Investors using rate cuts to get ahead

Historically low interest rates are motivating investors to pay down their mortgages faster, according to an expert buyer’s agent.

DIRECTOR and buyer’s agent at investor advocate, Your Property Your Wealth, Daniel Walsh said savvy investors were making the most of lower repayments by funnelling any additional cash flow into their mortgages.

“Investors with variable mortgages have seen interest rates tumble by one to two percentage points over the past year,” he said.

“Some investors have also opted to refinance now that the lending environment is more favourable to them, which has resulted in their repayments dropping even more.

“Rather than frivolously spending that extra cash flow, many investors are opting to pay down their debt.”

Mr Walsh said the tactic was not surprisingly given it was an urban myth that negative gearing was an “investment strategy”, with most portfolios becoming neural or positively geared within a few years.

“In fact, the 2019 PIPA Investor Sentiment Survey found that 52 per cent of investors expected to be positively geared within five years,” he said.

“What’s interesting is that the research was conducted before one of the recent rate cuts, so that timeframe is likely to be dramatically shortened.”

Mr Walsh bought his first investment property 10 years ago when he was a 19-year-old an auto-electrician apprentice.

Today, the 29-year-old owns a $4 million, nine-strong property portfolio that has $2 million in equity with his wife Sophie.

Like many other investors, he recently refinanced his portfolio and now has an extra $9,000 in cash flow to pay down their borrowings as well as increased their passive income to $68,000 per annum.

“We are using those extra funds to pay down our portfolio, which at the end of the day is the goal for all investors,” he said.

“Of course, buying strategically located properties will increase your chances of solid future capital growth.

“However, the debt does need to be repaid at some point and the current lending conditions as well as low interest rate environment makes the timing perfect for investors, like us, to do just that.”