WITH INTEREST RATES ON THE RISE, MARGARET LOMAS SHARES SOME TIPS ON HOW PROPERTY OWNERS CAN MINIMISE THE IMPACT.

Interest rates are, of course, on the rise, with all property owners - especially investors - needing to be aware of how this can affect their financial situation.

To date, I have seen and heard many reports by ‘property experts' saying there is no need to worry about rates, and that great property deals still exist, etc. Given the current economic climate, I believe property owners should most definitely be cautious of rate rises.

The key area of concern for many will be personal debt. Since this is not tax deductible, every $10 increase to loan repayments is a direct $10 cost to you. Now is a good time to review your finances and do some forward planning to ascertain what the next two or three interest rate rises will do to you, and where you can begin making some savings. I would suggest trying to put at least $30 extra into your personal mortgage each week now, if this is at all possible. Where it is not, anything you can do, even it is only $5 or $10 extra, will help.

For investors, rent guarantees are being touted as interest rate protection, which property owners should be cautious of. Rent guarantees depend entirely on the ability of an operator to finance it, so be aware that during times of increasing interest rates, the commitments of these operators will also rise and limit their ability to make rent guarantee payments.

When interest rates rise on investment loans, investors can try to recoup some of this through rent increases. So, for example, say your $200,000 loan increases by 0.25 percent, you may add $10 a week to your costs. After tax deductions at 30 percent, this is a net of $7 to you. Lately, however, values on properties in most areas have increased markedly, yet in many cases rents have not been increased when a $10-increase in rent could cover off any affects of such an interest rate rise.

Where rent simply cannot be increased (which is rare, because most tenants will pay at least $5 more a week), you will need to find the extra $7 yourself, so financial adjustments will need to be made elsewhere. On a positive note, though, this $7 per week can be seen as an investment into the rising capital value of the property. The value of the property only has to rise by $400 in the whole year for the $7-a-week commitment to have seen a 10 percent return. For many property investors, there has already been a far greater increase in value over the past few years, so this can be considered as payment for gain already received.

The economic climate has been fairly good to us in recent years so, although we may have to tighten the reins on spending over the coming period, a positive attitude, and a little foresight and forward planning will definitely help you through it.

Source: Margaret Lomas is a qualified financial and property investment adviser and the director of Destiny Financial Solutions (www.destiny.net.au ). She has written seven best-selling books, six of them about property investing. Margaret is also the chair of Property Investment Professionals of Australia and the 2006 Telstra NSW Businesswoman of the Year.