- Property Education
- Buyers Advocate
- Property Management
Ok, before we get started and go any further, let’s just explain a few key things here:
Housing bubbles generally occur when speculators enter a market where demand is already high and attempt to profit through short-term buying and selling, further driving demand. A housing bubble doesn’t just mean high prices — prices can be high in response to basic supply and demand. The concern for Australia is if a sudden increase in housing supply — as state governments speed up land release and development approvals, for example — coincides with a drop in demand. Demand can be reduced by range of interconnected factors such as rising interest rates or more restrictive lending practices. Whatever the reason, when supply suddenly outstrips demand, prices drop sharply and the bubble pops.
What is predicted to be a bubble isn’t always the case, and it remains to be seen what will happen here.
A recent study by US consultancy Demographia found Australia had some of the most unaffordable housing in the world, with the highest number of housing markets termed ‘severely unaffordable’ — that is, where the median house price exceeds five times the annual median household income. According to RP Data, house prices have risen by more than 16 per cent in Sydney over the past year, and almost 11 per cent across all the capital cities combined. The current median house price in Sydney now sits at $700,000, $532,000 in Melbourne and $469,000 in Brisbane. Strong, and in some cases double-digit price growth, over the past decade in Australia’s capital cities has raised concerns from some economists.
Treasurer Joe Hockey has dismissed talk of a housing bubble as “lazy analysis”, blaming the rapid price increases on a shortage of supply. “It is just an easy mantra for international commentators and for analysts based overseas to say there’s a housing bubble emerging in Australia,” he said. “It is a rather lazy analysis because fundamentally we don’t have enough supply to meet demand.”
Economics commentator Alan Kohler has also hosed down bubble talk, describing it as “overblown”. “Is there a bubble in Sydney that we should be worried about? Maybe,” he said. “But there’s a lot of demand, and the demand’s not going away. There is a lot being built, so yes, maybe apartment prices will come down, but really I think it’s all a bit overblown.”
He added that high house prices were not necessarily a bad thing. “What the Reserve Bank was talking about is the wealth effect of high house prices, which is turning into consumption and therefore employment. “The real concern for the Reserve Bank in relation to housing is if there was a bubble and a crash, that might have a negative impact on consumption because of the negative wealth effect. The fact that house prices are high is a positive wealth effect, so it’s not necessarily a terrible thing that house prices are overvalued.”
David Rees, head of Australasian research at Jones Lang LaSalle, told AAP that although Australian housing was very expensive compared to much of the rest of the world, there was no housing bubble. A housing bubble is when prices move away from fundamentals, Dr Rees said, but in Australia’s case, prices were responding to fundamentals, like low interest rates, population growth and an undersupply of new housing. He said restrictive planning laws had created concerning affordability issues in the Sydney market.
Regardless, it’s spring, the property market is running hot and familiar debates are raging. Have prices overshot? Is there a bubble? Over the past two decades patterns of housing affordability in Sydney and Melbourne have shifted as the values of properties close to the city grew much faster than those in outer-ring suburbs. This became entrenched during the great property boom from 1997 to 2003. With each subsequent run-up in house prices. the inner-city price premium seems to grow.
House prices have risen by 50 per cent in Sydney and 48 per cent in Melbourne since late 2008, according to RP Data. During that latest price surge the number of Sydney regions with a median house price over $1 million has jumped from three to five. The inner-west region has vaulted into the million-dollar median range alongside the Eastern suburbs, Lower North Shore and the Northern beaches.
Former treasurer Peter Costello said the “music” of low, short-term interest rates and considerable money printing had to stop, which would cause markets either to tank or to return to more normal growth rates. But Mr Costello stopped short of calling Australia’s booming property markets a bubble, instead saying housing prices were growing so quickly because of a limited supply of land.
Australia’s limited supply of housing is being increasingly snapped up by foreign buyers, who in theory need to apply to the Foreign Investment Review Board to buy established homes rather than new developments. This is currently under review as it appears that these restrictions are not adequately being enforced.
“It could still be a good time for property if things revert to normal. But there could be a fair bit of hardship before we get there,” Mr Costello said. “Between now and then, there will be enormous adjustment in our society. Those that are nimble and those that are quick will take advantage, but it’s being ahead of the curve is what matters.”
Mr Costello, who is also chairman of Australia’s Future Fund, said property would be an increasingly important investment class as the population ages.
Remember folks, there will always be fluctuations in the market. You don’t think that’s going to stop serious investors from buying houses, because the thing that a good investor has is a strategy to mitigate risk and to navigate any peaks and troughs. Because there will always be peaks and troughs in the market, it’s just the nature of supply and demand, and having the right strategy is everything.
I always say this, but it’s time IN the market, not TIMING the market that makes the difference, you only have to look at what I’ve said before about opportunity costs to know that it’s just about your strategy and buying when you have the ability to do so.
Plus, you need to know that there is always a good property out there at a good price, it’s about doing the research and finding the house invest in. Our property coaches are scouring the markets EVERY DAY sourcing properties for their clients and they are finding success at every turn, because they are experienced and trained to spot the right house at the right price. With AllianceCorp, you get a team of dedicated professionals who spend every day searching for investment properties and sourcing excellent properties. If you’re keen to get investing, or just want some guidance for your existing property portfolio, why not come along to one of our free workshops or, if you’re ready to speak to someone face to face, register here for your complimentary and obligation free session with one of our property experts:
Federal Treasurer Joe Hockey has again dismissed the idea that a property bubble is forming in Australia, saying that rising prices were just a reaction to lack of supply.
Echoing the thoughts of many private sector economists and bankers in the country, Mr Hockey said the idea that households and investors were taking on too much debt to buy houses was wrong.
“I’m not so sure it’s credit fuelled,” he said during a seminar in Sydney. “There’s a lot of cash going into property now.”
He said the recent surge in new dwelling construction – much of it the result of foreign investment – in Sydney, Melbourne and Brisbane might go some way to addressing housing shortages in the country.
“Australia fundamentally doesn’t produce enough houses to meet demand,” the Treasurer said.
“It is just an infinite mantra for international commentators, for analysts based overseas to say ‘well, you know, there’s a bit of a housing bubble emerging in Australia’.
“That is rather a lazy analysis, because fundamentally we don’t have enough supply to meet demand.
“That doesn’t suggest there’s a property bubble; there might be a price increase of some substance, but you’d expect the market to react and produce some more housing.”
The Treasurer’s comments come two days after the Basel-based Bank for International Settlements warned that Australia’s housing market looked overheated on a series of metric
Mr Hockey said a lower Australian dollar might encourage more investment in new housing, although he declined to speculate on whether or not current weakness in the local currency would last long enough to speed up Australia’s economic transition.
He said currency speculation was a “mug’s game”. However, Mr Hockey agreed with Reserve Bank of Australia governor Glenn Stevens that animal spirits were key to the re-engineering of the Australian economy, along with low interest rates, infrastructure investment and other government programs.
“Yields are, overall, quite low around the world,” he said.
“So if people are not having a go when yields are at very low levels, then when do you have a go?”
“Putting your money in the bank is not going to deliver you necessarily long-term benefit.
“Now’s the time to have a go – we’ve got a trajectory that involves improving economic growth over the medium term.”
If you want to have a chat to one of our property experts today, whether it’s about the property bubble or your investment portfolio, get in touch for your complimentary and obligation free consultation with a property coach:
Originally published as Joe Hockey denies Australia in a property bubble.
So you’re looking for what different types of property investment strategies there are out there.
That’s great! It means you’re taking a proactive approach to building your investment portfolio, and you’re looking for the best resources available.
Just to be clear, for the vast majority of this piece we’ll be talking about residential property investment, with a bit of a look at commercial stuff too. The one vastly overarching connector to these strategies is that each strategy has the objective of growing your wealth. So without further ado, I present seven of the major strategies.
This kind of property investment strategy remains one of the most passive with minimal risk. It’s also heavily reliant on trusting a financial institution with your property investment and trusting that they’re going to produce financial growth for you. It suits people who are looking to manufacture some wealth but with minimal risks, and for people who are looking for a less risky and less involved strategy. This is a good strategy to use in unison with other investment approaches, so perhaps not one to use on its own if you’re looking for some good growth, both short and long term.
Ah home ownership… The most basic of them all – and often the strategy that many property owners employ without going any further. The bottom line is, if you’re going to own your own home and not invest in property any further, you really need to be working to feather your nest in other ways. While your home will improve in value over 30 or 40 years, that asset alone isn’t enough to secure your retirement. If you’re wondering whether property investment is for you, then you should take a look at this eBook about Seven Reasons Why Property Investment Can’t Be Ignored.
Without sounding like we have favourites, this is definitely one of the most popular and oft-used property investment strategies – and with good reason! It’s a lower risk and returns-based strategy used by many people, most of them very successfully. You grow your portfolio during an acquisitions stage and then hold on to them for at least two cycles of the property market (around 15 years or so, but ideally longer) and then later in life you can live off rental income and from selling a couple of properties. With the right guidance this strategy is open to practically anyone.
Flipping is not for the faint of heart. It requires you to take a property and buy it below cost (ideally) and then add value to it quickly with a value-add renovation, and then sell it again for a profit. And then you repeat the process. It’s high-octane stuff and requires a lot of planning, dedication and a level head. You’re not going to be renovating a house to suit your needs either, you’ll be choosing fittings and fixtures based on your bottom line. At AllianceCorp we don’t usually advocate this as one of our major strategies because we see greater long term value in buy-and-hold or renovate and hold, which we’ll talk about further next. If you are looking to flip property we can talk to you about the potential risks and benefits, but know that it’s more like a full time job than an investment strategy!
To renovate and hold is to kinda mix together buying and holding and flipping strategies and works well for people who are looking to diversify their portfolio, and perhaps to add value and to gain more equity from established properties. People who do this renovate and hold strategy generally either project manage the work themselves or get someone to project manage for them, and buy run down properties and perform a renovation that doesn’t overcapitalise on their property costs. They then can get it revalued and raise the rental return, or use the new equity in the home to purchase again. We have an entire department dedicated to this strategy, and the strategy can be used highly successfully with the right guidance – so get in touch if it’s something you’re interested in finding out more about.
In this strategy a group of two, three, four or more people band together and work to achieve their property investment goals. This can work well for people on low incomes or for those with limited resources. Co-investors also have the benefit of being able to share skill-sets, connections/contacts, and experience, to strengthen their plans. Cautions for this strategy though are plentiful: with difference of opinion, personality clashes, and long-term strategy shifting being the biggest challenges with this approach. Additionally, the legal complexities often make contracts/solicitors’ fees skyrocket; as all exit-scenarios need to be considered, and an iron-clad contract detailing the agreed outcome based on every possible scenario must be composed by lawyers. Additional stress can ensue when family or partners are involved. Should things go sour, the relationship can suffer. This can occur with friend-based co-investors also; but if you can find your rhythm early on, this can be an effective strategy.
This one means building an entire development from scratch. So it’s not for the faint of heart! Usually this strategy is used by seasoned investors who have experience dealing with the many moving parts involved with commercial development and know what to expect legal and tax considerations to expect.
I’ve no doubt there are additional strategies out there that Australians are using in their property pursuits (and I’m keen to hear from you, more on them!). Overall, though, you have to remember that there is no hard and fast rule or strategy to property investment. Some people choose just one of the above strategies and roll with it while others form a strategy that mixes several of the above as tactics along the way. Regardless, it is important to consider all of the options available to you when starting out, and to know that you can only do this; once your objectives and ambitions are laid out.
Remember that one thing that can help you with success in property investment strategies is having a good strong team behind you – and many people who have had success in investing swear by their dedicated team of buyer’s agents, financial brokers and renovations experts. We offer a huge range of services and are always happy to discuss your investment goals with you.
Why not register here for your complimentary and obligation free session with one of our property experts? You have nothing to lose and everything to gain.
The spring “selling season” has landed, and investors and home buyers alike are all a-twitter with thoughts of real estate and property. We’ve hibernated a little more during the harsh winter, and now it’s time to get out and start looking at property again. Property stats report a surge in property investment and in people searching for new investment properties every year so you need to know how to weather the surge in interest and to ultimately come out on top.
No matter the reason, the re-invigorated interest provides a great opportunity for investors to step up their game and produce some solid results for their property portfolio.
So what is going to help you to get the best results?
You might already have a go-to calculator for this one, but it’s also helpful to know how the calculations are made, and what impacts upon them. The Property Observer blog has a link to a great resource for calculating this, but there are a plethora of calculators available online as well. If you’re curious about how you can balance out your rental yields across a portfolio for maximum tax benefits then it might be helpful to get in touch with one of our property coaches for a more thorough explanation of how this works.
It’s great that you’re looking to educate yourself – and frankly I don’t think you should ever stop in your quest for property investment education and knowledge! It does stand that at some point, if you’re serious about getting ahead with your property investment strategy that you’ll eventually need buyer’s agents, financial planners, legal help and other support. The best way to compile the information you need about suburbs and locations is to have people who can do it all for you – and we have a full service team of people who can help you to get ahead with your investment strategy. Want to find out more? Have a look at our range of eBooks and information here.
It helps if you know what kind of investment strategy you’re looking at implementing. You need to know how much risk you’re comfortable with, and how to work out your property portfolio so that it meets your expectations. If you’re unsure about what strategies to implement, you can get started by having a chat to our property coaches for more information about what the different investment strategies there are. Every chat is obligation and cost free, so you’re not missing out on anything by meeting with us. The only thing you’ll be missing is some valuable information, really!
Ah the Reserve Bank. They did just announce that interest rates are going to hold for now, so we’ll see what happens there. Regardless you should ALWAYS have a buffer in place to plan for anything unexpected! We never want bad stuff to happen in our lives but the truth is that sometimes it does, and it makes it a lot easier to weather anything unexpected when you’ve got the money to do so! Our experts can help you to plan out a buffer, or a Master Facility as we call it, to help you manage your portfolio better.
Or better yet, get us to do it for you! No, but really, any journey in property investment starts with researching an area and looking at population growth, infrastructure, industry and a whole host of other things. Buying and selling reports are valuable and having a good understanding of these is really useful for any investor.
We really can do the research for you, and part of our service involves our property coaches sourcing the best properties for you that meet a strict set of criteria. Why not come along to our upcoming workshop and learn more about these tips and a whole heap more?
You can either register here to get involved with our coaches 1-2-1 or you can sign up for our workshop here.
Terry Rider from Hotspotting and The Property Observer had a few choice words to say warning against bad property advice yesterday. If you’re serious about investing you should read on for some good advice. He says…
“So many people have bad experiences with property investment. It happens, I believe, because Australians are fed so much misinformation.
Here’s the deadly formula that leads people to buy in the wrong place at the wrong time:
Mix those ingredients together and it’s a recipe likely to poison, rather than nourish, the finances of anyone who reads the resulting article and acts on the “advice”.
Here’s a stunning example published this week by a real estate magazine. The magazine took some figures from a research organisation that tends to be careless about its data in its haste to generate profile and it came up with this headline: ‘10 scorching hot suburbs for cash flow hunters’.
Top of its list was a town in Tasmania called Queenstown. If there’s a more depressing town in Australia or a more depressed property market, please tell me about it. The town resembles the film set for a western movie, with tumbleweeds in the main street.
The median house price ($70,000) says a lot. It’s 12% lower that it was a year ago. It’s lower than it was three years ago. Hell, it’s even lower than it was five years ago, having dropped an average of 3% per year since 2009. The typical house on the market takes nine months to sell.
Remember, a national magazine has placed this town at the top of its list of “cash flow hotspots”, even though the vacancy rate is 15% so the chances of achieving any cash flow at all are near zero.
But wait, there’s more.
The top 10 list of scorching hot suburbs recommended to investors also includes Kambalda in Western Australia. This is a godforsaken mining town in a “semi-arid environment” 600 kilometres east of Perth, split into two town sites 4 kilometres apart. The median price is $150,000, after a 19% decline in the past 12 months. Prices have fallen at an average rate of 6.5% per year over the past five years. If you have a house to sell there, expect to wait eight months.
And if you’re expecting scorching hot cash flow, the vacancy rate of 20% might present a problem.
Keep in mind that the magazine said all of its top 10 scorching hot suburbs were places “where rental yields are strong despite the solid growth in property prices”.
Another of the suburbs listed among the top 10 is described as “Maluwa Bay” in New South Wales. I’ve searched but cannot find a place with that name.
There is a Malua Bay, a small town on the South Coast of NSW where the average house takes almost a year to sell and where the long-term capital growth rate is zero. Sorry, that’s not fair – it’s 0.1%, which is the average annual growth in prices over the past 10 years.
That’s so scorching hot I can feel the heat all the way up here in Queensland.
The magazine lists the median weekly rent in this place as $925 per week, but that is a statistical error commonly made by the research source used by the magazine – whereby they list the holiday rental rate, rather than the rental rate for permanent tenants, and come up with a median yield which assumes properties are occupied by tourists 52 weeks of the year, which of course they are not.
The median weekly rent for Malua Bay is actually $350 per week and anyway buying there would be seriously into negatively geared territory. So, no cash flow there, either.
I could go on, but you get the picture. This is the worst kind of misinformation, presented by a national magazine as credible advice to property investors.
God help anyone who bases an investment decision on this disgraceful piece of non-journalism.”
What do you think about this? It just reinforces the fact that you’ve got to be careful who you’re listening to, and always be sure to do your own research and be dilligent before you purchase. I mean, we do have a team of property coaches here at AllianceCorp who take the hassle out of finding properties, so if you’re looking to buy or thinking about investing you should really think about engaging professional help to avoid the hassle of rediculously bad advice!
It’s easy to get in touch with our team to find out more, and I stress again, if you’re serious about investing you should think about taking me up on our obligation free offer today. You can try us for free before you even think about comitting, so what have you got to lose?
Originally published as The deadly formula of bad investment advice at The Property Observer.
According to the August RP Data CoreLogic Hedonic Home Value Index, capital city dwelling values moved 4.2% higher over the three months to the end of August, the strongest capital gain over the three months of winter since 2007.
Capital city dwelling values moved 4.2 per cent higher over the three months of winter, once again driven by dramatic capital gains across the Sydney and Melbourne markets where values recorded a 5.0 per cent and 6.4 per cent lift.
The next best performing city was Canberra where values shifted 2.5 per cent higher over the three month period, driven entirely by a gain in detached house values which compensated for a 2.1 per cent fall across the weaker apartment market. Every other capital city has recorded much more moderate conditions over winter with Adelaide values up 1.5 per cent, Brisbane recording a 1.3 per cent gain and Perth values up 1.0 per cent. A modest drop in values over the winter months was seen across Darwin (-0.6 per cent) and Hobart (-0.8 per cent).
Dwelling values are now 10.9 per cent higher over the past twelve months; however Sydney and Melbourne are the only cities to record double digit growth over the past year.
According to RP Data research director Tim Lawless, Sydney and Melbourne housing markets are driving these two tier conditions. “Over the latest growth cycle we have seen Sydney dwelling values increase by 27.2 per cent and Melbourne values up by 19.5 per cent. Sydney and Melbourne were also the strongest performing cities during the 2009/10 growth cycle. Since the beginning of 2009, we have seen values rise by a cumulative 50.1 per cent and 46.1 per cent respectively in Sydney and Melbourne. Looking at the remaining state capitals over the same time frame, the next best performer was Perth where values are now 15 per cent higher, followed by Adelaide at 9.9 per cent, Brisbane with 5.3 per cent and Hobart where dwelling values are actually 1.5 per cent lower.
“With today marking the first day of Spring, we are expecting listings numbers to rise over the coming month which will provide a real test for the housing market.
“Considering the ongoing high rate of auction clearance rates, a generally rapid rate of sale and the ongoing low interest rate environment, it’s likely that dwelling values rise even further over the next three months.
“Consumer confidence is also moving in the right direction now after the post-budget slump which will add fuel to the exuberant buying and selling conditions we have seen during winter,” Mr Lawless said.
According to today’s results, with rental rates rising at a slower pace than dwelling values RP Data expects to see a compression in rental yields across each of the capital cities. The only regions where yields have moved higher over the past 12 months have been across the Adelaide and Hobart apartment markets.
Across the combined capital cities, the typical gross yield on a house has reduced from 4.1 per cent to 3.7 per cent over the past twelve months.
Mr Lawless said the most significant yield compression is taking place in Sydney and Melbourne.
“Over the past year we have seen Sydney’s gross rental yields fall from by 47 basis points, from 4.1 per cent to 3.6 per cent. In Melbourne, where rental yields are even lower, we have seen gross yields fall by 32 basis points over the year to reach 3.2 per cent gross. Given the current rate of value growth and moderate rental growth, it won’t be long before Sydney yields have moved below those of Melbourne.
“With yields so low in the cities where values are seeing the largest capital gains, it is clear that investors remain very much focussed on value growth rather than yield.”
Investors are currently comprising their largest proportion of new mortgage commitments since late 2003. In fact, investor loan commitments have accounted for more than 38 per cent of all mortgage lending for nine consecutive months, the longest period ever that investment lending has held above that level.
“Investors are mostly concentrated across the Sydney and Melbourne apartment markets where capital gains have been strong but yields have been pushed very low. Potentially there are better investment returns to be had in the smaller capital cities where the growth trend is less mature and yields are also healthier.” Mr Lawless said.
To find out more about your existing portfolio or to find out about how you can start to use the skills of one of our property coaches to begin building a better future, get in touch here:
I’m really excited about our upcoming presence at the Home Buyer’s Show next weekend from the 29th til the 31st of August. We were there for the shows in Brisbane and Sydney but, being a Melbourne-based company, we’re always particularly enthusiastic about seeing people in our home city.
If you want to learn about investment tactics and tips from leaders in the field you should come along to this not to be missed opportunity to get a huge amount of information in the one place.
If you haven’t heard me speak before you should definitely come along where you’ll have the opportunity to not only hear some talks but also to ask questions. The Home Buyer’s Show is invaluable for anyone thinking about getting into property investment.
Today I’m going to tell you about potential benefits and challenges that you may face as investors buying off the plan (OTP) property. An OTP property is literally taken ‘off the plan’ because there is little besides the blueprints of the property. You can invest in a building before construction has even started or while it is being built. By working with the developer, you own a brand new property ready for the growing marketplace – often with some tax benefits or gains along the way.
Buying off the plan properties make for a low initial cost for investors, which is a great selling point for the first time investor, or for someone who is looking to add to increase their property portfolio. You only pay a 10% deposit when you sign the contract but you don’t actually have to pay the balance of the contract until the property is complete. Plus, in a rising market you can enjoy any capital growth that happens with the property. OTP properties often increase in value while they are being built, so it’s definitely a bonus with the property. I do have to say here that property is a long-term investment. Providing that you are buying your OTP property with the intention of holding long term, buying off the plan works well for most investors.
Also, if you are buying off-the-plan property in Victoria there are substantial stamp duty savings available. The Victorian Government has reduced stamp duty if you purchase before a property is built. As construction of the development occurs the rate of stamp duty increases until the building is complete and the full rate of the stamp duty applies. The concession is always greatest if the property is bought before construction commences.
Investment opportunities are not guaranteed to be easy, no matter their nature or location. You will have your homework cut out for you as you look into developers and make sure that the road to your new property will go according to plan.
When looking at developers find out everything you can about them. Figure out the financial viability of the company. Developing properties is an expensive business and disaster can strike quickly. You want a developer that has a solid reputation, successful results, and is friendly towards investors. Try to choose a developer that will allow you to inspect the site and the blueprints. It is a large bonus if they will air your recommendations about the design. If they have a model of the finished product, inspect it. You should use everything within your means to know what this property will look like once it is finished.
The location of your investment is crucial. A developer should allow you to see where your investment will be, which gives you a chance to see the area. Does it appear that this place is frequented by possible renters? Are there nearby business, roads or schools that will draw in more investors? The location is as important as the property itself.
Just as with all forms of investing, buying off the plan does have some dangers. In particular, paying close attention to floor plan design can prove the difference between an apartment that has tenants queuing to move in (and never wanting to move out), and one that fails to keep tenants interested. A well-designed property will always outperform a poorly designed property. As a guide to the overall size when buying off the plan apartments, one-bedroom properties should be no less than 52 or 53m² internally plus a balcony space of at least 10m². It’s best to have a one-bedroom apartment with upwards of 55m² internally, plus balcony for a total space of 65 to 75m².
As a general rule, two-bedroom apartments should be no less than 75m² internally plus 10m² of balcony, but 85m² internally is a much more appropriate living space. Three-bedroom apartments should be no less than 100m² internally but once again 110m² is much more appropriate.
Not withstanding this guide for overall size, a larger property is obviously better than a smaller one, but will of course cost more. Regardless of this, a smaller well-designed property will often outperform a larger poorly designed property.
At AllianceCorp we have team members who are experts in off the plan property purchases and are happy to answer any of the questions you have about buying off the plan properties. You can register here for your complimentary and obligation free session with one of our property experts:
Property investment is something that can be very financially rewarding. Investing in a property takes a lot of planning, but it’s certainly one of the most stable and lucrative means of growing your wealth for retirement. The idea of having a place to call your own resonates with many people, and considering 80% of people who have retired are reliant on the pension for their lifestyle, it’s certainly something to consider to build your position in the future. At AllianceCorp we have some of the best strategies around, and some of the best industry experts on our team to help you on your journey to wealth.
As a head start we’ve compiled this handy list to consult when you’re ready to start investing for your future.
The financial commitment of investing is something that many people balk at, but done the right way, property investment can be a successful and on-going endeavour. It doesn’t take away from the fact that you need to know what you’re doing with your money. Aside from being financially sound and getting a loan from the bank, there are a couple of things to keep in mind.
Have a deposit ready for the loan. Most estimates say you should have 20% of the total cost ready to pay as a down payment. Being able to do this proves two things to most banks. First, it proves that you are serious about investing. They can trust you with a loan because you have put so much into this already. Second, it shows you are financially viable. If you can make a deposit like this and keep going, it generally means you have worked your budget to where you can adapt to almost any major purchase.
If you already have a history of saving, investments and loans, it can reflect well upon the rest of your coming housing loan. This is a fundamental rule of getting credit. A lot of loan giving is trusting in the other party, with a stringent contract holding that trust up. If you can prove that you have a history of paying bills on time with the appropriate amounts, then it is all the more easy for you to get your loan. Something else that we talk about in more detail that you can use as a strategy is when you get the equity from a home you already own and use it to buy another house. You can read more about that here.
The Australian Government supplies the First Home Owner’s Grant. This financial support program is intended to help bolster the finances of investors who are buying a new property.
This fund can be used to soften the blow of the down payment or be used to help keep your bank account healthy during the process of payment. The amount given by this fund varies on your position as a property buyer.
The other factor to consider is Stamp Duty. In Australia, Stamp Duty refers to the price for transferring property from one holder to another. This can make up a large portion of up front prices and should be taken into account for every single budget revolving around buying the right property for you. The exact cost changes from property to property and is based off a number of things. You will pay more stamp duty for an investment property than you will for your own home, so it’s something to consider when you look at tax and allowances.
After First Home Owner’s Grant has been considered, your financials looked at, Stamp Duty paid and a budget formed you will have a rough idea of what you will have to pay per month to start paying down your loan.
The economy fluctuates in both directions every day and there is no telling when it may spiral or take off. You need to pad your budget in case interest rates begin to rise. There is nothing worse than calculating a razor sharp budget that will let you live as you want and pay off your bills quickly, only to have your payments rise by a few hundred dollars. We also talk about a strategy that we recommend to every one of our clients called the Master Facility. It allows you to pay off your loan and invest with no impact on your lifestyle and you can learn more about the life changing Master Facility here!
We have been talking about finances a lot. There is a reason for that. Paying off a property is a huge accomplishment. However, there is so much more than tinkering with numbers before you even move in. There are a multitude of property opportunities and you need to ask yourself what you are looking for.
If you are looking for a family home, the answer may be fairly easy. You will want to live in the house, pay it off and maybe sell it for more than you paid. This is standard for the majority of investors and a safe move. Alternatively, you may be looking at property investment as more of a financial opportunity. Investing into a rental apartment complex or a storage warehouse can become a second income for you. Many people pursue this direction while some undertake both paths. There is a lot of advice written about these two kinds of property investment, but you will probably know which one you are looking for already.
Is the location exactly what you want for the property? For example, buying a home for a family should be weighed against what the area offers. Where are the nearby schools? What kind of school is it, are there public transit stops nearby and are there grocery stores nearby? Many more questions become very relevant as you begin to think about it. As property investors you need to think about what is going to be attractive to renters.
Does the area have the requirements to create a successful property opportunity? Nearby commercial zoning is important for creating attractive options for potential renters. Nearby malls, stores, restaurants and parks can be a big green light indicating a prime area for investment. Does the income of the area support your idea for a property? Creating an eco-friendly, designer brand apartment complex may not work in low income housing as well as it might in a hip neighbourhood area. Buying the right property heavily depends on what you want and what is around it.
Consider what you will need to bring the property up to your idea of acceptable. Is the property you have your eye on going to need repairs? Investing in newer properties generally means you will not have to worry about condition immediately, but may bring about a higher price. Conversely, an older building may cost less, but with a little hard work you can make it look incredible.
Before investing in a property, new or old, hire a contractor or architect to inspect the grounds and the property itself. Make sure that the person you hire is certified in their field, as this inspection will influence what you will end up spending on this property. Similarly, hire an exterminator or animal control officer to take a quick look around the house and grounds. An infestation of funnel web spiders in the basement would be nice to know about before you sign on that dotted line.
Conditions change – the economy drops, you get in a car crash, a utility bill is higher than expected, you get a speeding ticket or something else equally annoying happens. The things you think are concrete now may not exist in a few months. No matter what happens in your life, a loan still has to be paid off. That’s when your master facility will come into its own. Having financial room to move is the best place to be. Read more on the master facility in this free eBook or get in touch for a chat with one of our coaches.
When you’re making an investment, these tips are important to consider. When you’re buying a property you need to ensure that you’re doing it in the smartest possible way. And in doing so, you’ll be able to get the most out of your investment.
If you liked this information then why not register here for your complimentary and obligation free session with one of our property experts:
You might have heard people talking about equity but have no idea what it means! It’s easy to be amazed when you hear about friends or colleagues buying investment properties, especially when they’re on similar salaries and lead similar lifestyles. There’s no secret though, and what many people have done is used the equity that they’ve built up in their homes to give them a kick start.
Equity is what makes up the difference between the market value of your home and the balance of your mortgage. If you’ve had your home for a few years and paid off some of the mortgage, that combined with a rise in value of your house could mean that you’ve built up some reasonable equity.
Equity can be a very valuable element when it comes to investing in property, as you’ll soon see. Your mortgage broker can also be a very useful asset when it comes to finding out how much equity you have in your home, and you might find that you’ll be able to borrow sooner than you think!
Here’s the lowdown: Let’s say you want an investment property that’s valued at $400,000. You can add additional purchase costs to this – stuff like legal fees, stamp duty and insurance – and you’ll end up with a cost of $420,000. Let’s also assume that you meet the loan approval requirements and that a lender will fund 80% of your property’s market value. This amount could be potentially more if you’re happy to pay lenders mortgage insurance (LMI) as you’re seen as less of a risk. So basically, the bank will lend you $320,000 but you still need to come up with an additional $100,000 for the deposit and the other up front expenses. This is where your equity comes in.
Let’s say your home is valued at $500,000 and the balance of your mortgage is $300,000. The $200,000 difference is your equity. As investors, you can access up to 80% of your home equity without taking out LMI, and in this example it equals $160,000. So basically instead of having to save and scrimp to come up with a cash deposit for the $100,000 you need, you can simply draw down on the equity in your home.
Many investment gurus will stress the importance of repaying your loan on your home as soon as possible. The equity that you get from your home to purchase an investment property is tax effective but the remaining debt on your home isn’t! So the loan on your home costs you much more in the long run than the loan on your investment property. Your main place of residence isn’t the only source where you can get equity from – you can also use the equity of another investment property to fund more purchases. Check out our two part series on adding value by renovating for more information on how you can increase the equity of an investment property.
So there are basically two different strategies you can use to access your equity:
There are positives and negatives with each of these methods. If you use cross-collaterisation you might find that over time lenders will start dictating conditions which you might not be comfortable with. They might only lend you money based on your new investment loan.
Many people who want to invest will use mortgage insurance so that they can buy more properties, and one of the benefits of cross-collaterisation is that you don’t have to get LMI, as the lender is tying up all available equity in your property – rather than just the amount required.
Really, you want to be able to combine the benefits of using none of your own savings and maximising your tax advantages when buying investment properties. Releasing equity in your home is a way to do this.
Property investment is a long term strategy and the more exposure you have to a market the more opportunity to build your equity and keep buying properties.
You need to have an exit strategy in place and to have information on hand about how to navigate tax and charges, and know strategies to minimise your financial commitment and impact to your lifestyle. Remember how we talked about how important your mortgage broker could be earlier? Well they can help you to work out how much equity you have in your home and how best to access it to fund your investment. They have access to a wide range of sources and insider knowledge, so be sure to consult with the professionals when you’re considering drawing down on your equity. At AllianceCorp we are happy to give you guidance and to meet with you to discuss any questions or concepts that you need help with.
Register here for your complimentary and obligation free session with one of our property experts: