Archive for February, 2009
YOU HAVE DECIDED TO BUY PROPERTY AS AN INVESTMENT … If you have decided to buy property as an investment, but have never invested before, you may think, since now seems to be a buyer’s market, you are ready to get started.
Many people become investors because they have seen a property that they think is a good investment rather than deciding to become an investor, then finding the property.
The main issues with this method is that, firstly, it does not allow you to become educated about how to invest, secondly, you are not carrying out effective research about the area or the property and, thirdly, you may not have taken some very important steps before becoming a property investor.
‘Financial housekeeping’ is a crucial step all investors must take before leaping into the fray. While you might think that your financial house is in order, it doesn’t hurt to take stock of where you are, and prepare well for what is about to come.
Here is a checklist for all new investors:
1) Your personal home loan
If you have a home loan on an owner-occupied home, ensure that it is set up and structured to make investing more efficient. Once you increase your debt to buy a new property, make sure that debt reduction takes place on your owner-occupied, non-tax-deductible debt first, before any principal is repaid on your new investment debt. As such you will want your home loan to be flexible enough to make additional repayments which can easily be drawn back in the event that you need extra funds to support your property, and it needs to be a loan structure where the debt is quarantined from any subsequent investment debt you may have.
2) Your personal budgets
Regardless of how big your portfolio becomes and how financially secure you are, paying attention to how you earn and spend your money always remains important. Once you begin to invest, you may have to meet unexpected expenses – new hot water services, longer periods of vacancy, rising interest rates. It is during this time that you will experience the most financial stress, and if you are used to managing your money and know exactly where it goes, making the required adjustments will be easier.Sit down and prepare a complete budget, and identify those areas where you can make changes if the need arises. Then, be sure to track your money as you spend it and adjust your spending at those times when you go over budget.
3) Prepare for investment accounting
While you may previously have prepared your own tax returns, or had a small tax agent do this for you at a low cost, accounting when you have property becomes more complex and requires a specialist accountant. Not all accountants have the necessary skills to assist you with your property claims, so before you begin search for a good accountant. Prepare a list of questions and shop around a little until you find one who seems like they have the capacity to assist.
4) Become educated
Ensure you are educated before starting. I consistently meet people who fell into investing without really knowing what they were doing, and this left them vulnerable to opportunists who sold them something that worked better for the seller than the investor. There is no need to pay out large sums of money for courses which provide little in the way of real education. Read some books, talk to others and, most importantly, learn the important questions to ask when starting your portfolio. Asking the right questions of the right people will go a long way to ensuring your first purchase is both a positive experience and a successful investment.
Call Plan Assist on 02 9449 2333 to see how we can turn you into an investor Or Email info@planassist.com.au today.
INTEREST RATES HAVE FALLEN. RENTAL RETURNS HAVE INCREASED. HOW DOES IT LOOK FOR INVESTING?
Answer: as our example below shows it is now possible to purchase a $500,000 investment property, with no cash input up front, for $143 per week.
Purchase Costs: (assumed NSW property purchased in an personal name)
Purchase Price $500,000
Stamp Duty $17,990
Transfer Fees $184
Registration Fees $92
Lender Set Up Fees $600
Legal Fees $2,200
Total Purchase Cost $521,066
Gross Rental Income (assume $500 per week)
Rent (per year) +$26,000
Less On-going Costs (per year)
Management Fee $1,700
Strata Levies $2,100
Council Rates $1,200
Water Rates $500
Repairs $1,500
Total on-going costs -$7,000
Less Interest Payments (Total Purchase Costs at current interest rate of 5.07%)
Interest (per year) -$26,418
Net Cost (Rental income – On-going costs – Interest)
Net Cost (per year) $7,418
Net Cost (per week) $142.66
Contact us on 02 9449 2333 or at loans@planassist.com.au to have us to update your current borrowing capacity. We can evaluate your present situation and look at how to help you move forward.
Our integrated service means we can locate a property for you, find your finance and help you complete the transaction.
All with only minimum active input from yourself!!
MARKET COMMENT FROM PROPERTY PROFESSOR PETER KOULIZOS… This year is going to be a very interesting year. Along with the rest of the world, we are currently experiencing one of the worst financial crises in our modern history. The bad news is that some people will lose their jobs and business investment has decreased significantly. But the very good news is that interest rates are currently at an historical low and are set to drop further.
I know that much of the media coverage on the economy appears all “doom and gloom”. This is having the effect of significantly decreasing consumer and business confidence. When people and businesses lack confidence and are worried, they spend less money which in turn slows down the economy. Hence the large stimulus packages the federal government has introduced to encourage us to spend and kick start the economy once again.
If you sift through all the doom and gloom stories and stick to reading the objective facts rather than the sensational headlines, there are some heartening points.
Firstly, property prices around most of the country dropped slightly last year which provides investors and home buyers with some possible “bargain buying” opportunities.
Secondly, rents are on the increase which results in a higher yield for the investor but also encourages tenants to start looking at buying a property rather than renting. The federal government’s First Home Owners Boost (FHOB) will greatly assist with these purchasesFinally, and most importantly, mortgage repayments have almost halved over the past year which makes buying multiple properties (and some of them positively geared), a reality. Based on my earlier points relating to FHOB and low interest rates, the people that will benefit the most from the property market in 2009 are first home buyers and investors.
“There has never been a better time to buy property.” How many times have you heard this catch phrase from property spruikers and slick sales people? Well this time, it is true! You can take it from me, as a person who doesn’t sell property but lectures in property and most importantly, personally invests in property. There has never been a better time to buy property.
In class recently, I reiterated this point to my students when I said: “There will be some smart people who will create a generation of wealth in the next two to three years; I hope you are one of them”.
Peter Koulizos is a property lecturer and author of Top Australian SuburbsArticle courtesy of realestate.com.au
To see how we can assist you in taking advantage of the unique window that 2009 could present contact us on 02 9449 2333 or at loans@netspace.net.au – let us help you map out your path for 2009 now!!
TURMOIL IN THE WORLD CREDIT MARKETS HAS HAD A DRAMATIC IMPACT… In particular, it has seen the RBA aggressively slash interest rates several times with a 1% cut on October 7, a 0.75% cut on November 4, a 1% cut on December 3 and most recently another 1% cut on February 2, leaving the cash rate at 3.25%.
The four major banks have passed on most of this cut to consumers. Interest rates are now at a 45 year low. CBA and NAB now have a standard variable rate of 5.74% Westpac and ANZ have a standard variable rate of 5.91%. Fully discounted Professional Packs now range between 5.04% and 5.21%
How low the cash rate falls will depend on developments in credit markets. The longer the credit crisis remains at a heightened level, the greater the risk to economic growth and the more likely the RBA needs to make deeper cuts to the cash rate.
At present the major banks are suggesting we are near the trough and are predicting further official cuts by the RBA may see the cash rate at 2.5% by mid 2009, but don’t see it going beyond this. They do, however, believe the low interest cycle will last for an extended period, maybe several years.
We believe that whilst this may all seem unsettling reasonably stable values for mid priced properties, low interest rates and increased rental yields could well open up possibilities. Holding costs for good quality properties in this range are now close to cash neutral and most commentators see little downside for mid price quality.
You may be able to take advantage of current settings to begin, or increase. Please contact us on 02 9449 2333 or at loans@planassist.com.au to update your current borrowing capacity. We can evaluate your present situation and look at how to help you move forward
ARE WE SEEING THE FIRST SIGN OF A RECOVERY?? - The following is an article by John Edwards from Residex. I think its very useful to realise we are at the bottom of the cycle and everything points to a rosey future…
“It is not since May 1991 that we have seen such a significant interest rate adjustment process by the Reserve Bank in any 6 month period. In May 1991 the adjustment for the 6 month period to May was in total 5.75%. This represented an adjustment of something in the order of 33% of the peak rate of 17.5%. The adjustment of 3.75% in the last five months is significant but not as high. However, in percentage change terms it is close to 50% of the peak rate of 7.25% in March 2008.
The last adjustment to the cash rate by the Reserve Bank was on the 4th February. The rate now stands at a potentially similar rate to that which one could have expected to be set by the Reserve Bank in the mid 1960’s should the same system we have now, then existed
This last rate adjustment seems as if it has “hit the spot” as far as the housing market is concerned. The auction clearance rates for the week ended 14th were significantly improved with some markets reporting a clearance rate of something in the order of 70%. Up until this date the market was reacting moderately well to the changes but did not show any signs of strength.
While it is too early to announce a solid turn around, clearly there is increased interest in property. The question for me is; will this increased interest translate into an accelerated number of sales as banks enforce stricter credit conditions?
Growth Trend in Major Markets
ACT – January and February presented with small amounts of positive growth. December was better and these two months were sufficient to offset the losses which occurred in November. This market is looking as if it has bottomed. A few more months of adjustment is expected but smaller than we have recently seen.
SYDNEY – While quarterly and monthly losses for houses are still significant (1.1% and 0.7% respectively) it presents as being the market which is further along the correction phase than others and is definitely trending to positive growth. Our predictive models suggest it has the best potential in the medium term.
BRISBANE – While in recent months the growth rate in this city has been better, January presented particularly badly (-1.24%). The general trend excluding January appears to be a market which has bottomed. We suspect this market has passed its bottom but the recovery will be slower than for most others.
MELBOURNE – This market is not presenting as if it has reached the bottom of the correction phase. We note the rate of correction is still increasing and the market activity is still skewed to the top two quartiles of property values. 60% of sales activity is still concentrated in properties with a value in excess of the median value.
PERTH – The bottom of this market looks as if it was achieved in December. Further corrections are to come over the next few months but they are likely to be smaller than we have seen in the recent past.
Given all of the above, I believe there needs to be a little caution as it is possible that we may see a “false dawn” where the uninformed move values forward before the increases can be sustained. The rules remain, buying in this market is sensible provided purchases are well priced and the properties are well positioned and have the capacity to rent at improving yields. This means well priced and well positioned properties are the only ones to be considered. Sydney in my view presents the best opportunity as based on our numbers, even with a decreased immigration, a supply shortage will remain. Melbourne units are also presenting as an opportunity, particularly the older properties which are more affordable.
Finally, don’t panic even if it feels like your opportunity is passing. I suspect that bargains will be there for some time as our economic period of adjustment has a little way to go yet. The key to success in this market, is making sure your investment is priced right with good rental growth opportunity.”
IF YOU WANT MORE DETAIL ON WHERE WE SEE THE BEST OPPRTUINITIES FOR YOU IN TODAYS MARKET PLEASE CONTACT US