Puzzle Finance Blog

Is now the time to dive into self-managed super?

Self-managed super funds continue to grow in popularity. According to Australian Tax Office figures, more than 30,000 new funds were set up last financial year, taking the total number of SMSF members over one million.

Industry and retail super funds are fighting hard to staunch burgeoning investor uptake of SMSFs. They're spending up big on advertising and lobbying politicians to change the rules, warning of the downsides to self-managed super. One rule they'd love to see introduced is a minimum balance.

Five to 10 years ago, the rule of thumb used to be that if you had $200,000 in super you should consider an SMSF. It wasn't much of a rule of thumb, since the balance required depends on a myriad of personal factors. But in any event, it was probably too low, considering your accountant was likely to charge you $3000 or more just to do the annual admin.

But times have changed.       

If you haven't spent the past five years on a remote island, you'll know that central banks have been flooding the world with cheap debt. The result has delivered an escalation in asset values – especially for share markets and property prices. Those of you who have kept an eye on your super balance will have noticed how much values have ballooned. For instance, Australian Super's High Growth option has returned 11 per cent a year since July 1, 2009.

If you were a member (of this fund) with a $200,000 super balance back in 2009 you've now got more than $400,000, assuming average, compulsory contributions. If you've made extra contributions you could have a lot more.

That's good, but what's not so good is that the fees you pay (which are charged as a percentage of your balance) have risen by an equal amount. In 2009 you would have been paying $1500, now you're paying $3000. Not that you get any more, the manager has just got more of your money to play with.

At the same time, fees on self-managed super, which are largely fixed, have fallen. Highly automated data processing, coupled with online administration, means that SMSF administration costs have fallen from $3000 or more, to $2000 or less. Depending on what risks and limitations you're prepared to accept, you might be able to get it done for less than $1000.

A switch to an SMSF in 2009 would have cost you $1500 a year, before taking into account any other expenses you'd incur (such as research, advice and managed fund fees). But switching the same account now would save you $1000 to $2000, leaving money left over to pay the optional expenses.

Remember, the decision to set up an SMSF should be about far more than balances and costs. SMSFs have benefits, including better term deposit rates, access to more investments and greater tax flexibility, but there are also risks, like breaching the SIS Act or making poor investment decisions. You need to think about how these apply in your circumstances.

But if you've been put off by "minimum balance" and "costs" talk in the past, it could be time to take another look. SMSF administration costs have fallen considerably, and super account management costs have risen, at a rapid pace.

I'm not advocating that you set up an SMSF. Given that a portion of the current million SMSF members may end up regretting their decision, you should definitely seek genuine, independent personal advice before joining the herd. But if you've got the right mindset and attitude to run your own fund, now is a very good time to question whether an SMSF is right for you.

Posted by Richard Livingston - The Age on 26th March, 2015 | Comments | Trackbacks | Permalink

Huge property profits don't always add up

If there was a "Captain Obvious" award for stating the bleeding self-evident it would be given to anyone who mentioned that Australians are just a little bit property-obsessed.

So it's no wonder that property-related headlines are popular. And if you want to garner some extra interest, throw in some water views and/or a celebrity buyer or seller. We all love to dream about that beachside mansion, or to know what our millionaires, celebrities and business leaders are buying or selling.

It's that last one that caught my eye earlier this week. The headline in the AFR read: "CBA chief Ian Narev the latest winner from Sydney's house boom."

Narev has apparently sold his inner-Sydney terrace for $2.9 million, banking a $640,000 profit for his troubles. Sounds impressive – and it is, at least in dollar terms. I don't know anyone who'd complain about having another $600,000 in their kick.

But it's important for investors to look behind the headline.

How good were those returns?

Ian Narev apparently bought the townhouse for $2.26 million in 2008. So he's held it now for about six or seven years (depending on when in 2008 he bought it). That's $100,000 a  year – nice going … until you break it down.

Narev's gain over that period is about 28 per cent. On a compound basis, that's 3.7 per cent a year, using seven years as our basis. Not so stunning, huh?

And, of course, we need to include the various costs of buying and selling – notably the agent's commission and stamp duty. The NSW Office of State Revenue tells me Narev would have been up for stamp duty of $109,790. And let's take a stab at the agent's commission on the sale, and (I think, generously) assume he negotiated a rate of 1 per cent for the sale – giving the agent a nice little $29,000 wedge in the process.

After those costs, Narev's upside shrinks to $501,210 – a gain of 22 per cent, or 2.9 per cent a year, compounded.

Now, I'm not having a go at Ian Narev in the slightest. I'm sure he'd much prefer to not have his financial dealings reported in the press. Ian Narev is the innocent party in all of this. Hopefully, he sees his home – as he should – as a lifestyle asset, not a financial asset.

Three investment tests

The implications for investors – whether in shares, property or anything else – are clear, and threefold:

1. Take out your costs.

Repairs, brokerage costs, agent commission all erode your returns – you need to look at what you've paid to own (and then sell) your assets.

2. How much time is involved?

Doubling your money is wonderful – but the difference between doubling it in two years and doubling it in 20 years is immense.

3. What was the alternative?

Shares have compounded at more than 11.5 per cent a year in the past three decades. That means, if you received a lower return, you're less wealthy than you otherwise would have been. Or, as investment commentator Peter Thornhill would say: "Invested well? Compared to what?"

So the next time you speak to someone who tells you that they sold their house for double the price they paid, make sure you do the maths – the person whose house went from $400,000 to $800,000 in 10 years has averaged a gain of 7.2 per cent a year – before costs – hardly the sort of return that justifies the headlines.

Foolish takeaway

If there's an upside to the house price boom we've seen over the past couple of decades, it's that many, many people have had their eyes opened to the potential returns from investing. But it's very important to know what sort of return you're likely to be able to earn from that investing – and over what timeframe. Otherwise, you may just well be someone else's patsy.

Posted by Scott Phillips - Money Manager (Fairfax) on 25th March, 2015 | Comments | Trackbacks | Permalink

Always follow the care instructions

If you've ever purchased a gorgeous cocktail dress, a dapper suit or a fabulous feathered coat (OK, the last one may be just me) you'll understand that buying your prized outfit is only the first step.

The next steps are organising where you're going to wear your new outfit, working out how you're going to accessorise it and of course, the latest step, how it's going to look its best in a selfie.

Of course, once the outfit is worn, photographed and uploaded to your various social media sites, the most important step is still to come. That's becauseyou're (hopefully) not going to take off your now slightly soiled outfit and leave it on the floor to be kicked to the bottom of the wardrobe where it will live for the next few months. You're also (hopefully again) not going to throw your new suit or cocktail dress into the washing machine without checking first if it's handwash or dry-clean only.

Instead, if you're wise, you'll work out how best to care for your new outfit, follow those instructions and then store it appropriately until the next time you want to wear it. Now if all you do is go away and decide to follow washing instructions my work here is partly done. However I think too often we're not following the care instructions of the biggest assets we're purchasing. 

Let's take a big, commonly purchased asset: the commercial property of a business. What business owner hasn't shown off their shiny new office or warehouse when they've first bought it, in the same way we might twirl around in a new cocktail dress or swagger in a new suit? However when the new owner signs on the dotted line they, in effect, throw their new purchase onto the wardrobe floor and stomp on it because they're not following the proper care instructions.

What do I mean by that? Well deciding to purchase the asset is simply the first step. Sure it might be one of the hardest and most exciting steps but it should always be the first step. After that you should follow step-by-step care instructions to make sure your asset is protected and looking its best for the long term.

Let's use the example of the commercial property of a business and look at the care instructions I believe need to be followed:

Step 1. Make sure the property is purchased in the most appropriate structure

Too often I see business property being purchased in the company name the business is operating out of. This is like wearing your new suit or cocktail dress and sitting next to your clumsy drunk cousin at a wedding.

The question isn't will you get red wine spilled all over your new outfit, it's when and how much. Instead the property should be purchased in a non-trading structure and perhaps not in the name of the director of the company so there is more protection afforded. One of my preferred structures for business premises is a Self Managed Superannuation Fund (SMSF).

Holding your property in an SMSF means you can effectively contribute more to your retirement, your property is protected and once you retire, all profits and rents may be tax free.

Step 2. Make sure you are being commercial

So you've decided your business property should be sold to your SMSF and you figure it's worth about $200,000 because Tommy, the gardener, told you it's worth that and your friend mentioned his rent is about $5000 a month so you'll stick with that too. And no need for a lease because it's yours anyway, right? Wrong!

When I'm cleaning my feather coat (yes I really have one but just deal with it and move on) I don't hang it outside in the rain because I figure that's how birds wash themselves. Instead, I talk to the manufacturer, check the washing instructions and find a really good drycleaner. It's the same with your business property.

You need to ensure everything you're doing is based on market value, which means obtaining market opinions from those qualified to give them and drawing up commercial leases. There is also the matter of having the rent paid to the correct entity and the expenses being paid from the correct entity rather than just thinking it's all the same pot so it doesn't matter. This is particularly important with an SMSF.

Step 3. Make sure your property is protected for the long term

Yes it's money we sometimes feel is being thrown to the wind but spending money on the right level of insurances and having appropriate wills drawn up means our assets are protected for the long term.

This shouldn't be a do once and never worry again exercise but a regular check-in. In my local community, bushfires last year left many residents and business owners drastically underinsured because the cost to rebuild and replace had risen so dramatically. Make sure you don't leave you, your business and your family short-changed if something were to happen.

Often we're so caught up purchasing our bright new shiny thing that we don't think enough about the after-care instructions.

Make sure you talk to your advisor or accountant about how best to care for your major purchase so it's not laying at the bottom of the cupboard but is protected and looking its best for years and decades to come.

Posted by Melissa Browne - Money Manager (Fairfax) on 25th March, 2015 | Comments | Trackbacks | Permalink

Ten ways to get really cheap insurance

Insurance is a grudge purchase. We know we need it but – man – we resent the expense. With health insurance premiums going up next week it's a good idea to take a look at the whole market.

Insurance is a grudge purchase. We know we need it but – man – we resent the expense, which typically represents a quarter or more of a family's so-called fixed expenses.

Well, I love insurance – probably why I have friends in insurance. And (rather than you enduring our barbecues) here's all the important stuff we talk about. Because if there's one thing worse than spending big on insurance, it's spending big on insurance that never pays out.

Tip 1. Don't do it yourself

Insurers are now so good at pricing 'risk' that many policyholders end up paying in premiums exactly what they make in claims. Which might have you thinking about self-insuring – putting aside the premium-equivalent each month so you can cover the cost of a disaster yourself. Don't. You run the risk that disaster will come early and you won't yet have the cash. Having said that…       

Tip 2. Don't buy funeral or pet insurance

Instead, save the money into a high-interest account (or mortgage if you have one). Funeral insurance is likely to cost many, many times what you pay for it. Sure, funerals run from $4000 to $15,000 – as the incessant ads shout – but you'd need to die young to come out ahead! If you purchase the insurance at 65, my mates at RiceWarner Actuaries say you will, in effect, pay for four funerals if you don't pop your clogs until 91, by which time the insurance is usually free (how generous).

Either hold off buying it for as long as possible, bearing in mind this will increase premiums, or opt for good-old-fashioned life insurance (more on that in a mo).

Pets are costly critters but the premium/pay-off ratio may not be worth it. This insurance also usually has annual claim limits and a list of exclusions you can't jump over that, because the same company underwrites most products, are almost across the board. Most providers won't cover pre-existing conditions and some don't cover ongoing medical conditions either. Stash cash equal to the premiums from the outset – a pet piggy bank – and you could win.

Tip 3. If you're rolling in money, buy critical illness or trauma cover

You'll get a nice lump sum if you get diagnosed with one of the very specific listed illnesses or conditions. If not, skip the expense for two reasons.
  • 1) Many life insurance policies will pay out early if you are diagnosed with a terminal illness and total and permanent disability insurance, a good one to add to your life cover, pays a lump sum too and 
  • 2) this insurance is like a weird bad-health lotto.

Tip 4. Stand-alone travel insurance is (mostly) becoming redundant

Free policies attached to credit cards are getting better and more prevalent. Just ensure you are covered for the country you're visiting, you are covered for enough, and for what you are doing (i.e. skiing or sky-diving). Also find out the procedure and contacts for making a claim before you leave and have to contend with international access. And be aware the insurance may be void if you're tipsy!

Tip 5. Beat premium rises - flex the excess

Health insurance premiums are going up 6.2 per cent on April 1 in what is the  second biggest hike in a decade. This will w ork out to about $280 a family per year. But there are many ways to sidestep the slap, even with your own insurer. Start by ditching cover for unnecessary conditions. If your insurer allows you to drop pregnancy, birth, IVF, hip replacement etc, do so as appropriate as it could save you a fortune. An iSelect spokesman told me that an average family would save about $500 a year by simply "switchiing off" pregnancy-related cover. Similarly, check you're using all possible extras (for example, can you claim the cost of kids' swimming lessons?).

Then "flex your excess" (as it's called in the biz) to slash more (avoid a nightly co-payment, which involves chipping in a little yourself for each night in hospital, so could get expensive). This has a big impact on premiums. Once you have the best deal, see if you can beat it, remembering not to compromise coverage. I love this independent, unbiased website for product searches: http://www.privatehealth.gov.au/dynamic/compare.aspx Remember, there are no waiting periods for cover for which you already qualify.

Tip 6. Flex the excess with the car, too

Again you can flex your excess and/or get one of probably a myriad better deals when it comes to car insurance (there are a heap of comparison sites, just make sure there are a decent number of insurers covered). But there's also massive technological innovation here that could save you.

Have you seen the AAMI Safe Driver App ads? You compete against friends to see who is the best driver – and therefore lowest insurance risk. A good result if you're an AAMI policyholder earns you free roadside assistance and if you're not, lower premiums if you join.

A far more sophisticated version is offered by QBE's Insurance Box, which plugs in under your car's dashboard and records all behavioural diagnostics. If you "plug in", you automatically qualify for a premium discount. Perhaps avoid these products if you're a bad driver! Here's a little-known fine-print nasty too: Your insurer can often deny a claim because tyres are at the wrong pressure. Check today and regularly.

Tip 7. If you live on a corner your home and contents insurance will be more expensive?

There is greater opportunity to rob you (sorry). Rather than moving houses, moving providers carries big benefits for this insurance in particular – again, try a comparison site. But be careful. You want the same coverage for less cost, not a sub-standard policy that won't, for instance, pay out for flood if you're likely to need this. Also check and double check whether you would be completely covered for a rebuild (and rehouse in the interim); the magic words are "total replacement" value. More than 80 per cent of homeowners don't have enough house insurance to resume the same standard of living after a disaster, says understandinsurance.com.au.

Insurers are now obliged to provide you with a quick-glance fact sheet to make comparisons easy. And, armed with a bit of competitor knowledge, an existing, quality insurer might price match. Also try the extra trick of finding a provider's sum insured 'sweet' spot.

Home and contents products in particular have tipping points, if you like, where premiums ratchet up. For example, get quotes for $249,999 and $250,000 to see if $1 sum insured difference equates to hundreds of premium dollars difference. (Same applies to $499,999 and $500,000, and $999,999 and $1m).Yes, you can also flex your excess to cut costs further.

One final word on contents insurance: make sure it includes personal liability outside the home: for example, if you caused an accident on the golf course. This could otherwise bankrupt you.

Tip 8. Life insurance is cheap for what it is

And it's refreshingly uncomplicated, too. What matters most is that you have enough. You want sufficient to pay out your debts – don't forget any – and perhaps cover your dependents' living expenses for a time (your partner may have to stay at home to look after the kids and would therefore receive no income). Remember, you will have a bit of life insurance through your super fund and this is a cheap way to get it BUT it will erode your contributions.

Tip 9. Income protection insurance? This is a "must buy"

It replaces 75 per cent of your income up to age 65 if accident or illness leaves you unable to work. You need it if you're married or single (who would pay the bills?). And, unless you have lots of liquid assets (ones you can get at quickly), whether or not you have debts. But it's expensive and I also like what are called level (rather than stepped) premiums. You pay more in the beginning so your premiums won't forge ever skywards as you age and become a higher claim risk; you ultimately pay loads less. However, you have to be confident both that you will keep the insurance and that your insurer will keep trading, to come out ahead.

A word of warning on income protection in super: the definitions that trigger your insurer to pay out may not convince your super trustees that you deserve this payout, so it can become trapped in your super fund.

Avoid the problem by buying outside of super where at least you'll qualify for tax deductions.

And I recommend a Holy Sh*t fund with six months' salary in it (you have one, right?) that allows you to wait this long for payments to commence and cut premiums as a result.

Tip 10. Check one policy does not interfere with another

The biggest culprits are income protection and total and permanent disability. Rival insurers would love nothing more than to stall your claim for years in courts as they argue about who is liable. They'll have no qualms about accepting duplicate premiums in the meantime, though.

And whatever you do, tell your insurer if you so much as go to the doctor for a cold between application and approval for any type of health or risk cover. Otherwise they might use this to allege a pre-existing condition and deny a claim.

You need insurance that pays out when you need. Don't go for cheap, go for value. 

Posted by Nicole Pedersen-McKinnon - The Age on 24th March, 2015 | Comments | Trackbacks | Permalink

Agents ‘lured’ into under quoting tricks, Real Estate ­Institute of NSW president says

 GREEDY sellers who think they know better than estate agents are the chief cause of under quoting, the head of the agents’ lobby claims.

Malcolm Gunning, the president of the Real Estate ­Institute of NSW, said agents were being “lured” into under quoting by homeowners with unrealistic expectations.

“I think vendors think they know more than the agents at this stage,” Mr Gunning said, blaming “the greedy market” and advice from TV shows.

His comments come after The Sunday Telegraph last week revealed NSW Fair Trading had launched legal action against real estate firm Bresic Whitney, alleging it had under quoted for houses on auction.

Agents need to promise the highest price to get a listing, but that price is often too high to be taken to market, even in one as “mad” as Sydney’s.

Mr Gunning said agents think they have to get a crowd.

“If I get a crowd I’ll get competition and someone will fall in love with the house and get it towards that price the vendor wants. That’s why agents under quote, it’s the by-­product,” he said.

There is a common misconception that under quoting is when the amount paid at ­auction ends up being much higher than the initial advertised price. This is not the case.

Under quoting is when the agent deliberately tells potential buyers a lower price than they have given the vendor in the written agency agreement.

Mr Gunning said the industry watchdog was also at fault, allowing agent education levels to slip to their lowest ever.

“Then they come out and prosecute you and think they are policing. That’s not how to manage this industry,” he said.

Mr Gunning said Fair Trading wanted to ­increase the number of agents to create greater competition for consumers.

“They worship the god of free markets,” he said.

“We think the consumer benefits from better-educated agents.”

But Fair Trading Commissioner Rod Stowe said Fair Trading does not regulate training courses.

“The industry has a responsibility to meet ­industry needs and expectations,” he said.

“Under quoting is an abhorrent practice. Consumers ­expect agents to act honestly and for prices to truly reflect the vendor’s ­requested selling price. They cannot make informed decisions if they are being told mistruths.”

Bob Guth, director of the Bradfield Cleary agency, joined the attack on Fair Trading.

“Because there’s a state election it has got enthusiastic, but it hasn’t been so for 10 years,” he said

Posted by John Rolfe - The Sunday Telegraph on 22nd March, 2015 | Comments | Trackbacks | Permalink

Make sure your cover meets your needs

House prices are skyrocketing with Sydney and Melbourne in particular experiencing significant growth, yet at least 60 per cent of Australians lack the insurance cover to pay their mortgage if something unexpected happens.

In NSW the average mortgage is now about $544,000 and in Victoria its reached $439,000. However, a recent study by ASIC found up to 60 per cent of families with dependents didn't have sufficient life insurance to financially care for the family for any more than 12 months should the main breadwinning parent die.

Many home buyers rush through the home loan process and ignore one of the most important questions. If you couldn't work, who in your family would pay the home loan?       

Accidents and terminal illnesses are not something people like to think about. However, at least 20 per cent of Australians between 21 and 64 will suffer some unfortunate event in their lives that will leave them incapable of working.

A mortgage is generally the biggest debt a person will take on in their life. When you consider that just about every car owner has car insurance, it's amazing that so many Australians are inadequately insured when it comes to their home, their mortgage and providing for their family. Insurance policies should begin at settlement, when you take ownership of the property. This is when you take on the risk of owning the property and repaying the mortgage.

With home and contents insurance, some people deliberately underinsure their house, to save on premiums. This is asking for trouble.

At settlement of the property sale, you should also have life insurance products – call them debt-repayment policies, if you'd prefer.

They cover death, incapacitation and terminal illness. But the most crucial aspect of these insurances is that they insure your income. Life insurances keep food on the table, bills paid and a roof over your head. In the case of the breadwinner passing away, death benefit polices allows for a lump sum for your dependents to pay off the mortgage and to care for your family.

Death benefit policies can include Total & Permanent Disablement cover, which is a lump sum payable to your dependents if you have an accident and are unable to work again. Be careful with the temptation of buying the cheapest insurance. Often this means the policy doesn't cover you for as much money, or in as many circumstances, as full-priced policies might. The $100 a year you saved won't seem so great when you have to use your policy.

If you use a financial planner or insurance broker to source your insurance, they should make sure you have adequate cover and that the cover is upgraded as your circumstances change. But this is something you can also research yourself.

Australians expect their home to provide wealth and security, and that means guarding against risk. So as house prices and mortgage sizes increase, remember to make settlement day your insurance day.

Posted by Mark Bouris - The Age on 21st March, 2015 | Comments | Trackbacks | Permalink

First home buyers with no savings can still buy real estate property

 MULTIPLE lenders are allowing hopeful entry-level property buyers to front up with little or no deposit and walk away with a home loan.

Mortgage Choice figures show some first-time buyers are spending up to $1.72 million on properties, but experts have warned the historically low-interest rate environment won’t continue forever and servicing these large loans will eventually become tougher.

THE biggest household financial drains you can save money on?

TWO out of five first home buyers in Australia aged over 36
Borrowers signing up to the average $300,000 home loan are handing over next to nothing or even as little just $6000 — the equivalent of two per cent — to buy a property.

New analysis from financial comparison website shows smaller lenders including G and C Mutual Bank, Teachers Mutual Bank and Hume Bank allow some borrowers to hand over deposits of three per cent or less.

Mortgage Choice spokeswoman Jessica Darnbrough said the desired locations for first-home buyers was often in expensive areas and to do so, she suggested they have decent savings.

“A lot of first-home buyers are wanting to purchase property in the inner-city where prices are up to $1 million,’’ she said.

“It’s very important for them to have a good-sized deposit because costs including stamp duty, legal fees, inspections, stamp duty, that all has to come out of their deposit.

“Most banks like to see a 10 per cent deposit because they are getting a little bit tighter with their lending over the last 18 to 24 months while rates are low, they don’t want people to overcapitalise.”

The Reserve Bank of Australia dropped the cash rate to 2.25 per cent last month and it’s strongly predicted to fall again in the coming months which would see rates fall even further.

RateCity figures show on the average $300,000 30-year loan the standard variable rate is 5.08 per cent and the monthly repayments are $1625.

On a three-year fixed loan the average rate is 4.64 per cent and the repayments are $1545.

RateCity spokesman Peter Arnold said first-time borrowers were in a risky situation if they have virtually no equity in their property and rates rise.

“Rates are low and property prices are high, if you loan-to-value ratio is high as well you are in the danger zone if things to go a different way,’’ he said.

“You also face lenders’ mortgage insurance costs which insurers the bank and not the lender if you don’t have a 20 per cent deposit.

“The ideal scenario is to get a 20 per cent deposit.”

Ms Darnbrough said a good rule of thumb is for borrowers to determine whether they could cope with repayments at a rate of 7 per cent.

“If the answer is no then don’t take out that kind of debt,’’ she said.

In recent months the Australian Prudential Regulation Authority has shone the spotlight on investors loans which have become popular among entry-level buyers.

The RBA and APRA last year implemented limits on the rate at which investment property loan portfolios could rise.

Posted by News Limited Network on 21st March, 2015 | Comments | Trackbacks | Permalink

Aussie John: Don't abolish negative gearing


There is a lot being discussed in the media on a whole range of issues facing our country, from housing and super, to regulatory concerns and taxation. While some of this attention is warranted, I think perspective has been lost on others.

Unfortunately, the GST system in Australia hasn't worked, but I don't know any country in the world where a 10 per cent goods and services tax has been successful. Especially in Australia, where the tax really isn't 10 per cent because it doesn't include health, education or food.

My view is that the GST ought to be increased significantly, to about 15 per cent, but only if indirect taxes such as stamp duty, fringe benefits and payroll tax are abolished to assist businesses, and measures are introduced to protect low income earners and others who would be disadvantaged by a higher GST. 

Take payroll tax. There wouldn't be a politician in this country who doesn't agree that it is an immoral tax and a disincentive for businesses to employ, yet it can't be removed because what's going to plug the revenue hole? This clearly demonstrates to me just how broken our tax system is. 

Neither workers nor business owners are encouraged or given incentives to invest or to grow their businesses. In many instances, low income earners are actually worse off by working overtime and then paying a much higher tax on the extra hours worked. 

Look at housing. The problem with the high cost of housing in cities like Sydney and Melbourne is that 30 to 50 per cent of the cost of new housing is made up of taxes. The bureaucracy and red tape needed to get approvals for new housing have exacerbated the problem.

People also forget that Sydney and Melbourne's sky-high property price tags are driven by supply and demand. Sydney and Melbourne are the only two cities with significant population growth and an acute shortage of new housing.

From 2002 to 2012, Sydney was the worst performing capital city in Australia for growth. Values went up by less than 3 per cent, and that was before inflation. It has only been in the last few years that Sydney has been playing catch up. I think the hotter areas in Sydney will probably settle down to a 7 to 8 per cent increase this year, and I am confident these really big spikes in values will also ease.

All levels of government have lacked a strategy to ensure the orderly supply of housing to keep up with demand. Something needs to be done because it is precluding people from getting into home ownership, especially first home buyers.

I believe negative gearing is here to stay, and it has been a good thing for Australia by encouraging new housing development and providing an incentive for investors who in turn provide rental accommodation. I think the government should introduce a ceiling limit as negative gearing wasn't designed to enable someone to buy a $20 million apartment, rent it for a 2 per cent yield and claim the shortfall on negative gearing benefits.

I have the same view with superannuation: individuals having $10 to $15 million in their super fund were not what was intended when super was introduced. The government needs to take a careful look at these things and make it more equitable at the extreme high end.

I also agree with regulators' concern with the high proportion of owner occupiers taking out an interest-only home loan. Australia is enjoying the lowest interest rates in our history and it concerns me that people are not taking advantage and reducing debt. Interest rates will eventually creep up again and the higher the interest rate the more difficult it is to reduce debt, so owner occupiers need to take the opportunity of repaying principal, especially when interest rates are so low.

John Symond is the founder and executive chairman for Aussie Home Loans.

Posted by John Symond - Domain (Fairfax) on 21st March, 2015 | Comments | Trackbacks | Permalink

Why property buyers overpay (and how to avoid it)

In a competitive property market where it is increasingly difficult to get a foot in the door, buyers are often tempted to go over their budget when trying to secure the property of their dreams.  

Purchasing property has long-term financial and personal consequences. Decisions to buy shouldn't be taken lightly or be made emotionally, on the spur of the moment. Yet at the 11th hour many people throw the rulebook out the window in a desperate bid to secure almost anything in the market. Here are the top five reasons that buyers are overpaying in the current market and our tips on how to avoid these common traps.

Buyers bid with their hearts, not their heads

The top reason buyers overpay for property is because they develop an emotional attachment to the property; they fall in love. Once you let emotions overtake reason, you can find yourself compromising on other key factors you originally valued, such as price, location or size. 

Instead of visualising yourself and your family in the house, take a step back and look at it for what it really is – bricks and mortar. Ensure it meets the criteria you started with and if it doesn't, remember there will always be more property coming on to the market.

Irrational purchases aren't backed with adequate research

In an increasingly competitive market, fear can often drive purchasing decisions, rather than logic. It may seem obvious, but failing to conduct in-depth research about a specific property is a fundamental mistake made all too often by enthusiastic buyers. 

The property market is currently booming in Sydney and Melbourne, which can cause buyers to make on-the-spot decisions. Ensure you understand the area you are buying into, including comparable sales and access to amenities, and work through a process to avoid spontaneous decision making. 

The cost-conscious aren't seeking professional advice

Whether it's engaging lawyers to review contracts, building inspectors for a building inspection or a buyer's agent to negotiate pricing, by cutting back on the cost of professional services, you can in fact end up paying too much for a property.

These services can add to the already daunting cost of buying a property but poor purchasing decisions can have even more significant consequences down the track – like expensive repairs for a termite infestation!  

Buying into the hype of a property

Another common reason we see buyers overpay is that they get drawn into the hype surrounding a property. Acting quickly is important if you want to secure the right property, but don't act before you've had the chance to really understand the area you're buying into. There will always be another interested party with an offer on the table, but don't let this rush you into a decision if you're ultimately not prepared.

Be careful if buying at auction

Competition and emotion can push the price up. If you do find yourself wanting to buy at auction, make sure you do your research about what similar properties are selling for in the neighbourhood. Have a walk-away price in your head and ensure you don't go a dollar above that.

Posted by Simon Cohen - Domain (Fairfax) on 17th March, 2015 | Comments | Trackbacks | Permalink

Research pays when deciding to renovate or relocate

 YOUR house is tired but you love where you live — do you renovate or relocate?

It’s a dilemma facing many homeowners who love their neighbourhood, their kids are in the local school but the to-do list on the house seems to be getting longer.

Renovating is a chance to refresh your home and stay in the same location, but it’s not for everyone.

Relocating means moving into a new, perhaps larger home with more modern features, but to find the house that fits your needs and price, you could end up in a different suburb.


Renovating an existing home offers the chance to create the house you want in the location you know and love, Real Estate Institute of Victoria chief executive Enzo Raimondo said.

“But the difficulties are obvious — the disruption to lives, the need to temporarily rent or live in a building site, the expense and potential for cost overruns, the work involved in planning permissions, design and project management,” Mr Raimondo said.

Getting the right advice will help avoid the pitfalls, according to Cameron Frazer from Ask An Architect, an online resource for people considering building or renovating from building advisory group Archicentre.

He said builders, architects and real estate agents could help homeowners determine the scope of a renovation, whether it could be achieved for the budget available and recommend what types of works wouldn’t risk overcapitalising a property.

Mr Frazer said an architect could also guide you through the building process, helping obtain permits and providing documentation for builders and solutions when problems arose during the build..


Relocating came with its own difficulties, especially finding the right home in the right location, Mr Raimondo said.

It also meant selling your existing home for the right price and co-ordinating a move from one to the other, preferably without having to rent in the interim.

“If you decide the upheaval of a renovation is not justified, or are undecided about it, a real estate agent can help,” Mr Raimondo said.

“Have your home appraised. Is the amount it’s likely to sell for enough to buy the home you want? What are the chances you will be able to buy the home you want for the amount you will have in the area you want?”

But relocating wouldn’t give you everything you wanted, Mr Frazer said.

“It’s unlikely you will find a house that’s perfect for your needs. There will always be drawbacks. There will be things, like it doesn’t have a third or fourth bedroom or it has a west-facing deck and it gets really hot in summer,” he said.


Your budget will determine the cost of renovating or relocating.

The price you can get for your existing home will set how much you can borrow for a new one, but a renovation budget can vary enormously.

Mr Frazer said homeowners could choose between a basic makeover or a complete refit, depending on the budget.

Whatever renovation, Mortgage Choice spokesman Jessica Darnbrough said homeowners had to have a budget in place first.

“Depending on the scale of the renovations, there are plenty of ways a person can fund the process, from using their savings, to a loan top-up, refinancing their mortgage or even a construction loan,” she said.


Mr Raimondo said an architect could give you a ballpark figure for your renovation.

But homeowners should also enlist their bank manager or an accountant, and a real estate agent to ensure a renovation was feasible on a realistic budget and you wouldn’t lose money if you had to sell later.

A real estate agent could ensure you’re not over capitalising on your home.

“If the cost of your renovation will take the amount spent on your home above the ceiling price for homes in your area it may be time to rethink,” Mr Raimondo said. 


 ●Internal renovations cost between $600/sq m and $2700/sq m, according to an Ask an Architect guide.

●Allow extra money for structural surprises, asbestos removal or storing furniture.

●A ground floor extension starts at $1900/sq m to $3400/sq m. Adding a first floor or an area that requires wet area fitout will cost more.

●Don’t forget fees, such as for an architect and contract administration.


 ●You’ll pay about $25,000 in stamp duty on a median priced $550,000 house.

●Expect your real estate agent’s commission to be about 2 per cent to sell a median priced house.

●There’ll also be marketing costs but these vary depending on the type and amount of advertising.

●Moving costs time and money whether you do it yourself or use experts.


Do it yourself: Don’t hire a tradie if you don’t need to for easier tasks like painting, replacing door knobs or handles and applying wallpaper.

Budget for a buffer: Unplanned costs will crop up during renovations, so keep a budget buffer to avoid a blowout.

Friends indeed: Those with skills are usually happy to help a mate out when needed, whether helping buy materials at a discount or giving up a few hours on a weekend.

Street appeal: If you’re renovating for profit, don’t underestimate the significance of street appeal.

Posted by Peter Farago - News Limited Network on 14th March, 2015 | Comments | Trackbacks | Permalink

Underquoting rife, time to appoint real estate ombudsman


Complaints pertaining to a variety of property matters worth hundreds of thousands and even millions of dollars can no longer be left to state governments and police to oversee. We shouldn't leave looking after our interests in property matters to Consumer Affairs Victoria.

The banking, financial services, insurance and the telecommunications sectors all have ombudsmen for good reason, so if it's appropriate for those sectors, it is also appropriate to protect consumers investing in the real estate sector in the same manner.

With underquoting being a massive problem in NSW and Victoria, but with negligible enforcement of the regulations from CAV, now is the right time to appoint a real estate ombudsman.

While the NSW Premier pledged a crackdown recently on rogue real estate agents who underquote, the newly elected Victorian government is still mute in regards to this ongoing problem in Victoria. It seems the financial and indirect marketing support the Labor government received from the Real Estate Institute of Victoria during the election campaign last year has rendered it deaf and blind to the problem.

Underquoting is a bipartisan issue as it affects all consumers. Both sides of politics need to work together to develop a solution to this problem. This includes making amendments to legislation to close loopholes which perpetuate underquoting and much stricter and more regular enforcement of these regulations. 

However, with consecutive Victorian governments doing nothing about underquoting over the last 10 years and industry representatives continuing to deny that underquoting even exists, ignoring consumer sentiment in the process, we can't delude ourselves into thinking that will change any time soon. 

Currently those rogue agents who breach regulations often do so because they have an exceptionally high chance of getting away with illegal activity simply because CAV doesn't have adequate skilled staffing to police it or a satisfactory complaint handling process. Given this and the 30,000-plus auctions held in Victoria every year, the onus of investigation, policing and enforcement needs to be removed from CAV and handed to an independent body in the form of a real estate ombudsman. 

By establishing an independent board of consumers and real estate industry representatives that prides itself on objectivity, integrity and transparency in all aspects of its operations as does the Financial Ombudsman Service, the industry may be able to improve its poor reputation among the public. After all, transparency and trust are conjoined twins.

It could also be partly or completely funded from the Victorian Property Fund, which is intended for use for compensation for claims against rogue estate agents anyway. 

A positive side effect of the appointment of an ombudsman could be the lifting of the disturbingly low barriers of entry to the industry and going back to what used to be a more stringent criteria to qualify to work as a licensed estate agent. 

An independent board will also negate any influence any industry group or body may attempt to exert over current or future state governments.  

And, of course, the majority of estate agents who are ethical, professional and act with integrity, would have nothing to fear from the appointment of a real estate ombudsman.

Posted by Miriam Sandkuhler - The Age on 13th March, 2015 | Comments | Trackbacks | Permalink

Should I buy a fixer-upper?

The idea of working on your own home and rebuilding it to its former glory can be appealing. Some might say too appealing.

Most romances are tinted with rose-coloured glasses. The romance of renovation is no different. But that passion can soon lose its glow when you are faced with the building site, the mess, the surprises and the trades’ bills.

Before you venture into this new relationship you need to ask yourself the following five questions:

1. What is my true skill level?

We all like to think that when we put our mind to it, we can have a good crack at anything. But there are some jobs that can be beyond our skill level. You need to start by creating a list of what you are confident in doing, what you must by law have a trade do (e.g. electrical) and what you will need some assistance with. This will help you plan out your budget and assist you in deciding how much time you need to allocate to the reno.

Read more: How to: Save money on tradies

2.  What is the main goal of the exercise?

Are you going to live in the property, will you be selling it for a profit, or indeed both ( live in it whilst renovating and then sell)? If you intend to live in your property you need to decide if you are ready to live in a building zone. Renovations can be very messy and noisy and they are a place where you say goodbye to privacy when the trades step on site at 7am every morning.

3. Do I have the budget?

Done well, renovations can have a hefty price tag even when trying to do it on a shoestring. Make sure you are realistic about the budget. Paying trades to come and give you a quote prior to purchasing the property is well worth the investment. Due diligence cannot be stressed enough. Working out a detailed budget prior to purchase and having a 15%-to-20% buffer is essential.

Read more: How to: Budget for your renovation

4. How much time do I have?

Remember time is money, so the more you can do yourself the better, but at what cost is this to your normal life?

5. Have I researched it well enough?

Whether you keep the property or sell it you need to be very mindful of the fact that there is a cap on what the property will be valued at and how much someone will be willing to pay. Be sure that whatever work you are doing will not see you over capitalise on the property.

Read more: Riding the renovation boom

If you have the time, resources and budget buying a fixer upper can be the most rewarding and financially beneficial thing you do.

But make sure when you are looking to buy you tilt down those rose-coloured glasses and use the tips above to assess if it really is for you.

Posted by Naomi Findlay - realestate.com.au blog on 12th March, 2015 | Comments | Trackbacks | Permalink

Hopeful first home buyers have their say about the property market

First home buyers are a group often spoken about but rarely understood. 

They're not all hipsters wanting to buy an inner-city apartment - though many are.

They include  bankers, business people and designers who mainly want a roof over their head close to work. 

And despite having a good job often with six-figure salaries, they still can't afford a place to call their own.

Just 10 per cent of home loans were to first home buyers in December. Domain Group senior economist, Dr Andrew Wilson, says 20 years ago it was 17 per cent.                

So what's the answer to finding affordable homes for first home buyers?

Treasurer Joe Hockey says young people should be able to dip into their super, a suggestion  criticised by some but welcomed by  33-year-old Edgar Pottumati and his peers.

NSW Labour leader Luke Foley says first home buyers should be able to  pay off their stamp duty over five years.                

The Domain team asked frustrated buyers what they think.

Emily Oak, 36, state operations manager 

Oak had wanted to own her own house by the time she was 30 and was well on the way having saved a deposit. But when faced with the decision between investing in her career or a home, she decided to use her savings to buy a stake in the coffee-roasting business, Sensory Lab, she was working in.

Despite her budget of between $500,000 and $700,000, Oak says she wants to buy outside of Sydney.

"On top of having to pay rent where I live now and work, it's more realistic to have an investment property that's a smaller mortgage," she says.

Oak says superannuation should be left for retirement and not used to buy property, but she also thinks she may never live in her own home.

A single mum to a nine-year-old boy, Oak says if she ever bought in Sydney she would want to buy something near where she is currently living on the northern beaches.

"My family is there, my son goes to school there, and obviously my family is integral to helping me look after my son so that I can also work full time, so it would be nice to be close to my support network," Oak says.

"But it's very, very far outside anything I can even think to afford anytime soon." 

Haydn Edward, 27, design engineer

Haydn Edwards wanted to buy his first home at the age of 22, about the age his parents entered the market. However, he says he's good enough at maths to realise how unrealistic it is for him.

University educated with two degrees, he was recently working full time hours on a casual contract in Sydney CBD while living at home.

"This year though I hit the 'abort' button after running the numbers and realising that unless I were immediately hired as a CEO I was going to spend most of my life in transit and still not be able to save up a house deposit," he said.

"So now I live less than three kilometres from the Perth CBD renting for less than half the equivalent in Sydney."

When it comes the Treasurer's proposal to allow young people to use super to buy property, he isn't convinced. 

"Burning down your future security for a few bricks is a bad idea. If you have no liquidity in your assets and you encounter a life hurdle – like cancer – then you're properly screwed," he said.

Yasmin Shahatet, 29, customer service 

Full-time shift worker Yasmin Shahatet currently rents in Auburn and also studies part-time.

"I receive a reasonable fortnightly wage and I've been saving for a deposit on a home loan for a few years," she says.

"I've looked into purchasing a home many times but loan repayments would be such a high proportion of my income, if I did take that leap it would mean not being able to afford things like private health care and my gym membership and ultimately living on very little after all the bills and tax.

"The only suburbs that I would be able to purchase a property in are further away from Sydney city where I work. This would impact my quality of life and increase my travel time from 40 minutes one way to up to 1.5 hours one way a day."

Looking for properties up to $400,000, a 25-year loan would cost at least $2200 in repayments, with electricity, gas, internet and food considerations on top.

"Every time I save $10,000 towards a deposit prices rise again," she said.

She is now looking at off-the-plan properties as they do work out cheaper.

"When you factor in a car loan/car insurance and petrol prices, the cost of living and all the monthly bills that come with owning a property in Sydney it almost feels like volunteering for a 25-year jail time."

Currently, she said that owning a property seems unattainable but that if she were given the opportunity to access her super she probably would, but then look to balance it by contributing more each pay cycle.

Elizabeth Pickworth-Kamel, 27, training and events manager

Technically no longer a first home buyer, Elizabeth Pickworth-Kamel bought when she was 22 and working full time before selling shortly afterwards.

"I got the first home owner's grant and my parents decided that instead of providing funds for a wedding or something like that they'd help me get into the property market," she said.

She then went to work overseas and had to sell her Strathfield unit, partly because of her change in situation but also because strata fees doubled in the building due to issues with their strata manager and legal costs, moving from $3800 to over $6000, rendering it unaffordable for her to hold.

"This was in 2011 and the market was going down and so I didn't sell to the extremes of the market."

Now a mother with a one-year-old daughter, her husband stays at home to take care of their child and she has been looking to buy in an area suitable to raise their child.

She works two jobs, full time for a not-for-profit membership organisation and as a freelance business article writer.

However, Sydney is so unaffordable they plan to move to Melbourne within the next few years, hoping not to borrow to the maximum the bank will offer and instead have a sizeable deposit. With family members in the past having borrowed far beyond capacity and suffering financially as a result, she intends not to make the same mistake.

She has been considering houses in Melbourne's Point Cook to a maximum of $450,000, looking to be near good schools.

Currently renting in St George where, if she could afford it, she would have liked to buy.

Gordon Hanzmann-Johnson, 24, apprentice railway worker 

Currently looking to buy his home, he doesn't believe it's completely out of reach but has come to terms with the fact that to get on the ladder he will have to look for something more affordable.

"You've just got to accept you can't have it all," he said.

Working full-time, as well as doing overtime as much as possible, he is living at home to save as much as he can.

He is looking for an apartment in the upper north shore suburb of Lindfield. Domain Group data puts the median price in Lindfield for units at $685,000.

Saving his deposit was initially his biggest barrier, however he's now also realising how time-consuming it is to find and purchase a home.

"I think I regret not buying two or so years ago," Hanzmann-Johnson said.

He said that while he had never thought of using his superannuation to buy a home before, it would be a consideration if he had access to it.

Posted by Jennifer Duke & Rachel Clun - Domain (Fairfax) on 11th March, 2015 | Comments | Trackbacks | Permalink

Scrooge landlords not helping themselves

A landlord scrooge will do whatever it takes to spend as little as possible to maintain their property. The ironic thing is that they often find it difficult to hang onto tenants, resulting in higher vacancy rates and more associated costs.

Melbourne property manager Marcel Dybner says a scrooge landlord won't pick up the phone when he rings. Sometimes, this can go on for weeks on end. "They're usually the first one to call the property manager looking for the rent, though," Dybner, head of property management at Besser & Co, adds.

A good landlord realises that keeping the property to a high standard not only maintains their investment, but also increases the likelihood of the tenant staying on for longer. And a long-term tenant is better for the landlord because it saves them money on leasing fees, advertising and vacancies.

"For some properties, the maintenance seems to never end. It's when the property needs love that the tenants decide if the owner is a good landlord of a 'slumlord'," Dybner says.

"Maintenance is a part of life when you're a property investor. If your property needs a fresh coat of paint or the garden needs doing, it's in your best interests to tend to it. There are lots of things you can do to make sure it doesn't break the bank and overtake any returns you're making," he says.

Work with your property manager to get a number of quotes, as their tradesmen have been vetted for quality and price, he says.

"What scrooge landlords don't realise is that most property managers have had relationships with their tradespeople for a long time, and vetted them to make sure they were charging a reasonable price for their services."

The benefit of using a tradesman that your property manager has worked with for a long time is that if something needs to be fixed that's perhaps a little outside the scope of what they do, they'll just see to it – like tightening a tap, clearing out a gutter or touching up some painting, Dybner adds.

Miriam Sandkuhler, who is an accredited property investment adviser and director of Melbourne's Property Mavens, sees the consequences of landlords not spending on maintenance and property upgrades all the time. She's seen situations where a tenant has a stove with just one working hotplate.

"Don't forget that landlords have legal obligations to maintain their property. If they're taking the position that you don't want to spend, remember the consequences, which are that letting things go could detrimentally affect the value of your home, resulting in a loss of capital growth."

Sandkuhler,  author of Property Prosperity: 7 Steps to Investing Like an Expert, says landlords should inspect their properties at least twice a year if possible, and engage a property manager who has enough time and staff to adequately look after a property rather than just be putting out spot fires.

Getting on top of maintenance has other advantages, too.

"Treating tenants with respect and them respecting your property is a two-way street,"  Sandkahler says. "They can easily take the position of not letting you know about leaking water because you don't normally do anything about their maintenance requests, and before you know it you've got flooding under the house." 

Posted by Nina Hendy - Money Manager (Fairfax) on 10th March, 2015 | Comments | Trackbacks | Permalink

First home buyers think it's super, but is it?

I totally get why 33-year-old Edgar Pottumati wants immediate access to money that's supposed to fund his latter years.

He's just one of the thousands that's been burnt, week in, week out, at inner-city auctions, by cash-rich investors, many of them armed with access to their self-managed super funds. 

They can dip into that money for investment purposes, provided they don't live in it, so why shouldn't those struggling to get access to a home in this, the first-rung of the property ladder?

Now Pottumati works in banking and is at an age where I'm sure he'd invest that $50,000 he's "squirrelled away" wisely. Despite what the prophets of doom say, if he's going to hold onto it for a reasonable period he's unlikely to lose if he makes a smart choice in Sydney's inner-city. There's an undersupply of new housing for our growing population.

And at 33, there's sufficient time to focus on his superannuation later.

But not everyone is as old or as wise as the equity-rich investors, or in such a grand position as our model Sydney case study. The problem with taking Treasurer Joe Hockey's scheme national - and available to all - is that not everyone is likely to be as lucky. There's been some talk of apartment oversupply in parts of Melbourne and Brisbane, for example, so you would want to be very careful with your choices there. 

We need big ideas to fix housing affordability for young people, but I'm not sure this is the one.

Making it a free-for-all will just push prices higher as more people dive in. We've seen that with the now widely criticised first home buyer schemes that, at one stage, promised $14,000 for buyers of existing property.

It's no accident that government handouts to first-home buyers right around the country now apply only for new property - a clear acknowledgement that the problem lies on the supply side of the equation.

So Joe, and also state governments, let's get a first-home buyer scheme focusing on that. Instead of selling off government land to developers for housing for the wealthy, how about subsidising some affordable housing for first-home buyers?

Posted by Stephen Nicholls - Domain (Fairfax) on 10th March, 2015 | Comments | Trackbacks | Permalink

Rewards can outweigh risks when buying before you sell

 YOU’VE finally found that dream home you’ve been looking for, but there’s one small problem — you haven’t sold your existing home.

Buying before you’ve sold can be a risky strategy and goes against long-held convention to sell first and buy later, knowing exactly how much you’ve got in the budget.

But buyers advocate Richard Wakelin, of Wakelin Property Group, says buying before selling can make sense in certain circumstances.


Buying before you’ve sold was a way to get ahead in a rising market, particularly in expensive inner-city suburbs, Mr Wakelin said.

He said it worked when buying and selling in the same market or similar property types or when selling in the inner city and buying in middle or outer suburbs that have not seen the same price growth.

“There have been many markets that have risen in a sustainable manner and moved 5 to 10 per cent in a year,” Mr Wakelin said.

He warned many people got caught out in rising markets, having already sold but unable to buy a new house due to the level of competition.

“In a strong market, you can miss one, two or three properties,” he said.

“At the same time, the market is rising and it’s not until the number three property where they’ve stretched themselves well beyond what they’ve originally intended to spend that they actually nail the purchase.”

Mr Wakelin said it could take eight to 12 months to purchase in inner city suburbs such as Brunswick, Northcote or Carlton.

There’s plenty of legwork to be done before buying first.

“You need to have a good look at the marketplace to determine what it is you’re going to buy and what it actually looks like and costs,” Mr Wakelin said.

“Set a very conservative estimate of value (for your existing home) and make sure your existing property is ready for sale.”

Mr Wakelin said the seasons should also be considered.

“You don’t want to be caught in a situation where you’re buying at the tail-end of the spring market only to be faced with the market closing in January,” he said.


Buying is usually the easy part, it’s selling later where most come unstuck.

The key to judging whether it’s safest to sell first is the level of demand for your property and how long it takes to sell a typical home in your suburb.

In areas where it generally takes two to three months for a successful private treaty sale, selling first is the safest best.

Mr Wakelin said buyers had plenty of choice in Melbourne’s middle and outer suburbs, where there was typically lower competition for property. But he said that also meant sales could take months to finalise.

“In general terms, anything that’s 30 to 40km out, you’re more likely going to be better off selling first to be absolutely sure that you know what you’re working with, dollar wise, and being aware that a property that you own is not going to be immediately saleable like an inner-suburban property,” Mr Wakelin said.

“There are cases all over the country where not everything is rosy, not everything is selling immediately and people with a particular property in a particular suburb are much better off selling first.”

CoreLogic RP Data Victorian housing market specialist Robert Larocca said some people preferred the more certain approach of selling before buying so they knew how much they had to spend.

“The whole basis of selling before you buy is tacit acknowledgment that the sale process is not a certain one,” he said. “You can’t predict exactly what you can get nor can you predict that you’re actually going to sell.

“It might be that the time for your property and your suburb is now and in two months that market might have gone a bit soft.”

Sellers could seek long settlement terms or a rent-back option from the future purchasers, giving them more time to buy a new house.


The biggest risk of buying before selling was the need for bridging finance, Mr Larocca said.

Bridging finance is a short-term loan used when buying a new home before selling an existing one. A bridging loan can be six to 12 months (if your new home is being constructed) and can be paid out with the proceeds of the sale of your existing home.

But the longer it takes to sell, the more interest you’ll be paying on two properties.

“What that means is you’re taking a risk that your bridging finance will cost you less than what you might make selling your home by selling it later,” Mr Larocca warned.

“I think home sellers and buyers have always got to walk that tightrope.

“It is a risk and you have to make that (decision) in the knowledge that the costs of the risk is the bridging finance and you have to way that up against potential rises in sale price. That is just the word ‘potential’.”

Mr Wakelin said buying before selling could also leave sellers open to being seen as a “motivated vendor” willing to accept a discount to ensure a quick sale.

“The pressure is really on and often the real estate industry will apply that pressure knowing full well that you’re going to have to sell that particular property,” he said.

Right price and position made it a quick sell

BUYING before they sold did not worry couple Lisa Matthew and Michael Joseph.

They bought their new Kilsyth home after a two-year search, adding a safety net clause into the contract that made the deal conditional on the sale of Ms Matthew’s existing home in Bayswater.
Their home was snapped up within two weeks of hitting the market.

“I knew it would go straight away because it’s in that price range that’s affordable and it’s in a good central area,” Ms Matthew said.

She said Harcourts, Boronia, wasted no time getting her Bayswater house on to the market.

“We found out on Tuesday (that we had bought a house) and I think it was Thursday that we had a photographer in my house; the following Tuesday it was on the internet, and the following Saturday was the inspection,” she said.

Agent Ben Schembri said 60 groups inspected the house, which sold for $565,000.

He said being close to Wantirna and appealing to a number of buying groups meant demand was strong for homes in Bayswater.

“We’re finding across the whole City of Knox that there’s big demand because there are a variety of buyers,” Mr Schembri said.

Posted by Peter Farago -- Herald Sun on 7th March, 2015 | Comments | Trackbacks | Permalink

How to capitalise on the housing boom

One of the reasons why the Reserve Bank of Australia did not ease rates in March is because of the reaction of our unusually interest-rate-elastic housing market to recent reductions in borrowing costs. Importantly for investors, this is creating short-term opportunities to arbitrage the central bank's easy money policies via residential mortgage-backed securities.

For better or worse Australia's housing boom is racing away like an out-of-control freight train. So-called "macroprudential" constraints on bank lending, which place a soft limit on credit growth at four times current wages growth, have had zero impact to date.

And contrary to new Treasury secretary John Fraser's claim, Sydney's soaring house prices are not a "global phenomenon". They are exclusively an artefact of the RBA's decision to slash borrowing rates to the lowest levels in history. 

People forget that Sydney prices fell by a record margin between late 2010 and mid-2012. It was only after the RBA cut its cash rate from 4.75 per cent in October 2011 to a "crisis-level" 2.5 per cent in August 2014 that the great east coast housing boom was truly ignited.

In contrast to the United States and Britain, where fixed-rate mortgages are much more popular, the vast bulk of local borrowers have loan costs determined by the overnight cash rate. This makes their investment decisions extremely sensitive to monetary policy movements.

In 2014 many dismissed The Australian Financial Review 's forecast that the rate cuts would fuel double-digit house price appreciation and force regulators to introduce macroprudential regulations to throw sand in the wheels of new lending.

Back then the conventional wisdom was that because Australian households had already leveraged-up before the global financial crisis, we could not possibly get another debt-led boom.

Yet since the market bottomed at the end of May 2012, home values across the five biggest capital cities have leapt 23 per cent, with Sydney prices jumping 35 per cent. Silver linings

In July 2014 RBA governor Glenn Stevens warned that it "would in my opinion be good, for a range of reasons" if the "slower pace of growth in dwelling prices" observed in May and June, which proved to be a temporary blip, "did persist for a while".

Stevens said he hoped for "unremarkable performance on [house] prices" for the "next couple of years". I rebutted that "he must be a preternaturally optimistic character".

Since Stevens' July 2014 warning Sydney property prices have inflated at a 14.4 per cent annualised pace.  

There are three silver linings to this leveraged asset price inflation. First, capital is pouring into new construction, which will give a much needed boost to historically inert housing supply that has not been keeping up with underlying demand.

Second, Australia's housing debt-to-assets ratio has been declining as prices outpace credit growth. This means the value of the collateral protecting bank balance sheets has been improving, as have default rates, which are benign despite a modest increase in the jobless rate.

The third point is that these dynamics are positive for investors in highly rated residential mortgage-backed securities (RMBSs) issued by Australian banks. There would barely be a single fixed-income fund in Australia that doesn't hold some of these. Investors of some means could access them directly through a private banker or adviser.

The best RMBS assets are portfolios of very low risk and well-seasoned home loans. RMBSs directly benefit from cheaper money and higher house prices through a rise in the value of the equity protecting the underlying loans, lower arrears and faster repayment speeds.

In February some banks were offering AAA-rated RMBSs, paying 1.75 percentage points above the one-month bank bill rate, or 4 per cent in total. These assets have better ratings than a deposit in a major bank and can be traded in the wholesale markets daily or sold in an emergency to the RBA through its so-called "repurchase facilities".

In a world where you will struggle to find an unsecured bank deposit paying more than 3 per cent, a secured, RBA repo-eligible RMBS portfolio that provides daily liquidity and an AAA rating seems pretty attractive. And I would venture that these assets will remain in demand as house prices continue to appreciate and interest rates slide.

Posted by Christopher Joye - AFR on 6th March, 2015 | Comments | Trackbacks | Permalink

Dangers in forgetting your principals

One of the more concerning trends in the home-loan market lately has been the strong growth in interest-only lending.

The share of new loans that are interest-only has climbed from about 30 per cent six years ago to 43 per cent today, the second-highest level on record.                                

If you're thinking about joining the growing number of people borrowing in this way, especially if you plan to live in the house, it's important to be aware that it is a riskier type of loan and to take extra care. 

Interest-only loans, which are mainly used by investors, allow a borrower to not pay back any principal for anywhere between five and 15 years. 

This means the monthly cost of an interest-only mortgage is initially lower. Or, it can mean a borrower is able to service a larger loan than they would have otherwise. 

But don't be fooled by the appearance of lower costs, or an ability to service a larger debt. Anyone who is only paying interest on a loan, especially if they live in the house, needs to be aware that there are extra risks of borrowing in this way.

Interest-only loans have traditionally been most popular with property investors because they are able to deduct their interest payments against other income. That's one reason why their share has shot up recently – investors are driving the market.

However, the Australian Prudential Regulation Authority has recently warned about the growth of interest-only lending to owner-occupiers, which it sees as a form of "higher-risk" lending.

The Australian Securities and Investments Commission is also scrutinising the banks to make sure they're not breaking responsible lending laws in this area.

What's got the watchdogs so concerned?

Well for one, if you only pay interest on your loan, you're at greater risk of being in "negative equity" if property prices fall. That's the uncomfortable position where your debt is worth more than the home itself.

With a principal and interest loan, a borrower making the minimum monthly payments will typically have paid off about 10 per cent of their loan in the first five years, so they have a buffer if property prices do fall. Anyone only paying interest lacks this buffer. 

Another key point to remember is that interest-only loans typically have a limited time limit, and revert to being interest and principal after five years, pushing up the monthly costs.

Finally, there's a risk these products can be mis-sold by banks or mortgage-brokers in an overheated market where interest rates are at record lows.

In the boom years before the global financial crisis, interest-only loans were more likely to be offered to sub-prime borrowers and those with little documentation. They were also more likely to default. 

In short, it is exactly the type of extra risk-taking that has got the regulators eyeing the housing market nervously.

Posted by Clancy Yeates - The Age on 6th March, 2015 | Comments | Trackbacks | Permalink

Is your superannuation strategy working hard enough?

Most people could have more in their superannuation if they made better decisions now.

Every working Australian needs a super strategy – here are some ideas: 
  • Advice Financial advice isn't a guarantee that you'll have more for retirement but it raises the likelihood of making good decisions. A good financial planner doesn't just ensure your money is in the right investment options for your life stage and goals, they also find a way to put in more contributions and make tax-effective choices.
  • Salary sacrifice Consider a salary sacrifice arrangement to top-up your super contributions and get more money working for you. If your employer pays extra contributions from pre-tax dollars straight into your super fund (up to your 'cap'), you are only taxed at 15 per cent on the money, not the higher rate you'd pay if the funds were taken as income.
  • Costs If you're paying more than 1 per cent per year in fund management fees, you should ask why. There are super funds where you pay around 0.7 per cent management fee; so if you're paying 1.7 per cent, you're losing one per cent per year that you didn't have to lose.
  • Options Your weighting between defensive (cash, fixed interest), growth (equities, property) and balanced options should be calculated according to your risk profile, goals and life stage. Typically, young people shouldn't be in cash, and those about to retire shouldn't have all their money in equities. Work out where you should be in terms of risk, return and time.
  • Change Avoid changing your options depending on fund performance: they're historical rankings so you're likely to buy into hot funds too late and withdraw from the underperformers too late. Invest in the market, not the fund.
  • Insurance Paying for life insurance in your super fund is popular. But take a closer look: the premiums might be rising, eroding the cost advantage; your income protection insurance might give you less cover than a retail equivalent; and your death cover is possibly not indexed to inflation. Remember, you can create your own life policy with a retail insurer, and instruct your super fund to pay the premium – it's called a 'rollover' and gives you more control.
  • DIY Self managed superannuation funds (SMSFs) promise more control over assets and a chance to buy investment property. But you'll also have an annual compliance burden with the ATO and professional fees to pay. If you want more control, consider a wrap account which allows you to actively manage shares, managed funds, EFTs, term deposits and index funds at a low management fee. 
  • Longevity If you're a woman who retires at 65, you might have to fund another 25 years of living. So at a time when you want to revert to defensive cash investments, you should also leave some money in growth assets. How much is enough? Talk to an adviser and get it right.

 Start thinking about a super strategy today. You may thank yourself in the years to come.

Posted by Mark Bouris - The Age on 4th March, 2015 | Comments | Trackbacks | Permalink

Caution needed on margin lending

Margin loans are back. Banks report that more investors are borrowing to buy shares. 

That should be no surprise. Whenever Australian shares do well, higher-income earners, in particular, borrow to invest in shares.

Borrowing to invest in shares always has to be approached with caution. And right now, with the S&P/ASX 200 index at almost 6000 points - the highest it has been in seven years - there are plenty of investors who think the market will continue to trade higher.

There are other factors behind the increase in margin lending besides a strongly-performing sharemarket. Interest rates are at historic lows and term deposits pay less than 3 per cent.

The big banks and Telstra pay dividend yields, after franking credits, of between 6 and 7 per cent. Most fixed rate and variable rate margin loans have interest rates of between 7 and 8 per cent.

Borrowing and trading shares incurs costs in addition to the interest costs of the margin loan. That means many investors are likely to be at least slightly cash-flow negative; that is, the investment in the shares is a loss maker.   

They are likely to be "negative geared". This is where the costs of investing, such as the interest payments, exceed the income from the investment.

The shortfall can be used by the investor to reduce the income tax they pay. That is of benefit most to higher earners who are on the highest rates of marginal income tax.

Of course, there is no point in a loss-making investment unless there are the prospects of capital gains down the track when the shares are sold.

And the capital gains needs to be decent just to recover the losses made on the investment on the way through.

Borrowing to invest in shares can make sense for higher earners where the gearing is conservative.

Financial advisers usually say there needs to be a minimum investment time frame of 10 years. They also usually say they should maximise salary sacrificing contributions into their superannuation first.

Anyone thinking of taking a margin loan should be conscious of the risks. Just as borrowing to invest amplifies the capital gains, it also amplifies the losses. Many investors with margin loans over shares lost plenty during global financial crises. As the value of their shares plummeted, the lenders, to protect themselves, required investors to sell shares or put in some cash to restore the buffer required by lenders.

One of the cardinal rules of investing is that you do not want to become a forced seller. That will be just at the time share prices are plummeting. A margin call can force an investor to realise losses when the investor may have been happy to hold on and ride out the storm.

There were some high-profile disasters involving marging lending after the Australian sharemarket crashed in 2008. These included the collapse of financial planning firm, Storm Financial, where retirees were advised to double-gear into the Australian sharemarket.

The advice was to remortgage their home with a home-equity loan or to borrow against their super and use the money to take out margin loans.  

Posted by John Collett - The Age on 4th March, 2015 | Comments | Trackbacks | Permalink

Trust me - this is how the rich get richer

When most people think of a trust fund, the common thought is one of putting money aside for the kids to help pay for their education or to keep money secure until such time as children are ready to manage their own affairs.

The reality, however, is that a trust can be used to create wealth in many ways and is a flexible tool to manage wealth in a tax- effective way and help boost the pool of funds available for an early retirement. There are many types of trusts and which one you choose depends on many factors such as the type of investment, whether you will require a loan, marriage status and your susceptibility to being sued.

The most common type of trust is a discretionary trust, commonly known as a family trust. Basically, a family trust is a vehicle to accumulate investments with the profits distributed in the most tax-effective way. A family trust allows the trustee to use their discretion in distributing funds to the beneficiaries for tax purposes without necessarily paying the funds out, allowing profits to be retained and reinvested into the trust. How does this help create wealth? Consider the following example. 

Consider a couple earning $85,000 each with two children aged 19 and 21. Both children are studying full time at university and not working.

They have a family trust and have accumulated investments in their trust over several years. This year, it has generated a profit during the year of $23,000. Because the fund is discretionary, the trustee can distribute the profits at their discretion.

If all the money was distributed to the parents, they would pay their marginal tax rate of 37 per cent income tax on the full $23,000, an additional $8510 tax in addition to what they are already paying.

Alternatively, if the trustee distributes to the two children, the tax implications would be no tax on the entire trust profits. By distributing the funds in the most tax-advantageous manner, the amount of tax the family pays is reduced from $8510 to zero.

So purely by minimising your tax, you can create wealth quicker in a family trust. If the family chooses to, instead of physically distributing the funds, the profits can be reinvested back into the trust to further create wealth. So while there are many benefits of using trusts to manage family wealth such as tax minimisation, asset protection and estate planning, trusts are also being used in association with superannuation to provide for a more flexible retirement.

While the superannuation rules continue to tinkered with, accumulating funds both in your super fund and also within your trust, provides flexibility as, unlike your superannuation fund, your trust doesn't have any rules around when you can access the funds and can provide for an early retirement prior to gaining access to your super fund.

While trusts are one of the most flexible entities to accumulate wealth, you need to be aware of the costs or traps and advice should be sought prior to setting one up. The cost of establishing a family trust is relatively low. A trust generally can cost between $500 to $2000 in establishment fees with accounting fees varying between $500 to $2000  a year. You need to ensure you have enough funds and receive benefits that outweigh these costs to make it worthwhile.

The most common trap with trusts is around making a loss. Making a loss in a discretionary trust can't be used to offset personal income. If you have investments like shares in your trust, if not structured correctly and a loss is made, you may also lose the benefit of any associated tax credits on dividend income.

It's no surprise that trusts are a popular way to not only accumulate money, protect it and keep it in the family. Talk to your financial adviser about the suitability of a trust for your family and start gaining the benefits that many Australians are already enjoying.

Posted by Olivia Maragna - Money Manager (Fairfax) on 4th March, 2015 | Comments | Trackbacks | Permalink

Did the $1 reserve Blacktown auction gimmick really net more money?

A home owner unable to sell his house last year cooks up a plan to get a whole heap of attention with a $1 reserve price at a February auction.

The taxi driver company owner says he's prepared to let the market decide it's worth.

The fanfare in Blacktown on Valentine's Day weekend certainly attracted a frenzy. More than 39 people registered to bid - most of them investors keen for a bargain.

However, while a real estate agent and a box of tricks may be able to drum up a bigger crowd, my bet is that it won't make the crowd's pockets any deeper. Do we really think that buyers these days, don't do their research, and know how much they should pay?

It's certainly not a desirable marketing strategy. Not one that should be encouraged.

With the low reserve price strategy largely said to be "high risk", one question is left to be asked: Was it worth it?

Let's take a look at the market.

Our $1 reserve property, 230 Blacktown Road, is a pretty standard four-bedroom, two-bathroom family home. 

Recent sales in Blacktown this year include a three-bedroom, one-bathroom duplex for $510,000, a five-bedroom, two-bathroom house for $610,000, and a three-bedroom, one-bathroom house for $505,000.

In total, a total of 20 actual bids were made. 

The result of the vendor's nail biting? A $565,000 sale price.

It may have "smashed the reserve" as some reported, but was this a stellar or unusual result for the area? The median price and a number of local sources suggest not so.

Domain Group data puts the median house price in the area at $555,000 (12 months to December 2014). Clearly, a $565,000 result is far from remarkable.

In fact, it's just $5000 more than the price on the home when it was listed for sale back in November 2014.

Of course, it did achieve the vendor a sale – a notable fact.

But whether the property would have achieved the same price if it was put to auction with a reserve price closer to the appraisal - and without using the $1 reserve tactic - is the question.

Listed as a private treaty offering in November, with homes averaging 43 days on market, it's worth wondering whether an auction was just better strategy and that the new year a better time.

Auctioneer Damien Cooley is no stranger to auction gimmicks, having been signed up to auction Darren and Deanne's The Block Triple Threat offering.

Mr Cooley said that setting the reserve at $1 services two functions - obtaining media attention that raises the profile of the property and the agent and, more importantly, feeding the sense of urgency with buyers that they can pick up a bargain.

In this case, the agent has done his job in bringing more buyers and registered bidders to the property, although Mr Cooley is not convinced that all of them would have been able to afford the value of the home.

"It's probably lower risk in the current hot Sydney market compared to a quieter market.

"But I would never sell my home with a $1 reserve personally," he said. Nor would he do it for every property.

The investor market in Sydney's west is indeed strong. The investor-driven hunger for properties in the western suburbs is no secret.

In truth, this market is too hot and the buyers are too savvy for the home to have sold for anywhere close to $1.

Posted by Jennifer Duke - Domain (Fairfax) on 3rd March, 2015 | Comments | Trackbacks | Permalink

How to cost-effectively renovate your home before you sell it

The first commandment of selling a house is writ in stone: positive first impressions are of paramount importance.

"Everything has to do with the first impression at walk-in," says Sarah Lorden of McGrath Balmain. "If a property is disappointing from the start, prospective buyers will begin to wonder what else is wrong. They stay away from what looks run-down."

Conversely, the seductive charm of an attractively presented house that translates to ongoing interest, multi-party bidding competitions and ultimately extra dollars at the sale, makes almost any effort towards sprucing up a place worth the time and expenditure.

Aside from the known sure strategy of a fresh repaint, in rebooting your house for the sales campaign there are a whole lot of cost-effective tweaks and tricks that can make positive impact.

"Gardens!" says Peter Tsekenis of Ray White Brighton le Sands, He reckons vendors "just don't realise the importance of a well presented garden". Lorden's endorsement is that "gardens don't take much". "But I tell you," she says, "people will buy lovely old gardens even if the house is tired."

"Garden really are the biggest, most cost-effective thing. So," says Tsekenis, "for a few hundred bucks get the guys in to cut, weed, mulch and trim the big trees. It makes a huge difference."

Architect Christopher Polly has a good eye for little niceties that add value: "Changing house numbers and letter boxes; changing external and internal door fronts, handles, knobs and knockers. Changing tap ware, towel rails and toilet roll holders ... and - time permitting, refinishing floorboards." 

Sarah Lorden agrees with all of that relatively easy detailing. "New front door paint and a shiny new knocker? Yes!" She advises however, that the days of doing quick renovations to flip properties are long gone, and that it's not worth considering anything that requires planning permits. 

Then what about redoing entire kitchens and bathrooms, under-roof items that don't need permits? "On a property that is 90 per cent there and is only let down by a dated kitchen, that can be a good thing to do. If the whole place is run-down, don't bother."

Peter Tsekenis has a rule of thumb on renovating kitchens and bathrooms, which are are indeed the rooms that can seal the deal on most houses: "If it's a two-bedroom, dime-a-dozen unit, don't touch it. Let the buyers do it. If it's a waterfront property and you can spend $30,000 to make $50,000, then do it."

Another of his rules is, "Don't do it yourself. People are looking for professional quality now and the houses that do get a premium have obvious quality to their presentations. So get the professionals in. It's worth it. Because when buyers see something of tangible quality that they can move right into, they'll pay the price."

On the theme of spending the dollars where they will be seen, if you have enough time and money to continue tweaking consider replacing slumping perimeter or front fencing. 

Christopher Polly says new curtains and blinds on the front windows can help. He also thinks replacing daggy light fittings with modern styles can be another effective, budget-friendly updating trick. "And it all depends on the budget, of course."

Ballpark costs for fast, effective changes

Garden: Tidying, pruning and prettying up a townhouse from $1000. For a larger garden (including mulch and waste removal), from $1200 to $2000-plus. Pruning to reveal or frame any good view is vital.

Pressure cleaning: Paving and house exteriors $300 to $400 for a half day.

Fencing: Perimeter fences $55 to $100 each lineal metre. Picket fencing $60 to $180 each lineal metre. Gates $600 to $900.

Paint: Interior $8 to $25 each square metre. Exterior $12 to $60 each square metre.

Floors: Re-sanding and polishing floorboards $75 each square metre. New carpet $35 to $159 each square metre. 

New vinyl: $65 to $120 each square metre.

Tiling: $120 each square metre, tiles average $30 each square metre.

Bigger changes: Bathroom or en suite $10,000 to $25,000. Kitchen makeover from $12,000 to $30,000.

(Information: Horticultural Tradesman Services, Glebe; Cost Guide, downloadable as PDF file from  askanarchitect.com.au, a service of the Australian Institute of Architects). Case study

Auntie Elsie, 92, has left her home at 1 Madrers Avenue, Kogarah, and moved into a nursing home. Her nephew Zacharia Zacharia, one of four relatives with power of attorney over her business, says she's very happy there.

Her old house, however, the one her late husband surrounded with a botanical garden of plants, "had become so overgrown in the heat and rain", he says, "that it was hard to get to the front door." 

Elia Economou of Ray White at Brighton Le Sands, the agency the relatives engaged to sell the three-bedroom cottage, had a first inspection recently and saw "a giant weed patch. It looked abandoned". It was so bad "it obscured the terrific potential of the place".

So the relatives rolled up their sleeves, did an earnest internal de-cluttering and were about to repaint when they were advised that a thorough washing of the walls would bring it up like new.

To get the garden sorted, they spent, Zacharia reckons, $1600. "Vines were trimmed, fruit trees pruned, pathways cleared and it's come up as an absolute beauty. It's a picture. Full of light and life. It's looking so great we're optimistic about taking it to market." 

The mooted $800,000-plus price tag should support Auntie Elsie very nicely in her new life.

Posted by Jenny Brown - Domain (Fairfax) on 3rd March, 2015 | Comments | Trackbacks | Permalink

Surviving rental property disasters

Hot water system packed it in or garage doors that suddenly refuse to open … minor maintenance dramas and the accompanying expenses are par for the course and factored into the budget for most Aussie landlords.

But what happens when major disaster strikes? Brace yourself for a lot of headaches and a big bill, says financial services professional John Tomlinson, who was down around $66,000 after his rental property in the inner-city suburb of Auchenflower was partly inundated in the 2011 Brisbane floods. 

One of six three-storey townhouses built on a site which went under in 1974, Tomlinson thought the chances of it flooding again were "one in a million" and a risk he was willing to take when he bought the property in 1995.

"It was a good investment, ticking along pretty well," Tomlinson says. He put it on the market in late 2010 to help finance the purchase of a family home in Sydney and had a conditional buyer on the hook when the big wet struck.

Visiting relatives in Canada at the time, Tomlinson watched the natural disaster unfold from afar on television. "I thought, 'Oh my God, this is hairy canary'," he says. Friends subsequently delivered the unwelcome news that the waters had flooded his garage and risen 50cm into the first storey, damaging walls, carpets, curtains and kitchen cupboards.                                                               

When the deluge receded, Tomlinson found himself without a buyer and facing a $25,000 repair bill for a property the bank now valued at $300,000, not the $430,000 it had been on the market for when the heavens opened.

In common with many Brisbane property owners, he did not have flood insurance and his landlord protection policy provided no payout, given the house had been vacant for sale at the time.

"Then I had to bite the bullet and borrow money to repair it," Tomlinson says. After four months of toil – much of which he did himself with the help of friends, in order to contain the costs – he faced the task of finding a buyer whose price expectations matched his own. Stressful times – given holding on until the market improved was not an option.

"I could afford to take a bit of a hit but I desperately needed to sell it to help fund the house [in Sydney]," Tomlinson says.

He rejected several "opportunistic bids" before finally accepting $400,000.

"There was a large degree of good fortune that one person came along who was prepared to pay a sensible price." Factoring in lost rent of around $11,000 for the refit and sale periods brought his losses to around $66,000.

"Awful but not the end of the world" – but it could have been for an investor with less of a buffer, Tomlinson says.

Concern about major damage and subsequent lost rent have resulted in more investors taking out landlord protection insurance as well as house and contents policies during the past decade, Melbourne financial adviser Steve Enticott says.

Policies typically cover tenant-related risks, including malicious or intentional damage, and loss of rental income in a range of scenarios.

"It's a good investment especially if you're sailing close to the wind," Enticott says.

Cheap at the price, agrees Lucas Real Estate property director Dylan Emmett who says insurance can be had for as little as $300 a year for properties that rent for less than $1000 a week.

Around 85 per cent of his clients hold landlord policies and the agency is loathe to deal with corner cutting landlords who are unwilling to cover themselves, Emmett says.

"A lot of people still don't have it as they are too fixated on the balance sheet – they see it as an unnecessary cost."

Fat Pizza actor and entertainment promoter Alex Haddad says it saved his bacon after a fire, believed to be deliberately lit, destroyed 80 to 90 per cent of his two-bedroom weatherboard rental house in Sydney's Ryde in September.

The trouble-prone landlord previously lost thousands after a disastrous experience in 2010 when he rented privately to acquaintances who stopped paying, refused to leave and trashed the premises when they eventually moved.

The landlord policy he subsequently took out with CommInsure provided him with a goodwill payment of three months' rent, a week after the fire occurred. Enough to fund the mortgage payments while assessors determined whether to pay out his $212,000 house policy or cover the costs of rebuilding, according to Haddad.

Good value and it's tax deductible, he says: "You're silly not to have the right insurance." 

Posted by Sylvia Pennington - The Age on 2nd March, 2015 | Comments | Trackbacks | Permalink

Property pricing for buyers: how to get ahead of the game

Here's a game you can play, if you're in the market for a property. A bit like closest to the pin. Estimate what you think a particular property to be auctioned might be worth. Wait for it to sell and see how near, or far off, the mark you are. Play this also without asking selling agents what they're quoting. Their job, after all, is to get the best price for the vendor.

Of course, for those looking to buy a house or an apartment, working out its value is more akin to blood sport than amusement. Particularly when, as Domain Group senior economist Andrew Wilson says, "there is no true value". Or as Nelson Alexander agent Arch Staver puts it: "The value is marginally more than what someone else is prepared to pay."

That's because prices constantly shift with fluctuating market conditions, seasonal influences, demand and supply as well as general economic sentiment. For example, the recent interest rate cut, on one hand, arguably improves affordability but points to a tougher fiscal outlook. Price depends, too, on each vendor and seller's specific circumstances and agenda.

But there are ways of getting near the pin, if not in the hole. A must is to attend as many open for inspections and auctions as possible. "This not only gives a feel for price but the level of competition for a property," says Wilson. "If there are lots of bidders, prices may be higher."

Richard Winneke, of Jellis Craig, suggests allowing yourself at least eight to 12 weeks to research what the market is doing, which way it's trending, in the areas you are looking. Note what properties are being advertised or quoted at and what they actually fetch.

Study recent sales and prices in the area, available from independent sources such as Fairfax Media's Domain Group Data.

Agents stress it's crucial to directly compare like with like within neighbourhoods. If you're after a three-bedroom house on 250 square metres in Fitzroy North, don't compare it with a four-bedroom house on a block twice the size in Malvern.

More than just land size and bedroom numbers, consider construction type, condition of the property, the quality of improvements, functionality, ability to add value, alternative use of the land and so on. Create a checklist. After all, these are some of the many features sworn valuations from qualified property valuers take into account.

Look at zoning. Take a broader view of the surrounds: are there powerlines, rail noise-banks and other restrictions or, conversely, views, a nearby school, parkland, shops or other special features? Look at sale volumes. Is the house homogenous, making it easier to compare prices? Or is it architecturally a one-off or distinctive in some way, which can be harder to price and may have narrower appeal? Frank Valentic of Advantage Property suggests using a superior and inferior property to check.

Keep in mind that vendors also are taking all the same things into consideration, so the price you calculate should roughly tally. Also be mindful, if financing is required, that banks tend not to lend above 80 per cent of their property valuation.

While investors consider yield and projected capital appreciation, homebuyers risk being caught up in the moment, or worse a bidding war, even if they have a "value" in mind, and often will pay more.

Buyer advocate Melissa Opie, of KPI, strongly advocates leaving emotion at the front door. "People don't make rational decisions in the heat of battle or when negotiating [post-auction]," says Opie, arguing a professional service like hers not only brings a cool-headed strategic approach to the process but assists in determining a fair price based on experience, knowledge – including agents' tricks of the trade – and industry-only data. Working out how much to pay for a property
  • Attend as many open for inspections and auctions as possible to gauge interest in the property and get a feel for price and market conditions.
  • Look at what properties were advertised for or the price range quoted by agents and see how they stack up against what the property fetched.
  • Analyse comparable historical sales data – look at what similar properties have gone for in recent months.
  • Judge the property against a superior and an inferior example to help determine value.
  • Set a limit – which may be based on your borrowing capacity – but agents argue buyers should be prepared to exceed it by up to 10 percent, especially if intending to live in the property longer than five years.
  • Consider a buyer advocate with agent experience – not only do they have the smarts to calculate a fair price but they remove the emotion and bias from one of life's biggest purchases.
Case study: Doing the homework pays off

Suzanne and Richard Pavlov know too well the tribulations of trying to nut out what they should pay for a property. Three years ago, they found themselves as underbidders at several auctions. Each time they fronted up, the house was knocked down painfully above the price quoted by agents.

"We learnt the hard way," says Mrs Pavlov. "We'd think we were a chance at the auction but we were nowhere near."

Now the couple, who own the Brunswick Food Store, are expecting twins and in the market again for a bigger house. This time round, though, they are adopting a more studied approach to their house hunting, attending auctions, comparing sales data.

In addition, the Pavlovs have received a pre-approved loan from the bank, so they have a good idea the most they can spend. This has prompted them to register with several agents, providing them with the number of bedrooms needed and their budget.

"We're getting property updates of what's coming," she says. "We already have a lead from an agent about an off-market sale."

Posted by Paul Best - Domain (The Age) on 2nd March, 2015 | Comments | Trackbacks | Permalink

Home loan customers should hunt for a four per cent interest rate, or risk paying too much

 HOME loan customers are being gouged by excessive interest rates and in some cases are paying close to ten per cent.

New findings show by financial comparison website Finder.com.au show there are dozens of mortgages on the market charging customers interest rates of between seven per cent and a staggering 9.85 per cent.

LENDERS ease mortgage requirements for borrowers

They usually include home loans for customers who have a bad credit rating or have signed up to low-doc or equity release loans. 

But many customers on full-doc loans are still paying hefty interest rates in the high fives’ and six per cent range.

Experts have warned the nation’s millions of mortgage customers that if they don’t have a home loan rate with a “four in front” they are paying way too much.

Mortgage and Finance Association of Australia chair Tim Brown urged mortgage customers on these high rate loans to shop around for a better deal.

“In this market if you are not paying a rate with a four in front for a residential loan you are paying way too much,’’ he said.

“The rate market is probably the best it will ever be, I didn’t think it would go this low and there’s talk of another interest rate cut coming.

“All the customer has to do is go to a qualified mortgage broker or a lender and ask the question (to get a better deal), it doesn’t cost you any money to have that conversation.’’

The Finder.com.au research found the average standard variable home loan rate is about 5.5 per cent but is expected to drop to 5.25 per cent once all the institutions pass on the latest 25 basis cut.

Monthly repayments on a $300,000 30-year loan charging the lowest variable rate on the market of 4.23 per cent — being offered by loans.com.au — is $1472.

Monthly repayments on the same loan with the highest variable rate at 9.85 per cent — being offered by Heritage Isle Credit Union — is $2600.

But Mr Brown said the customers on these high-rate loans only accounted for a “very small percentage of the market.”

Finder.com.au spokeswoman Michelle Hutchison said if customers had previously signed up to these high-rate loans to revisit their mortgage and see if they can get better bang for their buck.

“If you signed up to one of these loans seven or more years ago and have improved your credit file since then, it’s worth looking into refinancing and switching to a cheaper deal,’’ she said.

“These types of home loans generally apply to borrowers with adverse credit files or those who are deemed as higher risk borrowers such as older people and self-employed with low documentation.

“They also generally apply to those who want to borrow more money, access equity, bridging loans, reverse mortgages or a second mortgage.”

Australian Bankers’ Association’s chief executive officer Steven Munchenberg said if customers did not think they were getting the best deal around they should talk to the lender.

“Eighty-four per cent of home loan products offered are priced under 5.5 per cent,’’ he said.

The Australian Securities Exchange’s RBA RateTracker was this week predicting there was about a 50-50 chance of another rate fall in March.

Posted by News Limited Network on 1st March, 2015 | Comments | Trackbacks | Permalink

Ways to save money by following some simple steps

 THESE straightforward steps on how to save money will help you achieve a lifetime of financial goals.

Tucking away money each week in a safe and untouchable place can be near impossible for the undisciplined — it’s usually far too easy to get our hands on any excess cash we may have stashed away.

And we’re a divided bunch in our approach to saving, MoneySmart research shows men are “fast and determined” and save for one thing at a time, while women tend to be “slow and steady” and multi-task their savings hopes.

But when Australians do decide to get serious about saving it’s usually so they can realise the great Australian dream of owning a home (36 per cent) or to fund renovations (14 per cent), while others prefer to save for a holiday (47 per cent.)

So if you are planning a savings strategy, we’ve quizzed the experts and here are our seven steps to success.


The dream of a wad of savings can become a reality if you set realistic goals, the Australian Securities and Investments Commission’s MoneySmart senior executive leader for financial literacy Miles Larbey says.

“Have an idea of how much (the thing) you are saving for is going to cost and have a clear goal in mind,’’ he says.

“And with this you need to have a plan of how much money you need to save per fortnight or per month.”

A good start is to work out the amount you are trying to save from each pay cheque, whether it be weekly, monthly or fortnightly.


Boost Juice founder Janine Allis, one of Australia’s most successful business people and star of Channel 10s Shark Tank, knows all too well about creating budgets.

The mother of four says money was extremely tight for the first 40 years of her life.

Now a multi-millionaire, with more than 400 juice stores nationwide and in 12 other countries, Allis says being a successful saver involves going back to the basics.

“Stop and look at all your expenses and, without even getting a job with more money, look at what you spend and try and be smarter with it,’’ Allis says.

“Stick to a budget is the way to start.”

Map out a weekly budget by breaking down all your expenses into categories, for example rent/mortgage repayments, utility expenses, insurance costs, transport, entertainment and children to get a clear picture of your weekly expenses.

Then work out what your incoming funds are and how much money you have to spend and save each week.


Allis says stashing savings in an account that is hard to access prevents you dipping into your hard-earned savings when temptation arises.

“I had two accounts, one was a savings account and one was something I could work with (a transaction account),’’ she says.

For instance term deposits and online savings accounts don’t have cards linked to them so it removes the likelihood of you accessing them when you’re out shopping or having a drink with friends on a Saturday night.

And look for a good rate, many online savings accounts offer rates less than four per cent but some have advertised headline rates that are higher, often for an introductory period.


Buying takeaway coffees, lunches, bottled water and driving to work instead of using public transport are some simple expenses that you can cut back on to reduce your weekly costs.

Buying a daily coffee for $3.50 quickly adds up to $24.50 per week so by cutting this out you’ll save about $1274 per year.

Consider making instant coffees instead of buying them or keep tea bags at work to cut down daily caffeine expenditure and have some snacks in your drawer for when you’re hungry.

Forking out for daily lunches while at work is another unnecessary and hefty expense — if you spend $12 a day it adds up to $60 per week and more than $3100 a year.

Sign up to your favourite shopping sites and places that you frequently buy from so you can take advantage of specials.

Supermarkets often have discount racks and reduced prices on items that can only be kept for a short amount of time, for instance bread and dairy at the end of each day.


Interest rates on savings accounts remain very low so clever management of your mortgage, if you have one, can also be a strategy for saving.

Mortgage offset accounts — day-to-day transaction accounts linked to your home loan — are a great way to save because the money parked in these accounts automatically reduces the interest paid on your loan.

For instance if your home loan is $300,000 and you have $10,000 in your offset account, then you’ll only pay interest on $290,000.

Given most variable rates on home loans are around five per cent, you’ll save more money reducing your monthly interest charges than waiting to collect measly returns from a term deposit or online savings accounts.

This is true of any debts you may have, including credit cards and personal loans: pay off debt first and then start accumulating savings.


If you cannot resist the urge to dive into your savings, says Rising Tide financial planner Matt Hale, get someone else to do it for you.

He suggests contacting your employer and asking them to hold back 5 per cent more tax than you are required to pay which will ensure a fat refund come tax time.

“Doing this means the savings are kept out of sight and you can be assured of a nice big refund when it comes to tax return time.’’

While this may not be the optimum savings plan, as you will forgo interest that you would otherwise earn if you parked the extra money into an online savings or term deposit account, it will guarantee you a lump sum come tax time.


It’s all well and good to have a savings plan but it’s also critical to check your progress so you keep the momentum up.

Larbey says it’s a case of making sure you “don’t set and forget.”

“Have a specific time frame in mind,’’ he says.

“Our research also found that telling family and friends about your goals can also help you stay motivated because you’ve made a commitment to try and reach your savings goals.”

MoneySmart has a free mobile phone app, TrackMyGOALS which will also help you stay focused.

Posted by News Limited Network on 1st March, 2015 | Comments | Trackbacks | Permalink

How to choose a mortgage broker

SIGNING up to a home loan can be a daunting task. Meandering through endless mortgage products to find the best deal possible is a tough call, especially for the uninitiated.

 With more than 1800 home loans on the market, according to financial comparison site Canstar, this overwhelming choice means about one in two mortgage customers will engage a broker to help them find a suitable loan.

Most brokers have access to about 90 per cent of products on offer and they usually receive commissions from the credit provider that supplies the loan.

With rates continuing to fall it's never been a better time to borrow money but with more than 13,000 mortgage brokers operating in Australia how do you go about choosing the one that's right for you?


Mortgage and Finance Association of Australia's chief executive officer Siobhan Quinn says when you're on the hunt for a broker, ask around.

“If you're in the younger demographic and a user of social media, put a message out there and ask people if they've used a broker,'' she says.

“The business for brokers is very much around referral by family or friends.”


Definitely try before you buy.

1300homeloan director John Kolenda says it's not uncommon for mortgage customers to test the waters and contact multiple brokers before deciding which one to go with.

“Typically a consumer will probably see two to three different people when they're moving forward on a home loan application,'' he says.

“They will then make up their mind who they want to go with, but look for a broker who listens to what you are after.

“You need to feel comfortable that you are happy to deal with that broker on your transaction and also in the future.”

Kolenda says also look for a broker who is “responsive, pretty experienced and understands the industry and is across the products in the marketplace.”


The Australian Securities and Investments Commission says Australians should always check the broker or the company they are dealing with is licensed.

Search ASIC Connect's Professional Registers to ensure your credit provider is legit or phone ASIC's Infoline on 1300 300 630 1300 300 630 .

Customers can also use the MFAA website to find an approved credit adviser.


Make sure you go to the broker armed with some knowledge of home loans, particularly the interest rates because they vary greatly.

Canstar figures show, on a $300,000 30-year home loan, the average standard variable rate is 5.23 per cent, but there's a large gap between the lowest SVR at 4.23 per cent and the highest SVR at 6.38 per cent.

On the same loan the average three-year fixed rate is 4.78 per cent but the lowest rate is 4.09 per cent and the highest is 5.59 per cent.

Visit any of the online comparison sites and type in your basic loan details to see what type of deal you can score and ask your broker if they can do better.

Posted by Sophie Elsworth - Money Saver HQ - The Daily Telegraph on 1st March, 2015 | Comments | Trackbacks | Permalink

Time to look at ways investors are taxed

Interest rates that are at record lows and likely to remain so present a rare opportunity for the federal government to help new owner-occupiers acquire a property by restructuring investor tax arrangements.

This situation has even led to renewed property industry warnings of adverse political consequences of any such action.

Despite these claims, the government's funding problems and Reserve Bank's concern about a housing price boom increase the attractions of changes that focus on expanding the housing stock while limiting the future cost of negative gearing. Following long established grandfathering arrangements, protecting existing geared investments from the changes would moreover protect the interests of current investors.

Any changes would thus only apply to new investments and could be extended across all asset classes. If the over-riding goal is to expand the rental housing stock to help limit both price and rental increases, a cost-effective option would be to focus new negative gearing outlays only for purchases of newly constructed properties until they are resold. 

The ongoing losses on new purchases of existing properties and of other investments could then, as is the most common approach overseas, be either offset against other investment income or carried forward to future years.

Changing the tax arrangements for investment housing borrowing would also have more chance of reducing the competition from investors than APRA's attempts to limit the growth in lending to investors. That effort to reduce the growth in bank lending to investors faces major obstacles.

Investors, especially those using other assets including their owner occupied home as collateral, offer far better risks to lenders than do many owner occupiers. Investors are much more attractive propositions for lenders because of their additional cash flow from their net rental income and the ongoing tax refunds from their losses and generous depreciation allowance deductions. This places them in a superior position to owner occupiers whose ongoing interest costs have to be funded out of their own after-tax income.

Because of the tax incentive not to repay tax deductible interest loans quickly, investors have a cash flow advantage from their annual tax refund and their greater flexibility of using fixed rate interest only loans. Investment borrowers can as they did in the earlier bank regulation period easily source their loans from non-APRA supervised entities such as mortgage trusts and solicitor's trust funds.

Concerns that changing negative gearing arrangements would reduce the available rental stock and increase rents would only be relevant if draconian retrospective changes were to be made.

Focussing future taxation assistance to new investment construction would expand the available housing stock with the advantage of encouraging economic activity which subsidising investment purchases of existing properties does not.

Daryl Dixon is the executive chairman of Dixon Advisory

Read more: http://www.theage.com.au/money/borrowing/time-to-look-at-ways-investors-are-taxed-20150212-13ckho.html#ixzz3RrUk26Jj

Posted by Daryl Dixon - The Age on 16th February, 2015 | Comments | Trackbacks | Permalink

Make your home work for you

The ongoing reduction in interest rates is a boost to refinancing. According to research from finder.com.au, 35 per cent of all owner-occupied home loans financed each month are now refinanced, with the ratio expected to increase this year.

Refinancing presents a number of opportunities borrowers who have had a loan for a number of years may not necessarily be aware of. These people might need as much help as a first-home buyer, and using a mortgage broker is a smart first step.

Refinancing is the replacing of a home loan with a new one, over the same asset, and it is done by three groups: those who want a cheaper or better home loan; those who want to retire consumer debt; and those who want to use equity in their property to fund an investment property or a renovation.

The first group has real opportunities right now. If you got a mortgage seven or eight years ago, your once competitive loan could now be in the middle of the pack: you could be paying 5.4 per cent, while the market-best variable rates have fallen to around 4.4 per cent or lower.

On a $400,000, 25-year loan, the people with 5.4 per cent mortgages are paying around $230 more a month than those with a 4.4 per cent mortgage.

It isn't just interest rates that trigger refinancing. Your original loan may have lacked features, such as an offset account or line of credit – features that help your wealth strategy.

Consolidation of consumer debt is also worth looking at.

The cost of store finance and credit card debt has not really fallen in line with mortgages, and if the value of your property has risen in the past few years, it's possible to refinance to a larger loan and release cash to pay-off consumer debt. The basic equation is that you use the mortgage at 4.4 per cent, to eliminate debt that's costing you 18 per cent. This can be a massive saving for a household.

For wealth-building, refinancing is useful for funding renovations and further property purchases.

Let's say you bought a property for $500,000, with a $400,000 loan. Now the loan is down to $300,000 and the property is worth $600,000. 

If a lender is prepared to write a home loan to 80 per cent loan valuation ratio (LVR) on your property, the new loan of $480,000 pays-out the original $300,000 and leaves you with $180,000 to assist in the purchase of an investment property. This is how extra repayments into the mortgage, and buying well, can increase your opportunities.

Refinancing is now one-third of the owner-occupier mortgage market, so it's popular. But I'd suggest some warnings: every time you use refinancing to release cash, you are increasing your debt.

Be aware of this and know your affordability equation. Secondly, refinancing should be used for a wealth strategy such as reducing expensive debt or buying/building appreciating assets.

You're a long time repaying a mortgage so make sure it counts for something. Good Luck!

Read more: http://www.theage.com.au/money/borrowing/make-your-home-work-for-you-20150212-13ckgp.html#ixzz3RqMVrNqz

Posted by Mark Bouris - The Age on 15th February, 2015 | Comments | Trackbacks | Permalink

Salary sacrificing helps you to save

 WHOEVER invented the term “salary sacrifice” was no marketing genius.

For most people the word sacrifice means giving up something, even jumping into a volcano, and never something you want to do with money.

However, salary sacrificing can save workers thousands of dollars a year in tax, and not just with your superannuation.

Many workers do not realise they may be able to salary sacrifice — also known salary package — cars, computers, trade tools, childcare, mobile phones, insurance and even airline lounge memberships.

These costs are deducted from the workers’ salary before tax is deducted, which means they pay less tax on their income. However, not all employers offer salary packaging, so you have to ask them and hope they are nice about it.

Carla Costanzo started salary packaging a new car last month to save more than $50 a week in tax.

She says she is obsessed with budgeting and enjoys the convenience of having vehicle expenses such as tyres, maintenance and lease costs included in the salary packaging arrangement.

“You know what you have left at the end of each week, and the figure doesn’t change,” Costanzo says.

The idea of salary packaging was mentioned to her by her father, who was already doing it, so she approached her employer — Adelaide Fresh Fruiterers — and “they were fine with it”.

Vehicle Solutions Australia director Greg Harris says the employer must approve the service because it involves both GST and Fringe Benefits Tax, which are both employer taxes.

“The process is very simple and costs nothing for any employer,” he says.

“However, some employers still resist the service as they think it will cost them time and money processing all of the paperwork. However, most salary packaging services are completely outsourced.”

Harris says even self-employed people can salary package “as long as you pay yourself a wage and pay tax on that wage”.

“But it is always best for these people to talk to their accountant about their individual tax structure.”

A typical packaging arrangement may cost you about $400 a year but the savings should offset the fee, which can be included in the pre-tax package.

The biggest winners in the salary sacrifice stakes are people who work for public hospitals or not-for-profit organisations. They are also allowed to package rent, groceries, entertainment, credit card bills and other personal expenses up to a set limit.

H & R Block Tax Accountants says anything that reduces your taxable income is a good thing, and says that salary sacrifice arrangements must be entered into before you start earning the income.

“It’s not well-known. It really does depend on the employer as to whether they offer it to employees,” H & R Block regional director Frank Brass says.

“The first step is to ask your employer if they are prepared to offer it. Most have a packaging company that does it for them.”

Posted by News Limited Network on 11th February, 2015 | Comments | Trackbacks | Permalink

No golden ratio for bricks and mortar

Every bit helps but even with lower rates the best of the property boom is probably behind us.

I'm not saying it'll fizzle out, just that it's not likely to do as well as the relatively cheaper sharemarket with its better tax breaks.

The fact is the sagging global economy and collapse in commodity prices are delivering what amounts to a national pay cut. 

Hard as it is comparing stocks with bricks and mortar you can take a stab at it, using the same principle as the price earnings ratio. This shows how long it will take before an investment is paid off; typically it's applied to shares and shows how many years of profits before payback.

But you can adjust it for houses too by substituting net rents to show either the annual income for an investment property, or how much an owner occupier is saving.

For the sharemarket the ratio is just over 15 but for property, using net rental yields, it's about 28 for Sydney and 30 for Melbourne.

There's no rule about what the gap should be, but that sure looks a lot.

My bet is it will be narrowed, not that there's a deadline or anything, by property price rises continuing to slow while shares accelerate.

That's because global deflation and demographics favour shares over property.

The natural growth rate of property values is the rise in national income, probably around 4 per cent this year and for some time to come in a deflationary global economy.

Demographics are also changing. The labour force is growing more slowly, if not shrinking, as baby boomers retire – not to mention downsize – while young buyers if they're not forced out of the market altogether increasingly prefer apartments. In any case, unemployment is forecast to rise this year.

A slow but sure upward climb in values is supposed to be property's virtue over shares. In truth home values are rarely tested and so remain hidden for much of the time, revealed perhaps when a place down the road is sold, and fortunately most owner occupiers never become forced sellers.

Still, property is no longer the one-way street it was for baby boomers such as yours truly who thrived on years of inflation. Rates were much higher but they were negative in real terms making borrowing a breeze, not that I thought so at the time.

Buying a median-priced house in Sydney or Melbourne gives you a million-dollar asset for sure but not quite the way you'd like. I'm sure that one day it will indeed be worth $1 million but in the meantime that's what you'll have paid after interest.

Take the Melbourne median of $633,000 and paying a 20 per cent deposit. After 24 years it will have cost you just over $1 million based on an average variable rate over the loan term of 5.5 per cent, according to www.finder.com.au.

But interest isn't the end of it. Apart from the usual running costs such as insurance and rates, there's always something or other that needs fixing.

Somewhere along the way you'll probably be throwing in a renovation of some sort too – as a guide www.finder.com.au and the Australian Institute of Architects estimate the average new kitchen costs $42,017 and bathroom $38,696.

But won't your home be worth far more than $1 million eventually, so you'll be ahead?

Yes, but it's a question of how long it's going to take, and relative to what.

Median property prices are rising at an annual rate of 13 per cent in Sydney, where there's a temporary supply shortage, and 7 per cent in Melbourne, according to Corelogic RP Data.

Let's overlook the fact that the median price can be swayed by a rise in just a few top-end values or that every house is different.

But there's no escaping that building starts, which will mean more houses and especially apartments adding to supply this year, are running at record levels.

And while Sydney prices were rising by almost 20 per cent not so long ago, did you know that over the past 10 years they rose less than 0.5 per cent a year taking inflation into account?

Compare that with the sharemarket. Including dividends, many of which come with a no-questions-asked 30 per cent tax break as well, it rose 6 per cent a year.

Global financial crisis and all.

Posted by David Potts - Money Manager (Fairfax) on 11th February, 2015 | Comments | Trackbacks | Permalink

Many ways to escape debt spiral

So getting out of debt is at the top of your financial wish-list for 2015. How are you going to do it?Wouldn't it be great if there was a magic formula that made debt melt away with very little effort? Or if someone took pity on you and paid your bills? Still hoping for that Lottery win?

Everyone has quick-fix fantasies. But if you're waiting around to be rescued, you're probably not doing the very thing that will make a difference: taking responsibility for your own financial situation. Working to pay off debt makes us feel more capable of handling our money. It also actively helps us transform the patterns of thinking and behaviour that got us into debt in the first place. So we not only get out of debt, we stay out.

Changing behaviour is key, according to Wally David, Melbourne financial planner and author of thesmartmoney.com.au. "If you don't change those behaviours you won't actually solve the underlying problem."

Whereas an unexpected emergency may have led you down the debt rabbit hole, for most of us it's simply a case of spending more than we earn, particularly at Christmas, as many of us are discovering as we receive our credit card statements.

In the past two months Marina McHutchison and her husband Perter have paid off about $10,000 from their accumulated debts of more than $100,000.

Often we know we're spending money we don't have, but we choose to ignore it. We decide to buy now and worry later.

It's not just young people or low-income earners who get caught in the debt trap. Dominique Bergel-Grant, founder of and financial planner with Leapfrog Financial, says one client racked up $250,000 in credit card debt after leaving a corporate job to become a self-employed consultant. "He was still living his life as if he was earning $250,000 a year so it didn't take that many years for him to accumulate that level of debt."

Sunshine Coast resident Marina McHutchison and her husband Peter accumulated more than $100,000 in debt after a property investment went sour and she suffered a back injury.

Wally David says increasingly people in their 50s and 60s are approaching retirement with a residual home loan, the product of being too free and easy with their equity.

He puts Australians' escalating debt levels down to the availability of credit. "It's never been easier to buy things that you don't have the money for," he says. We've also become used to living in the Lucky Country, where we've managed to sidestep a major economic downturn for a couple of decades.

"If you've never experienced a downturn or adversity then you assume that the good times will roll on."

So is there anything wrong with a credit card-funded lifestyle? 

Yes, says Bergel-Grant, adding it often comes back to bite people when their circumstances change.

"We all think that we can work and generate an income forever but if we are either forced through redundancy to stop working or we want to stop working because of retirement or health reasons realistically you are left in a fairly drastic situation."

It also creates a roadblock when people want to buy their first home.

So how do you make getting out of debt more than wishful thinking?

Be aware

The beginning of financial transformation starts with arresting the denial. Look at what you are spending, when and why. "Sometimes the cause of debt is something as serious as gambling or alcoholic problems or it may be intermittent work," says Bergel-Grant. "Self-employed people tend to fall into high credit card debt when they try to fund their business cash flow using a credit card."

Get clear about money coming in and how you are using it, says David. A budget or spending plan is essentially working out how to use your money so it supports your priorities and values. It will help you to see how you can free up more money to pay off your debts.

Select a strategy

Some people swear by the Snowball method for paying off multiple debts; others favour the Avalanche method. Debt consolidation has its fans too. So how do you decide?
  • The Avalanche method This is where you tackle the debt with the highest interest rate first. Why? "Debts with a higher interest rate grow faster because of the effect of compounding interest," explains David. "So paying these debts first should save you money in the long-run."
  • The Snowball method This starts with paying off the smallest debt first, then tackling larger and larger ones. Why? "If someone has got a lot of smaller debts that can lead to them feeling overwhelmed especially when they are dealing with several companies and lenders," says David. Paying off one debt quickly creates a sense of positive momentum and encourages you to keep going.
Financial planner Peter Horsfield is a big fan of the Snowball method. He gives the example of a couple who had multiple debts ranging from $1300 on a credit card to $100,000 on a home loan. He asked them to direct 10 per cent of their gross income, or $750, towards debt repayment, starting with the smallest debt. When that debt was paid off the trick was to add the amount they were saving ($300 per month) to the $750 and direct that towards paying off the next debt. "You lather, rinse and repeat until all your debts are paid off," he says.

The Snowball and Avalanche methods can overlap. "Often the smaller debts come from credit cards and store cards that have the higher rates of interest," says David.

Debt consolidation

At this time of year many  financial institutions present balance transfer offers or personal loans as a way out of debt. A balance transfer offer – such as zero per cent for 24 months – stops interest accumulating on your credit cards giving you space to make inroads into debt repayment. Likewise, consolidating debts into a personal loan or home loan can reduce the interest being paid.

Bergel-Grant favours the disciplined approach of consolidating into a personal loan. "Then they've got a set debt, everything's in the one place. They have to make a minimum repayment every month and because they don't have the option to pull out the cash they are actually paying off the principal."

She then advises clients to cancel and chop up their cards. With the Snowball and Avalanche methods card facilities stay open, which can make it tempting to keep using them.

Although mortgage rates are lower than credit card or personal loan rates, David says the total interest bill can end up higher if someone takes 20 years to pay off a debt instead of five.

He cautions people to be wary of balance transfer offers if they've tried that strategy before only to end up with larger debts. "It's not to say that you shouldn't attempt it again. It's just that you probably need stronger parameters around it. Your credit cards need to be cut up and cancelled altogether and maybe you need someone to help keep you in check and monitor your progress."

Get set for success

Reduce wriggle room by cancelling and cutting up credit cards and don't wait to see what's left in your bank account at the end of the pay cycle. Westpac spokesperson Jessica Power suggests setting up an automatic transfer to your debt, ideally of more than the minimum repayment.

Work out your target

Your target is the sum of your debts, right? Not necessarily. As McHutchison is finding having a goal beyond your debts can put a more positive spin on a decision to be rid of debt. "Where I've seen it work really well is for people who are first homebuyers," says Bergel-Grant. "They know that they are never going to get their foot on the property ladder until they get rid of this debt and build up some savings."

Reward yourself

If getting free of debt is going to take years, be sure to reward yourself along the way. Bergel-Grant suggests planning and budgeting for rewards when you reach certain milestones: "If you just feel like you're restricting yourself you'll simply give up. So I think it's OK if you set yourself milestones where you may allow yourself a little shopping spree."

Another alternative is to include some money for fun in your spending plan. And don't beat yourself up if you fall off the wagon occasionally.

Call in the support crew

Sticking to a get-out-of-debt plan is easier if someone holds you accountable. Get the support of a financial planner, a friend or family member. Action Plan
  • Understand how you got into debt
  • Set a spending plan
  • Select a debt repayment strategy
  • Have a goal beyond debt repayment
  • Automate success and build in rewards
  • Get support
Attacking the mountain in small steps

Marina McHutchison and her husband Peter are making great headway with their plan to get debt-free and buy a house. In the past two months they've paid off about $10,000 from their accumulated debts of more than $100,000.

They are attacking their highest rate card first and working towards consolidating debts into a lower rate loan.

The Sunshine Coast resident says doing a 21-day Money Intensive program with Brisbane facilitator Anne Aleckson not only helped with practical financial strategies and accountability, it shifted some of her habits of thinking, from one of lack to appreciating what she has.

She now feels less anxious about money and is clear about how she wants to be spending both on an everyday basis and in the long-term.

It all makes it easier to stick to spending boundaries. She's cut the family food bill (they have four children aged nine to 17) from $450 a week to about $250 and is saving an emergency fund.

On top of that she switched to a prepaid mobile; secured a 10 per cent cut  in their insurance premiums; every second beauty treatment she does at home and they use their small car  rather than their 4WD where possible; and ask their teenage children and friends to cover the cost of their trips. 

To McHutchison getting rid of debt is now seen as a more positive stepping stone along the way to home ownership. Read on

Posted by Money Manager (Fairfax) on 10th February, 2015 | Comments | Trackbacks | Permalink

How to make rate cut work for you

The rate cut didn't surprise readers of this column last week only I didn't get around to saying what comes next.

Should you leave your mortgage repayments the same, or shunt the savings into super? And if you're retired where are you supposed to get a decent income from?

The first question is easy. Pay down the mortgage unless you have more than 50 per cent equity in your home or you're near retirement. If you're already retired and still have a mortgage it's a no brainer.

Putting money in the offset account of a mortgage is the best risk-free return ever. You're saving, with a much better return than on any bank account, without paying tax. And you can take it back if you suddenly need it.  

If we must have knighthoods, give one to whoever invented the offset account I say. Or me.

But if you already have a lot of equity in your home, or are retiring soon, super is potentially better.

Salary sacrificing means there's more after tax going in. I'm afraid the extra you're able to funnel into the offset account, while tax free when it's there, would already have been taxed at your marginal rate.

What's more the return in super will be higher than the mortgage rate in most years. In fact the lower rates go the better super should do because of the boost to shares, bonds as well as global equities, from the drop in the dollar.

Which brings me to the self-funded.

They're in a fix as it were. Term deposit rates have been falling faster than anything else. One of the best you can get is 4.15 per cent from ME Bank but you have to commit for five years. In any event you want a cocktail of different maturities in case rates rise before then.

A popular investment with DIY funds is a bank hybrid or convertible share. ANZ is offering one (Capital Notes 3) as we speak and there are plenty of other versions you can buy through a broker.

They don't give you your cash back but convert into shares of the mother stock instead.

So what's the point? Exactly.

Bank shares pay a higher dividend but come with a bigger risk of losing some of your capital. I say "bigger" risk because hybrids can go backwards too.

Also dividends should grow with profits, whereas the return on a hybrid will drop as rates fall.

In ANZ's case, the shares yield 5 per cent which is really 7.3 per cent after franking while the hybrid will initially pay about 6 per cent.

One genuinely fixed rate offering, and the best yielding at more than 5.5 per cent, is from Whitefield, a well-established (founded in 1923) listed investment company. This also coverts to shares and comes fully franked to boot.

If you're worried the banks and other big dividend payers like Telstra are getting toppy, try real estate investment trusts (REITs), natural winners from falling rates.

Read more: http://www.theage.com.au/money/investing/how-to-make-rate-cut-work-for-you-20150206-137m5q.html#ixzz3RIbND2Ob

Read more: http://www.theage.com.au/money/investing/how-to-make-rate-cut-work-for-you-20150206-137m5q.html#ixzz3RIbHTte7

Posted by David Potts - The Age on 10th February, 2015 | Comments | Trackbacks | Permalink

Beware the trap of low rates

 As I told you last week it would, the Reserve Bank officially pressed its — and Australia’s — “reset” button on Tuesday.

It cut its official rate to yet another record low of 2.25 per cent. It all-but signalled it would probably cut again. Most of the banks quickly followed in cutting their home loan rates. They’ve already been cutting their deposit rates and they’ll now cut them even further.

This might be all good news for anyone with a home loan or wanting to get one — although it could also be a dangerous trap for some of those potential borrowers. But it’s also, suck on it savers.

Why do I say a potential trap? It could encourage young — or even not so-young — homeseekers to over-borrow to buy an overpriced property.

Let me explain the possible potential maths. You go whoopee now I can afford a $400,000 loan (to buy, say, a $500,000 house); my repayments might now be just $1800 or so a month (don’t take those numbers as gospel, I’m just using a rough calculation to explain the risk).

If interest rates were to return to anywhere near “normal” levels, you could find your repayments suddenly leaping to, say, $2500-2600 a month. And if you then tried to sell your house you might find you could only get, say, $430,000-450,000, plus costs.

It’s important to understand the RBA is not wildly enthusiastic about cutting. It’s sympathetic to the plight of savers. On a more basic level it’s twitchy about this “grand experiment” of super-low rates that the world has embarked on.

I grew up in a world in which 3 per cent (real, after inflation) was considered the appropriate base for rates — the so-called “riskless rate of return”. That would provide the right signals for savers, for consumers, for investors to get a healthy growing economy.

Well, we are not going back there anytime soon. On Friday the RBA laid out why it cut and charted a road map for the future. Or at least, for the rest of the year.

There are two broad reasons for the cut. And one of them is not what’s going on in Canberra — despite some very silly commentary I read in the Saturday papers.

It has also got absolutely nothing to do with what might or might not be in the Budget.

The first is the global environment — those zero interest rates in the major economies like the US and Europe and their massive money printing which has poured literally trillions into global markets looking for a yield.

The second is the post-boom outlook for our own economy.

The RBA — like everybody else — has been waiting for the non-resources side of the economy (which, to remind everyone, is the overwhelming 80 per cent plus of the economy) to pick up the slack.

We are still waiting. Whereas last year, you might have been able to say — give it time; it’ll happen soon, especially when a lower Aussie dollar helps; that now looks increasingly unlikely or far too distant.

So even with that lower Aussie dollar — at least against the US dollar, dropping below US80c — and the big boost to consumer spending power from lower petrol prices; the RBA felt it had no choice but to cut and probably will have to do it again.

It’s projecting that inflation will stay at the bottom end of its 2-3 per cent target range and that growth in the economy will be sluggish. That’s a mix of resources going backwards and the rest staying relatively slow.

The first opened the door to a cut, maybe cuts; the second all but forced it to walk through.

It’s important to understand that those forecasts are made after factoring in the lower Aussie dollar and oil price and this and another cut to rates.

Now the RBA knows better than most that even at the best, the most “predictable”, of times, it doesn’t possess some magic gift of collective foresight.

So don’t assume that its forecasts will come true. More importantly, understand that it most certainly doesn’t either.

Critically while it tries to look all the way through the year, it will make every decision, one at a time from monthly board meeting to the next.

Apart from the fact that it’s the closest thing we’ve still got left as an objective, agenda-free organisation, this is the best thing it’s got going for it. That flexibility — and a willingness to admit it might have got something wrong and so change course.

I’ve been trying to get across we face a likely volatile, unpredictable year ahead.

That’s not the same thing as saying it’s going to be bad, but it will be challenging.

The RBA effectively signed on to that view. But it also told us it was ready to (try to) meet that challenge.

Posted by Terry McCrann - Herald Sun on 8th February, 2015 | Comments | Trackbacks | Permalink

Melbourne home buyers' top priorities in 2015

Lifts, basements, multiple living zones and "walkability" to public transport are anticipated to be among the most sought-after features by house hunters this year.

Multi-storey homes serviced by private lifts were once the preserve of the super rich, but are now becoming more popular with empty nesters and buyers looking for a long-term proposition. 

Marshall White director Marcus Chiminello said the demand for lifts had changed significantly in the past 10 to 15 years, and were popular because they "provided buyers with longevity in a home".

And while lifts are much cheaper compared to a decade ago, hockingstuart director Rob Elsom said they were still luxury additions sought by "cashed-up baby boomers". 

"We see more and more people buying on smaller blocks of land but they still want their accommodation, which means they have to put in a second level, and they'll pay that $80,000 or whatever it may be to put in a lift as well," he said. 

Dijana Vojvodic, marketing manager at EasyLiving Home Elevators, said more developers were also installing lifts to broaden their market, and because it was practical in homes with good aspects. 

"Architects are incorporating the kitchen and living areas on the top floor so that you'd maximise the views instead of having the bedrooms upstairs," she said. "So the lifts help with all the shopping."

Multiple living zones, where dad can watch a cricket match in one room while the children play video games in another, is now preferred over one large open-plan living, dining and kitchen area designed for the whole family. 

"Parents are encouraging their kids to not just to hang out in their bedrooms all the time," Mr Elsom said. "They're going to a central area where they can be on their iPads or their tablets, and still be visible to their parents."

Mr Elsom said open study areas, where parents can see what their children are doing, were also in demand. 

And it seems buyers are also looking for properties that offer the potential to subdivide or develop in the future. 

Wakelin Property Advisory's Richard Wakelin said this was a surging point of interest to property buyers in Melbourne.

"It's a growing 'adding value' investment play in locations where planning rules allow – which is far from everywhere – and where block sizes tend to be large, such as our middle-ring eastern suburbs," Mr Wakelin said. 

"The trend has been bolstered by Foreign Investment Review Board restrictions on non-permanent resident owning established property.

"Subdivision provides a loophole of sorts – overseas residents can buy an established property and replace the buildings with two or more new ones."

Discerning home buyers and investors are also interested in period features. Mr Wakelin describes this as a combination of heart and head.

"First they are aesthetically pleasing and people genuinely enjoy living in a home with timeless styling," he said.

"Second – and less romantically – buyers know that period features are valued by most people and hence add value to a property."

WBP Property Group's Greville Pabst agrees that this is a feature buyers are considering and encourages astute purchasers to put it onto their list.

"It adds a level of scarcity to the home that will help the home appreciate in value," he said.

He suggests looking at features that are not as easily replicated today.

Increasingly, home buyers are not looking to make changes and spend even more money when they move in - looking for new or substantially renovated properties.

Mr Wakelin suggests this may actually be a smart decision as well as an emerging trend.

"Too often renovator delights take more money, time and heartache to get up to standard than envisaged and deliver less uplift in value than their now paint-bespeckled owners had hoped for," he said.

In the inner city, Nelson Alexander sales director Arch Staver said period homes with contemporary renovations will continue to be the most coveted. 

"The aesthetic of a handsome Victorian or Edwardian property is pretty timeless; it's just a classic bit of architecture that is quintessentially inner Melbourne," he said. 

"The combination of having that attractive facade, but with a contemporary light, bright interior is always going to be very, very appealing."

Barry Plant chief executive Mike McCarthy said as Melbourne becomes more congested, close proximity to good transport options would be a major consideration. 

Top 10 features - Will your home appeal to buyers in 2015?

1. Walkability - an easy walk to public transport, lifestyle amenities and schools.

2. Natural light - not having to turn on the lights during the day.

3. Multiple living zones - separate living spaces for parents and children.

4. Period features - classic architecture that is quintessentially inner Melbourne. 

5. Low maintenance living/access to outdoor areas - an alfresco area that flows seemlessly from the indoor living area. 

6. Potential redevelopment opportunities -  subdivisions on larger blocks of land. 

7. Renovated properties - ready to move straight in without having to spend another cent. 

8. Basements - an underground space for parking, cellars or a games room. 

9. Lifts - so you'll never have to walk the stairs again. 

10. Connection to 3G and 4G networks - who wouldn't want faster internet?

Posted by Christina Zhou & Jennifer Duke - Domain (The Age) on 7th February, 2015 | Comments | Trackbacks | Permalink

Make a property plan, then jump in

The Reserve Bank of Australia's decision to drop the official cash rate to 2.25 per cent is a wake-up call for people who sat on the sidelines of the property market  last year, convinced that property prices were too high.

With interest rates dropping – and another reduction probable this year – consumers have to focus on what they can control, rather than concerning themselves with huge factors such as RBA decisions.

The components of the property market most people can control is loan affordability and buying well.

Let's start with affordability: interest rates have not been this low for half a century and consumers  should not ignore the opportunity, even if low interest rates come with rising property prices. When you consider the alternative – the 19 per cent mortgages that my generation paid for their first homes –  it is amazing that people are baulking at the current mortgage market.

Within the broader argument about affordability is the question of whether  you are in the right mortgage. Some of the big advertising that came after the rate cut emphasised which lenders had "gone" first and their cuts.  However, there is already a range of variable rate mortgages stretching from around 4.6 per cent to more than 5.6 per cent, with big banks in that higher interest rate range, and the lenders outside the Big Four down around the 4.6 per cent mark.

This means you start with a big range of home loan interest rates. If you take a home loan of $400,000 over 25 years at 5.6 per cent, it will cost you  about $234 more per month more than the same loan at 4.6 per cent. When thinking-through loan affordability, and your ability to repay a loan if the rates rise by – say –  2 per cent, remember that by shopping around now you can already build-in a 1 per cent buffer on the expensive lenders. This is entirely within your control and the options exist.

And what about the other component of the property market, buying well?

When people have an approval from a lender they can become carried away; perhaps they missed out at a couple of auctions and don't want to be gazumped again? Perhaps they are panicked about rising prices?

I suggest you take your time, do your homework and  and avoid being bogged down in the property indices. Develop your own criteria and stick to it. Do your own research, talk to real estate agents walk around suburbs and talk to people.

As for worries about rising property prices – and the potential for a correction – remember that Australian residential property prices may rise by around 6 per cent a year, but these figures are averages over 10 years.  There are always corrections but over the full decade most owners make gains.

The Reserve Bank has set the low-interest rate environment for 2015. Now it is your turn to take control: focus on loan affordability, and buying well. In all property markets, these are still the basics of getting it right.

Read more: http://www.theage.com.au/money/borrowing/make-a-property-plan-then-jump-in-20150205-136n83.html#ixzz3R6JDgIYW

Posted by Mark Bouris -- The Age on 7th February, 2015 | Comments | Trackbacks | Permalink

The downsides to interest rate cuts

 WITH interest rates moving for the first time in 18 months, many households across Australia are celebrating.

Those with mortgages are cheering at the thought of extra money in their pockets every month. Someone with a $500,000 mortgage can expect to save $73 a month from the 25 basis points cut announced by the Reserve Bank this week.

Commonwealth Bank, Westpac and a number of other lenders including ING Direct, ME Bank and Bank of Queensland have passed on the cut in full (and more, in Westpac’s case).

The rate cut is also expected to give the Australian economy a boost, with businesses encouraged to hire more staff and with consumers encouraged to spend more money.

But before you go popping those champagne corks — because, after all, you can afford proper champagne now — there are downsides to the rate cut. The Reserve Bank does not giveth for no reason.


For much of last year, the Australian dollar was buying around 93 US cents. It wasn’t parity but that didn’t stop Australian consumers from enjoying the wide range of goods available from international online retailers while those jetting off overseas were also snagging some great deals.

But then in early September, a precipitous drop started. Within a month, the dollar lost six cents and now it’s hovering around the 77/78 US cents mark. Ouch.         

In the hour following the RBA’s announcement, the dollar tanked one-and-a-half cents to below 77 cents. It rebounded but the RBA is resolute in seeing the dollar sink further. Mr Stevens said that “the dollar still remains above most estimates of its fundamental value” and a rate cut is designed to move the dollar in a downwards direction.


While a lower dollar is great for Australian exporters, it’s bad news for shoppers who buy a lot of imported goods.

For those who are accustomed to buying from overseas online retailers, the increase in prices has been immediate. For example, when faced with a checkout total of $US200 now, that amount will now show up on your credit card bill as $258. That great deal is looking less shiny.

But even if you don’t go click crazy, a whole raft of goods in Australian shops will see a price rise. Imported goods such as electronics, clothing and cars will all be shifting upwards over the next few months. Late last year, Australian Retailers Association executive director Russell Zimmerman told news.com.au that shoppers can expect to see increased prices around February and March.

There’s a few months lag in price increases as retailers will have purchased the products when the dollar was more favourable on imports. So if you’re thinking about buying a new TV or computer, now may be a good time to pick one up before it gets more expensive.  

Australian travellers will also be slugged by the tanking dollar, especially for those going to the US or to many Asian countries.


A lower interest rate is terrible news for people who are highly dependent on their savings, such as self-funded retirees. A low interest rate means a lower return. Or barely a return now that the official cash rate is almost level with inflation.

National Seniors chief executive Michael O’Neill said seniors living off simple investments would be the worst hit. “Seniors aged over 65 own 45.3 per cent of bank and financial institution term deposits and most of them are on low, fixed incomes. The cut simply means less money in the pockets of many, many retirees around Australia.” 

For those saving for a large purchase, such as a house, the lower interest rate will hurt their medium or long term savings goals. Before the latest interest rate cut, term deposits were barely paying out 3 per cent, which isn’t ideal for anyone looking to grow their nest egg. Five years ago, term deposits were giving returns up to 8 per cent.


Growth in various property markets around the country have slowed down in recent months, with the exception of Sydney. With unaffordability levels skyrocketing in the main metro markets, home ownership has become more and more unattainable for Australians, especially young people looking to break into the market.

An interest rate cut may very well fuel the property market as prospective buyers decide they can afford to borrow more money on the lower rates. This is in turn, can push prices as up as buyers bring their bigger kitty to auctions.

However, AMP Capital chief economist Shane Oliver said the effect on the property market isn’t a sure thing. “The RBA and Australian Prudential Regulation Authority have been trying to slow the property market down. The RBA is hoping it can cut rates without putting more steam back in the property market.”

Mr Oliver said the RBA and APRA have taken measures to rein in the property market, such as tightening borrowing terms. He said that even if demand for mortgages go up, supply may not rise as banks are more cautious about who they lend money to.


Headlines screaming about historic low interest rates are sure to pique the interest of those looking to take out loans, especially for those who think they can afford to borrow more money than they previous could.

But there is a great risk in borrowers who don’t account for what happens when rates inevitably rise again.

Mozo director Kirsty Lamont warned: “Although it’s tempting to jump headlong into the property market or borrow at high levels when rates are low, you have to put it into perspective and ask yourself whether you’ll still be able to afford the loan when rates inevitably rise again. A home loan needs to be affordable over the long term and fit in with your other financial commitments.”

“When you look back at four years ago, the average home loan rate was 7.32%. It’s now heading down to 5.00% as lenders pass through the latest cut. That’s a big difference in four years.          

“If rates rise to the 7% level again, borrowers would have to find an extra $400 each month to cover their repayments on a typical $300,000 loan. That could have a huge impact on the household budget.”


The reason the central bank has moved to cut the official cash rate is because the Australian economy is sluggish.

In his statement yesterday, RBA governor Glenn Stevens said available economic information suggests that growth is continuing at a “below-trend” pace with domestic demand growth “quite weak”. He also pointed out that the unemployment rate has moved higher while the decline in terms of trade, such as the fall in commodity prices, has led to a reduction in income growth.

The consumer price index has also recorded its lowest increase for several years.

Mr Oliver said that everyday consumers may start to wonder about the state of the Australian economy and the rate cut could create uncertainty on that front.

Posted by Herald Sun on 5th February, 2015 | Comments | Trackbacks | Permalink

The most valuable aspects of a home

Want to know which features buyers find most attractive when house-hunting, and which ones can be troublesome to sell? Then read on…

When you sell property, you’ll find that some aspects are much more valuable to prospective buyers than others. Check out our list of what features get buyers to reach deeper into their pockets, and what aspects can prove difficult to sell.

Adding value

Floor plan is the key, says Damon Warat of Ray White Ascot in Brisbane. “ Entertaining areas, views, elevation and the layout remain the most important. Fixtures and fittings can be amended, but layout becomes difficult and expensive to change.”

Ray White Adelaide’s principal, Brett Pilgrim, is in agreement: “Everybody is different; however, the majority first search by number of bedrooms and/or bathrooms. Then they really spend some time on the floor plan – that has to work for them.

“The wow factor of a property certainly helps things, like renovated kitchen, bathrooms and a nice street frontage; but I think we have seen a big change, more to the opportunity a property provides. So a finished home is not always as popular as something that can be renovated.”

Danny Grant, director of Ray White Lower North Shore in Sydney, says liveability is the chief value-maker for buyers: “A good kitchen is always a big attraction for buyers as it is the heart of the home and tends to leave a lasting impression when buyers inspect a home. Living space is also a huge seller, especially for families. And natural light in a home is also high on the list for buyers.”

Possible detractors

On the subject of features of a property which can be difficult to market or get buyers willing to pay more for, Grant is quick to reply: “Gadgets. Sellers really love their gadgets, but they don’t sell houses. If you push those features on buyers, they feel like they will be paying too much for gadgets they could take or leave! [Also, among] homes I have sold, a spa has added no value whatsoever. In fact, if a bathroom has a spa, it is seen as dated and detracts from the value.”

Pilgrim says certain lifestyle features can limit the number of possible buyers you attract. “A pool area can look amazing but unfortunately there are a lot of people that simply don’t want a pool,” he says.

Don’t overcapitalise!

“The one that is probably the most disappointing and the biggest trap is when someone spends the money to do quality right through their home on all the little things, from tapware, extra insulation, door furniture, electronics, garden; the list goes on,” says Adelaide’s Pilgrim.

Grant from Sydney agrees. “Prestige homes need quality finishes. However, in the majority of family homes, quite often sellers spend too much on personal features. For instance, an Italian white wall tile that is $120 dollars a square metre will achieve you no more money on resale than a white wall tile that is $20 a square metre. Provided the tiler does a good job, there is no difference in value,” he says.

“Light fittings are another [thing] that’s easy to overcapitalise on. Buyers usually see no value in light fittings worth thousands of dollars.”

In some cases, though, it can be a case of not how a renovation is done but whether one was actually needed at all.

“One trend of overcapitalising is buyers purchasing a property already in okay to good condition, then doing a full renovation. If they purchased a ‘raw’ property in need of full instant updates, their money is better spent,” says Brisbane’s Warat.

The most important thing to consider is that just because you love something in your home, it doesn’t necessarily mean everyone else will. Take a commonsense approach to spending money on your home if you intend on selling down the track and ensure any work you do will have broad appeal!

Check out more tips from Domain  on selling property.

Posted by Adam Zuchetti - Domain Blog on 3rd February, 2015 | Comments | Trackbacks | Permalink

Think before adding the kids to your SMSF

Self Managed Super Funds most commonly operate as a joint fund.

Generally two adults who are spouses will act as trustees and be members of the SMSF.                

This reflects not only that many couples organise their retirement planning together but that SMSFs rules require at least two individuals (but no more than four) to act as trustees. 

When they consider what would happen after one of them dies, couples often expect that adding an adult child as co-trustee will be the best way to provide support and meet the legal requirements. However, a range of practical and relationship issues can arise, creating an unintended consequence of increased administration and paperwork – generally the last thing trustees want!

Consider the many SMSF compliance and tax documents all trustees are required to sign. This can be difficult to coordinate when both trustees live under the same roof, let alone across different cities or states.

If the adult child being considered for the role of trustee also has a demanding career, busy family life or little interest in paperwork, the arrangement can become unsustainable.

On top of this, family relationships can be stretched. Although up to three adult children can legally be added as trustees alongside the surviving parent, logistically it makes sense to add only one. Making this selection can cause tension amongst siblings. Further the child chosen as co-trustee may also have their own concerns around consequences if an investment fails or a compliance problem occurs on their watch.

Consider also an adult child with strong investment opinions, even with the best intentions, may steer the SMSF into investment risks beyond the comfort levels of the surviving parent.

A good solution may be to establish a corporate trustee. This involves setting up a company for the specific purpose of being the SMSF trustee. Don't be daunted by the formality of the name – this structure provides a neat solution for SMSF succession planning by allowing a single member fund to operate, with the flexibility to accommodate up to four members in total. This makes it ideal for a couple to use as it will also cover the transition to one surviving spouse.

Adult children then don't need to be appointed as trustee but they can provide support around investment decisions, paperwork or general retirement planning in an informal capacity. Any change to trustees involves costs and considerable paperwork.

Corporate trustees also have additional legal and ASIC fees. For that reason, it is ideal to establish the corporate trustee while both partners are alive to bring forward the paperwork to a time when it can be shared rather than leaving it to be dealt with by a grieving spouse. 

Posted by Nerida Cole - Money Manager (Fairfax Digital) on 3rd February, 2015 | Comments | Trackbacks | Permalink

Brace for a house price crash and you won't get caught out

There's been plenty of talk in the media (and even more around Australia's barbecues) about the sharp growth in house prices. Houses in suburban Sydney are selling for seven figures at a rate never before seen and other capitals (especially Melbourne) are amazingly expensive, too - which is to say nothing of the shoebox-sized inner-city places that are selling for more than a couple of lotto jackpots.

Investors are rushing into the market at a rate of knots, with a sizeable increase in both the number of investors and the proportion of interest-only loans being made by our banks. And with house prices increasing (much) faster than incomes, a little second grade maths will tell you that more and more of our household income is now going towards the roof over our heads.

Don't thank god, thank Glenn

Reserve Bank governor Glenn Stevens is doing his bit to keep affordability reasonably low - but it's unlikely the official cash rate will have a 2 per cent in front of it for any significant length of time. Most mortgage holders today won't have been paying off their homes when interest rates hit 17 per cent in the early 1990s, but just ask someone who was… you'll get a proper definition of mortgage stress!

We won't see 17 per cent again any time soon - if ever - but such is the leverage of Australia's households and property investors, there'd potentially be significant economic consequences if rates hit 7 per cent or 8 per cent - let alone 10 per cent or 12 per cent.

In short, we have a situation characterised by household leverage of a size never before seen, house prices that are growing faster than wages and investors who are banking on prices continuing to rise, and never mind that rental yields don't even go close to covering the interest in many parts of Australia.

So is it a bubble? No one really knows. And it's fair to say that there are far more bubbles forecast than ever eventuate. The problem with bubbles is that they're only really clear in hindsight - which is no good to anyone.

What seems clear is that the combination of leverage and - to put it bluntly - speculation leaves us precariously placed. It may not require much in the way of a shock (internal or external) to do us damage.

Be prepared

If you can't predict a bubble in advance, what can you do? Simply, what our parents and their parents would have told us to do (there's a reason that timeless advice is timeless!).

If you're buying, don't overstretch. If you have a 5 per cent deposit and house prices do fall 10 per cent or 20 per cent (or more), you'll be underwater by a long way.

If you have a mortgage, pay it off, fast. Not in a reckless way, but as super investor Warren Buffett has said, you don't want to be relying on the kindness of strangers (i.e. your bank manager) if rates go up or if prices fall.

If you're a renter, you're probably the most protected from any shocks - and you might even have the whip hand in any subsequent lease negotiations if the landlord is under financial pressure.

If you're a property investor, reduce your leverage. Then do it again. If you think home owners are reliant on the kindness of strangers, property investors are one pen stroke away from being forced to refinance - and if no one else will come to the party, potentially selling at a (big) loss. And if your loan is interest only, that's debt that could bring your finances crashing down.

Foolish takeaway

If there's no bubble, or that bubble doesn't burst, the advice above will let you sleep at night and means you're never at someone else's mercy. But if you ignore that advice and the bubble bursts, you'll have no redress at all.

To return to Buffett, who was speaking about leverage and risk: "To make money they didn't have and didn't need, they risked what they did have and did need... if you risk something that is important to you for something that is not important to you, it just doesn't make any sense."

Maybe there's no bubble. But how much are you risking, if you're wrong?

Posted by Scott Phillips - Money Manager (Fairfax Digital) on 3rd February, 2015 | Comments | Trackbacks | Permalink

Home extensions fail to add value: property experts

Upgrading home fixtures and decor before selling adds more value than extensive renovations, property experts say.

The 2014 Westpac Renovation Report reveals the number of residential alteration and addition projects has more than doubled since 2010, increasing by 147 per cent.

But property experts aren't convinced of the value of renovating, with many home extensions failing to offer a return on investment.                

"I have seen vendors lose six months of their time and spend $150,000 on a home to get $150,000 back, with no profit," says Barry Plant partner and auctioneer Luke Brizzi.

"I have had homes where buyers have walked out and disregarded a home because they hated the new $50,000 kitchen that a vendor put in for sale and couldn't justify buying the home to replace it with one of their own taste," Mr Brizzi says.

Investing in professional styling pre-sale (rather than renovating) can bring a modern touch to a tired home and potentially distracted buyers.

"I recently had two identical apartments owned by the same vendor go to auction on the same day; one was styled and dressed and the other was vacant."

"The styled apartment sold above reserve but the empty one failed to get a bid and sat empty on the market for two months, later selling $50,000 below the other apartment," Mr Brizzi says.

"Truth is, no buyer connected with an empty apartment."                

More modest approaches to renovating such as paint touch-ups and increased lighting don't run the risk of contrasting with buyers' personal taste.

According to Hobbs Jamieson Architecture principal architect Adam Hobbs, "simple techniques like selective wall removal to open up a room, 'rebranding' of spaces to change their use, (dark small living area into a bedroom for instance), can make big changes with limited effort."

"In short, refinish don't restructure if you're looking to keep costs down," says Mr Hobbs.

Ask An Architect manager Cameron Frazer says: "Consider replacing some of the cosmetic elements such as taps, handles, towel rails and shelving.

"These can make such areas appear more modern without a complete renovation," Frazer says.

As buyers become more concerned with running costs and their home's environmental impact, investing in these areas can be more valuable than increased space.

"More costly additions include upgrading windows to double glazing to improve heating and cooling efficiency," Mr Frazer says.

"Adding solar power or solar hot water can also increase the home's appeal."

Rara Architecture director Wesley Spencer works with clients looking to increase the value of their home without building an extension.

"We have a client who is investing $500,000 into their home without extending and the projected value increase is $2 million," says Mr Spencer.

Homes lacking connectivity between rooms can be resolved by reconfiguring room layouts.

"Strategically positioning windows, openings and the television to allow a comfortable flow of space enhance the feeling of connectivity and openness between the rooms," Mr Spencer says.

For one of Mr Spencer's clients, this has reduced the scope of works from $200,000 to $50,000.

"The most successful home improvements I've seen for a sale are when the owner finally commits to doing the things they wish they had done the whole time they lived there but never got around to,"

"They know the space well and can see its flaws," says Mr Spencer.

Posted by Amelia Barness - The Age on 2nd February, 2015 | Comments | Trackbacks | Permalink

Suddenly single? You'll cope

Trading the car in, buying a new home, diving into the share market ... when major financial decisions need to be made, many of us take comfort from talking through the options with a partner who's equally invested in the outcome.

But what happens when death, divorce or relationship breakdown means that you're flying solo? How do "suddenly singles" become comfortable making the big calls all by themselves? And who do they turn to for advice and reassurance when there's no significant other to mull things over with?

Family for hand holding, and financially savvy colleagues for advice on the nuts and bolts, says mortgage broker and former advertising sales executive Kaia Hunter, 45, who has been sailing her own ship since her marriage floundered in 2007.                

Financial settlement left her with enough to buy a block of land outright in Palmwoods, on Queensland's Sunshine Coast, where she built a house for herself and daughter Aspen, 9, while living nearby with her parents.

"It had always been a dream of mine," Hunter says.

"It was daunting but satisfying as well. Because my parents were with me, it didn't feel quite so daunting. I had [them] in the background – not financial but emotional support." Thrashing out the figures before committing to the project provided a little of the comfort that comes automatically when you're in a double income set-up with another adult to bolster you financially and emotionally, according to Hunter.

"I worked out a budget down to the dollar," she says. "There was nothing spare. It was scary, the money side. I thought 'how am I going to afford it?' but I ploughed ahead." After extensive research – "I read every property investment book for about two years, I read all the magazines, I did lots of online research and went to investment seminars" – she subsequently bought two investment properties.

Seasoned investor colleagues, rather than family, acted as her sounding board in this instance and their counsel and encouragement gave her the confidence to take the plunge.

"I talked to my parents briefly, then stopped," Hunter says.

"Dad was very risk-averse so he would have talked me out of it." Hunter is part of a significant minority of Australians making major financial calls on their Pat Malone. In 2011, 24 per cent of households comprised a single person, according to the Australian Institute of Family Studies. The 2011 census showed just under a quarter of families with dependent children were headed by a sole parent.

Those thrust suddenly into the driving seat, after years of being with a partner who's played a dominant role, can face a steep learning curve, according to Nexia financial planning partner Craig Wilford.

"I have had people in tears – they have literally had to start from ground zero," he says.

Seeing an expert – or becoming one yourself – is the only way to become comfortable about your ability to manage your affairs and make the big decisions solo, Wilford says.

"Arming yourself with knowledge is the best way to lose the fear and gain confidence."

Just because you haven't doesn't mean you can't, agrees Psychology Melbourne consulting psychologist Dr Geraldine Lockley.

She says trepidatious types should start small and look to family, friends and professional planners for the perspective and reassurance previously provided by their significant other.

Setting goals and not allowing yourself to become overwhelmed by uncertainty are the secrets to shifting successfully for yourself, according to speech pathologist Helene Frayne, 60.

Now the chief executive of a Queensland not-for-profit organisation, 20 years ago she was left with four children to support, and some tough decisions to make, when her marriage to a banker who'd taken charge of the family finances ended.

Heeding friends' advice that she could not afford to stay in Sydney, Frayne packed up and drove north to Brisbane, where her goals of home ownership and a Catholic education for her brood were more achievable.

She says she applied the speech pathology principles of setting short- and long-term goals to the issue of managing her money and making choices, including returning to full-time work, that would provide security for her children.

"It's an enormous stress being responsible for it all," she says.

"It's almost as if you're running a marathon – you can't slip up or stop. You've got to make good financial decisions." Practising positive self talk – "you don't have another person to bounce things off so you need to do this" – and resolving not to worry about the distant future helps keep fear and uncertainty at bay, Frayne says.

She admits to having lain awake at night in the early years, fretting about her lack of superannuation and picturing herself ending up impoverished in a grim public nursing home.

"I taught myself not to think too long term," she says.

"Don't think about superannuation; think about getting the kids educated. You can't trouble the future – you get too anxious. Life is long and you need different tactics at different stages."

The satisfaction of reaching a point where you can enjoy the odd indulgence, such as an overseas holiday, is difficult to overstate, Frayne adds.

"It was so exciting to be able to get from lying awake worrying about the nursing home to getting on the plane and seeing Italy again.

"Difficult decisions early reward you at the end." 

Read more: http://www.theage.com.au/money/planning/suddenly-single-youll-cope-20150128-1304j7.html#ixzz3QilfXOXD

Posted by Sylvia Pennington -- The Age on 1st February, 2015 | Comments | Trackbacks | Permalink

Housekeeping now will pay off later

By now you will probably have made and broken quite a few New Year's resolutions.  

Resolutions are great idea, but often only that - an idea. For most people it's the financial housekeeping items that can make the biggest difference in the year to come - and beyond. Here are a few: 
  • Mortgage If you have a mortgage, it's probably your largest monthly outgoing. Start the year by ensuring that you are paying no more than you have to. The difference in repayments between a $400,000 25-year loan at 5.7 per cent and 4.7 per cent, is more than $200 a month. Also, ensure that your loan is right for your circumstances: offset accounts, redraw, interest-only and lines of credit are valuable features, but only if you use them. If you're confused about what's best, see a mortgage broker.
  • Savings If you haven't bought a home – and you want to this year – you'll need to save a deposit. Have a look at your savings plan: why did it work or not work in 2014? Assess it honestly and make a new plan to save. Small, regular deposits work better than occasional lump sums; a separate savings account is better than using your daily transaction account; high interest and no/low fees make a real difference; and making a luxury-sacrifice to your savings is always effective. For example, drop your café coffees every day and bank the money you save.
  • Income Financial housekeeping has to include your earnings. If you want to earn more this year than last, you have to work out what needs to change: do you need new skills? A new qualification? A new employer? A new industry? Do you need to start your own business, or just do your job better? Maybe you have to communicate better with your employer, and just make your case for a pay rise? 
  • Costs Most households can find simple savings, ranging from phone plans and electricity usage to vehicle mileage and the eating-out budget. Many small cuts can add up to a large saving at the end of the year, giving you more options with your income. The great thing about cutting costs? It can be as large as a pay-rise, but it's tax-free.
  • Super Make an audit of your superannuation and assess whether your current contributions are sufficient for retirement. Use the online calculators to see how you can boost retirement savings by putting in your own contributions; use the comparison sites to see what your fees cost you – they range from 0.7 per cent of your balance to around 2.0 per cent, and this is a big difference over 20-30 years. Perhaps see a financial adviser?
  • Control debt Are you being smart about your debts? High-interest debt just compounds against you, so doing nothing is a poor option. Make a plan to pay off the debt, the most expensive first. Make a schedule and stick to it.

The financial housekeeping is never glamorous. But if you address it early, it can set you up for a successful year. Good luck.

Read more: http://www.smh.com.au/money/saving/housekeeping-now-will-pay-off-later-20150129-130y5a.html#ixzz3QY430pVp

Posted by Mark Bouris - Sydney Morning Herald on 1st February, 2015 | Comments | Trackbacks | Permalink

Get ready for a busy autumn on Melbourne’s property market

 MELBOURNE’S robust property market is expected to pick up where it left off 2014.

And if you’re planning to get in on the action as a seller, now is the time to start preparing for the market’s second main selling season — autumn.

WBP Property Group’s Greville Pabst expects an early rush from mid-February to get campaigns under way before Easter.

“It’s a good time to sell,” Mr Pabst said. “We’ve still got some good weather. You can see the change in the season, particularly in the leafy suburbs like South Yarra and Kew.”


Easter is the biggest event in autumn and falls early this year. But there’s also Anzac Day and school holidays to contend with.

“In my experience, Easter can be the catalyst for the market,” Mr Pabst said.

“I think there’s almost an expectation that there’s going to be strong demand at the opening and before Easter, so people want to get in and capitalise on that.

“When you start looking a bit longer, people are more uncertain, not sure what the market is going to be like.”

Also, March and April are mild months when potential buyers will be more inclined to attend inspections.

Sellers can make the most of their outdoor spaces, too, showcasing the garden before the weather starts to cool
in May.


Making a strong first impression will help to reel in buyers.

So concentrate on cleaning and remove clutter from the house and yard.

Mr Pabst said sellers didn’t need to spend a lot of money, but presentation was paramount in hooking buyers.

“The difference between somebody looking online and seeing the property is they will typically have a look in the car. You don’t want them to slow down and keep driving,” he said.

Mr Pabst recommended simple things such as landscaping, pruning, maybe some new plants and a new coat of paint to boost your home’s street appeal.

LJ Hooker, Narre Warren South, director Metin Aziret said suburban sellers often competed with new estates for buyers and should concentrate on presenting a home that was ready to move into.

“Properties that buyers walk into and don’t need to spend any money and they get the ‘warm and fuzzies’ are the ones that achieve a premium price,” Mr Aziret said.

“We’re talking blue collar workers and middle income workers. These guys will tie themselves up in a mortgage of $2000 to $3000 a month, which doesn’t leave them much to save every month, so if they wanted to change the carpet, which is a $5000 exercise, it takes them a year,” he said.


Selecting the right agent to sell your property was more important than just selecting a brand, Mr Pabst said.

“Investigating their track record, what type of property they have sold, what value properties do they sell, they are the sorts of questions you should ask,” he said.

“What’s their strike rate. How many auctions have they done in the past six months, how many have sold under the hammer.”

Mr Aziret said sellers should select an agent that could tell them what they needed to do to achieve the best price.

Location will largely determine the type of sale a seller should consider, but it’s important to consider that only 30 per cent of properties in Melbourne are auctioned.

“It really is properties within the inner-city areas of Melbourne that attract interest from investors, owner-occupiers and get that competition that really suits an auction,” Mr Pabst said.

“If you’re in an area that is not an investment area, more of an owner-occupier area and therefore is not going to have the same competition from investors and developers, you might be inclined to run a private campaign.”

Mr Pabst recommended a five to six week marketing campaign ahead of an auction and setting a marketing budget.


Mr Aziret said research was essential before selling, both to present a home for sale and to determine how to set a price.

“Do a bit of research in the market of what is selling and visit some properties and get a bit of an idea about what they think of these properties and whether they think they would buy it,” he urged.

“And see what you should and shouldn’t be doing.”

Mr Pabst said seeking independent advice would also help in making important decisions like setting a price, an agent’s commission and a marketing budget.

Posted by Peter Farago - Herald Sun on 31st January, 2015 | Comments | Trackbacks | Permalink

Smart investment or just a money pit ?

One hazard of taking a holiday at this time of year is coming back owning an extra home.

Who hasn't surreptitiously checked out the real estate prices at a favourite holiday destination?

Even in the era of Airbnb where you can find a dream holiday home without a lifetime financial commitment, the lure of a shack by the sea or a hideaway in the hinterland can be irresistible as the following stories show.

Lisa Marquette and Jimmy Wright have similar tales to tell. They were both spending weekends away and were captivated by homes that had just gone on the market.

"We were visiting friends," says Marquette. "The For Sale sign went up." And that was that. "We did all the things you don't do, " she says. "It was emotional."

For Wright, who also has three investment properties and a unit in Sydney's Elizabeth Bay, buying the holiday retreat at Great Mackerel Beach (on Pittwater, just north of Sydney) "was a completely emotive purchase. The For Sale sign went up that weekend and I put an offer in. I emailed Philip [Sangster of broker Mortgage Choice] to tell him on the ferry coming back." Yet neither regrets rushing in.

Marquette says her holiday house – in Walkerville close to Wilsons Promontory – is a "cheap holiday" and they plan to rent it out at other times.

Mike Phillips, a real estate agent at Rye, a popular weekend destination on the Mornington Peninsula, even cites an extreme case of the local plumber who lets out his home and moves into a caravan on the foreshore at Christmas, which is sort of going on holiday while you're on holiday. 

Don't laugh. The $2000 a week earned helps pay for a trip overseas.

Not surprisingly, interest in a weekender or holiday getaway is at its peak in January.

"We tend to see a pick up in people buying holiday homes as an investment property at the beginning and end of each year," says Mortgage Choice's Lauren Booke.              

Going up?

One thing that tends to get pushed to the back of the mind is prudence.

"Once an investor begins to use the words 'it's a good investment' as justification for purchasing a property which has benefits for them, they are setting themselves up for not only disappointment but a greatly improved chance of investing failure," warns leading property adviser Margaret Lomas.

Property prices in coastal areas and the country are notoriously sluggish. They rise only in fits and starts and it can be a long time between drinks from fit to start.

"People go for the capital gains but we don't get what you get in the city. It's like the country – prices here don't move for years," says Phillips.

According to Lomas a good property investment will be in "up-and-coming suburbs with affordable prices which are attracting families who will settle and contribute to the local area economy." So unless you want a holiday home in Sunshine or Blacktown, forget it.

"The place we choose to holiday is attractive because it lacks these characteristics – it's normally in a quiet spot, has little in the way of population growth and often lacks many of those major infrastructure features like arterial roads, hospitals, private schools and community facilities.

"Therefore the capacity of the property in that area to return a good rental yield and grow in the future is limited, and in many cases virtually non-existent," Lomas says.

Holiday apartments in resorts have performed poorly with "costs often blowing out" and frequently changing operators, according to Lomas.

And whether or not you let out your holiday home, you'll be hit by capital gains (if there are any) tax when you sell as well as annual land tax.

But there must be some financial benefits, surely?

A getaway can be cheap – for a property, that is — and during holidays might pull in a fortune.

"Everybody said it would be a money pit and cost a fortune," says Wright who uses Airbnb and almost has to book to stay at his own place.

But in the first full year I made a paper profit of $1500," he says.

Phillips says he has friends who rent their holiday home out over Christmas for $5000 a week. House values in the area start around $300,000.

Provided you don't hog the home at peak holiday periods, which unfortunately is probably when you want to use it, rentals can help pay off the second mortgage.

Besides, it may eventually become your home in retirement, in which case it's the capital gains on the place in the suburbs that you'll be leaving that matters more.

And yes, there are tax breaks if you let the house out. But unless you've got the house or unit on the market for almost the whole year they won't add up to much.

The taxman will apportion how much of the mortgage and other expenses you can claim according to how long it's rented.

And if you're caught staying there a day or two when it's supposed to be on the market, there go any tax breaks.

Two of everything

For many it's the extra costs that can come as a shock.

"They find two lots of rates, insurance and maintenance. They drive down only to mow the lawns and do maintenance so it's not much of a relaxing weekend," Phillips says.

Finding tradesmen, never simple, can be a nightmare.

"It's not easy getting tradesmen because of where it is. You have to meet when it's convenient for them. It's a 40-minute drive for them. And you need a bundle of work rather than just one thing," Lisa says.

And what about another mortgage? This can bring its own problems too.

A place "might only be accessible by boat but main road access is often the criterion for smaller lenders," says Philip Sangster of Mortgage Choice Woolloomooloo.

Also the banks know that values in holiday resort areas don't appreciate much, so will probably want to see a higher degree of equity.

"I've had the local branch say no but I've been able to negotiate a loan from the same bank," Sangster says.

Another trap is insurance.

"Some insurers will not accept short-term holiday rental properties for any new business because they are generally only occupied during traditional holiday seasons and can therefore often be vacant for long periods between tenants.

"There is also a much higher risk of damage to the property where there are a number of different tenants in occupation," according to a QBE spokesperson.

Wright insured with NRMA paying a "slightly more expensive" premium with a clause allowing you to rent.

Anyway there are other options to buying. If you like the house and the area, maybe you could rent it when you want it during the year with a permanent booking.

Or you could time share by buying with friends. But to avoid arguments or changes in circumstances later you'd need to draw up a contract stipulating how much who pays each month, who can buy you out at what value and when you can use it.

Or just invest wisely and use the returns for a decent holiday somewhere.

Think of the hassles you'll save.

In fact there's a world of cheap and interesting destinations out there that many are finding more attractive than staying in the same place year in, year out.

"The rise of low cost airfares and holiday packages over the past decade and the increasing popularity of international destinations for holidays, such as Bali and Thailand, are providing a growing cost-effective leisure time alternative," says Andrew Wilson, senior economist for the Domain Group.

Another downside is the sprawling tentacles of our major cities which are making workaday suburbs of places that were traditionally a place for weekend retreats.

"Popular holiday destinations close to capital cities are increasingly being absorbed by the relentless spread of metropolitan areas," Dr Wilson says.

"This is clearly the case for seaside locations such as the Mornington peninsula and Surf Coast in Melbourne, the central coast in Sydney and the Gold and Sunshine coasts. 

"These are now becoming settled areas for full-time occupiers." They can still come cheap - if you know where to look

Do you return from the beach and immediately check out what's for sale on the property websites? You do? Well you're not the only one dreaming of buying a holiday escape.

And dreaming's the word. If you don't have a spare $500,000 languishing in your bank account, purchasing a getaway can seem impossible. But believe it or not, there are holiday properties on the market for less than $200,000. It's just a matter of scouting them out.

The experts say that to make the most of your investment a second home needs to be within a two-hour drive of your primary residence. The problem for those of us who live in the big cities is that anywhere that close is often prohibitively expensive. So you might need to go a little further afield to pick up a bargain. Maybe to Tassie.

Take this gem in Scamander on Tasmania's beautiful east coast for $189,000. It boasts ocean views and is only a minute's walk to the beach, pub and nearby river.

The bargains aren't restricted to Tassie. There's this three-bedroom house in Victoria's Venus Bay for $195,000 and this two-bedroom house in scenic Port Macquarie for $162,000.

Property investment expert Paul Sonntagsays most bargain buys will need major renovation or at the very least, a good lick of paint.

"These properties are definitely becoming rarer and most of them would need a bit of love just to bring them up to speed," he says.

"It really depends on whether people want to rent the property out to tenants."

There's an obvious cash gap between buying a holiday property for your own personal enjoyment and buying one you hope to lease to holidaymakers.

Weekenders costing less than  $200,000 commonly need bathroom and kitchen renovations plus heating and cooling upgrades if they are to attract any tenants.

Those seeking a bargain may also have to adjust their expectations when it comes to location, says veteran Melbourne real estate agent Greg Hocking.

"You're more likely to find them inland in a little country town than on the beach," he says.

"You sometimes hear about houses in little towns selling for $50,000 and everyone races out there only to find that house is the only one in the town."

Before setting your sights on a cheap holiday haven, it pays to consider just how much you are willing to sacrifice when it comes to location and how much you can afford in renovations, Hocking says.


Things to consider if you're thinking about buying a holiday home:
  • Don't be emotional and make a rash purchase.
  • Proximity to your home is important – if it takes more than two hours to get there, you won't visit that often
  • Treat it as a lifestyle decision, not an investment even if you intend to rent it out.
  • Suss out the area by renting or doing a house swap first.
  • Check the insurance and mortgage conditions.
  • Be prepared to let it out when you might want to use it.

Posted by Money Manager - Fairfax Digital on 28th January, 2015 | Comments | Trackbacks | Permalink

What you can do now to help get back to the beach sooner

The Australia Day weekend is often the end of the summer holiday mindset for many of us. With kids packed up and sent back to school and no more long weekends in the immediate future we tend to resign ourselves to another year of work.

For many of us there still lingers during those first few weeks back the daydream of our lives being a permanent summer holiday. Perhaps while you were lying on a beach somewhere you caught yourself wondering what it would be like if this was what every week looked like.

Perhaps you even allowed yourself the luxury of daydreaming about sipping a mojito as you look forward to yet another week of freedom. 

Of course with the arrival of your December credit card statement and the reminder of how much you spent over the Christmas holidays, that fantasy is often very quickly shattered. That's because the reality is you need income in order to survive and at the moment you don't have nearly enough investments or supplementary income to support anything other than full time work.

But what if the fantasy of work being optional could come true? What if you could retire sooner? What would you need to change or to do today in order to make that happen? It might be different depending on your age and what is happening in your life but here are my tips for what you can do to make the daydream of a permanent summer holiday happen earlier for you, no matter how old you are.

In your twenties

When you're in your twenties you generally aren't thinking of what you're doing in three months never mind fifty years away.

The thing is, if you're smart about it, you won't have to wait 50 years to stop work. If you're smart in your twenties, you can still have a great time and create options for your future self.

Some things you might want to consider are putting an extra $20 per week into super. This might seem like an insignificant amount now but the power of compound interest can turn this $20 per week into over $200,000 when you retire. That's a tidy sum of money.

Other things to watch out for are credit card debt and car loans derailing you early and creating a whole lot of debt for assets that aren't going to increase in value.

Instead, spend your hard earned cash either purchasing assets that are going to increase in value or perhaps if you're entrepreneurial into a business idea instead.

If you don't have enough cash to do this, consider talking to friends and doing it together.

In your thirties and forties

These decades are where people's life choices can really affect how soon that permanent vacation happens. So if you've chosen to have a family, again even salary sacrificing a small amount into superannuation can make a huge difference down the track.

Or if you're not comfortable with traditional superannuation funds and you have the time and inclination, why not think about self-managed superannuation – particularly now there is the ability to borrow to purchase property.

Again, if you've bought your first home and you have some equity available make sure you use it wisely.

Consider using it as a deposit to purchase an investment property or perhaps some other type of asset that will increase in value.

Or perhaps use that equity as capital to start a business. Now is the time when you don't have quite as long to recover from poor money decisions so think carefully before you use the equity in your home or credit cards to fund overseas holidays or assets that aren't going to appreciate in value.

And if you're desperate to send your child to a private school but the one that you want to send them to will take up  a third of your after-tax salary perhaps do some research to see if there are cheaper options that will give you just as much value.

In your fifties and sixties

Sure you might think you have run out of time to retire early but there are still smart decisions you can make today to ensure you retire sooner or with more cash.

So if you haven't talked to a financial planner, accountant or even a free advisor with your super fund to find out what it's doing, go and make an appointment to do that now so you know what you are facing.

If you haven't looked into Transition to Retirement schemes to see if they're right for you then you should talk to your advisor at the appointment you're going to make.

If you still have a mortgage on your home and you're thinking you can't salary sacrifice anything extra into superannuation until you pay that off then consider only paying the minimum repayment and then salary sacrifice the maximum into super instead.

With interest rates on your mortgage being incredibly low and tax rates lower in your fund this might mean you have more overall cash at retirement. And of course once you retire, you can grab the extra cash out of your super fund in a lump sum and pay your home loan off in one go.

Too many people are looking for a lottery ticket, a magic pill or a fairy godmother to create the fantasy life for them. Instead, why not become your own fairy godmother and do something this year to help you reserve your place on that beach all year round.

Posted by Melissa Browne - Money Manager (Fairfax) on 28th January, 2015 | Comments | Trackbacks | Permalink

Property investment is all about choices

Not everyone that purchases an investment property makes money.

The success  or failure of investing in property is all about making the right choices. 

The first decision that must be made is whether it is a lifestyle property investment or a financial property investment. 

A lifestyle property investment is purchased more for lifestyle and emotional reasons than to just make money.

An example is someone who would like to either have a tree or sea change when they retire. In this situation it can make sense for someone to buy an investment property in an area that they would like to retire to, have tenants help pay off loans needed to make the purchase, and then look to shifting into the property once retired.

When a property is purchased to deliver the best financial return possible a choice must be made between commercial or residential property.

Commercial properties tend to have a higher rental return than residential property, a commercial tenant pays all outgoings including rates whereas a residential tenant only pays the rent, and the rental period for a commercial property is often at least three years while a residential rental period tends to be only 12 months.

Where a residential property investment is often superior  is in capital appreciation.

Because land is a greater component of a residential property  than a commercial property, and because the main driving factor for increasing property values is the increase in the value of land, residential properties often increase in value more than commercial properties.

If the decision is made to invest in residential property the next  choice is whether to buy an existing property or one from a developer off the plan. It has been my experience that the capital gain made by investors buying established properties is greater than buying a yet to be completed property from a developer.

There are often so many layers of cost included in yet-to-be-constructed properties, such as marketing and selling costs, that investors pay more than the true market value. If  a property is purchased from a developer a comparison of its cost should be made with properties offered for sale in the same area. It can also be wise to contact a quantity surveyor and ask for their opinion on the value of the new property.

One advantage of buying from a developer is that the investor will maximise their rental tax deductions. This is because in addition to claiming interest on a loan used to purchase it, and other costs such as agent's fees and rates, a deduction is also allowed for the write-off of the value of fixtures and fittings in the property and the cost of the building itself.

Properties built after 1985, used to produce rental income, receive a tax deduction for 2.5 per cent of the construction cost of the building. The advantage of buying a property from a developer is that they often provide a schedule that details and maximises the deduction for the building and fixtures and fittings write-off.

Once the property has been chosen a decision must be made on the type of loan to use. As a general rule it is best to purchase an investment property using an interest only loan rather than a principal and interest loan. This is because only paying interest on the property investment loan means an investor can use any excess cash to either pay off private loans or make other investments.

The final choice is how long it will be retained. While a person is working and accumulating their wealth a negatively geared residential property makes a lot of sense. The problem is once they retire the low rental income produced by a residential property is a major disadvantage.

A decision should therefore be made as a person nears retirement to sell the rental property, minimise the capital gains tax payable as much as possible, and use the proceeds to provide the highest most tax-effective retirement income.

Max Newnham is the founder of www.smsfsurvivalcentre.com.au

Read more: http://www.smh.com.au/money/investing/property-investment-is-all-about-choices-20150122-12vv5q.html#ixzz3QEsjnpdE

Posted by Max Newnham - The Age on 28th January, 2015 | Comments | Trackbacks | Permalink

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26 Mar 15: Is now the time to dive into self-managed super? Self-managed super funds continue to grow in popularity. According to Australian Tax Office figures, more than 30,000 new funds were set up last financial yea... [More...]
25 Mar 15: Huge property profits don't always add up If there was a "Captain Obvious" award for stating the bleeding self-evident it would be given to anyone who mentioned that Australians are just a little bit ... [More...]
25 Mar 15: Always follow the care instructions If you've ever purchased a gorgeous cocktail dress, a dapper suit or a fabulous feathered coat (OK, the last one may be just me) you'll understand that buying... [More...]
24 Mar 15: Ten ways to get really cheap insurance Insurance is a grudge purchase. We know we need it but – man – we resent the expense. With health insurance premiums going up next week it's a good idea t... [More...]
22 Mar 15: Agents ‘lured’ into under quoting tricks, Real Estate ­Institute of NSW president says   GREEDY sellers who think they know better than estate agents are the chief cause of under quoting, the head of the agents’ lobby claims. Malcolm... [More...]
21 Mar 15: Make sure your cover meets your needs House prices are skyrocketing with Sydney and Melbourne in particular experiencing significant growth, yet at least 60 per cent of Australians lack the insura... [More...]