Welcome to my
August 2016 newsletter
With Britain’s vote to exit the EU and all the uncertainty that surrounded our own Federal Election, there’s a lot of volatility in our financial markets and our property markets have slowed.
As predicted by most market forecasters, the Reserve Bank of Australia (RBA) decided to keep the official cash rate on hold at 1.75% once again at its July meeting. The RBA has indicated that it’s waiting for more information before deciding if further cuts to the cash rate will be necessary.
However, an Aussie dollar that’s strengthening against other currencies in light of global market volatility, combined with a lower than expected national inflation rate would seem to suggest that further rate cuts may be on the horizon. Whilst some analysts are speculating the cash rate could go as low as 1%, others believe a rate cut in August to 1.5% could see the end of the RBA’s easing bias in 2016.
It is usual for property markets to slow somewhat at this time of year, and the Federal Election also caused a reduction in the number of auctions held at the start of this month. Auction clearance rates also registered a significant drop in most markets. The larger markets performed a little better however.
Following the RBA’s decision to cut the cash rate in May, lenders have improved their interest rates for owner-occupier, property investment and commercial property buyers. Interest rates are very competitive and with the property market finally showing signs of slowing down for winter, lenders are offering some great deals to stimulate more business – so please call us today.
Or refer a friend - remember the great gift card offer!
What is ‘rentvesting’?
And what are the benefits?
Rentvesting. It’s a whole new word in today’s popular culture, but it also represents a revolution in home buying strategy, particularly for first home buyers and those struggling to move up the property ladder. But what is it? And what are the benefits?
What is ‘rentvesting’?
Everyone agrees that buying your first home is becoming increasingly difficult. The struggle to save up a deposit for your first property purchase is getting harder every year, with home values increasing by as much as 13% or more per year in major markets such as Melbourne and Sydney. The reality is that the longer you wait to buy a property, the more difficult it may become to save a deposit or borrow enough money to be able to afford to buy it.
For many people, being able to afford to buy a home in a location where they actually want to live is making the challenge more difficult still. With the most affordable homes often located in new suburbs or outer suburbs, finding a place you can afford to buy near to your place of work, family or required lifestyle amenities can be completely out of the question.
‘Rentvesting’ is a new buying strategy that’s recently emerged in response to these issues. It entails purchasing your first property as an investment rather than a place to live. Rentvestors typically purchase a property that meets their budget in a location they can afford, then rent a home in a location where they would prefer to live and work. It is frequently more affordable to rent a home in a popular location than it is to buy it, and this basic financial fundamental is what’s behind the rentvesting revolution.
Technically, you don’t actually have to be renting somewhere to be a ‘rentvestor’. The term also applies to many Gen Y first home buyers. This class of ‘rentvestor’ is typically living at home with mum and dad to reduce their living expenses whilst they save up a deposit for a property purchase. These savvy property buyers may continue to live at home with mum and dad even after they’ve purchased their first property, and perhaps even after they’ve purchased their second.
What are the benefits of ‘rentvesting’?
The primary benefit of the rentvesting strategy is that it allows you to get into the property market sooner. As every successful property investor will tell you, the sooner you get into the market, the sooner your property can start generating capital gains and the sooner you can start to build wealth.
The beauty of this strategy is that in a rising market, you may soon have equity you can use to purchase a second property that’s also in an affordable location. Again it probably won’t be a property you want to live in, but you’ll have two properties gaining equity as home values rise (potentially), two sets of tenants paying down your mortgages for you, and greater tax advantages as well.
Research is the key to a successful rentvesting strategy
Buying an investment property first means that you won’t have to compromise on the location when you make your purchase. This can also mean you can make investments that may return you the greatest capital gains. You can literally restrict your property searches to properties that meet your buying criteria of price, affordability and capital growth potential – a luxury that most owner-occupier first home buyers simply don’t have.
Careful and thorough research is the key to success with a rentvesting strategy. The property needs to deliver a very consistent income and at the same time, achieve steady capital growth. To succeed, you first need to identify a location that provides capital growth potential, then carefully consider the housing stock available within that location and choose one that will best meet your needs.
Call us to get started
As your professional mortgage broker, I'm here to help you assess your financial position and work out what you can afford to invest.
For more information about rentvesting, or for an informal chat about your plans with no obligation, please give me a call today. I’ll be happy to help you start rentvesting if it’s the right solution for you.
Which is the better investment – residential or commercial?
With residential property prices escalating at an unprecedented rate, many investors looking to enter the property market are finding it increasingly difficult to get a foot on the first rung of the property ladder.
As an alternative option, more and more investors are investigating the merits of commercial property to help them grow their wealth. But what are the major differences between commercial and residential property investments? What do investors need to look out for?
Capital growth potential
Capital growth potential is an important consideration for investors, and this is one of the key differences between residential and commercial property. It is generally believed that the capital growth potential of commercial property is not as reliable as with residential property. This is because demand for residential property is growing all the time as the population grows, usually at a higher rate than the supply of new homes.
Generally speaking, demand for commercial property tends to be less and it is usually reliant on economic growth, rather than population growth. When the economy is in a growth phase, more new businesses start up and this increases demand for commercial premises and supports capital growth, but this generally occurs at a much slower rate than with residential property. Additionally, commercial property is more vulnerable during an economic downturn than residential property.
Whilst residential property may win on capital growth potential, commercial property may often be the stronger contender when it comes to rental yields.
For example, rental yields from residential property are generally around 3 – 5% per annum, which is much lower than with commercial property, which can often return as much as 5 – 12% per annum depending on your choice of investment.
An additional benefit of commercial property is that rental increases can often be written into the lease and may even be tied to economic factors. This makes it much easier to plan / anticipate the rental returns you will receive on your investment.
Tenant availability and security
Whilst rental yields may be higher for commercial property than with residential property, finding tenants may not be as easy. Commercial properties can often sit vacant for months or even years, particularly when the reason for the vacancy is an economic downturn or a long-term tenant has gone out of business. Finding new tenants may often require remodelling or refitting the premises, which can also pose an additional expense.
However, once you have found a good tenant for your commercial property, they do tend to stay longer and are less likely to default on the rent payments than residential tenants. Residential leases can be as short as three months, where commercial property leases tend to be at least 3 – 5 years or even longer.
Commercial property investment entry price points may be extremely attractive to the smaller investor, however there are some disadvantages when it comes to putting down a deposit. Lenders are often much more reluctant to approve loans for commercial property investments and usually require a deposit of at least 30%. For a residential property investment, you can often get loan approval with a deposit as low as 5%.
Maintenance and other property expenses
This is another area where commercial property investment can often win over residential property investment. With a residential property, the investor is responsible for all maintenance costs and expenses such as repairs and operating expenses like the council rates.
With a commercial property investment, the tenant is usually responsible for all expenses including general maintenance, repairs and operating expenses such as rates.
A balanced investment portfolio is best
When it comes to deciding whether you should invest in residential or commercial property, we recommend that you look at each investment opportunity on its individual merits and do extensive research to determine both its capital growth and rental yield potential.
A balanced portfolio would most likely include a combination of both residential and commercial properties that have been specifically chosen to meet your personal investment criteria. A balanced approach will also assist in mitigating any risks associated with your investment over time.
If you’re considering a residential or commercial property investment, then don’t hesitate to give me a call. I can also help you to get pre-approval on your loan so you can easily determine which properties meet your buying criteria.
Why a building and pest inspection is a must for home buyers.
Did you know that termites damage more than 180,000 homes and buildings around Australia every year?
That the high prevalence of rats and mice in Australian homes is a major factor in the distribution of food poisoning organisms like salmonella? Clearly, if you’re thinking about buying a property, the value of an independent building and pest inspection report can’t be understated!
Reduce your financial risks.
Buying a property can be a very emotional decision and it’s easy to forget about looking for defects when you finally find a property you love. But the reality is that all property buyers should obtain an independent building and pest inspection report in order to remain sensible and objective about the property they’re purchasing and reduce the risk of incurring expensive repair bills down the track.
A building and pest inspection report will provide you with a professional’s evaluation of the condition of the property you are purchasing. They will provide you with a visual review of all elements of the property including structural inspections of the exterior roof, interior roof spaces and eaves, foundations, subfloor, wiring, interior plumbing, sheds and pergolas, fireplaces, electrical and air conditioning systems. Your report can also cover things like windows, doors, flooring, ceilings and other temporary fittings and so on. If you have any particular concerns about a property you are looking to buy, you can mention them to your inspector and they will take special care to put your concerns to rest.
There are three good financial reasons why you should get a building and pest inspection report:
To check for structural and pest issues, so you are able to budget for rectifying them.
To use the information to negotiate a lower price, or for repairs to be completed before you purchase the property.
To find out if the problems are so severe that they may adversely affect the property’s future resale value, or be so expensive to repair that you may be put off purchasing the property entirely.
Ideally, a building inspection should be performed before you sign a Contract of Sale, or prior to auction if that is going to be the method of sale. When you’re not buying at auction, it is standard practice to insert a clause into the Contract of Sale stating that the purchase is subject to building and pest inspection reports.
Even new build homes can have problems.
Whilst it’s true that structural defects, termite damage and pest infestations tend to be more common in older homes, unfortunately even new-build properties can come with issues. If the property is new, paying for a fully comprehensive building inspection report is still a good idea because it will ensure that the building has been finished correctly according to the building plans and help you identify any problems the builder has overlooked or any issues that may not be covered under the building warranty.
When it comes to pest problems, these tend to be endemic to areas and their prevalence will have as much to do with where the property is located, as the property’s age. In many areas, homes under construction are extremely vulnerable to termite attack and other pest issues such as rats and mice.
A few hundred dollars could save you thousands.
Depending on the location and size of your home, a building and pest inspection report can cost anywhere from $300 to $900 or more in a regional location. However taking the precaution of getting a building and pest inspection report before you buy could save you a great deal of money and hassle.
When a professional building and pest inspector comes across a problem that may be significant, they will recommend you seek further advice from an appropriate professional before proceeding with the purchase. Depending on the nature of the defect and the extent of the damage, you can get quotes to make repairs or simply walk away from the deal if it is too hard.
For more information about locating a reputable company or qualified building industry professional to perform your building and pest inspections, please give me a call. I maintain relationships with many professional companies relating to the purchase of your home, so please don't hesitate to get in touch for a referral if you require any assistance.
Renovating for profit:
5 tips to minimise your risks and maximise your gains.
Looking to immediately increase the value of your next property purchase?
Property investment is usually considered a long-term investment strategy, however many investors today are much more ambitious and look for ways to maximise their returns in the shorter-term. One popular way to go about it is to use a ‘renovation strategy’ to instantly increase the value of the property. But whilst it’s certainly true that renovating for profit can bring big rewards when it’s done right, it’s not as easy as it sounds and can carry greater risks. If you’ve been thinking about renovating for profit, here’s 5 tips on how to minimise those risks and maximise your gains.
1. Make your profit when you buy.
According to renovate for profit investors, this is the golden rule. In order to profit from a renovation project, you need to make sure that you buy the right property at the right price. It is very important that you do not pay too much for the property in the first place, as over capitalising a property is your biggest risk.
Do your research and find out what the property is likely to sell for once it is renovated. Subtract the costs of buying and selling, the costs of your renovations, any taxes you may have to pay, and your profit margin. That will give you a budget for the initial purchase price of the property.
If you can find a property that is at least 20% below market value, then you may be on a winner and it may be worth further investigation.
2. Look for a property that is structurally sound.
In order to maximise your return on your renovation dollar, you should look for a property that only requires cosmetic improvements, like painting, interior layout reorganisation, new kitchens and bathrooms, new carpets and a garden makeover. Such renovations are inexpensive and quick to complete, but they generate maximum buyer appeal and that will help to maximise your profit.
Buyers can’t see structural improvements like a new roof, re-wiring or re-stumping, but these necessary repairs can cost a lot of money and take up a lot of time. You also want to avoid having to deal with expensive problems like termites and subsidence, so make sure you get a building and pest inspection before you buy.
3. Get professional advice about renovation costs.
This is particularly important if you are not a DIY renovator and need to use tradesmen to complete the required work on a project. Making your own “guesstimate” will not make you wealthy! If you plan to add rooms, move walls, put in a new bathroom, and paint the entire place inside and out - you’ll need professional help to get it all done in a reasonable time frame. And if you want to make a profit, you’ll need to know exactly how much this will all cost. While you’re still deciding if the property is a good renovate for profit investment prospect, get the builders in to give you a quote so you can be realistic about how much it will cost to make the improvements you want and find out if that will leave you any room for profit.
4. Make a budget and stick to it.
Over capitalisation is one of the biggest risks in a renovating for profit strategy. Many people don’t operate to a tight budget and it is very easy to overspend if you don’t plan your budget carefully before you start. If things get out of control and you spend an extra $30,000 more than you intended, it is very unlikely that the end value of the property will increase accordingly to pay you back and you may find yourself making a loss.
Getting carried away with your renovations is a common mistake, particularly in the décor department. People often make the mistake of going for expensive fixtures and fittings when a more modestly priced version would do just as well. Buyers will seldom turn away from a property if it does not have a top of the range European cooker, but they will walk away if the asking price for the property is $30,000 more than comparable homes in the area.
5. Get your finance in place for the whole project.
A mistake people often make is to rush in to buy the property without considering where they will get the money required to make the necessary renovations. That’s why you should talk to me – your professional finance broker - before you do anything. I can help you to organise finance suitable for your entire project from the outset, which can help you to avoid a lot of hassle and expense. Finding the right loan for your needs could help you to save money on interest and avoid expensive exit costs when you sell.
If you’re looking to buy a property to renovate for profit, give me a call today. I’ll be more than happy to help you work out your budget and make your plans so you can get started sooner. And I’ll help you to get pre-approval on finance that’s tailored to your budget, project, personal financial circumstances and end goals.