The long and short of property investment..

When we hear of properties selling at eye-watering profit margins it is tempting to think the vendors got ‘lucky’. Shows such as ‘The Block’ also create the impression that it is easy to jazz up a bargain buy (if you can find one!) and then ‘flip it’ for a quick profit.

In reality, research from the March 2017 quarter reveals properties that resold at a profit have typically been owned for an average of 9.1 years (houses) and 7.6 years (apartments)1. The same report found properties that resold at a loss have typically been owned for less than 7 years.

While there are no hard and fast ‘rules’ for investing in property, history shows that when it comes to capital growth many investors have benefited from a long term vision.

Clearly, some markets are hotter than others, possibly contributing to an increase in ‘flipping’ amongst some investors. But as with ANY investment decision it is essential that the possible risks associated with an investment are well researched and considered.

How do you know?
Nobody has a crystal ball to predict what may happen in the future. However, just some of the conditions that may alter between the time you buy and resell a property are:
• market fluctuations
• selling season fluctuations
• interest rate changes
• loan product changes
• a boom in local developments
• your target market moves to a new hotspot
• property improvements
• PLUS….

Beware of the costs!
It pays to crunch the numbers BEFORE selling. A potential profit figure based on current market values might seem tempting but when you add up the costs associated with buying, holding AND selling over the short term versus the long term, that potential profit margin may not seem so appealing.

Upfront costs for buying property are typically about 5% of the property price – but can go much higher. These may include:
• buyer’s agent fees
• stamp duty
• loan application fees
• legal fees
• pest and building report fees
• LMI (if deposit is less than 20%)

If renovating an investment property with a view to making a quick profit, the renovation costs should be added as well as other holding costs.

The costs of holding a property may include:
• interest payments and bank fees
• council and insurance costs
• property management fees (or labour and your own loss of income if you are doing the labour for a renovation)
• lost rental income (during a renovation)

The selling costs of property may include:
• agent’s commission
• marketing/advertising costs
• auction costs
• legal fees
• lender fees, eg early exit fee

Lastly, for investors (including quick flips) you will also have to pay capital gains tax (CGT) if your sale price (less your cost base) results in a capital gain. If you renovate and flip a
property within 12 months then your CGT will be 100% of your profit. You have to know your numbers to ensure the effort will return the result you are after – it is recommended you
seek advice from your acountant before any potential sale.

We have helped many clients take that first step onto the property investment ladder. Ultimately, the investment strategy a client chooses will be dependent on their individual circumstances and their future financial goals. As your finance specialist we can assist you to find finance and a loan structure suitable for your particular situation.

Changes to investment loan products
You have possibly noticed changes to some investment loans over the past few months – particularly interest only loans. Confused? You’re not alone! So what’s that all about?
In a nutshell, regulators want to reduce the substantial growth of interest only (IO) loans (popular with investors) in an effort to reduce risk to both lenders and borrowers. If you currently have any IO finance then it is essential that you contact us to discuss your options.

As your finance specialist it is our job to help you navigate a complex financial market and source the most suitable loan product and structure for your circumstances AND we have access to a broad range of investment loan products from a range of lenders.

Whether you are considering your FIRST investment property or another one, if investing in property is on YOUR mind then call us TODAY – we’d love to chat!

CRUSHING CREDIT CARD DEBT Choosing the option that works for YOU!

Choosing the option that works for YOU!

The summer holiday season may leave many of us with a warm glow from indulging our loved ones and perhaps even enjoying a relaxing summer holiday? What wonderful memories that often creates…

So how is the credit card balance looking?

In Australia, over 70% of adults have at least one credit card. With nearly 17 million credit cards in circulation chances are this is also the time of year when some of us have to face the reality of our extravagance – in black and white on our credit card statement.

Options for credit card debt

What’s the best way to clear credit card debt? This will depend on your level of debt, the number of cards and your individual circumstances, however your choices might include:

• paying out the balance in full before interest accrues

• paying the maximum amount you can afford each month to clear the debt as quickly as possible

• (if you have more than one card) paying at least the monthly minimum on each card while allocating a larger payment to the card with the highest interest rate

• transferring your balance to a new credit card offering a lower interest introductory period

• consolidating your debt into your home loan

 At all costs you should avoid paying ONLY the minimum monthly repayment or you could be in a cycle of debt that is NEVER resolved.

Clearly, having a plan to repay credit card debt as quickly as possible is the best option…

Credit card balance transfers

Many lenders now offer credit card balance transfers with a range of rates and offer periods. You transfer the balance from your existing credit card to a new card at a lower (or even zero) interest rate for a set period to provide ‘interest breathing space’ to help you to pay off your debt quicker.

To ensure a credit card balance transfer works for YOU it is essential to know the terms and conditions of the card AND to be disciplined with repayments.

What should you know?

• To maximise the benefits you should pay off ALL the transferred balance within the offer period.

• Know the offer end date! If possible set sufficient auto repayments each pay day that will clear the debt before that date.

• Any transfer balance at the offer end date will attract interest charges at the card’s standard interest rate.

• New purchases usually attract the standard interest rate – NOT the transfer interest rate.

• Know what fees apply and when they fall due, eg annual fee or percentage of transfer amount.

MOST importantly, cut up your old card(s) so you are not tempted to rack up even more debt while paying down the original debt!

A balance transfer should NOT be used habitually to manage recurring periods of debt! Poor financial habits and/or multiple credit enquiries may negatively impact your credit score – even if the enquiry didn’t proceed. This could influence your ability to be approved for a home loan in the future!

There IS another way…

Together we may consider consolidating all of your debt (credit card balances, personal loans, car loans etc) into one loan with a much lower average interest rate. If you are a home owner your home loan usually has the lowest interest rate.

Choosing YOUR best option should involve creating a budget, being brutally honest about your selfcontrol when it comes to spending and repayments and then finding the fastest and lowest interest option to clear your debt. Need help? Give us a call TODAY.

Holiday fun that WON’T break the bank!

Summer school holidays can play serious havoc with household budgets. How do you keep the kids/grandkids entertained without breaking the bank? Try our cheap, fun activities:

1. Plant some veggies! Paint recycled pots, plant with seeds and let the kids watch them grow over the holidays.

2. Write a play with the kids then help them build the set and act it out.

3. Make fresh juices. Get out the juicer and let the kids create their own crazy concoctions.

4. Go birdwatching. Grab binoculars – and the kids! Make a list of the birds you see and look them up online when you get home.

5. Put on a fashion show. Let the kids raid your wardrobe and take photos for the family as they parade down the runway.

6. Have a garden tea party. Bake some goodies, wear a hat and enjoy!

7. Go fishing. Spend the afternoon fishing then come home and cook up your catch!

8. Research simple, safe science experiments and do them together.

9. Rollerblade or ride bikes in the park. Make it a family excursion. Be prepared to be laughed at if you’re an adult!

10. Go camping in the backyard and tell stories by torchlight until everyone falls asleep.

So… some of these fun ideas might keep the littlies occupied but will they all appeal to your big kids? You know – those dreaded ‘screenagers’? How do you keep them entertained AWAY from a handheld screen without costing a fortune? Try these:

11. Redecorate their bedroom. Help them rearrange the furniture and pick out some recycled or cheap new homewares to stamp their own ‘style’. Kmart anyone?

12. Organise a free throw basketball comp. Go to the local courts, take a video and get them to post it on YouTube.

13. Apply fake nails with crazy designs for a fun girly afternoon.

14. Learn to surf. Hit the beach with a surfboard and a good teacher and learn to master the waves.

15. Make a mountain of homemade popcorn and have a movie marathon with friends.

16. Bake cupcakes and see who can create the best decorations!

17. Volunteer at an animal shelter or offer to walk the neighbour’s dog.

18. Find a fabulous recipe on Pinterest and then cook it for the family!

19. Start a blog about your school holiday adventures.

20. Spend an evening playing old fashioned board games with friends.

Who knew they could be such fun? After all, it really IS the simple things in life that matter…

Dreaming of a fabulous holiday next year?

Enter our new competition and YOU could win a $10,000 holiday package to travel ANYWHERE you like! Or maybe ask your kids where THEY would like to go! Good luck!

First home buyers….How to pass the genuine savings test!

Dipping a toe into the property market for the first time can be a learning curve on a number of fronts. First home buyers (FHBs) often find lender policies confusing when trying to understand exactly what they need to do to meet the requirements.

The concept of genuine savings is one area that can be confusing – and it doesn’t help that each lender tends to have their own policy.

Now, you’re probably thinking “but surely savings are savings?” Right? Well… not necessarily. As part of a lender’s assessment of your suitability as a ‘good borrower’ they require evidence of your ability to plan and save for a deposit yourself.

Definition of genuine savings
This term is used by lenders to define the amount of funds a home loan applicant has ‘genuinely’ saved over time. Requirements may differ depending on the total amount you
borrow. For instance if you have:
• 20% deposit – then proof of genuine savings is not required
• 15% deposit – genuine savings are not required by most lenders
• 10% deposit – most lenders require genuine savings
• 5% deposit – all lenders require genuine savings

What are considered genuine savings?
The following are generally considered genuine savings if they add up to more than 5% of the purchase price (10% if you are an investor):
• savings held or accumulated over 3 months
• term deposits, shares or managed funds held for 3 months
• equity in real estate (this can vary between lenders)

Some lenders require a 6 month savings history. If you have been renting for over 3 months there may be some exceptions to the above.

Of course, you can pay more than the minimum deposit – and the remainder of your deposit may come from any source – as long as you have met the lender’s genuine savings criteria for 5% of the purchase price, eg if buying a $600,000 home you will need to show $30,000 in genuine savings.

What DOESN’T count?
It’s often the source of funds that DON’T count that catch FHBs by surprise! The following are NOT considered genuine savings:
• cash gifts
• inheritance
• tax refunds
• bonuses
• savings plans
• selling your car or other assets
• First Home Owner Grant (FHOG)
• funds held in a business account
• borrowed funds, eg personal loan
• lump sum deposits (funds from sale of property is an exception)
• developer/builder rebates or incentives

The power of rental history!
If you have a strong rental history some lenders may make an exception and consider other sources, eg a gifted deposit from parents.

However there WILL be criteria you will have to meet and your rental history will have to be proven.

If you’re a renter considering future property ownership it pays to know what lenders look for as part of their ‘rent exception’ assessment. At the time of your loan application the home loan
applicant(s) must:
• be currently renting
• have a minimum 6 months of satisfactory
rental history and on time payments
• be listed as tenants on the lease
• be renting via a licensed property agent or privately (NB: private rentals may be assessed on a case by case basis)

But don’t think renting will make it easy! Lenders will be stricter if there are no genuine savings in a bank account – they will analyse how you manage your money through your savings and spending history. Even if they assess rent as genuine savings you will still need to prove you have the deposit (or ‘funds to complete’) at the time of your application.

The most essential tip?
Make sure you are loan application ready BEFORE you apply! As your finance specialist we have extensive experience across a range of lenders – we will do the legwork for you!

The earlier you contact us on your path to home ownership – the earlier we can assess your current situation and provide guidance on how to get you to where you want to be!

Call the office TODAY so we can help you get started!

Want even more tips to boost your borrowing capacity?

Contact us for our article ‘How reducing your credit card limit could ramp up your borrowing power!’