Puzzle Finance Blog

Need a helping hand? Don't get sucked in

 From payday loans to funeral insurance, some financial products come with a warning - and the warning reads: BEWARE, writes Christine Long.

When money is tight it makes you more vulnerable and more likely to jump at anything that seems to offer some relief. That can make you a target for providers of some of the most hazardous financial products and services around. Like pay-day lenders.

NAB research shows almost one in five Australians (18.7 per cent) rarely or never have any money left at the end of a pay cycle. For those trying to survive on a low income these short-term loans can seem like an ideal fix, if bills need to be paid, something breaks down or if there is not enough to eat.

Adam Mooney, chief executive of Good Shepherd Microfinance, says high-cost lenders target people on low incomes with "promises of fast cash and online same-day approval". However, with interest rates as high as 240 per cent, many borrowers end up in a cycle of repeat loans and mounting debts, according to Katherine Lane, who is principal solicitor with the Financial Rights Legal Centre.        

"It's very common for people to have more than one payday loan," Lane says. "I've had whole families who have all got payday loans. They are all on Centrelink and they are all poor and they are just trapped in a debt cycle."

A report released by the Australian Securities and Investments Commission (ASIC) last month estimated that $400 million in payday loans were written last year, a rise of 125 per cent since 2008. Two-thirds of the files it reviewed showed that people were borrowing when they already had a loan; when they were in default for a loan or when they had loans during the last 90 days.

Nicola Howell, who researches consumer insolvency at the Queensland University of Technology, says the growth in payday lending is in part the result of a lack of alternatives. "Banks for the most part won't lend small amounts of money," she says. "Credit cards may not be available or people may have maxed out their credit cards."

She suggests government could be doing more to support no-interest loan schemes and to ensure the Centrelink advance system works for people who need it.

Payday loans are not the only product or service that can lead you deeper into financial difficulty if you are already struggling. Here are five others to be wary of and some alternatives.


Can't afford to buy a fridge or a TV outright? Companies such as Radio Rentals and Rent the Roo market rent-to-buy arrangements. They also promise peace of mind through "responsible" policies that assess their customers' credit history and, in the case of Radio Rentals, aim to  "never over-commit you – it's not in our interest, or yours". But the high cost of renting  – interest rates can be 40 to 90 per cent — is often hidden by some of the less scrupulous providers.

Mooney says: "Goods rental companies usually advertise a weekly repayment rate which may seem affordable, but what they don't tell you is that by the time the contract ends you'll have paid about 300 per cent more than someone who bought the product outright."

Over three years, the customer will pay about $1800 for a $650 fridge. Contracts often include the option to buy the item for $1 after three years. However, the customer needs to contact the rent-to-buy company and pay the $1 separately, something that is easily overlooked, says Mooney.

"The other reason that $1 buy option is there is purely to exploit a loophole in the National Credit Act," he says, adding that the contracts are deliberately designed to sidestep legislation governing small amount loans (loans of $2000 or less). Under that legislation, the provider has to disclose to the client upfront the value of the item and the total finance cost. "There's also a pricing cap so the financial service provider can only charge 20 per cent upfront plus 4 per cent of the original amount per month."

Sydneysider Norma Wannell has experienced the high cost of these arrangements first-hand. She worked in the community sector until 2009, when an accident forced her into early retirement and on to a disability pension. In November 2013 she signed a rent-to-buy contract "on the spur of the moment" to get a new vacuum cleaner. Recently she checked how much she needed to pay to buy the Dyson cleaner. The answer: $991.

"My reaction was: You're kidding," she says. "I'd already paid about $1500 on it." The alternative was she could continue making the $39 fortnightly payments for another 18 months and then buy it for a $1. By that time she would have paid about $3200.

"I can't just give the items back because I've paid too much now and I'd be liable to pay the contract out anyway," she says.

The alternative: For Centrelink recipients there is a no-interest loan scheme (NILS) for essential items (see box). Wannell has used one in the past to buy a new fridge.


Consumer advocates warn funeral insurance is rarely good value. Gerard Brody, chief executive of the Consumer Action Law Centre, says payout figures are often low.

"It's not like a savings account or an old life insurance policy that will pay out what you contribute to it," Brody says.

People may contribute $15,000 to $20,000 to a policy over the years, but their estate will only receive a payout of $5000 to $6000. Policies can also have stepped premiums, which means they get significantly higher as the policy-holder ages.

"By the time you're 70 or 80 years old it's actually a significant proportion of your income especially if you've gone on to the pension," says Brody. If people can't afford to keep up the premiums they lose everything they've contributed.

The alternative: Lane says: "The vast majority of people have access to some sort of funeral cost cover through their superannuation death benefits."

Another solution: Save up or prepay for a funeral.


If you have mounting or multiple debts, these agreements can seem to offer a way out. Debt agreement activity reached the highest annual figure – 10,705 – on record in a financial year in 2013-14, according to the Australian Financial Security Authority.

People often mistakenly think it's some form of debt consolidation, says Lane.

"It's not. It's a form of bankruptcy," she says. "It blemishes your credit report quite seriously and it's an act of bankruptcy so people can use it later to make you bankrupt if they want."

Brody says: "Part IX debt agreements are probably suitable for someone who wants to avoid bankruptcy because they own property, probably the family home.

"Our concern is that the majority of people who end up in debt agreements don't even have property to protect."

The alternative: Seek the advice of a financial counsellor. Often, says Lane, "another option like making financial hardship arrangements [with creditors] is much better and has less repercussions."


It's tempting to turn to a credit repair service if previous defaults are preventing you from getting a loan or credit card. However, Lane says such services come with a high price-tag – up to $1000 per default – and may not actually achieve the desired outcome.

Brody explains: "If the defaults listed on their credit report are accurate then a credit repairer can't actually remove those." Or, he says,  they may only be able to remove one of several  default listings. "[The consumer's] access to finance isn't improved at all but the credit repairer says it's done its job according to the contract that they've entered into with the consumer." '

The alternative: You can obtain a free copy of your credit file to check for default listings. Creditors must follow a set procedure before they can list a default. If you believe there is an error on your credit file contact the relevant Ombudsman and make a complaint.

"So if it was your energy company that made an incorrect listing you could make a complaint to the Energy Ombudsman," says Brody. "Those services are free of charge and very simple." '


Paying for a service to handle your finances may seem like a positive step if money is causing you angst. Not so, says Lane. "If you're in financial difficulty the last thing you need to do is add another creditor to your pile."

Lane says some services tell customers to stop paying their creditors, pay them and they will do deals with their creditors. They also make mistakes such as getting people to pay statute-barred debts, those that are too old for a debt collector or creditor to pursue.

"If you're in financial difficulty in any way, all debts are not created equal and you need advice on who to pay and who not to pay and who to make arrangements with and these [services] simply do not do that."

The alternative: Financial counsellors can help you make financial hardship arrangements with creditors. Free budgeting tools are available on ASIC's Moneysmart website or the Consumer Action Law Centre's MoneyHelp. Small loans for essentials

Good Shepherd Microfinance helps Centrelink recipients take out NILS loans of $300 to $1200 to buy essential items such as a fridge, washing machine or television. It also has StepUp, a low-interest (5.99 per cent) loan scheme for loans of $800 to $3000.

The loans can be accessed through 660 community organisations throughout Australia, with Carers Victoria the latest organisation to act as a facilitator. NILS recipients have a year to pay off the loan in equal instalments and three years for a StepUp loan.

Good Shepherd's Adam Mooney, says NILS borrowers have to meet three criteria: they must have stable housing (at least three to six months in one place); be able to afford the loan and have the intention to repay it.

As part of the assessment process the organisation offers budgeting help. It will lend to the "credit impaired" and help them negotiate hardship arrangements to repay outstanding debts. ACTION PLAN
  • Find a free, independent financial counsellor (Call MoneyHelp on 1800 007 007 1800 007 007  FREE).
  • Consider all your options including hardship arrangements
  • Use free budgeting tools and services
  • Get a free copy of your credit file 

Posted by Christine Long - The Age on 22nd April, 2015 | Comments | Trackbacks | Permalink

Fears about foreign investors buying Australian real estate are misplaced

Property is a great conversation topic because it affects us all in some way, from our basic need for shelter through to the glamour and status of prestigious property. 

Therefore, property will always be a hot topic. Everybody has an opinion about it, whether in terms of its type, style, location, aspect and liveability, or the current focus - given rising prices in our three major cities Sydney, Melbourne and Brisbane - affordability.

The apparent influx of foreigners snapping up Aussie real estate is also topical. In fact, these concerns are often connected, with many media commentators claiming foreign demand for real estate is pushing up real estate prices.

The truth is somewhat different. Australia has strict rules limiting what types of residential property foreign investors can buy. Investors who are not citizens or permanent residents must seek approval from the Foreign Investment Review Board (FIRB), and at present they cannot buy existing property (except for gaining an approval to build multiple dwellings).  

Further proposed changes to FIRB policy requiring foreigners to pay a fee to buy residential property, and the establishment of a National Register of foreign investment and investors are welcome developments. Finally we will be able to see some true figures about just who's buying what and where these investors are coming from, rather than speculating on the impact foreign investors are having on the market.

The affordability myth

The relation between affordability and foreign investment is unsubstantiated, given foreign buyers can only buy new property and are heavily restricted in what they can buy. 

Perhaps the real issue in the broader affordability debate is whether people can buy in the suburbs they want to live in. From this point of view, a bit of perspective and worldly maturity needs to enter the debate. For example, for $US1 million ($1.3 million), I could own 15 square metres (yes, the size of a bedroom) in Monaco or an apartment just over 20 square metres in Hong Kong. And if I wanted to live in a nice condo in Downtown Manhattan, it's more than likely that I wouldn't see any change from $US4 million for a two-bedroom apartment. 

The fact is, Sydney is a "rich" world city and Melbourne isn't too far behind. Great property, particularly in the more popular locations, is going to attract a premium price, just as it does in all rich cities in the developed world. We need to come to grips with this reality and resist blaming foreigners for pushing up the price of real estate in our capital cities. One must have a level head in this debate and look at the facts and figures before making judgments or claims.

The benefits

Additionally, it's important to note that foreign investments have had positive impacts on the property market.

The biggest hurdle to affordability right now is the lack of supply. Foreign investors play a critical role in helping increase the supply of new dwellings into the market. How? The first obstacle to getting a multi-unit or high-rise unit development approved for construction is finance. Often developers need to secure a 20 to 30 per cent pre-sale level to meet their bank's requirement to get the project off the ground. These are the types of properties that foreign investors buy into, and getting these pre-sales means the project will go ahead, thereby increasing supply and providing local buyers with the opportunity to buy also.

Stimulating economic development

Foreign investment into Australia is critical for our future prosperity. Each year hundreds of billions of dollars flow into Australia, supporting our local economy, our jobs market and ultimately our overall standard of living. 

A couple of years back I attended a NAB economic briefing where it was stated that for every dollar spent on actual housings (meaning the buildings of dwelling) a further $10 of economic activity is generated in the economy. Think about it. The dwelling, whether it's a home or unit, generates government fees, mainly in the form of stamp duties. It generates direct jobs for trades, financiers, manufactures and sales representatives, and indirect jobs like retailers in home wares and services jobs like cleaners.  

Foreigners who are choosing to buy property in Australia should be seen as a big vote of confidence for our country and the sustainability of our property market. 

Posted by Ben Kingsley - The Age on 21st April, 2015 | Comments | Trackbacks | Permalink

9 ways to have a stress free auction day

1. Do your research

Before you put your house up for auction it’s important that you’re at least a little bit familiar with the industry. Go to other house auctions, ask questions of the agents and most importantly have a few conversations with the bidders. House auctions are something most people will rarely participate in, so it’s difficult to acquire organic experience in this area. This is why it’s so important to get out in the field and learn as much as you can before your own auction. The industry changes every few years so even if you went through an auction ten years ago, it’s still worthwhile to attend upcoming auctions to see what’s happening in the space.

2. Choose the right agent

If you have any friends or acquaintances that have sold property recently, ask them about their experience with their agents. Finding a good agent is like finding a good employee. Not everyone is going to work well with everyone so take the time to find an agent that works for you.

3. Be sure about the auction

Make sure that you’ve made the best choice when it comes to selling your home. The fact of the matter is that you will never know how an auction is going to go and you need to be totally comfortable with that.

4. Be sure about your reserve price

It’s important to be realistic about your reserve price but it’s also important to feel comfortable with the price you’re putting on your property. A good agent should be able to talk you through this process. It’s in the best interest of the agent to sell your house for the best possible price so you need to trust their experience, but also be honest about where you draw the line with offers.

5. Invest your time into the property

Think about retail merchandise and the way damaged stock is sold. It’s usually discounted right? The same goes with houses. If there’s a hole in a wall, fix it. If the paint is chipped, fix it. If the garden is full of weeds, fix it. A potential buyer is going to be looking at every single corner of the property and it’s their job to find the flaws. Make their job really difficult by thoroughly fixing anything that is wrong with the house. Never assume that a buyer won’t notice a problem. If someone is spending a large amount of money on a property, they’ll notice a problem.

6. Be physically prepared

Make sure you have everything you need on the day. The agent/auctioneer should provide any materials they need but make sure you have any paperwork or keys that you might need on the day. If someone wants to see inside the garden shed and the key is three suburbs away, that’s not going to look very good.

7. Be emotionally prepared

Keep calm. The auction is going to happen and there are limited outcomes. The house will sell or the house won’t sell. Those are the two basic options. If the house sells, great. If it doesn’t there are always other opportunities. If you’ve done everything within your power to sell your house at auction, then there’s nothing you can do on the day to change the outcome of the auction. Just relax. What will be, will be.

8. Know your limits

If the property doesn’t sell during auction, the agent may engage in negotiations with the highest bidder. You need to decide what your offer limit is and whether or not you will accept it before the auction even starts. Making a big financial decision under pressure isn’t a good idea. Have your limits mapped out prior to the auction to avoid making mistakes at a crucial moment.

9. Manage your expectations 

The property market is very much in favour of the seller at the moment and there are constant market reports of homes being sold for double their asking price, which can give home sellers unrealistic expectations. Just remember that each property is different. Location, time of auction and even the weather on the day of an auction can have an effect on the sale of a property. Be realistic and don’t expect a bidding war that ends with an unprecedented financial win in your favour.

Posted by Carly Jacobs - realestate.com.au on 21st April, 2015 | Comments | Trackbacks | Permalink

To fix or not to fix your home loan? The latest trends and what experts recommend

 HOME loan interest rates continue to fall but many borrowers are resisting fixing their loans as they expect the cash rate to tumble further.

But those mortgage holders who locked a rate in just 12 months ago have come out in front.

Data from financial comparison website RateCity shows the interest rates on more than 260 fixed loans have fallen in April alone while more than 50 variable loan rates have also dropped.

Customers with the average $300,000 30-year loan who locked in their rate one year ago

— when the average one-year fixed rate was 4.83 per cent — would have saved themselves more than $1000 over those who keep their interest rate variable.

The average variable mortgage rate in 2014 was more than five per cent.

Competition remains rife with about one dozen lenders offering fixed rate loans with a “three” in front.

ME Bank’s Head of Home Loans Patrick Nolan said the bank’s latest offering of a three-year fixed rate loan at 3.99 per cent is the lowest rate the bank has ever offered.

He said Australians remained hesitant to lock in their loans because many people expect further rate falls this year and also did not like the rigid nature of fixed rates.

“Customers sometimes are concerned that there is not so much flexibility with fixed rate offers,’’ Mr Nolan said.

“Some of the banks including ourselves have changed that ... if you take out a fixed-rate loan (at ME Bank) you can pay up to an additional $30,000 (during the fixed period.)’’

He suggests customers unsure about signing up to fixed rates to lock in a portion of the loan and leave the rest on a variable rate.

Figures from Australia’s biggest mortgage broker Australian Finance Group show in March of all new loans written 14 per cent of borrowers choose to fix, compared to 24 per cent in March last year.

HSBC’s chief economist Paul Bloxham expects the RBA to deliver another cut this year and doesn’t expect lenders to move down much further on their deals.

“We are very, very close to the bottom in terms of the rates available in variable rates and fixed rates,’’ he said.

RateCity’s spokesman Peter Arnold said there’s plenty of “hot deals” available for customers.

“We are seeing a lot of competition for those really low rates, especially by smaller lenders,’’ he said.

“If you do look beyond the big banks there are some very low rates out there.”

The Australian Securities Exchange’s RBA rate indicator which uses market expectations to predict a change to the official cash rate has forecast a 60 per cent chance it will fall by 25 basis points to two per cent.

Posted by Sophie Elsworth - News Limited Network on 19th April, 2015 | Comments | Trackbacks | Permalink

‘A complete load of rubbish’: Economists hit out at negative gearing myths

 IT’S a uniquely Aussie slang term up there with thongs and budgie smugglers, but it’s also the behind one of the most pervasive myths in public debate.

Economists have hit out at fresh calls to wind back negative gearing concessions in a bid to raise more tax revenue and increase housing affordability.

In a report released yesterday, peak welfare body the Australian Council of Social Services urged the government to restrict tax deductions for negatively-geared property investments.

ACOSS claimed the move could save more than $1 billion a year, arguing the current system primarily benefited the rich.

According to its report, ‘Fuel on the fire: Negative gearing, Capital Gains Tax and housing affordability’, more than half of geared housing investors were in the top 10 per cent of personal taxpayers.

It argued negative gearing encouraged over-investment in existing properties and expensive inner-city apartments, lifting housing prices and doing little to promote construction of affordable housing.

Sinclair Davidson, Professor of Institutional Economics at RMIT University, described the public debate around negative gearing as “a complete load of rubbish”.

The term itself is an Australianism, so the whole notion of having to explain negative gearing to foreigners falls into the same category as having to explain slang terms to foreigners, he argues.

“ACOSS and other people who don’t actually pay tax themselves don’t understand much about the tax system and so they think it’s being rorted,” Professor Davidson said.

“People like ACOSS, UnitingCare and Anglicare, they have an incentive for the government to take in more tax revenue because they want to spend more money. They are going for a tax grab.

“I suspect a lot of journalists don’t understand business and taxation, which is probably slightly unfair and a sad thing to say, but unfortunately too many journalists are a little sucked in by salacious arguments about tax rorts.”

According to Professor Davidson’s analysis, the main beneficiaries of the system were lower-income earners, with people earning between $45,000 and $180,000 per annum actually the most likely to be declaring a loss on rental property.

He claimed myths around negative gearing permeated public discussion, partly because Australia was the only country to have a specific term for what was considered a standard tax deduction in most other countries.

“It is standard procedure that if you earn a loss you deduct it against your income. The thing that causes excitement in Australia is we are the only country that calls it negative gearing,” he said. “You ask people in other countries, ‘Do you have negative gearing?’ and they say, ‘Gee, what’s that?’.

“But if you ask, ‘Do you have mortgage reduction or deduct loss against income?’, and they say, ‘Of course we do.’ This is not some strange or unusual quirk of our tax system.”

While some countries only allowed deductions against the same asset class, Australia has a better system, he argued.

“A loss is a loss, you should carry a loss against all income. New Zealand has it, Japan has it. In the US, individuals can’t deduct their losses against all other income, so people incorporate as companies. It’s a workaround, but effectively the same thing is happening.”

Robert Carling, senior fellow at the Centre for Independent Studies and former official with the NSW Treasury, Commonwealth Treasury, World Bank and IMF, argued groups like ACOSS only looked at the demand side of the housing equation.

“More investment in housing, other things being equal, should lead to more supply eventually,” he said. “They argue people are buying up existing housing, but they don’t have to buy new houses themselves to stimulate supply. If prices are bid up across the board then that will encourage more supply by developers, and we see that happening.”

In a report released last week, Mr Carling argued much of the “mythology” around potential revenue to be gained from abolishing tax concessions such as negative gearing came from a misinterpretation of the Tax Expenditure Statement published by Treasury.

In addition to the revenue cost of some concessions being greatly exaggerated, he pointed to the inability of the estimates to account for taxpayer behaviour in response to changes in tax concessions, and an incorrect assumption that estimates for revenue forgone were equivalent to potential revenue gain.

“If it’s the tax system that’s driving up house prices, why aren’t we seeing it happening across all cities? The tax laws are the same across the country yet we’re not seeing large price increases in other cities. Many countries have had house price booms, and all of them have had different tax arrangements,” he said.

“The main factor, according to the Reserve Bank, is the secular decline in real interest rates over the last 20-odd years, which has vastly increased people’s borrowing capacity. That’s been the common factor around the world.”

He said winding back negative gearing might raise significant revenue initially, but after investor behaviour responds net revenue gains would likely be very small.

If reductions in tax concessions were to be justified, they should form part of a broad, revenue-neutral tax reform with offsetting reductions in income tax rates, he argued.

In response, an ACOSS spokesman said countries like the US and UK do not allow people to claim unlimited deductions for investment property losses against their other income.

“We didn’t rely on Tax Expenditure Statements alone but they are a reasonable starting point,” he said. “We advocate the closure of tax shelters on a number fronts to deal with behavioural responses.

“There are considerable lags between higher property prices and more construction, due to well-known problems on the supply side.

“In any event the main problem is that prices are too high by Australian and international standards. This means, for example, that institutional investors are reluctant to invest because their rates of return from rents alone are too low.”

Posted by Frank Chung - News Limited Network on 18th April, 2015 | Comments | Trackbacks | Permalink

Paying-off the wrong credit card is costly

Many people make irrational decisions when paying off their credit card debts.

Rather than paying off the debt attracting the highest interest rate first, card holders tend to pay off the smaller of the debts first, regardless of the interest rate.

Research by UTS Sydney academic, François Carrillat, with international collaborators, finds card holders with more than one credit card tend to pay off the debt they can pay off entirely or substantially first, even though they have debts on other credit cards with higher interest rates.       

By focusing on smaller debts first, card holders are unwittingly helping to prolong their indebtedness and increase the amount of interest they pay.

To reduce debt overall and reduce interest costs, card holders should pay-off credit card debt with the highest interest rate first, the second-most expensive debt next and so on.

"Paying off big debt seems to be a difficult goal and often it is," Carrillat says.

"You can understand why it is appealing to pay off a small debt first, even though it is not the rational thing to do," he says.

He says it is because paying off the smallest credit card debt first gives card holders the "illusion" of making progress towards the goal of reducing total debt.

In a paper published in the Journal of Public Policy & Marketing with two colleagues from American universities, it is shown that people's approach to debt re-payment also depends on the nature of the debt.

If the debt was for a "want", such as a holiday, instead of a "need", the debtor is more likely to pay off that debt first because the benefit of the debt has passed.

The data was collected from an online survey of American adults to find out how they prioritised credit card debt repayment. Carrillat says the results are just as relevant for Australian card holders.

He says the best thing that card holders can do is to consolidate their cards so that they have one card only.  

A quick check with one of the financial comparator sites shows there is a wide variation in the interest rates charged on credit card debt, which is why it is worth shopping around.

Posted by John Collett - The Age on 17th April, 2015 | Comments | Trackbacks | Permalink

The good, bad and ugly reasons why you must fix up your retirement portfolio

Across the world, property has been a great investment story. And this has never been more true than right here in Australia. Many investors have ridden the property wave during the past few decades and enjoyed tremendous capital growth, rivalling the returns of Australian and global share markets.

In this country, investors have also been fortunate to be able to take advantage of the phenomenon of negative gearing. Introduced in the early 1980s, the aim of negative gearing was to increase housing supply for renters by providing tax benefits for the investor. This tax benefit has seen investors flock to residential property investments during the past 30 years, with demand pushing prices to the lofty levels we see today.

We are also currently seeing an increasing number of baby boomers retiring, with the first baby boomer having reached age 65 in 2011.                        

Many of these baby boomers have grown their wealth by holding property during the past three decades, in addition to their superannuation funds. As people move into the new phase of life, retirement, it is critical their investments match their needs.

They no longer have a steady income from employment; rather they will need to rely on the income delivered from the assets they have accumulated over their lives. 

So where does property fit into these plans?

The Good 

One of the great things about property is that it has delivered excellent capital growth for investors. Not all have experienced this, but most have. In fact, according to the Australian Bureau of Statistics, since 1880 house prices have increased four-fold after accounting for inflation. The interesting thing is that from 1880 to the mid-1950s, house prices remained stagnant after adjusting for inflation. The four-fold increase occurred from the mid-1950s through to today.

This growth has put retiring investors in a sound financial position. Property has performed as well as shares, particularly in the last 30 years. The latest Russell Investments Long-term Investing Report shows that although shares outperformed property over the 20-year period to December 2012, property outperformed shares over the 20-year period to December 2013.

For those investors who have been able to repay the debt on their investment properties, they will retire with a source of income from rent. An investor who can have different kinds of investments and therefore, multiple sources of income, will put themselves in a much stronger position in retirement with far less risk.

The Bad

So what are the things that retirees need to look out for when investing in property through retirement? The first fundamental issue is that the primary requirement for a retired person is cash flow. Unfortunately, after the costs of maintaining an investment property the income that is actually received from the investment averages around 2 per cent; lower than interest earned from a bank account. This clearly does not meet the needs of most retirees. Without cash flow, it doesn't matter how much capital growth one has; and I have seen too many people under financial pressure as they are asset rich and cash-flow poor.

Another important factor to consider is that once retired, it is important to be able to access money for one-off expenses or unforseen events. A difficulty with property is that we cannot sell a bathroom or a chimney to access some cash. This lack of flexibility can often limit the freedom we have in retirement as we are bound by the fact that a property is an illiquid asset.

The Ugly

The above "bad" factors need to be considered, but as long as we are aware of them they can be somewhat managed. However, there are some risks we need to be aware of that can have a long-term detrimental impact on our financial position and more importantly, the rest of our lives.

The biggest risk a retiree can face with holding too much wealth in investment properties is having all your eggs in one basket.  We so often hear people say that property in Australia can never fall in price, but I have seen many people holding properties that have fallen in price, which seemed like great investments at the time.

Now, I'm not saying that property prices will fall, but we should not be naive in thinking that they can never fall. The thousands of property owners in places such as the US, Germany, Japan and the UK also never expected their property prices to fall; yet fall they did.

In conclusion, property investments have an important role in a sound investment portfolio. We simply need to ensure the investments as a whole deliver on our requirements throughout retirement.

No matter what your situation, the key to retiring comfortably is not entrenched in finding that perfect investment that hopefully has amazing performance. The key is managing risk and protecting the money for which you have worked so hard.

Posted by Thabojan Rasiah - The Age on 15th April, 2015 | Comments | Trackbacks | Permalink

The $50,000 you didn't know you paid to a property spruiker


This is a property market where outrageous commissions, which I have seen span up to $50,000, are built into the purchase price that you pay. A world where the naive are suckered into signing up for brilliantly marketed properties because "the tax benefits and automatic capital growth mean it will pay off in the long run".

A few years ago we had a client in tears and on the verge of a mental breakdown because she had been convinced by a "property guru" to buy a negatively geared investment a few years earlier. This was bought through that same guru.

She was a 50-year-old divorcee who owned her own home and was debt-free at the time, earning $50,000 per year in an administration role.

Having been sold the classic story of how she could use negative gearing as a tax benefit, she bought. She was told that one day it would become positively geared and that the capital growth would set her up for retirement.

What they failed to tell her was that she had paid a premium for the property in the first place. They also didn't explain that the holding costs would almost send her bankrupt. In the end, she was a victim. Her only crime was trusting the wrong people and being given the wrong advice.

In the end, she owned a negative geared investment property and $700,000 in high-interest debt. 

All I could advise her to do was to sell the property and clear the debt, while I "worked on" the financier for a significant rate reduction on the residual $165,000 debt.

Her previously unencumbered home now had a $165,000 mortgage against it and no investment property to show for it.

Subsequently, she was encouraged to take legal action against the outfit that put her in the situation – yet she refused, crippled with embarrassment and wanting to put it behind her.

Her situation is by no means unique.

There are hundreds of people in the investment property sector only too willing to sell you investment properties with secret commissions of anywhere up to $50,000 built into the price.

Over the last 15 years I've been approached by developers and marketeers offering commissions if I would introduce their properties to my clients. I've shown them the door.

What's most dangerous is when the sharks don't appear, on the surface, to sell property. Instead they sell 'education'. Education is crucial, however too often education programs lead you to the promoter's selected properties and it's the same game with a different label.

Ensure the education you think you're getting isn't an upselling course in disguise. If the entry level program is $2990 and there's another course promoted during this program that's even pricier, think twice.

Some "free" educational events, seminars or workshops could be hosted by a marketer or group who take a sizeable share of your eventual course fees. This explains the ridiculous price tags each one charges for their specialty course and the long list of so-called experts appearing as special guests.

Have your eyes peeled for what property industry experts are really selling. In the investment sector that price tag might just include a hefty secret commission.

Ask the person vying for your signature exactly what their commission is. If they refuse to answer, walk away.

Posted by Kevin Lee - Domain (The Age) on 14th April, 2015 | Comments | Trackbacks | Permalink

Houses take cake by a narrow margin

Which will make you richer, investing in the sharemarket or a property? I thought I'd never ask.

If you go by history, the sharemarket. Even then there's not much in it, especially over very long periods, which is surprising considering the sharemarket leaves property for dead when it comes to tax breaks.

Hmm, that might surprise you even more. Negative gearing isn't just the province of property, though it's probably better at it, which isn't necessarily a compliment, and the best break of all applies to any investment. That's the 50 per cent discount on capital gains tax when sold after a year.

Anyway there's a twist, but then you knew there would be. 

The sharemarket's big advantage is the no-questions-asked 30 per cent tax credit on franked dividends, which compounds over time if you reinvest them in the same or some other stock.

But what about all those deductions for expenses and the free kick of depreciation allowances? Well, there's a reason they're deductions: they cost you. And that includes depreciation. It might not be a cash outlay, but it will be eventually when repairs or replacements are needed.

A true tax break is a gift, not partial compensation for an expense.

So over the past 10 years, which included the GFC, shares returned an average 9.2 per cent – including dividends – trouncing property's 6.1 per cent including rents, according to Russell Investments. After tax the gap was even wider.

But over periods of 20 years it can go either way. The definitive word - or I should say picture - is in the chart below going back to 1926 compiled by AMP Capital 's chief economist, Shane Oliver. Shares beat property by 0.4 per cent a year, though perhaps your patience doesn't stretch to 88 years.

In which case it might be better if I confine myself to the next 10 years. Just as you should take statistics for the past 10 years with a grain of salt, I wouldn't be putting much store on forecasts for the next 10, especially mine.

But there's one sure thing to be said about the starting point.

The sharemarket is nowhere near its record of eight years ago, whereas property prices have beaten theirs.

So on the face of it the risk is property prices flattening out or maybe falling, especially as affordability is already challenging, while share prices have room to rise, admittedly with the usual fits and starts. Perhaps more fits than starts.

While rents are rising by less than inflation, share dividends are beating it. You can see this best with yields, which are the returns based on what you pay.

They're rising on dividends – did I mention these often come with a 30 per cent tax break? – and falling on investment properties because rents have flattened out while values, and so what you pay, have soared.

Also sluggish wage growth and rising unemployment are, to be blunt, good for profits, recession aside. But they're indisputably bad for property.

Another thing. The boom in construction which incidentally helped keep Australia out of a recession as commodity prices slumped will lift the supply of housing. That will put a price cap on some areas, and could push down rents in others.

True, a rate cut would help property by reducing the cost of the mortgage, but I suspect it would help shares even more by pulling money out of bank savings and fixed interest.

I know you're going to say there are other considerations in choosing between shares and property. Fair enough. It's a mistake to look at a return without considering the risk.

Shares are more volatile, though they also give you easier access to your money. You can hardly sell a bedroom to raise some cash.

Property values don't slump precipitously the way a stock can. Nor can they ever be wiped out altogether, because land will always be worth something.

Besides, vendors only sell in a slump if they really have to. In bad times most home owners just sit pat. They'll do anything but sell.

As it is CBA, the biggest lender, says almost three-quarters of its borrowers are, on average, seven years ahead in their repayments.

And so, what was that about a twist?

Well, it's a bit underhand on the part of property, but the fact is it's easier, safer and cheaper to have a big mortgage than the same-sized margin loan. Buying a property will be a much bigger outlay, which means you've got more at stake.

And the more you can invest, the bigger your potential windfall.

Posted by David Potts - Money Manager (Fairfax) on 14th April, 2015 | Comments | Trackbacks | Permalink

Don't ignore the signs when it comes to yield

The house price boom in Australia's two biggest cities is crunching a key measure of return for property investors: rental yields.

If you're thinking about investing in the hot parts of market, especially Sydney, it's worth considering this fact, alongside any prospect of future capital gains.

One argument often made in favour of property investment in Sydney and Melbourne is that the rental markets are still pretty tight in most areas. There is strong demand for housing, and this is pushing up rents.        

In Sydney, for instance, average rents rose 3.3 per cent in the year to March, which was the fastest in the country, CoreLogic RP Data says.  

That may sound like good news to a potential investor (though not for tenants), but it's not quite that simple.

True, the fact that rents are rising and vacancy rates are low should bode well for landlords looking to lease their homes.

But if you're thinking about investing in these markets at a time like now, when prices are rising fast, it is also worth thinking about rental yield.This is the annual return that a landlord entering the market at today's prices gets on their investment.

Gross rental yields for houses are at near record lows of 3.4 per cent in Sydney and 3.2 per cent in Melbourne.

They are higher for apartments, which typically make less capital gain, though the Reserve Bank has pointed out that the rental market is looking soft in inner-city Melbourne flats.

As prices soar, yields will fall if rents are unable to keep pace with the growth. That is exactly what's been happening during the past couple of years. The average rental yield for a house in a capital city has fallen from 4.3 to 3.6 per cent – and remember that is the return before costs such as water bills and council rates.

Investors should take yield into account, because it represents the type of return they will get on their investment until they are ready to sell.

Of course, many property investors are also banking on long-term capital gains, so a smaller yield is not necessarily a deal-killer.

And these things are relative. Dividend yields of shares have also been dragged down by investors bidding up share prices. It's all being driven by a global surge in asset prices, which has in turn been triggered by record low interest rates.

But all the same, signs like this shouldn't be ignored. Capital gains is a big reason many investors buy properties, but rent is the most immediate source of return.

Posted by Clancy Yeates - The Age on 14th April, 2015 | Comments | Trackbacks | Permalink

Family guarantors guarantee one thing only: The rich getting richer


A rising tide lifts all ships. Yet if you haven't gotten onboard, the swim to the surface is even longer.

Much is the same in the Australian property market. 

Those that are born into families without property wealth are increasingly forced onto the back foot when it comes to getting a foothold into the market. Property is the marker of the "haves" and the "have nots" and this is set to continue.

Never is this more apparent than when it comes to the concept of a family member standing guarantor for a first home buyer's loan. This home loan feature allows a purchaser to use wealth that their family members have built up in a property to buy themselves.

It's regularly marketed as a way to leapfrog into the market more quickly and to avoid the otherwise inevitable cost of Lenders Mortgage Insurance incurred from having less than 20 per cent in cold hard cash for a deposit.

Family guarantees may be a great way for parents to offer their children the benefit of a lump sum of funds without giving them an outright gift, but this product also has the potential to widen the wealth divide even further.

Those whose parents are wealthy enough to have equity in their house or a significant chunk of cash left around, either through good property market choices or diligent repayments, are in the fortunate situation to not have to save as much money to buy a home as those who do not. It's that simple.

On Monday, NAB released statistics that found 6.7 per cent of first home buyers are using a family guarantee to buy in, compared to 4.8 per cent in 2010.

This is largely a bonus for 20 to 29 year olds, a cohort that makes up 73 per cent of the market for the NAB product, followed by 30 to 39 year olds, at 21 per cent. A further 3 per cent using the guarantee were in their teens.

As house prices increase and equity in the homes of those parents that do have property holdings subsequently rise, their capacity to stand guarantor grows.

This effect is also divided strongly between those with homes in attractive strong-growing areas and those in areas that are not so sought-after.

Those who own properties in desirable suburbs, such as Sydney's Hills District, will feel this "wealth begetting wealth" effect strongly.

Castle Hill's median house price soared $173,333 last year, to $1,040,000.

In the lower priced, lower socio-economic area of Mount Druitt, property prices increased $37,070 to a median of $400,500.

You can see how other Sydney suburbs fared here.

In Melbourne, the story is similar. 

Murrumbeena surged 27.5 per cent to the end of 2014 – bringing the median price up to $954,000. This is an increase of just over $200,000.

Meanwhile, the cheapest in the top 10 performers in Melbourne, Braybrook, jumped 21.7 per cent, bringing it to $486,750. This is an increase of almost $100,000.

By sheer power of the numbers, lower priced areas with strong percentage price growth still lag behind those suburbs even with equal percentage growth.

For those whose parents have property in these growing areas, they have the capacity to skip LMI completely and buy in sooner than their savings will allow them.

For those who don't? It's about to get tougher.

Family guarantees inevitably pour more money into an entry level housing market that many first home buyers currently struggle to enter. All this to ensure that the children of the fortunate are given yet another opportunity to get in first.

Research from The Australia Institute last year found that the top 20 per cent of people have five times more income than the bottom 20 per cent. It also recorded that the top 20 per cent holds 71 times more wealth.

For 20-somethings with parents who rent or who have property outside of the fashionable growing areas, the ladder to home ownership is set to get that little bit steeper.

Posted by Jennifer Duke - Domain (Fairfax) on 14th April, 2015 | Comments | Trackbacks | Permalink

NAB finds more parents use assets to help children buy into first homes

 The pace of house price growth is prompting more parents or other family members to put their assets on the line by guaranteeing home loans taken out by first home buyers, new figures show.

National Australia Bank says the proportion of first home buyers signing up for loans with the bank who have the backing of a family member has lifted to 6.7 per cent from 4.8 per cent in 2010.

The practice allows first home buyers with relatively small deposits to secure a loan and is often also used to avoid the cost of mortgage insurance.

However, it comes with risks for the family member who agrees to be a guarantor, as it means their assets are, ultimately, on the line for the portion of the loan they have guaranteed.       

NAB's executive general manager for consumer lending, Angus Gilfillan, said rising house prices and fierce competition from investors had made this option more popular with first home buyer customers.

"It's getting a lot tougher for first home buyers to enter the market. The rise in house prices has been pretty well-documented, particularly in Melbourne and Sydney, where prices have increased by circa 50 per cent since 2008," he said.

"All of this means that first home buyers need a larger deposit and we're seeing that first home buyers are, effectively, being crowded out of the market."

Aside from having a family member guarantee the loan, he said other strategies being used by first home buyers included buying a property as an investor and renting it out for several years, and co-purchasing with family or friends.

The Australian Securities and Investments Commission's MoneySmart website urges parents to "think very carefully" before agreeing to guarantee a child's loan.

It says that before guaranteeing a loan, they should think about alternatives, such as contributing to a deposit so a guarantee is not needed. 

"Consider how you will pay back the loan if your friend or family member can't. Can you afford the repayments?" the website says.

In response to these risks, Mr Gilfillan said NAB's family guarantee product allowed the family member to limit their exposure to a proportion of the loan, not the whole mortgage.

If the parents have put down cash to guarantee part of the loan, they also receive interest on this cash.

Frequently, he said family members' exposure was under 20 per cent of the loan.

This is the point at which banks no longer require costly mortgage insurance, which protects lenders from default risks.

"The risk associated with providing a guarantee is something that we talk to guarantors about and suggest that they get external advice first," Mr Gilfillan said.

He said the bank would also ensure there was "some sort of deposit" form the first home buyer, who would be assessed in line with normal credit procedures.

Sydney house prices jumped 13.9 er cent in the year to April and Melbourne prices were up 5.6 per cent, figures from CoreLogic RP Data show.

Posted by Clancy Yeates - The Age on 13th April, 2015 | Comments | Trackbacks | Permalink

Can you afford to sell without quoting a price ?

HOW well does the adage, “if you have to ask the price, you can’t afford it”, ring true in today’s real estate market?

Pricing is a hot topic in real estate at the best of times, whether it’s record prices, hot auctions or accusations of underquoting.

It all turns the spotlight on how best to convey the seller’s price to the market.

Most agents are upfront, listing a property with a quoted price or range, even for auction campaigns.

But there’s a solid percentage of properties that are listed without a price. Many agents instead ask for expressions of interest or provide a price only on request.

Deakin University Professor Richard Reed said price strategy differed depending on the price bracket and whether market conditions favoured buyers or sellers.

“The interesting thing is if it doesn’t have a price, the seller is in control,” Prof Reed said.

“A bit like an auction, they’ve got all the cards up their sleeve.

“If the price is quoted, the buyer is more in control. They know they can negotiate down and they know the top end.”

Prof Reed said prestige homes tended to be listed without a quoted price, while the price was revealed to the lower brackets where buyers were more price-conscious.

“If it’s a seller’s market, where demand exceeds supply, the sellers are more in control and they can dictate what the deal is going to be and they will have multiple people to negotiate with,” he said.

“Having said that, many buyers won’t be interested if there’s no price. I guess there’s an old adage in retail, if you’ve got to ask the price, you can’t afford it.”

Prof Reed said knowledgeable buyers would know what a property was worth, even if a price wasn’t quoted, because research would tell them prices achieved for similar properties.

But he said leaving the price out added to the inefficiency in the real estate market.

“If all the properties didn’t have their prices listed, buyers would actually have to go and do a little more research and it would create a lot more uncertainty in the marketplace,” Prof Reed said.

“The upside is they might get a higher sale price, but the downside is it will very much limit the number of interested buyers.”

Harcourts Victorian chief executive Sadhana Smiles said while it could be difficult to quote a price for an auction campaign, the risk with not pricing a home in a private treaty sale was the consumer would make their own assumptions and disregard properties they believed were out of their price range.

Posted by Peter Farago - Herald Sun on 11th April, 2015 | Comments | Trackbacks | Permalink

Flexibility can keep first home buyer's dream alive

 You're better to do what you can, rather than worrying about what you can't, writes Mark Bouris.

The Reserve Bank's decision to hold steady with interest rates this week means house prices in Sydney and Melbourne are likely to keep rising, even if the growth isn't as steep as last year's. This is good for home owners with mortgages – but not so great for first home buyers.

There's been a lot of negativity lately about first home buyers getting into the market. However, if you're a first-home buyer, I suggest you focus on the parts of property-ownership you can control. You can't control the Reserve Bank or the momentum of the property market. But you can control your deposit, your mortgage and finding a property in your price range.

First-home buyers must be practical if they're trying to enter the market with just a deposit and without the advantage of using equity in their current home.       

They could also have a chat with a mortgage broker. Expert advice is always helpful in these matters.

Currently in the mortgage market the lowest rates are about 1 per cent less than the middle of the pack. On a $400,000 home loan over 25 years, the difference between a mortgage at 5.5 per cent and 4.5 per cent is about $230 a month. This is a simple way to improve affordability.

One of the biggest mistakes first home buyers can make it to feel pressured to "keep up with the Joneses" and only buy in a prestigious suburb. But just because your ideal suburb is beyond your resources, you needn't give up on the property market.

But where do you buy? The Sydney property market rose 3 per cent in March, and almost 14 per cent over the year. The median Sydney price is now $690,000; the Melbourne property market rose 5.6 per cent over the year to March and its median price is $518,000.

Let's put these figures in perspective: it takes many hundreds of property sales to come up with the averages and there are many low-price sales to even out the high ones.

Some suburbs in Sydney and Melbourne are not booming. In Sydney there are properties at half the median price in outer areas such as Blacktown, Campbelltown and Wyong. And while Sydney and Melbourne surge, Brisbane, Adelaide and Canberra recorded modest gains in the year to March and Perth, Hobart and Darwin went backwards.

Many first home buyers are pragmatic about this market: they purchase a property where they can afford it. They either move there, or they rent it out and live in their suburb of choice.

In the latest home ownership figures, almost 10 per cent of property purchases were by "first-home buyers" who are not owner-occupiers. They act according to their means and once in the property market, their options increase.

So, this is not a time to give up on owning property. Be clear about your finances and talk to an expert about your options. And then do what you can rather than worrying about what you can't. 

Posted by Mark Bouris - The Age on 10th April, 2015 | Comments | Trackbacks | Permalink

Paying extra on the house may not make sense

PLOUGHING more money into your home loan gives you more bang for your buck each mortgage repayment.

But this doesn’t mean it’s always the best way to make the most of lower interest rates.

We have been conditioned to believe paying off our mortgage as quickly as we can is the key to financial success.

But paying off your debt faster than you need to will only save you interest, it won’t actually grow your wealth in any practical sense.

Realistically you can’t live off your home because you don’t realise it’s value until you sell it, which may be never.

This is why investing some of your free cash and building your savings over the long term is an attractive option.


WHILE you can take comfort in the reality that interest rates will stay low for a little longer, you need to ask yourself the question — should I try to get years ahead on my mortgage, or am I better off doing something else with my money?

But before opting to invest elsewhere, it’s wise to make sure you have a safety net — by either being a few months ahead on your mortgage, or having enough cash handy to cover living expenses for a period of time. Having some cash set aside means you can invest what you have left over at the end of each month.

Paying $100 extra each month off a $200,000 mortgage with 20 years left will save you $14,000 in interest and have your mortgage cleared just over two years earlier (assuming a 5 per cent interest rate).

Investing the same amount for 20 years earning 7 per cent will give you an extra $50,000, with over half of this amount coming from interest or capital gains. In other words, you are more than doubling your money.

It’s worth noting that if mortgage rates were higher the interest savings you would make from paying extra off your home loan would be greater. This is why lower rates support investing your money in investments that can grow your wealth.

So given you already own your home, it’s a good idea to spread your wealth to different asset classes, so investing in shares is the option that will help you achieve this.

You don’t need to be a stock picker, instead you could opt for a listed investment company, which owns a portfolio of shares managed by professionals.

An alternative is to direct your extra cash to your superannuation.

While this is a more tax-friendly environment for most Australians, you can’t access the money you put in until you are at least 55 years old.

You might consider extra contributions to super if you already have built up your savings and know you won’t need this money.

Over time, the value of your shares will go up and down as share markets rise and fall, so you need to have time on your side to weather any downturns.

The intention is you won’t draw upon these funds to meet living expenses — you can use your safety net for this. Or if you need some extra cash you can stop saving and investing, and use these funds to cover short-term living costs.

If you are one half of a partnership, it could be a good idea to put the investment in the name of the half with the lowest tax bracket.

This will help manage the tax paid each year.


AS the interest rates we receive on our cash and term deposits are so low these days, saving to buy your first property can be helped along by investing a small amount of your wealth in shares.

Investing your deposit savings means you need to have a realistic idea as to when you think you might be buying a property.

If it is within the next three to five years, it would be risky to direct a significant amount of hard-earned savings towards shares, which can go up and down in value. Instead you might only invest a small amount — you want to have a degree of certainty as to the value of your savings.

But if you have a longer time frame it could be worthwhile investing a greater portion of your savings in the share market in a bid to get a better return than what’s on offer from cash and term deposits.

At the end of the day you should only invest if you have the right investment time frame. For shares this is five years and residential property it is at least a decade.

Posted by Kirstie Spicer - Herald Sun on 10th April, 2015 | Comments | Trackbacks | Permalink

Netting a better rental return

 The best time to consider how to achieve maximum rental dollar is before you've actually purchased an investment property.

Everyone wants to live close to a lifestyle precinct, but also considering who your ideal tenant is will make a huge difference, advises Greville Pabst, chief executive of independently owned valuations and buyer advocacy companies WBP Property Group.

"Executives will pay a lot more than students, but they expect far better quality accommodation, too. A property in a tree-lined street as opposed to a tiny one-way street with limited parking will obviously help you command top dollar,"  says Pabst, who's also on the jury of TV show The Block.

"When you're looking through a property, get some perspective on your purchase and what's feasible in rent by considering if you could live there yourself, or if you would be prepared to put your son or daughter into the property." 

Self-contained laundry facilities, modern bathroom and kitchen, built-in wardrobes, good storage and two car parking spaces are important considerations if you want to achieve as much as you can in rent, he says.

"The other consideration when you're purchasing a property is to remember that a two-bedroom property will probably cost $150,000 more to purchase than a one-bedroom property, but in most cases, will only achieve an extra $30 or $40 a week in rent, which may not make it a worthwhile investment," Pabst says. 

Also, make sure you understand what represents value in the mind of your tenant, advises the director of Achieve Property, Mark Kelman.

"It's important to remember that adding value to your property is a completely different equation to cost. For example, keeping your tenant happy can be as simple as fitting an extra power point to the bathroom, giving the living room a lick of paint, fitting a sensor light to the entry or adding a better quality lock to the front door.

"Others just want a hand maintaining the garden, or perhaps an extra car parking space, says Kelman, who's  the author of Become a Property Millionaire in Your Spare Time.

"Your job as the landlord is to understand what represents value to your tenant and make sure you keep your property in top repair at all times.

"You don't want to waste money on things you'd like to add if it isn't going to add value to the tenant," Kelman says.

When deciding how much rent you could achieve, do your own homework rather than simply trusting what your property manager tells you your property is worth, he adds.

"Some property managers will err on the side of caution by suggesting slightly less in rental income because it makes their life easier to charge less and attract a larger pool of potential tenants to select from," Kelman says.

Landlords should also find out what the rental vacancy rate is in the area they're purchasing in. The lower the vacancy rate, the more you're probably going to be able to achieve in rent, he says.

If you've purchased a property that's scarce in your suburb, such as a three-bedroom house in an area filled with vacant one and two-bedroom units, you'll be able to achieve a higher rental income, he says.

Another important tip for investors is to charge the tenant water on top of the rent, rather than including the cost in the rent, he says.

"It's better to advertise your rental price ex-water, as this keeps the rental price lower and means you can add a bit more rent into your advertised price when the tenant is signing the lease. The other reason this is a better approach is that if the tenant has long showers or waters the gardens more than you factor in, you won't be stung for excess water charges."

Also make sure you always present your property in the best possible light, says Jessica Darnbrough, national spokesperson for Mortgage Choice.

Be sure the place is spotless and everything works, avoid personalised furnishings and ensure there are locks on all doors and windows, which will also be required by your insurance company, she adds.

"Tenants understand that rental increases are necessary, so make sure it's an easy process by being open about an upcoming rental increase well in advance," Darnbrough says.

"You may even be better writing a rental increase into the lease as they're signing, so the tenant realises the rent will increase every six months or year. Just make sure you stipulate how much the rent will increase and on what date."

However, you're going to have much better luck increasing the rent if you keep the property well maintained at all times and respond to any maintenance requests straight away, rather than expecting tenants to put up with a leaking tap for weeks on end," she says. ACTION PLAN

How to increase the rent on a budget
  • Understand what represents value to your tenant.
  • Consider offering a service, such as an occasional gardener, when increasing the rent.
  • Find out the vacancy rate in your suburb to understand where you fit in the market.
  • Respond to maintenance requests immediately.
  • Be up front about rental increases in advance.

Source: Mark Kelman, director, Achieve Property 

Posted by Nina Hendy- Money Manager (Fairfax) on 9th April, 2015 | Comments | Trackbacks | Permalink

Pensioners' poser: nest - or divest?

Housing is a hot-button issue in Australia at the moment. Booming property prices are making it increasingly difficult for first-home buyers to enter the market while at the other end of the age spectrum retirees are finding it difficult to exit.

"I keep hearing that people living in $3 million homes and living on the age pension should sell to young families and solve the housing crisis. Rubbish", says Ian Day, chief executive of Council of the Ageing (COTA) NSW.

The conventional wisdom is that retirees should downsize to release some of the equity in their home. Not only will this provide them with extra cash to supplement the pension, it will free up housing stock and take some heat out of the market in the process. On the surface, this argument makes sense.

First-home buyers represent just 14.6 per cent of the owner-occupier market, according to the latest Adelaide Bank Housing Affordability report. With house prices rising faster than wages, it takes 36.2 per cent of median weekly household income to pay the average NSW mortgage, and 33.4 per cent in Victoria, compared with the national average of 31.5 per cent.

It's true that many retirees are asset rich and income poor, with the family home their only asset. It is often too large, with a big garden and high maintenance costs. It may also be isolated from friends and services once the owner is unable to drive.               

In practice though, even when retirees want to move their options may be limited. The downsizing dilemma

"There's no doubt housing is an issue for seniors on several levels", says National Seniors Australia chief executive, Michael O'Neill.             

"The cost of downsizing, such as stamp duty and agent commissions, are an impediment as is the lack of suitable age-friendly housing stock in areas where people want to remain", says O'Neill.

Say you live in Sydney's Drummoyne or Melbourne's Armadale. Your doctor is there, friends are nearby and you are comfortable doing your shopping there but the nearest retirement village is 25 kilometres away. It is a disincentive to move.

Others may decide to cash in their $1 million home in the city and buy a $400,000 place on the coast to enjoy their early retirement, only to find themselves cut off from health and other services as they become frail. Another potential disincentive to downsize is the age pension assets and income test. 

The family home is exempt from the assets test but converting it into cash could reduce the amount of age pension a person receives. This is a complex area to work through and most people will need professional financial advice to navigate their way through it.

O'Neill believes part of the problem is that downsizing is not planned for earlier in the retirement process. Between the age of 55 and 65 the emphasis is on planning the financial aspects of retirement.

"What's not happening is sufficient attention to planning around the next phase – particularly around what to do with the family home. Then people make decisions in haste because of other events such as illness or a fall, rather than in a planned way that gives you more control", he says.

With the oldest of the baby boomers about to turn 70, this is an issue that is about to become even more urgent. Day says that age 70 to 75 is often when retirees' modest super savings run out.

"They still want to travel and lead an active life so they think 'maybe I should do something about the house"'.

"They are making decisions around their contacts and networks, so they want to move to a smaller townhouse or unit in their area", says Day. Unfortunately, they may be left without much change after the move. The wrong houses

Downsizers generally want at least two bedrooms so the grandkids and friends can stay over, or couples can each have their own space.

"They don't want a one-bedroom apartment because they are spending more time inside their walls than they did in their youth", says Day.

The problem then is finding suitable housing.

"There is a lack of diversity in retirement housing", says Day.

Retirement villages are not available in all areas and apartments without lifts are not suitable for older residents. Older retirees in their 80s who are still living in their own home are less active and therefore better able to live on the age pension, but they may have practical or health-related reasons for moving.

Yet for all the obstacles facing older homeowners, even seniors advocates recognise that the issue of affordable, age-appropriate housing is not just an issue for retirees, it's an intergenerational issue.

"Keeping the family home on a large block in an area where there is demand from young families is a loss to the broader community", says O'Neill. Tapping into home equity

One of the reasons freeing up equity in the family home is such a challenge for retirees is the lack of market solutions. The major banks shied away from equity release products in the wake of the global financial crisis, leaving the sector with a lack of funding.

Equity release products fall into two categories. Reverse mortgages give you a loan in return for some of the equity in your home, while home reversion schemes provide a cash payment in return for a certain percentage of your home's future sale price.

The industry was tarnished when many of the early reverse mortgages left elderly borrowers owing more than their home was worth. While most products nowadays offer a 'no negative equity' guarantee, banks have been slow to get back into the market or innovate due to reputation risk. The biggest provider of reverse mortgages is Commonwealth Bank, followed by Westpac, St George and Bankwest.

Bendigo Bank's Homesafe is not a loan but a shared equity product which provides retirees with an upfront cash payment in return for a portion of the future sale value of their home.

Macquarie Bank re-entered the fray last year after a five-year absence with a reverse mortgage designed to fund the bond and/or ongoing costs for aged care accommodation. This allows aged care residents to keep their home and rent it out.

"In the aged care segment there is a lot of product development", says John Thomas, chairman of the Senior Australians Equity Release Association of Lenders (SEQUAL).

Thomas says retirees should only look at products that allow you to live in your own home as long as you want. "Even people in their 80s often prefer to stay in their own home and use in-home care", he says.

"We also insist all SEQUAL accredited members have a no negative equity guarantee," he days. Case study: 'If you're on the pension with no money coming in you're basically stuck'

Felicity Simmons, 78, is a single retiree who says she is stuck between a rock and a hard place. Her ageing body is telling her she can't manage the steps to her first-floor apartment for much longer, but her budget is telling her she can't afford to move to more age-appropriate housing. And it's not for the want of trying. Simmons traded a three-bedroom home and garden in Canberra for her current two-bedroom Sydney apartment in 2006 to be closer to family. But Sydney's higher property prices meant she was not left with any change, despite "downsizing". For the past five years she has been thinking about moving again. "The stairs are becoming an issue now that I have a few aches and pains," she says.

She began by looking at single-storey villas and apartments with a lift but the Sydney's booming property prices have put these options out of her reach. At auctions she is outbid by wealthier retirees downsizing and young families settling for a unit or villa as a stepping stone to a larger home.

So she attended a few retirement fairs organised by aged-care providers marketing retirement villages. While the units were reasonably priced she found that the ongoing fees were up to twice what she currently pays in strata management fees and there were hefty exit fees if and when you need to move into high care.

"As an alternative to Sydney I thought I should go to the Central Coast like everyone else. I went on a bus tour of villages but prices were not much different to Sydney. At the moment I can drive but there will come a time when I can't so I need to be near public transport. "All my income is from the age pension so I can't get a loan and I can't get work because no one wanted me once I turned 70." "I feel grateful for the pension but I would like to work. I've been looking at starting an internet business writing e-books", says Simmons, who worked in education in Australia and overseas for many years. "If you're on the pension and have no money coming in you're basically stuck", she says. Action Plan

Housing strategies for seniors: 
  • Stay in the family home.
  • Downsize to a smaller residence such as an apartment or strata title villa.
  • Explore community options such as retirement villages, residential parks.
  • Let the family home and rent somewhere cheaper.
  • Sell or let your home and move into residential aged care.
  • Sell and move in with family or to a granny flat. 
  • Stay and draw income from an equity release product. 

Source: COTA NSW 

Posted by Money Manager (Fairfax) on 8th April, 2015 | Comments | Trackbacks | Permalink

Pump up a mortgage cushion by overpaying

Home loan customers are exploiting the very low cost of credit to get further ahead on their mortgages, giving them a protective buffer against a financial shock.

Amid all the warnings about the dangers of very cheap credit, this is a reminder that low interest rates aren't just an opportunity to take more risk, they also give borrowers the chance to get on top of their debts.

When interest rates fall, borrowers have the option of paying the bank less each month, or leaving their mortgage payments unchanged and paying off the loan more quickly.

Figures from the Reserve Bank show that in aggregate, they are continuing to do the latter. Excess repayments have been gradually growing as interest rates have fallen. 

This expands the borrowers' "mortgage buffer," which give them more breathing room before a default if they were to lose their job or suffer some other hit to their income.

The overall mortgage buffer has reached 16 per cent of all home loans, once mortgage offset accounts are included. That may not sound like all that much, but it's equal to more than two years of minimum loan payments at today's interest rates.

The buffer has expanded from about 10 per cent of all home loans a few years ago, and it means that many borrowers would have significant breathing room if they lost their jobs. Above all, it is a sign that many borrowers are managing their finances sensibly.

However, it's also occurring at the same time as other warning signs are flaring up in the mortgage market.

For one, the closely-watched ratio of debt to income is high. Household debt to disposable income is about 150 per cent – near its highest level on record – and that increase has mainly been driven by the surge in house prices over the last couple of decades.

Delving into the data a bit further, the most recent increase in this ratio has been driven by investors, many of whom are betting on future house price gains.

The RBA is worried that this "speculative demand" is pushing up house prices to a level where they are at risk of falling significantly, which would harm economic growth.

These property investors who are using low interest rates to take bigger financial risks and push up house prices are worrying the regulators, who are looking to rein in riskier bank lending to property investors.

On the whole though, many borrowers appear to be responding to low rates by paying their bank back faster – and that's welcome news.

The low level of interest rates means that most households can afford their loans now, but you should remember that rates are highly unlikely to stay this low in the long-term.

Therefore, paying off a bit extra each month can be a smart financial move.

Posted by Clancy Yeates - Money Manager (Fairfax) on 7th April, 2015 | Comments | Trackbacks | Permalink

How to buy a property

 RECORD low interest rates and rising house prices mean buying into bricks and mortar is an enticing proposition for investors at the moment. Plus, many first homebuyers are looking to use an investment property as a way to hoist a foot onto the property ladder, before picking up a place of their own down the track … or living in the investment property when they can afford it.

We think that property can be a great way to grow your wealth over the long-term as long as you're smart about it and don't expect to become a mogul overnight.

But don't be fooled, buying an investment property is very different to buying a place to live.

If you're thinking about becoming a property investor, here's what you need to know.

You're buying for a different reason

Buying your own property is full of personal, emotional decisions. Can this place support my family for the next five to ten years? Are there good schools nearby for the kids? Do I actually like it?

An investment property purchase, on the other hand, should be completely objective. You'll want to make sure the property is reasonably priced, with a strong rental yield and good potential for long-term capital growth.

Also consider whether the property will appeal to the types of tenants that are likely to want to live in the area, not whether you'd want to live there or not.

The financial benefits

Loans taken out to buy investment properties are generally considered ‘good debt', as they generate income, provide tax benefits and the property can also increase in value over time.

On the other hand, loans for a property that you live in yourself are generally thought of as ‘bad debts', as they don't generate an income for you.

When you borrow money to invest in property, the borrowing costs and other costs of owning the property, including depreciation, can be offset against the rental income you receive.

If the income from the property is less than the cost of the loan (interest repayments and other property expenses), then the difference can also be claimed as a tax deduction against other income in a process known as negative gearing.

Just keep in mind that negative gearing isn't a guarantee of making money. It relies on capital growth to offset the losses you're making on the investment, so don't be blinded by the promise of a tax deduction.

While there may be a tax deduction down the track there is a cash “negative” every month which you need to cover.

The risks

Buying an investment property has many risks, some of which are similar to buying a place to live.

For example, interest rate are at record lows now, but if they were to rise quickly and you have a variable loan on the investment, your borrowing costs would increase dramatically.

Remember also if you can't find a tenant for whatever reason, you'll have to fork out for the entire mortgage by yourself. And a dodgy tenant can ruin both the property and the financial return.

Thirdly, many people don't realise that investing all of your money into a property means that your investments are not well diversified, and this is doubly true if you already own your own home.

Finally, if you've only watched the market for a few years, you'd be forgiven for thinking that property values only ever go up.

But the reality is property prices can fall, and in some markets you might find it difficult to sell your place at all. You could even end up owing more money to the bank than your property is worth.

Despite these risks, there are a lot of potential upsides to buying an investment property if you approach it in a prudent way.

As always with any major investment, do your research, know what you're getting into and don't stretch yourself too thin.

Posted by David & Libby Koch - News Limited Network on 7th April, 2015 | Comments | Trackbacks | Permalink

Maximise low interest rates and shave down debt

 PAYING more than the minimum amount off your mortgage can save you hundreds of thousands of dollars over the loan term.

And with interest rates at record lows the potential to save is even greater.

So if you are one of many homeowners choosing to pay just interest on your loan think how much it could cost you in the long run.


On an average $300,000 loan you would need to pay $1572 a month in principal and interest to pay off the loan in 30 years, figures from financial comparison site Mozo show.

Paying just interest, the variable rate repayments reduce to $1315, leaving an extra $257 a month in your pocket.

But these loans are really not viable long-term options for the average property buyer because they don’t help you earn an asset, says Mozo spokeswoman Kirsty Lamont.

“Principal and interest loans are designed to allow you to pay down the debt so at the end of the loan you are debt free and you own the property outright.”

The best option, while it may seem harder in the short term, is to make more than the required repayments on your loan.

Taking the same $300,000, 30-year loan, if you pay an extra $50 a month on top of the required $1572 for interest and principal, you will save $20,200 and pay the loan off almost two years earlier.

Paying an extra $100 a month will save you an extra $37,400 in interest repayments and the loan paid off three years and seven months earlier.  


Many borrowers opt for interest-only repayments on investment purposes so they can negatively-gear it and reap the tax benefits, but owner occupiers who opt for interest-only repayments receive no tax benefits.

Shadforth Financial Group’s head of advice John Barton says making interest-only repayments on your own home’s mortgage can be a good idea if you are smart with the surplus funds.

“Interest-only repayments don’t matter if you understand them but if you spend the money you would have used on principal and interest repayments at restaurants, on poker machines or on flat-screen TVs it is a bad idea,’’ he says.

“You are relying on your property value going up a lot over the life of the loan and you are going to pay a lot more interest.”

He says if you take the extra money and save it and invest it you could end up better off — but you would have to know what you are doing.



— Frees up more cash and can be useful if your household income changes, for instance if you lose your job or have a baby.

— Makes your monthly repayments lower.

— Allows you to invest the money elsewhere.


— You will never pay back the home loan debt.

— You will not a build a buffer if interest rates rise in the future.

— You don’t get any tax benefits.

Posted by Sophie Elsworth - News Limited Network on 7th April, 2015 | Comments | Trackbacks | Permalink

Don’t get caught making a fed-up purchase

Are you are a prospective homebuyer exhausted by months of searching for “the one”?

You may be at high risk of making a “fed up” purchase decision that can cost you dearly long term, warns Buyer’s Agent and Author Patrick Bright.

According to figures by CoreLogic RPData, the percentage of houses and apartments sold at auction in Sydney in the week ending March 15 reached a whopping 78.3%.

That’s the highest clearance rate since 2009.

It’s a similar story in the inner suburbs of Melbourne, where weekly auction clearance rates are consistently at 70% or higher.

Even if you’re not hunting in a hot metro market, more cashed-up and game-ready buyers can regularly pip you at the post.

The current competitive property market is leaving many buyers feeling increasingly disappointed, says Bright, who is Director of EPS Property Search.

First-home buyers in particular may be finding it hard to keep their spirits up.

“Naturally buyers become disillusioned when they miss out on a potential home they really like,” Bright says.

“They are sick of looking and some end up making a ‘fed up’ purchase that will cause them grief both emotional and financial for many years to come.

“Unfortunately, after buying an unsuitable home a lot of buyers realise they can’t live with the home’s shortcomings and either begin an expensive renovation, which often leads to over capitalisation, or decide to sell and buy a more suitable property.

“Doing so ends up wasting 10s if not 1,000s of dollars in buying and selling costs.”

Bright says homebuyers “must keep their emotions in check” and remember that another suitable and appealing property is always just around the corner.

Here are 5 tips to help buyers avoid making a ‘fed up’ purchase:

1. Trust your needs/wants lists

Pull out a piece of paper and pen and, if you haven’t already, write a two-sided home wish list.

One side is all your needs. The other side is all your wants.

The needs list must only include features you cannot compromise on – for real.

Must you have 3 bedrooms to house your six children? Write it on the needs’ list.

Do you need to have an ocean view? No, but you’d like one? Pop it on the wants list.

“This process will help you rule out unsuitable properties before you attend open homes and save you becoming emotionally attached to a house that doesn’t meet your requirements,” Bright says.

2. Become a home values gun

Make sure you’ve done comparable market analysis and know current values as opposed to following price guides.

“By keeping your search to properties that are in your price range, your top three suburbs and that match your needs list, you’ll become an expert on that particular type of property in your research area … able to spot a quality property and make an informed offer.”

3. Can you get your hands on the dollars?

One of the surest ways to seal a deal on a high-quality home is with a deposit cheque (or money transfer) today.

If you find your dream home but still have to talk to a lender about getting funds, you run a high risk of losing to a more organised buyer and ultimately making a fed-up purchase of a lesser home.

“Have pre-finance approval in place and make sure you’re aware of all the upfront costs of buying property e.g. stamp duty, pest and building inspections, legal fees, mortgage fees, removalists etc,” Bright says

4. Consider hiring an agent

If you’re suffering home-hunter fatigue, minds can play tricks: It may be time to pay for professional (agent) help.

Have you tried to convince yourself that lime-green bedsitter with the outdoor toilet is “charming in a retro way”? Yep. You are at dangerously high risk of a dodgy deal.

Engaging a buyer’s agent will cost a percentage of your home’s purchase price, but may save thousands in the long run.

5. Walk away for a wee rest

Guess what? The housing market never sleeps but it also doesn’t vanish if you give yourself a break. You will come back fresher and there are always new fabulous listings just around the corner.

Log-off for a week and see what happens.

That sweet property you really wanted that you missed by a whisker may just pop up again because your rival buyer couldn’t raise the bucks and the contract collapsed.

It happens. It can happen for you. To recap, avoid fed-up buying by:
  • Buying only what’s on your shopping list
  • Studying home prices and values so you don’t overpay/under-offer
  • Getting your money sorted
  • Bringing in outside help if needed
  • Taking a house-hunting holiday

Posted by Caroline James - Realestate.com.au on 7th April, 2015 | Comments | Trackbacks | Permalink

Tax tactics can make your money grow

The announcement of another tax review may not excite you but paying tax is still a fact of life for most Australians. But it needn't be a negative.

If you're trying to create financial security, always remember that the tax system can often be on your side, as long as you are properly informed and understand how to comply.

In the first instance, you should always see an expert adviser if you make financial decisions that hinge on tax. But if you don't have an adviser you should at least understand these basic ideas that can boost your tax efficiency:       
  • Salary sacrifice to super When you get your employer to make extra contributions above the superannuation guarantee, the amount sacrificed (up to your cap) each year reduces your assessable income by the same amount, saving you a lot of income tax and increasing your retirement savings.
  • Super contribution concessions When you put your own salary sacrifice contributions into superannuation, they are not taxed at your marginal income tax rate, but at just 15 per cent within the superannuation fund (up to your cap). 
  • Tax on super fund earnings If you put your money into a term deposit for example, the earnings are taxed at your income tax rate. But same money in a super fund is taxed at just 15 per cent on earnings, allowing your retirement savings to grow faster.
  • Investment property expenses When you buy an investment property, most of the expenses associated with maintaining and managing the property as an investment, are deductible. Including asset depreciation. That means you reduce your assessable income from the property by the amount of your expenses, reducing your tax bill and making the property more affordable.
  • Negative gearing If your investment property's costs are greater than the rental income, you can take this annual loss and use it to reduce your other income by the same amount, thereby reducing the amount of tax you pay and making the property more affordable.
  • Interest only loans Your investment property could be more tax efficient depending the type of loan you use. The only part of an investment loan that is a tax deductible expense is the interest. So property investors using interest-only loans (no principal is re-paid) could make their investment property more affordable from a cash flow perspective whilst maximising tax deductions.
  • Franking credits When you own shares in a company that issues 'franked' dividends, the Tax Office acknowledges that the company has already paid corporate tax, and attached to the dividend is a franking credit for you. Most investors reduce their tax liability with franked dividends.
  • Your family home In most circumstances you are not charged Capital Gains Tax (CGT) when you sell your 'primary place of residence'. This is a great tax concession and is one of the foundations of retirement finances.
  • Your business There are several CGT concessions for business owners who sell their business and use the proceeds for retirement savings.

So, the tax system can work to your advantage as you create financial security and build wealth, but you first have to know the tax rules and then you have to comply. I think it's always beneficial to talk to an adviser. Good luck. 

Posted by Mark Bouris - The Sunday Age on 5th April, 2015 | Comments | Trackbacks | Permalink

The pros and cons of being an owner builder

Every year, more than 8000 Victorians apply to the Building Practitioners Board for permission to take responsibility for much of the building of their own property. While some owner builders restrict themselves to project managing qualified sub-contractors, many undertake much of the less skilled work themselves.

Owner builders make registered builder Neil Coulter angry. With decades of building site experience under his belt, Mr Coulter says property owners should not be allowed to do work that requires skill and experience.

He blames reality TV shows like The Block for giving people the impression that building is easy.

"They don't understand that behind those people on those TV shows there's a whole team of people co-ordinating that build," he says. 

"I think people look at those shows and think they can do that, or better, but then they get a bit of a surprise when they go to do it themselves. They might know the general specifics of how to build a house, but they don't know the intricate bits that a builder with 20 years of experience knows."

Mr Coulter says building sites can be dangerous and owner builders don't know enough to ensure tradesmen are not cutting corners.

"I have demolished houses before where they have put an add-on and you might have a whole heap of rubbish under floor spaces obstructing the natural air flow, which can have an effect on the performance of your footings and subfloor, and that sort of thing can cause health issues with dry rot and mould.

"I have seen some houses where owner builders haven't even put simple things like air vents in or … things like expansion joints, where they haven't been put in at the required intervals and that can affect the structural stability of the walls and can have cracks forming because buildings move."

Brian Heaton,  chief executive officer of Owner Building Solutions, has trained thousands of owner builders over the years and says the potential to save a Registered Builder's fee, which is usually about 30 per cent of the cost of a build, is the big attraction.

"Some of them get a lot of self-satisfaction out of physically building something themselves, but the main motivator, of course, is to save money."

Despite his involvement in training, Mr Heaton is not a fan of owner building, having witnessed the stress and heartache when things go wrong, usually when inexperienced owners try to do work themselves.

"One of the problems with owner builders is they think they are a lot better than they are, and that's when they get into trouble," Mr Heaton says.

However, Barry Plant property consultant James Brougham says the input of an owner builder can result in a unique property.

Mr Broughman recently listed a Wonga Park property that was transformed by the work of the owner, a flooring expert.

"I think what they have created is just so different, you are not going to get that out of a Metricon or from a builder's property range," Mr Brougham says.

Mr Broughman says the obvious attention to detail, combined with signoff from the council, would alleviate any potential concerns buyers may harbour about the quality of the work done by the owner builder.

Sustainable building designer Tim Sonogan's enjoyment of his new home in Torquay is heightened by his sense of satisfaction from project managing the build and undertaking much of the physical labour.

"The main reason I did it was to improve my knowledge of the building process to further enhance what I do in my design, but a massive amount of satisfaction has come out of all the work I have put in," he says.

And while it took him three months longer than anticipated to complete his home, Mr Sonogan is convinced he has created a superior property, in part because he was very particular in overseeing the subcontractors' work.

"The plumber said he would never work with another owner builder again – I guess I might have been a bit pedantic."

As for anyone considering becoming an owner builder, Mr Sonogan suggests they talk to someone with experience of building their own home.

"The info they can give you … you couldn't put a price on it."

Case study

Nine years and a lot of hard work by floorer James Orpwood and his partner Merren Winter has transformed a one-bedroom unit into a unique home that suits their lifestyle.

The couple, who love entertaining, can relax at the full-length bar in their living room; play billiards in the covered pergola, with outdoor kitchen; or, watch TV from their spa, grabbing a cold beer from its adjacent fridge.

If they are feeling more active, there is storage for their jet ski, and a golf swing practice area.

"When you're doing your own extension, there's not a lot of time to get out on the green," Mr Orpwood explains.

Not that he has regrets about being an owner builder. "We were in no rush to do it up quick and borrow a lot of money. We have done it with our own hands basically. I look at it like a second job, or doing overtime.

"Everything's done with pride and care. I have worked on a lot of building sites and some of the housing they are putting up is slap dash. I would double check everything. I didn't want to look down my hallway and see the skirting was bowed."

Itching for a tree-change, the couple are now selling their home but plan to recreate it in Mildura.

"There's not a lot we would change," Mr Orpwood says.

Posted by Kate Robertson - Domain (Fairfax) on 5th April, 2015 | Comments | Trackbacks | Permalink

Melbourne's holiday boltholes at the beach that should be on your radar

Rye, Inverloch and parts of Barwon Heads could provide the perfect entry point for families looking to buy a holiday home on the Victorian coast.

As properties prices soar in Melbourne, coastal townships are also offering a cheaper way into the market for those with an eye to retirement.

Data from Domain Group (owned by Fairfax Media) shows there is  a clutch of towns across the state that offer good value in either scenario, and  have prospects of more than 5 per cent growth this year. 

Andrew Wilson, senior economist at the Domain Group, said Australia had turned into a country of savers since the global financial crisis, with discretionary purchases such as holiday homes put on hold. 

But strong prices growth in some Melbourne suburbs could translate into confidence, he said. 

"If rising prosperity from aspirational buyers in Melbourne leads to thinking about buying a holiday home ... these are popular holiday destinations which still appear to offer good value," he said. 

Holiday home hunters shopping for a getaway on the Mornington Peninsula with a lifestyle similar to that in Portsea and Sorrento – beaches, cafes and amenities – but without their hefty price tags, could consider Rye.

Compared with a typical house in Portsea, which could set buyers back by $1,165,000, the median house price in Rye sits at just $470,000.

Hocking Stuart Blairgowrie director Craig Evans said there seemed to be particular interest in homes within 500 metres from the front beach and close to shops. Buyers looked for a holiday home they could potentially do up, or knock over  to build afresh,  for retirement in the future, he said. 

"All our buyers are coming from the south-east suburbs," Mr Evans said. "And with the Peninsula Link, and the ease of getting to Rye, it's only an hour for most people to get down to holiday territory."

For those wanting a piece of the Peninsula's most expensive property, Andrew Wilson believes it could be an ideal time to buy. 

"If you're at the top-end of town looking for a holiday home, those areas are now just really ripe in terms of [prices] being flat there for quite some time," he said.  

"Portsea and Sorrento really do offer good value for the ultra-prestige buyer because prices there are below their previous peaks."

Along the Surf Coast, house prices have been pushed up  by holidaymakers and sea changers.

Compared with the traditional holiday resorts they were 50 years ago, Dr Wilson said the Surf Coast had been attracting more long-term residents. 

But buyers could still find value in coastal villages such as Barwon Heads, where the median is $658,000. It's an alternative to Lorne further down the Great Ocean Road, with a house median of $745,000. 

Vendors Clive and Vivienne Moulday are selling their home of three years at 29 River Parade, Barwon Heads, and plan to downsize to a single-storey house they're building in the town. 

Mr Moulday, 65, said the town had not undergone much change since the couple bought the home. 

"Torquay and those areas are just going ahead with their growth corridors," he said. "[Barwon Heads] is not going to be overdeveloped because it's bounded by the sea, the river and the wetlands."

Listing agent Peta Walter of RT EdgarBarwon Heads is quoting $1,575,000 for the three-bedroom house near the Barwon River. 

With a house median of $391,250, Inverloch could be an option for those looking on the Gippsland coastline. 

"It's a traditionally popular destination east of Melbourne," Dr Wilson said. "It has more value than if you're looking at dollar for dollar [compared with] the other side of the bay."

Buyers with an even tighter budget could consider Winchelsea, south-west of Geelong, where the median house price is just $299,000

Dr Wilson said the town, which offers a combination of the sea and tree-change lifestyle, could be an option for buyers priced out of the Surf Coast.

Holiday getaways, Median house price
  • Winchelsea $299,900
  • Sandy Point, $366,500
  • Rosebud West, $370,000
  • Inverloch, $391,250
  • Rosebud, $396,250
  • Tootgarook, $400,000
  • Cowes, $400,000
  • Bittern $420,000
  • Rye,  $470,000
  • Barwon Heads $658,000

Source: Domain Group senior economist Andrew Wilson

Posted by Christina Zhou - Domain (Fairfax) on 5th April, 2015 | Comments | Trackbacks | Permalink

Agents wary of vendors' great expectations

Melbourne's strengthening residential property market will face a series of challenges in April and May.

Some real estate agents predict the current bounce in auction clearances, which has defied expectations, could evaporate if buyers baulk at paying excessive reserve prices.

Vendors in some suburbs could also be disappointed by relatively low levels of house price growth, despite a weekend clearance rate nudging 80 per cent over the past month.

At the start of the year analysts said macroeconomic factors – including a high jobless rate, Victoria's declining manufacturing sector and record-low levels of wages growth – would curtail housing market growth.

But that hasn't happened. Low interest rates, the setting of "fair" reserve prices by most vendors and high levels of migration to Melbourne have proved more critical in shaping the market than broader economic factors.

But how long reasonable reserves will remain a market constant is anyone's guess.

Marshall White director John Bongiorno said high reserves were more likely to quell sales activity than external factors.

There were signs vendors were hiking up reserves, he said  

"If vendors start to get ahead of themselves and get a little bit greedy, buyers will just shirk the prices," Mr Bongiorno said.

But Jellis Craig director Craig Shearn said some high reserves were being met and exceeded at auctions.

"It is still important to set your reserve realistically but in a lot of cases in the past few weeks when a reserve has been seen as high, the market has taken care of it," he said. 

Auction clearance rates have moved up 10 percentage points to about 80 per cent since October. Historically, increases in the clearance rate lead to growth in property values.

Domain Group senior economist Andrew Wilson said the improved clearances were expected to lead to 8 per cent growth in Melbourne's median house price this year, up from the 4 per cent growth rate originally forecast for Melbourne.

"There will be double-figure growth in the eastern suburbs," he said. 

However, Dr Wilson said there wouldn't be a repeat of the 2009-10 boom, when Melbourne prices surged by 30 per cent. This was because the capacity for price growth was weak due to Victoria's underperforming economy.

Listing numbers, which were soft at the start of the year, are also now pulling ahead of 2014's auction bookings.

This will give buyers choice and up the pressure on sellers.

Yet a move by the Reserve Bank board, which meets on Tuesday, to cut interest rates again would certainly boost confidence levels.

Only 11 metropolitan auctions were held on Saturday. Listings will ramp up next weekend when 546 auctions are scheduled.

Posted by Chris Tolhurst - The Age on 4th April, 2015 | Comments | Trackbacks | Permalink

Australian households now owe almost $1600 billion in debt

 A DEBT binge by households is putting people in dangerous financial positions and leaving them unprepared for future interest rate rises.

Despite falling interest making it easier to pay down loans, Australian households now owe almost $1600 billion, a 28 per cent rise in just five years, and economists say our personal borrowing levels are among the highest in the world.

The latest Reserve Bank of Australia figures show housing debt is the biggest factor. Meanwhile, people are paying high interest rates — averaging 17 per cent — on almost $33 billion of credit card debt that fails to get repaid every month.

Borrowing experts say now should be the time to pay off debt faster, not increase it, while interest rates remain low.

Prushka Fast Debt Recovery chief executive Roger Mendelson said Australians had not factored in the costs to repay their debts when rates eventually climb.

“I certainly think there’s going to be an issue when interest rates go up, and anyone who says they won’t is denying the normal economic cycles,’’ he said.

Mortgage interest rates near 5 per cent have helped fuel the debt spike. Since early 2010 owner-occupier housing debt has climbed 28 per cent to $945 billion, while investment housing debt has jumped 41 per cent to $495 billion.

“They need to factor in interest rates at 8 per cent, and even that is low historically. If there’s any time to get your household budget into order, now is the time to do it and prepare for bad times,” Mr Mendelson said.

“If you lose your job, interest rates go up, unemployment goes up, house prices go down, that’s when people get caught out.”

Australian Credit Management managing director Campbell Woskett said households had enjoyed easy access to credit in the past five years amid a growing number of borrowing options including more credit cards, debt-consolidation lenders and payday lenders. Another newcomer, peer-to-peer lending, is in its early stages.

Mr Woskett said most people aged under 40 could not remember Australia’s last recession in the early 1990s. “Maybe some older folk may also have dusty memories,” he said.

“Then in 2008 we had a GFC. The government of the day built some schools as part of the stimulus package, while many people received a bonus $900 to go shopping. I recall younger workers saying to me ‘hey, if this is a crisis, bring it on’.”

Mr Woskett said in the past six months more people appeared stretched financially. “There will always be debt, but excessive debt can hurt people. It can set them back financially, it can damage their individual confidence and it can shatter families,” he said.

Oracle Lending Solutions director Angelo Benedetti said his firm was turning away people every month because they wanted to overstretch themselves with debt.

He said he had received a lot of inquiries about personal loans “but unfortunately for a lot of people it’s about debt consolidation”, combining several out-of-control credit cards into one lower-interest loan.

“Debt reduction should be the number one thing at the moment. Interest rates will definitely go up in the future and it’s important to create a budget and build equity in your property.”

Then, if rates rise or you hit an unexpected financial hurdle, you have “room to move” with your bank, Mr Benedetti said.


1. Keep alert to what is happening in the local economy and how it might affect you.

2. Don’t take your source of income for granted. Ask yourself what happens if it disappears.

3. Define what is really necessary to buy, and limit your consumption.

4. Don’t over-borrow. Try to have decent equity in major purchases such as motor vehicles.

5. Check your own credit file for free on websites such as mycreditfile.com.au and experian.com.au.

6. Keep in regular communication with your creditors — it always helps to talk with them

7. Understand that being in debt is not forever, and you can get back to a stronger position

8. If you are in serious and overwhelming debt, get advice from a trusted financial counsellor or adviser and make a plan to manage it.

Source: Australian Credit Management

Posted by Anthony Keane and Sophie Elsworth News Corp Australia Network on 4th April, 2015 | Comments | Trackbacks | Permalink

Melbourne at the forefront of fixing underquoting

Despite  promises to crackdown on underquoting in NSW, it's Melbourne where agents are exploring avenues that benefit buyers and sellers.

Petitions calling for legislation to mandate the publishing of reserve prices were circulated last year in  Sydney and  Melbourne by buyers' agents Patrick Bright and Miriam Sandkuhler.

Yet it seems we may not need to wait for the law to change for agents to step up to the plate. A handful of real estate agents are taking it upon themselves to clean up the industry.

Over the past month, Caine Real Estate CEO Jacob Caine slowly introduced the publishing of reserve prices to his real estate agency. 

Long frustrated by the lack of transparency around price advertising, he saw this step as the logical progression towards fairness for sellers and for buyers, who are often left "humiliated" when an auction quickly heads above their price bracket.

"Our job as residential sales people is to sell properties for the highest possible price by marketing them to the greatest number of people capable of paying, at the very least, the owner's reserve price," he said.

"Time and time again we've witnessed auctions where disillusioned, confused and downright angry buyers leave auctions that they weren't even close to in terms of buying capacity."

Underquoting is good for only one thing  – attracting a crowd. Yet a crowd of unqualified buyers doesn't create a strong auction. 

John Keating, from Keatings Real Estate, pioneered the concept of publishing the reserve price more than 10 years ago.

Starting in July 2003, it took him a few years to perfect the process and publish reserve prices regularly.

The catalyst was a staff member who was selling through the agency. He opted for full transparency, beyond just telling buyers about the agency's relationship with the vendor.

"We discussed how much it was worth, around $220,000 or $230,000. He agreed to advertise the reserve and we set it at $220,000. I didn't do the auction, I stayed one step back, and it sold at $242,000. That's how it started," he said.

Buyers and vendors do need educating around the process and what it means to publish the reserve price, however he finds that most people are attracted by the idea and, in fact, are often more likely to buy.

While Melbourne real estate agents are steaming ahead with this concept, an LJ Hooker agent did sell a home in Bexley, New South Wales last year with a published reserve price.

The 15A St Georges Road home advertised a $570,000 reserve price and achieved $613,000 at auction.

Mr Caine does foresee difficulties in rolling the concept out across Melbourne and other cities, particularly with jaded buyers expecting that every agent has underquoted and adjusting the price accordingly. Some even adjust upwards by 25 per cent.

"We've had buyers come to us, who've been so conditioned by the market place to adjust way up, and they've said: 'I would have paid more for that property, but I didn't even come to the auction because I didn't think you were telling the truth with your range'. Buyers are ruling themselves out of properties arbitrarily that they may otherwise have paid the owner a great price for," he said.

"But we've got such an entrenched and distorted psychology around pricing to compete with," he said.

Now on the Real Estate Institute of Victoria Young Agents Committee and Members Council, part of his push will be to get other agencies to consider taking this step and encouraging the REIV to explore the option.

"We'd love for some of the big independents to get on board with us – if some of those big guys weighed in we could possibly hit a tipping point," he said.

Although some independents have started to show their commitment to cleaning up the industry, it may take a bit longer to get the larger agencies on board.

Posted by Jennifer Duke - The Age on 3rd April, 2015 | Comments | Trackbacks | Permalink

Fierce competition at auctions means many buyers miss out. Should you make an early offer?

 AUCTION clearance rates are high and with multiple bidders at many auctions, chances are a lot of buyers are missing out.

In southern states clearance rates are regularly between 70 per cent and 80 per cent at the moment and multiple bidders are lining up to secure their dream homes.

So how do you make sure you win that property?

Should you make an early offer and try and bypass the auction process completely?

Buyers’ agent and valuer Tony Coughran from VFM Property reckons you should.

“I’ve bought many properties prior to auction day,’’ he said.

“Buying a property that is going to auction is really no different to buying one that is being sold through private treaty. Think strategically and always have a plan in place — this begins with making an offer prior to auction,’’ he said.

Mr Coughran said making an early move could knock out the competition and remove the chances of paying a premium at auction.

“Emotions don’t even get to play into it (like they can do on auction day) especially if the bidding gets out of control,’’ he said.

“Don’t be disappointed if your offer is not accepted; it’s just the start of a process.’’

Mr Coughran said the success of buying before auction depended on the property type and the current market in the area you are buying.

“In an ordinary market if you have done your homework and are making a fair offer with auction-like terms, there is every chance your offer could be accepted.

“You have to be realistic though, don’t expect an offer to be accepted pre-auction if you’re trying to purchase a great property in a highly sought-after location. Buyers will be lining up come auction day for this type of property and vendors know there is every chance they’ll get a premium under the hammer.’’

Empire CEO Chris Gray said if you want to make an offer before auction day, make the conditions appealing to sellers.

“Unconditional offers (that are not subject to finance, building inspections etc) are always appealing to vendors, as they are serious,’’ he said.

“To ensure yours is accepted, you will need to have a conversation with the agent to discuss the vendor’s expectations. Do they want a long or short settlement, or to extend their stay in the property?’’

He said be confident of what the property was worth and don’t make an emotional decision when you do find your dream property.

Independent valuations and research will help you work out what to offer.

Posted by Michelle Hele - News Limited Network on 2nd April, 2015 | Comments | Trackbacks | Permalink

Buying houses with super is not a smart idea

You will have noticed that federal Treasurer Joe Hockey recently suggested – then clarified that it had been suggested to him – that the government would consider letting Australians dip into their superannuation accounts to help fund the purchase of their first home. We can already buy investment property with super, of course, but this idea was to allow a withdrawal of cash from super for the purpose of buying somewhere to live.

On first blush, it's an idea that seems to have some real merit. After all, Australian house prices (and particularly those in Sydney and Melbourne) are at or near both historical and relative highs, when compared with most countries around the world.

Yes, there are reasons put forward as to why we're "different" to the rest of the world, but remember housing is only worth what someone else will pay for it. If we all decided to pay less at auction, the prices would fall overnight. Will we? Who knows... but don't fall for the "we're different" schtick!

If you'd accept the reasons that are cited, you also need to accept that there are a huge number of Australians who can't find a home because supply is so constrained (and rents would simply be much higher if that was the case). 

What problem are we really solving?

At its core, the "buy a house with super" solution is like treating the symptoms of a problem, and letting the cause go unchecked. The question shouldn't be "how can we help young adults get into an extraordinarily expensive housing market", but "why is the housing market so expensive". And asking the right question is immensely important if we're going to have the right policy outcome.

Exhibit one is the range of first-home owner's grants that both the federal and state governments decided to make available, originally to offset the GST, but which has persisted, in different permutations and amounts, ever since. And if that grant wasn't – and still isn't – able to make first-home ownership affordable for new buyers, then what makes us think yet another "free kick" scheme would help?

It's a tempting short-term solution – give people a little extra money to help them get into the housing market. But the first=home owners schemes didn't meet that aim in the past – and it's even more doubtful that dipping into super would help in the future. Indeed, think about the simple supply and demand dynamic – rather than levelling the playing field, tapping super is likely to simply be just adding extra demand, and pushing house prices even higher.

Real solutions required

Some commentators have argued that having a house is likely more valuable in retirement than having a few dollars more in super. I can't disagree with that in theory, but Australia's policy-makers have more than just a binary choice between the two. And swapping some super for a first home is letting them off the hook – and ignoring the real problem.

It'll take some real policy guts – and more than a little leadership – for the real problems to be addressed, but they must be. The state and federal treasurers must first look at the supply of land. After that, the distorting effects of negative gearing must be addressed. Like it or not, negative gearing makes it cheaper for an investor to buy a house than for an owner-occupier. And as individuals, we need to get over the "super is our money" greed.

Yes, the money is in your name. But remember, it's contributed by your employer under government regulation, to replace, in whole or in part, your need to claim on the welfare system in retirement – not as a personal piggy bank. It might be "your" super, but it rightly comes with strings.

Foolish takeaway

Our superannuation system is the envy of the world. It shouldn't be compromised because policy-makers (of all political persuasions) are unable or unwilling to find better solutions to other problems

Posted by Scott Phillips - Money Manager (Fairfax) on 1st April, 2015 | Comments | Trackbacks | Permalink

A little self-knowledge can go a long way

Our financial decisions are coloured by emotions, biases and by the people with whom we associate – our peers.
  • FIND YOUR MONEY TYPE Our  interactive quiz will reveal more about your financial decision making - and give you some tips on how to improve things
Some prefer to live in the moment and not think too much about the future. Some of us make decisions more on "gut feel" than solving problems rationally.

Everyone is vulnerable, to a greater or lesser degree, to making mistakes when managing our finances.

Who has not been guilty of putting off a decision and leaving it to later because it is all too hard and now is not the right time? 

Psychological research has made big strides into better understanding financial decision-making.

Brad Klontz, a financial psychologist in Hawaii and an associate professor at Kansas State University, reckons many people fit into one or more of four money belief patterns. In a paper published in 2011, in which he was lead author, Klontz identified four basic money belief patterns that people tell themselves, whether true or not.

People with a "money avoidance" belief pattern try to distance themselves from money.

Then there are those who "worship money" and think that if they only had more of it their problems would go away.

Those with a "money status" belief pattern link their self worth to their net worth. Finally, there is "money vigilance"; those who pay their debts on time and are cautious about over-spending.

However, they could deprive themselves for no rational reason. In other words, what we would call a miser.

Irrational instincts

Apart from personality or belief patterns there are just the plain old irrational instincts that lead all of us, even the most financially literate, to make mistakes.

"The human brain evolved during the Pleistocene age when the trick was to avoid being squashed by a woolly mammoth or eaten by a sabre tooth tiger," says Shane Oliver, chief economist at AMP Capital Investors.

That is probably the reason that bad news sells. We are always on the lookout for risks, Dr Oliver says.

Susan Thorp, a professor of finance at the University of Sydney, says: "Most of the mistakes in finance relate to the way we process risk and probabilities.

"There is a list as long as your arm of the mistakes that most of us make at one stage or another when it comes to dealing with uncertainty and information about events," she says.

One of the best known is the "gambler's fallacy". This is where five "heads" are tossed in a row and the gambler thinks "tails" has to be next. In fact, the chances of the next throw coming up tails remains at 50 per cent.

And, of course, there is the tendency to favour past winners and assume that the winning streak will continue. That leads to us to chase past performance; whether it is the top-performing shares, superannuation funds or managed funds.

Behavioural biases

"We are all subject to behavioural biases," says Shane Oliver. "The most serious perhaps being a tendency to extrapolate recent developments off into the future regarding investment returns," he says.

"So, if the recent past has been poor you assume this will continue and want to get out and vice versa.

"But this just causes us to get wrong footed by the cycle," he says.

Professor Thorp's research includes decision-making about superannuation. Most of us, when confronted with  an unfamiliar problem, will resort to "heuristics" or rules of thumb, she says. For example, in choosing a superannuation investment option, many people will simply choose the most diversified option, even though it may not be the best option for their individual circumstances.

They do that because they have heard that diversification – not having all your eggs in one basket – is a good thing to do, Professor Thorp says. So they tend to simply pick the option with the most diversification, she says.

That could mean someone starting out in the workforce, who can afford to have a relatively large exposure to shares, being under-exposed, leaving them with less in retirement. Behavioural economists at the Queensland Institute of Technology (QUT) have been studying how biases affect people's investment decisions.

They say a bias called the "illusion of control" makes us believe we can control, or at least influence, the outcome of an uncertain event when we cannot.

"For example, when buying Lotto tickets, some individuals believe choosing their own numbers, as opposed to being assigned random numbers, increases their odds of winning," says Anup Basam, the leader of the research at QUT.

Financial personality

Personality also plays a big role in how we handle our finances, says Adam Tucker, the director of the Beddoes Institute, a financial services consultancy.

"Whether someone is impatient and impulsive can make a big difference, as is their past history," he says. When faced with a financial decision the "first things that come into your head are often not the right answer," he says.

In the absence of information we will rely on the most primitive of our instincts, including even those such as tending to trust better-looking people more.

It is well-established by psychological research that in the absence of other information, most people think better-looking people are more trustworthy than others. Of course, there is no connection between looks and honestly or competency at all.

Katherine Lane, principal solicitor at the Financial Rights Legal Centre, says that is a real problem because it can lead people into the hands of "dodgy" people.

"The problem is that dodgy people wear suits and look nice and professional," she says. "They are good at sales and sound competent and plausible," Lane says.

Know thyself

There are things that you can do to help make better financial decisions.

The best way to help counter behavioural biases is to know yourself, says Shane Oliver. "The reality is that we all suffer from the behavioural biases that give too much weight to recent developments in forming expectations regarding future returns, seek safety in the crowd and give too much weight to loss relative to gain," he says.

Consumers need to be aware of their weaknesses and try to manage them, he says.

Adam Tucker says: "We have to try to use our rational side and work it out." Sometimes the best opportunities in investing arise when many are engulfed by doom and gloom, says Shane Oliver.

"We are now bombarded by economic and financial news and opinions on a continuous basis via TV with finance updates, multiple news and finance channels, websites and blogs," says Dr Oliver.

"An ordinary investor could be forgiven for thinking we are in a constant state of lurching from worrying about one potential catastrophe to another," he says.

We should resist chopping and changing. When it comes to investing the best approach is to agree to a long-term strategy and stick to it, Dr Oliver says.

"You'd be better watching less of the financial soap opera in favour of episodes of The Brady Bunch or The Partridge Family," he says. Comparison sites can help you cope with multiple choice – but they don't have all the answers

Buying shares in a company as part of a well-diversified portfolio will probably not cost the investor too much if the share price falls.

For most of us it is the decisions such as whether to fix the mortgage interest rate or stick with a variable interest rate, for example, that can save or costs us thousands of dollars in interest.

But these are decisions few feel qualified to make.

Consumers are forced to make more and more financial decisions or risk paying a lot more for financial products and services. For the past 30 years in advanced economies, big corporations and governments have been offloading the risks from their balance sheets to the balance sheets of households.

Hundreds of financial decisions are made by each of us every year. They range from the trivial to those with serious financial consequences.

And not only are we required to make more choices, the financial landscape is becoming ever-more complex. Marketing is becoming slicker and trickier.

Financial product providers prefer to compete on bells and whistles rather than price. They often make their products complicated and difficult, if not impossible, for consumers to compare on price.

Then there is superannuation. Get that wrong and the risk is that retirement will be less than comfortable. Most people are just not well equipped to make financial decisions, says Katherine Lane, principal solicitor at the Financial Rights Legal Centre.

Financial literacy surveys such as that by the Australian Bureau of Statistics, published in 2013, have found that more than 1 million Australians are likely to struggle with anything more difficult than "basic mathematical processes".

Millions more have a mathematical understanding that is not much better.

However, the complexity of modern finances is such that it is even challenging for the financially literate, Lane says.

"The amount of sophistication needed is quite incredible", she says.

The complexity is behind a boom in online comparison websites that compare everything from home loans to private health insurance. The Australian Securities and Investments Commission, which regulates comparator sites, says some are better than others, but even the better ones are not always telling consumers everything they need to know.

In its report on insurance and credit comparison sites released at the end of 2012, the regulator said some product providers pay comparator sites to be listed and also pay for their products to be "featured".

These links and payment are supposed to be clearly disclosed.

Posted by John Collett - Money Manager (Fairfax) on 1st April, 2015 | Comments | Trackbacks | Permalink

What is renting really costing you?


Have you ever asked: Isn't it cheaper and less worry to rent than to make mortgage repayments on a similar property? This is a valid point – for the short term.

While it may first appear that renting is the cheaper option, I encourage a look into the future, beyond a two to three year time frame. 

Take an example of a $500,000 property with a full mortgage. It will set you back around $2000 per month just on interest repayments. Then add to this other ownership costs such as maintenance, rates and insurance and body corporate fees. In comparison, you could rent an equivalent property for $1950 a month without any extra costs. 

Based on this scenario it seems renting would be cheaper. Why would you consider buying?

To properly assess this, the first thing is to fully break down the costs.

Home owners have short-term costs which include the one-off purchase of the property and then ongoing costs. These include:
  • Stamp Duty
  • Legal and other costs (e.g. Building/Pest Inspections)
  • Moving house expenses
  • Mortgage interest repayments (The interest portion only is the true expense as the principal portion is saving and investment)
  • Rates, Body Corporate fees, maintenance and insurance (approximately 1 per cent to 2 per cent of the property value each year)
  • Moving house expenses
  • Monthly rent

It still seems dismal to buy a property doesn't it? Beware though – there are what I call the "hidden economics" they are not always obvious but are crucial to consider. 

Frequent moving costs

If you've ever moved house, you'd know that it's stressful, time-consuming and costly. 

Tenants move house more than a home owner. Think of it this way – every time your lease is up for renewal, your future is in the hands of your landlord. They may decide to sell, or they may increase the rent beyond your means. Consequently, tenants often move every two years or so.

If an average move costs $5000, this adds an additional $50 onto your weekly rental costs.

Rising rental expenses

The beauty of being a home owner is having the advantage of fairly stable mortgage repayments (fixed rates and so on). Unfortunately as a tenant, your landlord can increase your rent yearly, factoring in the inflation rate and if the property is in a sought-after area. 

For example: if your weekly rent is $450 and it rises by 5 per cent a year, in five years' time, your rent will be $575 per week. In 10 years this will be $730 per week. 

Owning a growing asset

As you'd know, you'll never own your rental property. However home owners gain an asset that increases in value over time, where a tenant is left with nothing to show for their spent money. Sure, you could use the money you 'save' on rent to invest elsewhere, but there are very few investments in Australia which provide the tax advantages, leverage possibilities and long-term steady growth that residential property does.

For example: Looking back at the $500,000 property I mentioned earlier: After 10 years, it's likely to be worth $1 million. Even if you haven't paid any of your mortgage off and just paid interest only, you are sitting on an asset worth $500,000 of your own clear of the mortgage.

And going further, the home owner can use this equity to buy more properties, setting themselves up with even more assets for a comfortable retirement. As a renter, you'll never have access to this proven strategy so many use to build large property holdings.

Long term – retirement

It's never too early to start planning for retirement. In fact, it's essential for people to really plan for retirement as early as possible. 

The last thing you want to be doing in retirement is paying rent. You'd still have a regular expense that you can't escape, and now have little income to pay for it.

Renting may seem like your best option at the moment, but I really encourage you to see that it's not the best long-term option. Set your goal to own your own home. The short-term sacrifices are worth making for the longer term benefits.

Posted by Tim Boyle - Sydney Morning Herald on 1st April, 2015 | Comments | Trackbacks | Permalink

Spending you're life ignoring your finances? Take a deep breath and make a change. You won't regret it.


I'm often asked to talk about financial affairs but I'm never asked about the people who avoid their financial future. I call them Avoiders. What do we know about them?
  • They are about a quarter of the population. 
  • Sixty-five per cent of Avoiders are women. 
  • Only 7 per cent of Avoiders have an adviser. 
  • They are stressed, anxious and overwhelmed about their finances. 
  • They lack confidence to approach an adviser.
  • They procrastinate and feel out of control. 
These people are a big concern not only because of the number of them and their pending vulnerability in retirement, but because their predicament is sustained by their own inaction.

Could we be doing better? Can such a large and predominantly female cohort simply be ignored ?       

There's always someone who wants the government to step in, however, the government has already done a lot for retirement savers: your employer has to contribute to your super fund, and there are tax concessions in super to allow your contributions to grow.

Governments can only do so much: Australians have to engage with their own financial futures.

If the description of Avoider fits you, and you're feeling overwhelmed and stressed about finances, I have a simple message for you: "You can take control." Start with a simple budgeting tool – have a look at Money's Budget Planning Calculator – it helps you understand where you are now. From here you can set goals and make decisions.

Most Avoiders could also benefit from financial advice, for information, direction and structure. Yet one of the characteristics of an Avoider is their reluctance to call a financial adviser.

Let's look at the key myths that stop them from seeing a financial planner.
  • "It's too hard." No it's not. Financial planners clarify complex issues, and they can even be accessed through your super fund. Financial advisers specialise in repairing problems and planning for the future.
  • "It takes too much time." It takes a few hours each year. Once you've set a plan, the adviser does most of the administrative work.
  • "I'll get to it later." If you're procrastinating, you're avoiding making decisions. The earlier you get started, the better your financial results.
  • "I don't have enough to work with." Actually, the less you have, the more important it is to get assistance. Financial planning can significantly add value and most financial planning results exceed the costs of it.
  • "They won't be interested in me." Everyday Australians are the ones who need a financial adviser. Financial advice can propel the average middle-class Australian to the next level, with advice on debt management, savings, investments and retirement planning. An adviser can be someone you go to with questions.

One of the things we know about financial security is that the earlier you start and the greater your understanding, the better your outcomes.

If you're an Avoider, chances are you simply don't want to take the first step. My advice: take a deep breath, pick up the phone and talk to an expert. Taking the first step could change your life. 

Posted by Mark Bouris - The Sunday Age on 30th March, 2015 | Comments | Trackbacks | Permalink

Underquoting - price it low, watch it go mentality - has become a culture of the real estate industry


Education won't fix underquoting, though it might fix real estate agents' ability to appraise accurately.

There are three schools of thought around why a property skyrockets over a reasonable reserve at auction. 

1) Market forces are at work and have an uncontrollable bearing on the day of the auction. 

2) Methods of underquoting have been used

3) Sheer ignorance on the part of the agent appraising the home.

Only two of these can be fixed through education alone.

Underquoting has become the culture of the industry. It's real estate agents, not vendors, that coined "price it low and watch it go". It's entrenched in the industry and has been for decades.

Cracking down on underquoting will not only require a focus on policing but also a change in the culture that's causing it. 

When considering market forces a competent agent can and will gauge these external influences. 

This is one of the main reasons vendors hire the "professional real estate agent" in the first place. The vendor wants to make sure they get the most value for their property. After all, real estate agents are at the frontline of the market and should know what is happening.

Underquoting is simply illegal. No matter whether you're blaming the "greed of the market" and the vendor or if you find campaigns against it personally offensive, it's illegal.

The real estate bodies seem fit to shift the blame away from the agents, the real estate industry, and instead are quick to blame the public/vendor.

Blaming the vendor however, is not how to rid the industry of the practice of underquoting. 

It appears some agents claim ignorance of council changes to local land zoning proposals for the out-of line sales they hide behind. On the other hand, when it comes to boasting about achieving sales figures well above reserves, they are the first in line to report their achievements as stellar campaigns.

In these cases, the real estate agents simply did not know the true value of the land; education might not be able to fix underquoting, but it can certainly fix that.

Edwin Almeida is a real estate agent for Just Think Real Estate.

Posted by Edwin Almeida - The Age on 30th March, 2015 | Comments | Trackbacks | Permalink

How to keep your cool in Melbourne’s hot property market

 BUYERS are facing hot sellers’ markets across Melbourne this autumn.

And new data from realestate.com.au shows it doesn’t get much hotter than in the popular outer east.

Suburbs including Ringwood North, Vermont and Montrose are among the most in demand areas.

With competition so hot, buyers face the prospect of paying too much. But there are ways to avoid getting burned.

WBP Property chief executive Greville Pabst said research was the best tool buyers could use when looking for a property.

He suggested attending a few auctions and following the sales results in your area to see what similar properties were selling for and who was buying.

Seek independent advice before making an approach. A buyers’ advocate could help, or buyers could talk to other estate agents in the area to see where an advertised house stacked up against others on the market.

“Don’t hang on every word that the selling agent is telling you,” Mr Pabst said. “He’s having one conversation with you but another with the vendor ... the one who is paying their commission.”

Mr Pabst warned emotions could run away with buyers.

“Be clear on what your limit is, whether you’re going to negotiate by private treaty or whether you’re going to an auction,” he said.

He said buyers needed to be prepared to let go if a home was too expensive, but should allow for market sentiment to add up to 10 per cent to the price.

“If you know the property has a history of performance and growth, you know if you’re going to pay a little bit more upfront you are going to be in front in 10 years,” he said.

Mr Pabst recommended being confident and visible at an auction.

But he cautioned against bidding too early. Buyers should be prepared to drop out if an auction got too hot but they should try to hold the bid if the property looked like passing in. This would give them the first right of negotiation.

RP Data CoreLogic spokesman Robert Larocca said factors determining a sellers’ market could differ from suburb to suburb.

“It’s definitely in sellers’ favour at the moment,” he said.

But in suburbs where private treaty sales were the norm, there were other signs to look for. “It might be how quickly the real estate agents returns your phone calls,” he said.

The Ringwood region is one of the city’s hottest markets, the realestate.com.au figures show.

Local agent John Hoskins, director of Hoskins Real Estate, said improvements to Eastland shopping centre, the town centre and railway station were making the area more attractive to buyers, particularly downsizers and investors.

“Baby boomers are getting to a point where they have a big family home because the kids have left home but want to stay in the area,” Mr Hoskins said.

“They’ll come off their big block with something like $1.5 million to spend on a single- level house on a residential block. They’re coming over first-home buyers and investors.”

Top sellers’ suburbs

1. Ringwood North

2. Vermont

3. Montrose

4. Montmorency

5. East Melbourne

6. Ringwood East

7. Yarraville

8. Upwey

9. Warrandyte

10. Ringwood

Source: realestate.com.au. Compares the clicks on property listings against the number of available properties in that suburb.

Perfect ring to a move

RINGWOOD wasn’t the destination Cheryl and Ernie Stanner were planning when they sold their East Doncaster home of 26 years.

But Ms Stanner said Ringwood had met every expectation and more since they moved there in February.

“We wanted to stay in the same area but Doncaster and East Doncaster has just priced us out of the area,” Ms Stanner said.

“Even though we sold in the area, we were looking to downsize and strangely enough it doesn’t seem to make much difference to how much you spend.”

But Ms Stanner said Ringwood was a good option.

“It’s close enough to the services that I don’t want to change, like my doctor, hairdresser and things like that,” she said. “The area is quiet, the neighbours are pleasant and it’s interesting.

“We’re older but there are lots of small kids floating around. It’s lovely to turn into the court and have to wait for the soccer goals to be moved out of the way.”

Ms Stanner said although Eastland was a nightmare at the moment, due to construction, public transport would be better.

“East Doncaster had only buses. Here we’ve got a bus down the bottom of the road which takes us straight to the train station. I could easily see people driving down to the station and taking the train to work,” she said.

Posted by Peter Farago - Herald Sun on 28th March, 2015 | Comments | Trackbacks | Permalink

Is buying a property within your self-managed super fund a good idea?

 THE surge in Australians buying property through their self-managed super funds has prompted a warning from industry heavyweights.

Latest Australian Taxation Office figures show more than 1 million Australians are part of a self-managed super fund, and thousands of those have purchased property within their fund.

Thousands have jumped on-board the surging house prices to snap up property and help bolster their retirement savings, but this rush of activity hasn’t come unnoticed.

David Murray’s Financial System Inquiry advised the government to put a stop to SMSFs using limited borrowing recourse arrangements (LBRAs) to acquire property and other assets, which led to the value of the loans climbing from $497 million in June 2009 to $8.7 billion in June last year.

A LBRA allows an SMSF to take out a loan from the third-party lender, like a bank, and use the loan together with available fund to purchase a single asset held in a separate trust.

But the FSI report warned: “Further growth in superannuation funds’ direct borrowing would, over time, increase risk in the financial system”.

Shadforth Financial head of advice John Barton said while buying property in super can be a good idea, it is case of putting too many eggs in the one basket.

“You will be relatively poorly diversified, most people will already have a fairly big exposure to property, it’s not like property can’t go down,’’ he said.

“I know an adviser who had a client who bought a property in Geraldton who paid $1.3 million for it and now can’t sell it for $400,000.

“Property is not guaranteed to go up every year, you have a relatively low yield, you are lucky to get a yield much above the inflation rate.”

But the tax benefits remain appealing for SMSF members — any income received by an asset under a LBRA is taxed at the concessional superannuation rate, and if the fund is in accumulation phase, income received will be subject to no more than 15 per cent tax.

So an investor yielding $500 a week from a property purchased through their SMSF, the tax would be at 15 per cent instead of their typical income tax amount, ranging from about 20 per cent to 49 per cent.

The SMSF Professionals Association of Australia’s director of technical and professional standards, Graeme Colley, said the portion of Australians with DIY super funds who invested in property remained very small at just 1.3 per cent of SMSF trustees, but recognised there are risks to doing it.

“If there’s a failure in the real estate market then that creates an unwarranted risk with your super fund,’’ he said.

“If there is a drop in the value of those properties then trying to sell that property and be able to pay off the mortgage just from the sale itself may not be possible.

“If you can’t rent the property out and you have multiple properties where are you going to get the money from.’’

But the Mortgage and Finance Association of Australia’s chief executive officer Siobhan Hayden said buying property within SMSF can be a good idea if the risks are mitigated.

This includes the potential of reducing the loan-to-value ratio of buying property in an SMSF from 80 per cent to 70 per cent.

Posted by Sophie Elsworth - News Limited Network on 28th March, 2015 | Comments | Trackbacks | Permalink

Gearing system showing its age

Tax breaks and grants to investors are distorting the property market.

Reader feedback has revealed just how much unco-ordinated federal and state housing policies have increased the problems facing potential owner-occupiers in achieving home ownership.

Widely offered first home owner grants, more recently limited to newly constructed or off-the-plan purchases, add to the distortions created by the negative gearing tax deductions.

With the current grants in place, many first home buyers with no or little experience are being encouraged to purchase in fringe locations and accept greater construction and market risks. If anything, it should be investors who are forced to focus on these types of dwelling, with their generous tax deductions helping to compensate for the higher risks of new property construction.        

The restricted access to first home owner grants also encourages potential owner-occupiers to the alternative option of buying an investment property because of the tax deductibility of all expenses and the opportunity to focus on established properties in central locations. By doing this they avoid the risks of newly constructed or off-the-plan purchases.

Incredibly, both levels of government allow access to first home buyer grants even to existing property investors if they have never bought a property to live in. This allows potential home buyers to benefit from both the negative gearing tax arrangements and first home owner grants if they choose to do so.

Restricting access to negative gearing for purchases of newly constructed or off the plan properties would help first home owners in two ways.

It would reduce demand for properties in central locations and not force new owner-occupiers into higher risk options or out to fringe locations to achieve home ownership.

Changes to negative gearing arrangements are thus an essential part of policy changes to assist more Australians to achieve home ownership. Without such action, any new assistance will add to the upward pressure on existing property prices.

The most common defence of the $4 billion annual taxation subsidy to negative gearing is that it increases the supply of rental properties and reduces rents. If that is the real objective, confining the subsidy to purchases of newly constructed properties would be a more cost-effective policy.

As it now operates, negative gearing purchases are pushing up existing property prices, encouraging even further levels of geared property investment. At a personal level, current arrangements provide limited options for achieving home ownership unless there is family assistance to reduce ongoing debt commitment.

Family assistance mainly comes in two forms. It may be received as a gift or interest-free loan for a deposit. Alternatively it may be a joint property purchase, usually of an investment property, which can then be converted to a personal residence. Either option allows any capital gains tax liability to be deferred indefinitely.

Posted by Daryl Dixon - The Age on 27th March, 2015 | Comments | Trackbacks | Permalink

Borrowers urged to look beyond the advertised home loans rates

 FINANCIAL institutions desperate to snare new customers are offering record-breaking discounts of up to 1.65 per cent as competition in the mortgage market continues to increase.

But experts are warning home loan customers not to be sucked in by discounts, which are bringing repayments down by hundreds of dollars a month, but are not necessarily the best available.

The lowest variable market on financial comparison site Canstar’s database is loans.com.au which has a mortgage deal with a rate of 4.23 per cent — no discount applies to this advertised rate.

WHAT are the risks of no deposit home loans?

However, smaller lenders including the Bank of Sydney are offering the biggest discount of 1.65 per cent off the standard variable rate.          

Other institutions including Wide Bay Australia and Newcastle Permanent are offering customers more than 1 per cent off the SVR, but Canstar’s research manager Mitchell Watson warned that customers needed to look beyond these attractive discounts.

“The discounts we are seeing are off lenders’ standard variable rates which are more a lenders’ point of reference rather than a product people buy,’’ he said.

“It’s these packaged rates and discounted deals people are taking out, but you need to look past the discount.

“Find out what the real rate is that you are receiving.”

The Reserve Bank of Australia this week said in its biannual Financial Stability Review that the fierce competition among financial institutions had led to the heavy discounting.

“Lenders are competing for new borrowers by offering attractive fixed rates and significantly discounting their advertised variable rates, discounts of 100 basis points or more are now widely available,’’ the RBA said.    

Bank of Sydney’s Expect More Home Loan package offers a discount of 1.65 per cent, reducing the product’s interest rate to 4.48 per cent — by no means the lowest rate on the market.

This means borrowed on a $350,000, 25-year loan would pay $1664 on their monthly repayments — the discount seeing their repayments reduced by $293 per month.

The average standard variable rate for the same loan is 5.13 per cent and the average three-year fixed rate is 4.64 per cent.

But the Mortgage and Finance Association of Australia’s chief executive officer, Siobhan Hayden, said any borrower “can sharpen the pencil of the standard variable rate by simply asking.”

Economists are forecasting the cash rate — currently at 2.25 per cent — will fall further again this year and have pinpointed May as the most likely time for the next drop.

1300homeloan director John Kolenda urged consumers to review their mortgage every 12 months to ensure they are getting the best deal possible and find out whether the home loan has other facilities such as an offset and redraw account.

Posted by Sophie Elsworth - News Limited Network on 27th March, 2015 | Comments | Trackbacks | Permalink

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

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