A young property tycoon has claimed there is no reason for homebuyers to not invest despite interest rates rising for the 13th time in 18 months.
Eddie Dilleen, who hails from the working-class suburb of Mount Druitt in Sydney’s west, owns 81 properties worth a total of about $50million.
The 31-year-old said anyone who wanted to invest in property should not be put off by the Reserve Bank of Australia’s latest rate rise on November 7.
Just half-an-hour before the Melbourne Cup, the RBA announced that the cash rate would increase to a 12-year-high of 4.35 per cent.
Despite not purchasing as many properties this year after buying 27 in 2022 – Mr Dilleen has not cut back on his spending.
He has spent more this year than any prior, including two purchases made just 60 days apart which set him back $13million.
While it’s still an investor’s market, Mr Dilleen urged anyone looking for a house to live in to buy now but not stretch to the limits of their borrowing capacity.
Eddie Dilleen (pictured) has told investors and home buyers to ‘buy now and soon’ despite recent interest rate increases
EDDIE DILLEEN’S FIVE RULES FOR INVESTING IN PROPERTY
1. Ensure the rental yield is at least about seven per cent – but the bigger the better
2. Buy below market and bank valuations
3. Always buy in a metropolitan area
4. Identify when prices for metropolitan properties plateau – a boom will follow
5. Look for properties where ‘intrinsic value’ is higher than the asking price
He told Daily Mail Australia that when it came to property investment, no matter what the interest rate was he would still be ‘buying in any market, as long as the property has a really, really good rental yield’.
‘If you have a good yield it doesn’t really matter what the rate is,’ he said.
‘If you buy a property with like 8 per cent return, and the interest rate you pick up is 7 per cent, you’re still a per cent higher.
‘The other one per cent could cover a majority of additional things like council rates, water rates, and stuff like that.
‘So I’d still be buying and I’m still buying, and I’ll still know that thousands of other people are also buying.’
Mr Dilleen had similar advice in January when he told Daily Mail Australia prospective buyers should not shy away from property when the cash rate was 3.1 per cent.
However, he failed to predict how high interest rates would rise during 2023, at the time saying: ‘I personally believe we’re near the top of interest rate rises.’
Instead, the cash rate would increase by 40 per cent to 4.35 per cent.
Mr Dilleen told investors to buy inner-city properties with a rental yield anywhere above seven per cent to stay above interest rates, while also telling those looking to live in a property to buy below their borrowing capacity because in a decade ‘it will be worth more… guaranteed’
The tycoon has provided investors with the five rules he follows when looking for his next property purchase.
The first is to make sure the rental yield on the property is at least seven per cent, but of course the bigger the better.
He said issues arise when, for example, the average ‘mum and dad’ investor buys a property in Western Sydney for $1.3million and then ‘rents it for $700’.
‘That yield that they would be getting is about 3 per cent, so if their interest rate is 7 per cent then they’re negative from the get-go’.
While seemingly obvious, Mr Dilleen’s second tip was to buy below market and bank valuations.
He said under-value properties regularly came onto the market due to ‘accessibility constraints’ such as owners selling on short notice.
His third tip is to always buy in a metropolitan area, claiming that 40 of his properties are a short distance from the Brisbane, Ipswich and Logan CBDs in Queensland – all of which he claims have doubled in price since.
His fourth is to identify when prices for metro properties plateau, as a ’20 to 30 per cent’ price boom could follow in the following years.
While rare, his last tip was for buyers to look for a property where the intrinsic value of the house is worth more than the asking price.
He noted that the value of the property itself should also being taken into account with construction costs skyrocketing across the nation.
RBA governor Michele Bullock (pictured) announced the rate increases on Tuesday for the 13th time in 18 months, the most severe pace of monetary police tightening since 1989
These tips relate to investors looking to lease the property and use the hopefully higher rental price to pay off the mortgage.
For homebuyers looking to live in their prospective property, Mr Dilleen urged them to refrain from buying at the limit of their borrowing capacity.
‘If you can borrow a million (dollars) you don’t have to buy something for a million, see if you can get something for $850,000,’ he said.
‘Especially if you’re buying your first property make sure you’ve got a bit of a buffer there.’
For those able to afford it, Mr Dilleen said to ‘buy now as soon as you can’.
‘Because in the long term, in 10 to 15 years, it’s going to be worth more. It’s just guaranteed,’ he said.
The Reserve Bank’s new Governor Michele Bullock presided over her first rate rise on November 7 after inflation in the year to September rose by 5.4 per cent, marking only a small moderation from June’s 6 per cent pace.
The increase could signal the cash rate skyrocketing past 5 per cent which hasn’t been seen since the peak of the global financial crisis in 2008.
Homeowners would be adding more than $400 a month to an average mortgage if it increased to 5 per cent.
Homeowners could soon see spending an extra $400 per month on their mortgage if the cash rate continues to grow to above 5 per cent (stock image)
An Australian borrower with an average $600,000 mortgage was paying $3,809 a month before the rate rise on Melbourne Cup day. Three more increases would take that to $4,212 – adding another $403 to monthly repayments.
Such a scenario would see the typical Australian borrower pay 82.7 per cent more a month than they did in May 2022 when repayments were at $2,306.
Back then, banks were still offering mortgage rates starting with a ‘two’ when the RBA cash rate was still at a record-low of 0.1 per cent.
The RBA has also updated its forecasts to have inflation returning to the top of its two to three per cent target in late 2025 instead of mid-2025.
Professor McKibbin, who is now the director of the Australian National University’s Centre for Applied Macroeconomic Analysis, said this would require an RBA cash rate starting with a ‘five’.
‘To get inflation back within the band, you have to go to a contractionary monetary policy – so my view is you would probably go up to somewhere in the low fives,’ he said.
Should Australian interest rates rise to 5.1 per cent, the cash rate would still be well below New Zealand’s 5.5 per cent level and the US rate of 5.25 per cent to 5.5 per cent.