TIGHT credit conditions continue to hamper growth in the construction industry, where activity, already weakened by the Queensland floods, fell to an 18-month low.

The January Australian Industry Group (Ai) Australian Performance of Construction Index (PCI) fell 3.6 points to 40.2, it’s lowest level since June 2009.

The index is below the 50 level that separates expansion from contraction.

It was the eighth consecutive month the index has been below the 50 point level which indicates contraction in activity.

“While flooding and bad weather conditions have caused project delays and stoppages, higher interest rates, caution on the part of home buyers and businesses and tight credit conditions continue to hamper growth,” Ai Group director of public policy Peter Burn said in a statement.

“The immediate outlook for the sector is not encouraging with new orders continuing to fall albeit at a slower rate than in December.”

The sub-indices in all four of the major sub-sectors declined in the month.

House building recorded an index level of 39.5 points, apartment building 38.6, commercial building 44.2 and engineering construction 38.7.

The new orders sub-index contracted although at a slower rate in January compared to December, up 3.9 points at 40.9.

Employment continued to decline in January due to on-going subdued demand, project stoppages and the need for businesses to reduce costs, the survey said.

The survey was conducted in conjunction with the Housing Industry association (HIA).

HIA senior economist Andrew Harvey said the January report was one of the weakest reports he had seen.

“Hopefully, if we can believe last week’s building approvals numbers, we may see the apartment index improve, but housing has now contracted for eight consecutive months,” he said.

“In this environment, and given the considerable dwelling shortages that exist, it is unfortunate that policy support for housing is being wound back.

“Recent federal government amendments to housing policy, such as the capping of the National Rental Affordability Scheme are disappointing and represent a step in the wrong direction.”

(Source: AAP, February 07, 2011)

With the property market heating up, we are seeing quite a few buyers pipped at the post. The G Word (Gazump) is popping up again, and people are not sure what just hit them.

What does Gazumped mean?

Being Gazumped occurs when you verbally agree to buy a property, and then the seller (vendor) talks to someone else behind your back and sells to them, usually at a higher price. The next thing you find out is the vendor has exchanged contracts with someone else and you have lost the property.

But what about all that emotional energy, time & hundreds of dollars spent on pest inspections reports, solicitor costs, building reports,  and moving plans? For those who have experienced this in recent weeks, we are certain you will not let it happen again.

What can you do to beat gazumping?

Exchanging contracts is the only way to beat gazumping. Unfortunately, a sale ain’t a sale until contracts are exchanged. English property laws dating back to 1677 require a binding agreement to be an “exchange of contracts”. The only exception is an auction whereby the highest bidder is bound to purchase the property after the auction.

What Can I Do NOW to Prepare for a quick property purchase?

The best thing to do is build a team of professionals ready for the big moment. They have done this 1000′s of times versus your 2 or 3 transactions, so make sure you leverage from their experience.

Here is a list of people to have on speed dial in your mobile phone:

* Accountant - know which name you are going to buy the property in, or what structure.

* Mortgage Broker – obtain solid finance approvals (learn the difference between pre-approvals, conditional approvals and final approvals).  Find out your borrowing capacity.

* Solicitor or conveyance – They will read the contract for you and advise you on legal dscisions. ask the agent to send the contract as soon as possible to your solicitor, and have them in advise you through the “exchange” process. Also, know when you can use a cooling off period to give you more time to get prepared.

* Pest Inspector and Building Inspector - Apart from having guys crawl over the property for cracks and critters, find other consultants to check anything else that is flagged in the contract i.e. flood zoning, bushfire zones, heritage consultant, RTA reports for future roads through your house, conservation areas, mining subsidence, powerlines. There are consultants in every field to help you check out your property.

If you need help finding these people, call Plan Assist on 02 9449 2333 and find out who we recommend. We have a full list of consultants in any field.

Having held off raising interest rates in February, the RBA has, as expected, pushed up the official cash rate by 0.25%.

So far 3 out of 4 major banks have mirrored the Reserve Bank with a 0.25% increase to their standard variable rate. CBA now has a standard variable rate of 6.86%, ANZ 6.91%, and Westpac 7.01%. NAB has yet to confirm an increase.

Try this quick exercise:

Work out your future repayments.

Enter your loan amount and an interest rate of at least 7.5%.   Go To Loan Calculator

Make the loan term equal the years remaining on your home loan (so if you have had your loan for five years, change the 30-year term to 25 years).

Is this Comfortable or Scary?

If it looks a bit scary though, it’s time to make some changes.

Know your money habits

You have to first identify your ‘bad’ money habits – the ones that can get you into trouble by overspending. Next, you have to start being strict with yourself on what you can and can’t do.Take action NOW!
Do not wait for rates to become so high you are really starting to stress out – pretend we are in the position now and make adjustments to your life. Your action now will start to safeguard you against the rate rises to come.

You need to be savvy with your money. Do you spend all of your income each month? Is it because it is just there or is it out of necessity? Most of us spend what we earn, no matter how much that is. We often see people with extremely high salaries and no savings – human nature does not seem to change much no matter your financial position. Contact us here for a link if you require one.

It might be time to for a lower interest or a better product to suit your lifestyle. Contact us here. We can help you find out if your current loan is the best for you going forward.

Real estate investing success is not achieved by a “secret” method. Successful real estate investing requires hard work, good research, and a systematic and stringent analysis of each and every investment opportunity.

Yes, a proficient real estate professional can help you find, research, and even analyze the profitability of specific investment opportunities. But that does not mean that you should not be prepared. It is good for you to have some knowledge of the rates of return real estate investors commonly use during the analysis process before you make that all-important decision to purchase a rental property, regardless.

Since you are new to real estate investing, it seems like a good idea to discuss three of the most commonly used measures and returns. None of these would provide enough data to sway a decision by themselves, so you cannot make a decision solely on the results of these returns. But they are popular, you will hear them referred to, and it certainly will better prepare you to achieve your investment goal by becoming familiar with them.

1) Cash on Cash Return - Cash on cash return measures the return you can expect to receive in the first year of property ownership. In this case, the higher the cash-on-cash return is the greater the profitability of the investment.

Formula: Cash on Cash = Before Tax Cash Flow / Cash Equity (Initial Investment)

Test your understanding: Given the opportunity to invest $50,000 for a cash-on-cash return of 6.5% or an investment of $75,000 for a 10.2% return, which appears to be the better investment? Though it would require more cash outlay, the higher return, at least on the surface, seems to be the better investment. Why, because a first-year yield of 10.2% on your cash investment is better than a first-year yield of 6.5%.

2) Gross Rent Multiplier - Gross rent multiplier (GRM) measures the ratio between annual gross rental income and sale price. It is the least informative measure of an income-property primarily because it does not consider a property’s operating expenses, debt service or cash flow, and by itself is insufficient as a stand-alone number because it says nothing about a property’s profitability. Nonetheless, gross rent multiplier can be helpful for simple comparisons between rental properties. It is an easy calculation you can make in your head, and can be used when you simply want to get some idea how the price for one rental property compares to similar properties recently sold or currently for sale in the market. In this case, a higher GRM indicates a higher property value.

Formula: Gross Rent Multiplier = Purchase Price / Gross Rent

Test your understanding. What does it say about a rental property selling at a gross rent multiplier of 7.2 given that two similar duplexes in the area recently sold at gross rent multipliers of 8.5 and 9.0? Namely, that the duplex for sale appears to be offered at a better price than the comparable duplexes.

3) Capitalization Rate – Capitalization rate (or cap rate) is essentially an indicator of how much debt an income property can carry; the higher the cap rate, the more debt a property can support, and vice versa. The idea is straightforward. A property’s cap rate indicates the percentage rate of sale price attributable to net operating income (income less operating expenses). That is, it shows how much cash flow is generated to make the mortgage payment as a percent of sale price. In this case, a higher cap rate indicates that more money would be available to pay the loan, and explains why lenders use it in their appraisals.

Formula: Capitalization Rate = Net Operating Income / Purchase Price or Value

Test your understanding. Would you consider a small office building selling at a cap rate of 9.7% to be better priced than a building with a capitalization rate of 7.2%. Well, you should, because by all appearances it seems to generate a higher net operating income.

You get the idea. Real estate investing is about the numbers, not pure luck. You can get a real estate professional to help you with the research, and real estate investment software to do the math for you, but at the end of the day, you must prepare yourself to succeed at real estate investing.

Now go forth and multiply!

Everyday I listen to people searching for the success keys in real estate, and this one frequent question keeps coming up. Impatience can cause mistakes, however there are fasttrack ways to get you in the game sooner than later.

The quickest way to become successful in Real Estate Development?

The answer is pretty simple:  find yourself a Real Estate Mentor.

There is no need to re-write the rule book! You can still be innovative and creative with your developments and take control of the project, however there are key skills and knowledge which are developed with years of experience before becoming successful as a real estate developer.

What I have found is that you can add years of experience and catapult you through to success simply by allowing a mentor to lead the way. This advice can be applied to any industry you may wish to pursue, however lets apply this to people starting in real estate development.

A real estate mentor can find the right builder, warn you of potential risks to a development site, find the right property development finance package, or make sure you have the right property development partnership agreements in place. These points alone can save you hundreds of thousands of dollars on a property project which the novice developer usually learns the hard way.

Example 1:
Mr & Mrs Reno – the builder was ripping them off, 12 month time delays, and home extensions incomplete. The couple were quoted as saying: “I am losing sleep over this!”
If only they had consulted a real estate mentor BEFORE they started the project, they would have saved over $200,000 in costs, and got a lot more sleep!

Example 2:
Mr Townhouse – Had a property with potential to build extra dwellings. He thought 1 extra dwelling was possible.
If only he had appointed a real estate mentor, he could have found out the property could allow an extra 5 dwellings! Thats about $300,000 in extra returns he nearly missed out on.

So make sure you get good advice, and more importantly seek out the professional guys in real estate, the ones who walk the walk and talk the talk. I personally have a real estate mentor whom I check in with all the time to make sure I am making the right moves in real estate development, and I must say, its one of the keys to my success.

Good luck, and happy mentor hunting.