Here are some ideas which have come up in recent strategy discussions with clients.
Some might be relevant depending on your personal circumstances.
They focus on improving flexibility, reducing risk, and positioning for future opportunities…
#1: Releasing equity while valuations remain respectable
Many homeowners are taking advantage of still-reasonable property valuations and unlocking equity now rather than waiting until they actually need it.
The idea is that the best time to access equity is while valuations are still strong, lending policies remain favourable, and borrowers have plenty of options available.
Once a market weakens, valuations become less predictable and borrowing capacity can sometimes tighten.
I’m seeing more clients establish facilities now even when they don’t have an immediate use for the funds.
The equity might ultimately be used to purchase a property to one day downsize into, or to fund a renovation, or to assist children into the property market, or to acquire a commercial asset, or simply to provide a cash buffer for peace-of-mind/ rainy day.
I’ve always believed it’s better to arrange finance when you don’t need it than when you do. Especially if there are Nil costs involved.
#2: Converting owner-occupied loans to Interest Only
This trend has surprised many people.
A growing number of homeowners are converting part or all of their current home loan to Interest Only repayments, despite having the capacity to continue making principal repayments.
Many clients aren’t certain whether their current home will remain their long-term principal residence.
Some intend to upgrade in the future, others expect to relocate for work or lifestyle reasons, and many anticipate keeping their existing property as an investment rather than selling it.
When a home eventually becomes an investment property, the tax deductibility of the associated debt becomes particularly important.
Reducing the loan balance aggressively today can sometimes reduce flexibility in terms of what can be claimed later.
By retaining debt against a property which may become an investment asset in the future, it may be possible to preserve deductibility of interest, noting the grandfathering rules associated with negative gearing announced in the budget.
Of course every situation is different and tax advice should always be sought, but what is clear is that many clients are starting to think several moves ahead rather than simply focusing on today’s repayments.
#3: Secure pre-approvals now, before a good property comes up
Many clients aren’t certain whether they’ll purchase soon. They’re concerned about the market deteriorating further and it depends if a great property comes up which meets their criteria.
But often buyers only begin the process of getting pre-approved after they find a great property. Suddenly there’s an auction date approaching, contracts need reviewing, building inspections need arranging, and finance applications become another item on the already lengthy to-do list.
The reality is your time is much better spent evaluating the property itself at this stage rather than scrambling to organise finance approvals at the last minute.
A pre-approval gives you clarity around your borrowing capacity, confidence when negotiating, and the ability to move quickly when the right opportunity appears. It also allows you to take advantage of today’s quieter market conditions.
If economic data improves, interest rate expectations become more favourable, or there are stronger signs that we’ve reached the bottom of the cycle, buyer confidence will inevitably return. Competition will increase and quality properties will likely attract much stronger interest.
Preparing in advance can be highly advantageous, and there are really no downsides since pre-approvals cost nothing and don’t commit you to proceeding with any real loans.
#4: Looking beyond residential
Residential property has been the cornerstone of wealth creation for Australians for decades.
I don’t expect this to change, however in-line with our previous article commercial property is becoming a much larger part of the conversation now.
Since the May budget, changes affecting residential property investors have prompted many clients to start considering other asset classes.
Commercial property offers a different investment profile, with potential advantages including:
- Higher rental yields
- Longer lease terms
- Annual rent reviews
- Tenants contributing to more outgoings
Importantly, many commercial assets have not experienced the same level of investor uncertainty currently affecting parts of the residential market. This aligns with a growing focus on income generation rather than purely capital growth among clients who are entering their 40s and 50s (typically the ‘transition’ phase of the property journey, following the accumulation phase…).
Commercial property isn’t suited to everyone, however I’m seeing an increasing numbers of professionals, business owners and established investors exploring warehouses, medical suites, office space, and retail premises as part of a broader wealth strategy now.
The bigger picture…
The clients I’m seeing making progress now are preserving future options and ensuring they have access to capital when opportunities arise.
In my experience that’s usually where the smart money goes first…. Preparation!!
Thanks as always for reading.
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This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Nothing on the Long Property website constitutes legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
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