Archive for March, 2010
Ever had trouble negotiating an option with a property owner?
Harry Charalambous, Buyers Agent and Property Expert, explains how to sweeten a Property Option Agreement to meet the vendor’s needs.
Most days, Harry negotiates and assists property investors in acquiring property using property options.
If you have found an investment or development site that works for you, yet you don’t know how to negotiate an option, call the team at Plan Assist on 02 9449 2333 and have Harry and the team help you secure favourable terms with ease.
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.
THE Hunter Valley has emerged as one of Australia’s hottest places to invest in property thanks to the international resources boom.
A list released yesterday of the nation’s 10 best investment locations included the Hunter Valley coalfields, Glen Innes in the New England district and North Western NSW towns like Moree and Gunnedah.
Property researcher Terry Ryder said he chose the top 10 regions based on their low prices, strong rental returns and potential for growth.
“There has been so much media attention on affordability issues but it tends to focus almost exclusively on the major cities,” he said.
“That ignores all the good prospects in some of our regional centres.”
Decent four-bedroom homes in Muswellbrook, on the doorstep of the Hunter Valley’s coal mines and horse studs, were advertised online yesterday for as little as $198,000.
But real estate experts predict those prices will climb dramatically with the opening of a billion-dollar coal mine and expansion of transport and energy infrastructure.
Approved in 2007, the Mangoola coal mine is expected to see more than 1500 miners and their families move to the area, many of whom will need rental accommodation.
Muswellbrook real estate agent Phil Lawler said his agency took four deposits on homes in town yesterday.
“It’s a long, long time since I have seen such urgency in the marketplace,” he said.
“Rents are starting to increase dramatically, and that will start to turn investors’ heads.
“For $250,000 to $350,000 you can get a really attractive property up here that can return up to $600 in rent a week if furnished.”
Real Estate Institute of NSW president Wayne Stewart said the rural lifestyle on offer in the region added to its allure.
“Some of those areas are only an hour from the ocean and that is part of it as well,” he said.
According to the report, Glen Innes made it onto the list for its location at the junction of the New England and Gwydir highways, the quality of homes on offer and plans for new development in and around the town.
Mr Ryder, who runs the hotspotting.com.au website, said a planned inland rail link and mining expansion meant real estate in North Western NSW was also likely to boom.
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!