This is because, when interest rates rise, the rental market tends to tighten, as potential buyers delay their plans. As more renters are competing for fewer properties, vacancy rates usually decline and median rents usually grow.

It’s also important to remember that, as the market is cyclical, property is best seen as a long-term investment. This approach acknowledges that, while prices rise and fall over the short to medium term, they generally trend upward, over the longer term. It also frees you up from trying to “time the market”, which is almost impossible to do.

Making the most from your real estate investing when interest rates are rising

When interest rates are rising, property investment is really about making sure your portfolio is delivering the greatest possible returns. This should help you offset, at least partially, the additional ongoing costs that you need to cover. It will also mean that you’re taking full advantage of the strength of the rental market.

The good news is, there are a few simple things you can do to ensure you’re maximising your returns. Specifically, we recommend you:

  • Review the rent you’re charging: One of the easiest things you can do is make sure the rent you’re getting matches the market rate. Your Property Manager can help with this by researching what comparable properties are achieving and provide you with a rental appraisal. If this is higher than what you’re currently getting, you may want to increase the amount you’re charging. However, we suggest doing this when the market is busiest, and prices are highest (e.g. January to April and August to November). Also, remember rent can only be increased on periodic (where the lease has expired and is on a week-to-week or month-to-month basis) leases, and you have to provide 60 days’ notice. Also, you need to be aware that in NSW, you can only increase the rent, once every 12 months.
  • Get a depreciation schedule drawn up: As an investor, you’re able to claim natural wear and tear on your properties as an expense on your taxes. However, to do this, you first need to have a depreciation schedule prepared by a qualified Quantity Surveyor. This will detail which assets are depreciable and how much of a deduction you can claim on each, each year.
  • Use an offset account: An offset account is a great way to reduce the amount of interest you pay on your mortgage. The balance of this account is subtracted from the principal you still owe, with interest calculated on the reduced amount. This means your required payments will be less, saving you money and minimising the impact of rising interest rates.
  • Consider a fixed-rate loan: While variable loans offer greater flexibility, they leave you more exposed to the impacts of rising interest rates. By contrast, a fixed-rate loan may limit your options for a period, but will insulate you against payment increases. As such, if rates are trending upwards, moving to a fixed-rate loan could help you weather the storm.
  • Speak to your lender: If you’re really struggling to meet your repayment schedule, your mortgage provider may be willing to adjust your interest rate or loan terms. For example, if you have a principal plus interest loan, they may be able to temporarily reduce your repayment amount. Alternatively, they may allow you to reduce your repayments by extending your loan term (e.g. from 20 to 30 years).
  • Review your management fees: If your property is managed by a real estate agent, then ask if their charges and fees could be reviewed. Some agents have low-cost packages, while some agents offer an all-inclusive packages – where you just pay a management fee without all the other costs.

Want to discuss this further?

For more information on the best approaches to property investment with rising interest rates, contact Local Agency Co. Our experienced team can help you assess your current portfolio and plan the best approach for each property. We can also work with you to review your long-term investment goals and develop a tailored strategy to achieve them.


Scroll to Top