How to get into the property market
In today’s economy it’s no surprise that Australian homes are some of the most expensive in the world. Many of the younger generation deem buying property as unaffordable and out of reach.
But we still want a piece of the Australian dream and property investing is still a wise financial choice long term.
The plus side is interest rates are at record lows as well as loan options being readily available with so much competition in the market.
But don’t despair, home ownership may still be within your reach. Here are some tips to get into the property market that you may not have thought of!
- Buy with your parents or friends. This option is a way to get a step into the property market by pooling finances and deposits together as well as making repayments more affordable. Just ensure you get legal advice to ensure the right ownership structure to avoid issues down the track such as selling.
- The Shared Home Ownership Scheme (for those in WA)
This is a scheme offered by the WA state government. For as little as a $2000 deposit or 2% of the purchase price, the scheme enables the purchase of a newly built off the plan property using a state government loan. The government retains part ownership of the home but you have the option to buy and sell when you please, and eventually own the property outright. In other states there are companies such as BRICKX where you can buy “shares” in a property much like shares.
- Buy an investment property first instead of a home to live in/ family home. By renting out your investment property you will be able to build a portfolio faster. Regional investment properties are a great option as they can be cheaper with better rent and yields. It could even be a cash flow positive investment that puts money back in your pocket or if it does make a loss it could reduce your taxable income. Ensure you speak to your accountant and get advice with the right loan options.
- Consider a Bridge Loan
A Bridge Loan is a short-term loan to a buyer who is typically in the process of both selling and purchasing or developing real estate. It could be a useful option to not miss out on a property that’s currently on the market.
- Other types of property investment
Other options could also be investing through superannuation or a managed fund. Again ensure you speak to the right professionals to make the best property decision for you.
Saving a deposit for your first home and getting on the property ladder can be a challenge with current house prices, but there are alternative ways of achieving your goal and starting your investment portfolio.
Contact us today to discuss the right loan and potential property investment strategy for you.
Why Real Estate still tops the list for Investors
With fear of property price fluctuations, economy shifts and the government’s budget right around the corner, it is high time I did a blog on debunking some of the conventional myths about property investing in the current market.
There are a number of reasons why real estate investing remains the most popular investment pick in the country.
1. There’s always more than one way to invest in real estate
And it’s more than just the capital gains perspective. A primary strategy can also be for cash flow. Property offers many different strategy and outcome options based on short and long term, high and low yield. Take the NRAS (national rental affordability scheme) for example which is a partnership between the Australian Government and the States and Territories to invest in affordable rental housing which can lead to a positive cash flow investment.
A rising trend in investing is through Real estate investment groups which is like a small mutual fund for rental properties. If you want to own a rental property, but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you.
2. Leverage the banks money
When comparing investment classes and talking cash down VS percentage of return value, real estate generally comes out on top.
On a typical real estate investment, you usually require a deposit of 5-10% of the value of the investment while the bank puts in around 90% of the value.
And if you’re really savvy, you can find investors to cover some of the deposit, limiting your cash outlay.
This allows you to have the potential for a much greater return on investment (ROI) and leverage up to 90% of your assets performance on someone else’s money.
3. Invest Countercyclical
Read about the world’s leading investors both past and current and one commonality can be formed from their varying strategies. You buy when things are down and sell when things are up. Simple strategy yes? But not as easy to execute. These investors have the insight, liquidity and guts to invest during times of market turmoil when fear and uncertainty are at their highest and most investors and buyers are running for the hills or sitting on their hands. The best deals are made in times like these.
We have done many property clock blogs in the past talking about market cycles which you can find here
4. Your tenants pay
With property investment, the value comes from the rent your tenants pay (this is your gross income). Just like a business, you calculate your gross expenses and subtract them from your gross income to determine if the resulting net income is worth the investment.
Investment properties such as positively geared and positive cash flow investments also make it possible to hold an investment property that will cover your operating costs, like repairs and maintenance as well as your loan expenses.
The NRAS (national rental affordability scheme) can also assist with this strategy that lets the rent pay off your mortgage and allows eligible individuals and families are able to rent NRAS dwellings at a rate that is at least 20 per cent below market value rent.
5. Hidden profit
There is some hidden profit opportunities that real estate provides and that’s getting smart and knowing your possible tax benefits.
Most of us know about negative gearing reducing your overall taxable income by allowing you to claim the difference between income and costs as a deduction. Make sure you are aware of any costs associated with your property investment can also reduce your income as there are a wide range available to claim.
Depreciation is another tax benefit that property investors can claim. You can depreciate a percentage of your property each year as a loss, lowering your taxable income.
Some investment properties also qualify for ‘capital allowance’ or ‘building allowance’ depreciation. In this case, depreciation is related to the building itself.
Additionally, there are many other benefits you can discuss with your accountant or financial planner.
No matter what the market, these benefits add up to why you should consider investing in real estate.
Avoid these bad budgeting mistakes
The financial decisions you make (or don’t make) today will inevitably affect your future. Good budgeting practises now lead to a more financially secure tomorrow and bad financial habits can sink your future into debt.
Whatever your negative habits are with money, you can change them. It can be hard to break lifelong patterns but knowing the common bad budgeting mistakes will reduce your odds of making them:
Bad Budgeting Mistake 1# Not writing down expenses
It’s impossible to stick to your budget if you don’t know where your money is going . It’s very easy to forget the small things such as a parking receipt but over time these things can eat into your budget.
The easiest way to remember everything you buy is to update your budget regularly, every day if you can while your purchases are still fresh in your head. You could also make a note in your smart phone to enter in as you go! or make all your purchases with the same debit or credit card and keep track online through your bank app.
Mistake #2 Impulse Buying
Chocolates at the service station, takeaway coffees at your local cafe and checkout items especially if made weekly add up quickly as well. These seemingly inconsequential purchases like chocolate once a week, are costing you $8 a month, or almost $100 a year. Writing down even those minor $1 purchases every time can help you spend more wisely in the long run by seeing the bottom line effect they have.
Mistake #3 Busting the budget
Blowing the budget happens. You go out for dinner that turns into drinks after. You go shopping expecting something to cost a certain amount of money that you’ve budgeted for – but it’s more or you buy additional items. And this happens a lot but how?
These things do happen, however, if you know that you have a tendency to buy more than just one thing when you go to the store, or if you know that your friends have a tendency to change their plans, either avoid these activities or create a bigger budget for them ahead of time.
Mistake 4% Setting Vague Goals
Saying “I’m going to save” without determining how much by what time frame won’t set you up for success. Set some realistic goals with a specific and detailed action plan. For example, rather than saying you’ll save money, say that you’ll increase your superannuation contribution by $1,500 a year. Instead of saying you’ll spend less, say that you’ll cut $30 a week from your grocery bill or limit yourself to one takeaway coffee a week.
Mistake #5 Making things complicated
Budgeting doesn’t have to be hard. You don’t need to create an elaborate system or use special budgeting tools to develop a realistic spending plan. You can simplify your budget by easily keeping a running total of your expenses using your smart phone or even an excel spreadsheet while having the freedom to update and adjust your budget regularly.
Correcting these mistakes will help realign your budget and financial goals. You can find more helpful budgeting articles from our previous blogs here:
4 tips to change your financial life and make it stick
How to break the cycle of debt
How to take control of your money now
So your home loan has been rejected. What now?
With recent changes to lending requirements and banks sharpening their pencil in regards to the amount of investment and consumer loans their allowing, it’s now becoming harder than ever before to achieve finance.
If you’ve been rejected for a home loan don’t panic! Different lenders have different criteria for mortgages, and one rejection doesn’t mean that you won’t be able to buy a home.
Here are some simple yet effective steps that can assist you getting back on track and achieving a successful outcome on your next application.
1. Ask why you were rejected
Your lender should be able to tell you the reason/s why you were rejected, which will give you the opportunity to change and fix things before your next application. It could be something simple that you missed!
2. Review your options
Create a plan before applying again. Research different home loan lenders – the more you know, the more informed you’ll be to make the best decision on who to partner with to get approved.
3. Check your credit profile
Sometimes lenders decline because of your credit history. You will need to solve any outstanding issues with your credit file before applying again. If you do have late payment, missed bills get your finances in check and have reasons to explain your financial history to your next lender. For the future, ensure you pay bills on time and develop a regular savings plan. The more reliable you are financially, the better you will appear to future lenders.
4. Review other debts
If the reason you were declined was credit card or other debts, look at consolidating or clearing your debt before undertaking any new loans. Reducing your credit limits or even cancelling cards can go a long way in the eyes of your future lender.
5. Don’t give up
Only those who give up fail!
Always try again, there are plenty of lender options out there. There’s bound to be one that matches your budget and needs however you may need to change your expectations in terms of what you can realistically afford in repayments and what you can borrow.
If you are rejected for a loan the key is not to panic. Loan rejection isn’t uncommon and it certainly doesn’t mean you will never be able to secure finance. Provided you show you’re a reliable financial customer with a good credit history and a sound savings strategy, you shouldn’t have too many difficulties obtaining finance.
6. Appoint a broker
I still believe that finance brokers are the best option currently for securing finance. A good broker’s knowledge about the mortgage landscape, current stipulations with different lenders and suitability to your personal circumstances can prove invaluable when trying to access funds. Please as you continue to build your portfolio the broker becomes an advisor on your journey aware of your personal lending history, needs and ultimate goals.
It can be confusing what type of mortgage to get. It’s not only important to check the right rates for you but make sure you’re getting the right features in your home loan.
At CPG our brokers work for you and help whether it’s a simple rate comparison or a full financial health check – talk to one of our brokers today
What are renters looking for?
Attracting tenants to your property?
With the recent changes in the property markets around the nation, renting is becoming the housing option for many Australians. With more of the population now switching to renting as a result of climbing housing procures, lack of affordability is paving the way for future rental price increase and shortages.
So what makes renters pay more? What do they expect from you the landlord? How can you make your property more attractive to a prospective tenant?
The grudges tenants commonly have is property manager delays, things not being fixed, not being able to make changes to the property (such as putting up pictures), and inability to have pets.
Here are a number of key items considered by prospective tenants when choosing a rental home..
With it being summer right now this is at the top of the list. Installing air-conditioners, particularly reverse cycle can create the ability for landlords to charge more. Tenants generally preferring split and single unit AC’s over ducted units, which generally use more power and cannot be as easily controlled for desired use.
If a potential tenant already has a pet, they’re not going to choose your property over their dog. Searching through the rentals for a “family home” but they don’t allow pets makes it one of the biggest frustrations tenants have over searching for a property.
Most tenants look after their pets and therefore will look after your home, and they don’t mind paying a pet bond either.
3) Modern quality kitchen
Luxury and convenience in the kitchen is the top of property renovation lists with bathrooms a close second. Renovating these over other rooms such as bedrooms will increase your rental attractiveness. Adding new benchtops, a dishwasher and the like can also increase your asking rent.
Interestingly in WA in particular, “pool” is one of the most searched terms renters look for when searching for rental properties. Whether it’s a shared pool in an apartment complex or a well maintained pool for a house, having a pool is certainly a factor that will separate your property from others.
5) Low maintenance
a topic that worries both landlords and tenants, keeping property maintenance to low levels means less headaches for both. Repairing appliances and air conditioning before renting out a property as well as garden maintenance such as regular lawn mowing including in the rent is a great idea too.
Landlords want good tenants but tenants want a good landlord as well. Moving house for renters is very disruptive and expensive so if landlords ensure factors like the above to keep their tenant happy they are more likely to sign a longer lease and stay.
Achieving property investment success requires more than just purchasing property, finding a property manager or advertising for tenants. When selecting your next property try to look at it first through the eyes of a renter to assess whether you would rent and live there yourself.
What does it really cost to buy your first home?
Buying your first home is an exciting step in your property journey, but it can be a daunting one.
According to financial home loan surveys, four out of five future first homebuyers don’t feel well informed about the property purchase process.
One of the main concerned to get informed about is the costs, it’s not just the property you need to pay for.
On top of your deposit, here are 8 costs every first home buyer needs to be informed of:
1. Home loan application fees
When you get a home loan, it’s likely you will have to pay an application or loan establishment fee. The cost of this fee varies on the lender you go with and can be as much as $1,000.
2. Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) insures your lender against any loss incurred if you default on your home loan and is needed on all home loans when you borrow 80 per cent or more of the property value.
3. Stamp duty
Stamp Duty is a state government tax .It’s usually the largest cost and is based on the purchase price of the property and paid prior to the settlement. As a first home buyer, you could be entitled to stamp duty concessions, but these vary from state to state.
4. Mortgage registration fee
As a first home buyer, you will need to pay an admin charge by the Land Titles Office. This fee is charged for registering the mortgage on to the certificate of title for the property. The fee differs depending on your state from $85 to $125 per registration.
5. Legal or settlement fees
Your solicitor or settlement agent will charge you a fee to carry out the legal work on the property transaction. Be sure to ask about the costs of searches, settlements and disbursements which could be extra.
6. Pest / building inspections
You will be advised to arrange pest and building inspections by qualified inspectors before exchanging contracts. These inspections will ensure the property is not affected by insect infestations and it is structurally sound and is building regulation compliant.
It is usually a condition of the loan settlement that your lender will require all security properties are covered under a building insurance policy.
8. Other costs
There are some other ‘hidden’ costs that you should be aware of when purchasing your first property including:
- Moving costs
- Home and contents insurance
- Council rates and strata fees
Before buying, it’s wise to work these additional costs into your budget, so you know what to expect and know how much you can spend on your first home.
Is it your time to become a first home buyer?
Our wealth creation and finance specialists will sit down and go through each step of the process in a simple and easy to understand manner presenting you with options.
Going from home owner to Property Investor
If you are currently a home owner getting ready to take the leap toward your first investment property, there a number of important differences you will face when stepping from home buyer to property investor. Property investing can be a completely different ballgame with different rules, lending and requirements.
Here are some important factors to consider when jumping from your PPOR into an investment property for the first time.
1) The right loan
Property investment loans come in many different shapes, sizes and options, such as interest-only repayments, principal and interest etc.
Interest only are generally the most popular with investment lending. This means your repayments are for the interest portion of your loan only, and not the principal or the purchase price. This allows you to maximise your cash flow and are tax deductible, whilst not paying down the original debt.
2) Your deposit
Again your deposit requirements vary greatly depending on location, risk rating, rental return and valuers comments. With their recent changes to investment lending nationwide you will generally need a 10% deposit in most locations.
This amount will vary depending on the cost of the property and the terms of the loan. If you don’t have enough for a cash deposit, you may consider using equity from your home as security for your loan.
3) Using Equity
if you’ve owned your home for 5+years, there’s a chance you have potential usable equity, and this is a valuable resource when it comes to property investment.
As an investor you can generally access up to 80% of your home equity (without the need to take out Lender Mortgage Insurance).
Alternatively some lenders will lend up to 95% of the property value less the existing mortgage, where LMI would be paid on the amount borrowed over 80%.
4) Other Options
funding from family members has become a popular option, such as a parent or a sibling who guarantees your loan. They must have enough cash or equity to cover the minimum deposit requirements of the purchase price of the investment property. Having assistance can make it easier and quicker for you to get started in property investment.
There are many other things to consider when deciding if buying a second property is right for you such as cash flow, estimate rental income and allowing for a safety buffer, which I will cover in my next blog.
If you are able to answer what deposit you need to buy an investment property and know how you will fund it, you can start exploring the different loan and repayment options.
We have registered brokers available to have your questions answered with a free no obligation financial health check. Click here to find out more.
What comes first – the money or the property deal?
When you are just starting out as an investor it can be a huge obstacle to overcome the “I have no money” dilemma and get excited about your goals when they seem out of reach based on your current financial situation.
How often do you hear yourself say “I/we don’t have the money” not just for investment opportunities but life in general?
Or you have gone to the bank/s and been told that you don’t qualify for a loan?
My team come across motivated potential investors each and every day that can’t wait to get started on their property investing journey but they just don’t qualify… yet.
Here are my key tips to start your property investing journey irrespective of your financial situation:
Most investors don’t get beyond one or two investment properties and it becomes a self-prophesising belief that they can’t continue to grow their portfolio. If you do what everyone else does and thinks you will get what they get… and never get ahead.
Question your thinking and avoid limiting your beliefs of what is possible.
2) Knowledge and Focus
If you want to be an investor, you need to start “walking the talk” and start looking at opportunities and research today.
There are many financial experts out there that offer advice on no or little money down opportunities, joint ventures, option agreements and buying off the plan.
If these strategies are too high risk for you, focus instead on creating a savings plan until you have a decent amount of equity to invest on your own.
3) Figure out the reason as to why you have no/little money to invest
There could be any number of reasons why you are in your current financial situation. You could be a low income owner and struggling to keep up with day to day expenses. Or, you could earn a good salary but struggle to save a deposit. You could have a very low risk tolerance and want to use as little of your own money as possible or perhaps you just don’t know where or how to get started.
Getting clear about your current situation will allow you to create an action plan.
4) Be prepared to put in the hard work
Like any project, investing success is having the willingness to make it work and put in the hard yards. When you commit to learning, researching and actively looking for opportunities, the rewards will come.
Investing starts with mindset and a plan that the money will eventually follow. And although it may be a while before you can invest, you’ve lost nothing and gained knowledge for the next opportunity – it’s a win either way.
What you must know when researching your next investment
This time of year many of us take holidays well into January. With time away from work and busy social schedules, this is a great time to research the market and gain confidence around buying a property. You can use this time to become prepared, with less buyer activity around there’s lower demand, which could allow for a better position to negotiate.
In the video above I share my top tips to avoid the pitfalls of searching for the right investment property for you.
Financial resolutions worth making in 2015
It’s a new year and many of us are making resolutions – again. Here at CPG we have just celebrated our 6 year anniversary and every year we see the top 3 financial resolutions our clients make include saving more, spending less and reducing debt.
Many resolutions seem to get broken throughout the year but it is logical that those who set out with goals to improve their finances at the start of the year will realise more of their goals by the end and will generally be better off financially.
Here are our top resolutions to make and keep for 2015:
1) Track spending and make a budget
It might sound obvious but checking the status of your savings and evaluating your monthly expenses is key to managing your cash flow and creating a budget that you can actually stick to.
If you are spending more than you make then how can you reach your financial goals? Make sure you include a fixed amount for discretionary expenses – a budget is only as a good as how well you can stick to it.
2) Open a savings account and close accounts you don’t need
Just like tax is taken out of your wages (if you’re an employee), pay yourself first in a separate savings account. If it’s not there – you can’t spent it and these types of savings accounts usually offer better interest rates as well.
And while you’re opening a new savings account, it’s the perfect time to close accounts you don’t need and save money on bank fees and charges – those few $ every month can add up to hundreds quickly.
3) Create a pay down debt strategy
If you have a lot of bad debt, you will probably save more by paying this down first than investing. Start with high interest loans first and pay more than the minimum payments. I have seen many clients become debt free very quickly using this strategy.
If you want to learn something new -research, read and source experts in that area. For example if you want to cook you read cookbooks and attend cooking classes. If financial resolutions are a priority for you this year commit to perhaps reading a financial book or attending an investment seminar once a month.
Applying yourself on a consistent basis to learn more is essential to creating wealth.
(note: I will be doing a blog on my top ten property, investing and mindset books very soon!)
No matter what your financial goal, whether paying down debt or saving for retirement – making a financial commitment will help you reach your goals quicker. The key to sticking to your resolutions is to Take Action, track your progress and check it often.