Property values go in cycles and while there is usually an upward trend, there will be dips and valleys too. Your property investment strategy will need to adapt to engage with these different stages of the market cycle so that you can maximise your return on investment.
Property Observer outlined the basic stages in the cycle:
When the market is growing it is sensible to use your investment loans for maximum borrowing. Interest rates will generally be high, but paying only the interest will allow you to use the extra cash for further investments. Getting two properties on the books during a period of growth will mean double the return and this should be worth more than the increased interest costs.
When the market is declining you’ll want a different strategy. As the value of property drops this is usually accompanied by lower interest rates and this offers you the opportunity to pay down your debts. Paying off debts when the interest rate is low will enable you to save a great deal of money that can counteract any losses that you are making from declining value.
The key lesson is that your strategy needs to be adaptable. What works at one stage of the market cycle may actually be hurting your finances during another. It is important that you do what you can to maximise benefit at all times.