Puzzle Finance Blog


Hands-on home renovation tips


  The sheer satisfaction of tearing up old carpet and the deep gratification of applying that last dob of paint are just some of the things DIYers live for.

The passion and the glory of personally transforming your home will provide hours of triumphant storytelling with fellow DIY renovators.

There are specific renovations that are a) most suited to the average homeowner and b) can add real value to your home. Domain research shows interior and exterior painting, landscaping (including decking) and bathroom alterations are the most common DIY projects Australian homeowners undertake.

Here we provide our top hands-on home renovation tips on Australia’s favourite renovation pastimes, as well as tiling, flooring and assembling a pre-fabricated kitchen. Landscaping

Real estate agents will tell you that landscaping can add tens of thousands of dollars in value to your home. This is for a couple of reasons. First, great curbside appeal significantly increases buyer interest. Second, having a well-designed, low-maintenance backyard is high on most homeowners’ checklists. With this in mind, here are our top landscaping tips:
  • Create a low-maintenance garden: Choose hardy plants suited to your local climate, pave instead of having lawn, and use ground cover or place plants close together to reduce weeding. Climbing vines can be a great way to cover unsightly walls or fencing and create the illusion of a garden wall.
  • Design with privacy in mind: Privacy is a big selling factor and increases home value. Strategically plant vegetation that provides privacy but doesn’t hinder views, and ensure walls and fencing offer shelter from prying neighbours or passers-by.
  • Build an outdoor entertaining area: As the costs of living rise, people are choosing to spend more time entertaining at home. Consider installing an outdoor shelter or decking to take advantage of Australia’s idyllic weather.
  • Don’t forget utilities: Make sure hoses are within easy reach and there is room for conveniently locating the clothesline and bins.
  • Go low-cost: The cheapest option is to do the manual work yourself, followed by borrowing or hiring equipment, and using recycled or reclaimed materials where possible.
Painting

Painting the interior or exterior of your home doesn’t cost much and makes a big visual impact. To ensure your paint job is enduring and does not require a premature touch-up, choose the right type of paint and follow the painting rules.
  • Preparation is mandatory: If you do nothing else clean the surface with sugar soap, as this will help the paint adhere to the surface. You should also fill in holes and cracks, sand back inconsistent surfaces and scrape off old paint or wallpaper.
  • Prime, seal or undercoat first: A recently painted surface may only require an undercoat, while other surfaces including exteriors, metal and wood will require a sealer or primer to provide grip for the top coat and durability. For wet areas and timber you should choose a primer that contains a fungicide to prevent the growth of mildew or mould.
  • Choose your colour wisely: As a general rule, lighter, more neutral colours are best if you are selling your home. Otherwise go for colours that suit your décor and taste. Get some sample pots and apply a few patches to help you decide.
  • Consider sheen levels: The sheen (or gloss) of a paint affects durability and reflection. Matte paints cover inconsistent surfaces better and the dense finish is great for large areas. Low-sheen and satin paints are more durable and suited to high traffic areas, while semi-gloss and gloss paints are generally used for trims, doors and detailing.
  • Compare enamel and acrylic options. For exterior painting, enamel-based paints have been favoured as they dry harder. On the downside they can become brittle. Acrylic paints meanwhile, have increased in durability.
Tiling

If you are planning to tackle your own wall or floor tiling, we will assume you have some basic handyman skills in this area. Your local hardware store and tile supplier will also offer invaluable advice if you run into any problems. Some key pointers include:
  • Choosing your tiles: Glass tiles expand and contract more so avoid using them in areas where the temperature will significantly change. You need to take into consideration how decorative patterns will work in the space, and pre-plan how you will manage cut edges and transitions in the tiles.
  • Prepare your surface: Concrete bases must be completely dry, and you need to level out your surface as best as you can with a levelling compound or underlay. Chip away old mortar that may be present on old floors.
  • Lay from the centre out: By working from the centre of the room, you can maximise the number of whole tiles you use and minimise those you need to cut for the finicky edges. Chalk out your tile layout first, beginning with a central line. Keep a close eye on tile spacing with a measurement tool – the more consistent the better. Lay the mortar or adhesive in sections so it doesn’t dry out, and gently press the tiles into place.
  • Grout, clean and seal: Only apply the tile grout after the adhesive has dried, and the sealant after the grout has dried. When applying the grout, regularly wipe the tiles with a wet sponge to avoid permanent marks.
Polishing timber or concrete

While tiles and carpet are common flooring options, many people consider tearing up existing coverings to reveal a goldmine of untapped design features, including floorboards and bare concrete.

You can hire concrete grinders, sweepers, scrubbers and burnishers from suppliers like Kennards Hire. Ask as many questions as possible – different grinders are suited to different types of concrete, and there are both indoor and outdoor options.

To make the most of newly revealed timber floors or old timber floors that need a revamp, you will need to sand first and then stain. Timber sanders (and relevant advice) are available from hardware stores or equipment hire companies. In addition to the sander, you will need an edger to manage the sides of the room. Seal the area as thoroughly as possible and regularly vacuum to manage dust. You need to work through three stages of sanding – coarse, medium and fine – to obtain the best results. Prefabricated flooring

Floating floors are low-cost, attractive and easy to install. For these reasons they are a renovator’s delight. Offering the appearance of timber, they can be made from laminate, bamboo, cork or engineered timber.

If you choose floating floors, it is important to factor in room for expansion when ordering and laying your flooring, particularly with bamboo styles. That said, bamboo is an environmentally sound, hard-wearing material. You will also need to place an underlay beneath your floating floor. The pre-fabricated pieces will slot together easily on top. They can be placed over virtually any surface, except carpet, but a moisture seal will be required and if your floors are concrete. Assembling flat-pack kitchens

Purchasing a flat-pack kitchen can save you serious amounts of money, as can installing it yourself. This is another DIY renovation project that requires some handyman skill – think assembling an Ikea bookshelf … on steroids. Most suppliers provide online tools that will allow you to plan your kitchen virtually, taking into account room dimensions, appliances and power sources. You can choose between standardised flat-pack or customised kitchens, the latter of which are more costly.
  • Over-prepare: From carefully planning out your design, to triple-checking your measurements, the more preparation you do, the better the result. Dwell on the variables like inconsistent floor and wall levels, weight-bearing, power sources, appliance sizes and the distance that cabinets and appliance doors require to open.
  • Painstakingly review directions: Your kitchen comes pre-packaged withall the parts, fixtures, nuts and bolts and instructions. Check everything has arrived before you begin, and make sure the kitchen shell is ready for installation – you don’t want hold-ups mid-installation. Work slowly through the assembly steps and contact the supplier or a friend if you hit a flat-pack speed bump.
  • Get the foundations right: Flat-pack kitchens are designed to fit together – this means each layer of the installation impacts the next layer’s stability and appearance. Carefully fasten fixtures as you go, and keep a spirit level handy to ensure consistency.
The laundry

There is nothing more impressive than walking into a well-organised, highly functional laundry that actually looks good. One of the most forgotten rooms in the house, a simple update can make this wet area a pleasure to use.
  • Install storage: Hide cleaning products, appliances and dirty laundry behind sleek doors. Add extra storage in the laundry for general household items.
  • Go light and bright: This is a room for cleaning, so keep colours fresh and use mould-resistant, hard-wearing paint that is durable and easily cleaned.
  • Consider an extra lavatory or shower: Bathroom politics can be the root of all evil in an otherwise happy home. The laundry area already has plumbing and can provide an opportunity to add extra facilities.


Continue reading the DIY Home Renovation Guide with: Renovation safety plan and survival guide.

Posted by Jacqui Thompson - Domain Newsletter on 18th November, 2014 | Comments | Trackbacks | Permalink
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You might think you have a choice, but . . .


You may not be aware that while there are a lot of financial products a financial planner could sell you there are only a limited number they can sell you.

Take a big wealth management business such as AMP (I could use many other examples). The AMP is Australia's largest non-bank-owned wealth management business. It has a number of large "dealer groups" operating under the brands of Hillross, Charter, Genesys, ipac, Jigsaw, SMSF Advice, Quadrant as well as the more recognisable brand of AMP Financial Planning.

A big part of the AMP business is to attract financial planners to operate in partnership with them in these dealer groups selling their products and servicing their customers. Of course one of the main concerns in this structure is that the people the dealer groups licence respect and protect their brand.

One way they achieve that is to vet or research financial products and tell their licensees which products they approve of and by omission which products they don't. It's called an "approved list" of products and all dealers groups and most financial planners have them, a list of financial products their licence holder has approved for sale to you.

Ask your financial planner for insurance, for instance, and you might find that they can only recommend one of six options because those are the only ones on the approved list.

Most planners stick to the approved list: it's easier and it's safer because as licensed advisers they have to have a reasonable basis for their recommendations and if they stick to the approved list they have that covered. It's also better for the client because the product has passed the sniff test.

You can still buy non-approved products but generally your adviser will have to get the dealer group's permission by proving why this non-approved product is suitable to your individual financial circumstances. You can see why it's easier just to stick to the list.

Planners who are not aligned to a large dealer group have the same issue. They also need a reasonable basis for their recommendation, so they use third party independent research firms such as Lonsec, Zenith, Morningstar, Mercer or, one of the best known until it went bust, Van Eyk.

There is a huge industry out there researching and approving products so licensed advisers don't go off the straight and narrow.

Some large wealth managers do it in-house, others contract it out, some do both.

Now imagine what this means for a funds management firm.  The stark reality is that unless you are on the approved lists of these large wealth management dealer groups you are pushing water uphill. You may think your job is to pick stocks and make your customers money but actually it's not.

Your main focus in the early years is to get approved and that means having enough money to bankroll your funds management business for a few years without approval, performing well enough to attract approval, developing a critical mass of money in your fund to warrant approval and then, having done the hard yards and got a foot in the door, being able to jump through all the rest of the hoops which includes presenting a "proof of process".

The net result is that the approval process is about having a reasonable basis to recommend a product so no one gets sued for recommending it. This is all a bit of a perversion of what it takes to be a good fund manager, because getting approved is about being a safe fund manager whereas getting performance is about being a good fund manager and that, as any fund manager will tell you, is something more ethereal because performing well is not a robotic process. If it was something a automaton could do, then anyone could do it and if it was, then some fund manager would be doing it the Warren Buffett way, we would all be invested and we would all be billionaires.

But no one is and no one can because performance is not a formula. You cannot write it down, it is an art built on experience and knowledge and there is something delicate about it.

That's why the Perpetual Funds Management share price fell over when John Sevior left, that's why Kerr Neilson is worth more than $2 billion, that's why Warren Buffet can't be copied, because they are simply good at it and it takes humans not formulas. There's no algorithm for "I just know what to do and when" but you won't get approved without it.

Read more: http://www.theage.com.au/money/investing/you-might-think-you-have-a-choice-but----20141113-11lys3.html#ixzz3JZPyrBDx

Posted by Marcus Padley - The Age on 18th November, 2014 | Comments | Trackbacks | Permalink
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Mum and dad property investors cash in on Melbourne’s rising market


 MELBOURNE’S soaring property prices might have foiled first-home buyers but they’ve opened the way for a new batch of first-timers: the mum and dad property investor.

Armed with increased equity in their family home, these novice investors are looking to build wealth with a property portfolio.

If you’re thinking of joining them, there are a few things you should consider:

MONEY MATTERS

Many long-term homeowners have not only put a major dent in their mortgage but have seen the value of their property grow in recent years. The difference between what is owed and what the property is worth is known as equity.

“The recent surge in property values means that they may have a significant amount of equity in their owner occupied dwelling that they can tap into,” Mortgage Choice spokeswoman Jessica Darnbrough said.

This is how it works. Most lenders will let you borrow 80 per cent of an investment property’s market value (more if you are prepared to pay lenders’ mortgage insurance).

To meet the 20 per cent shortfall, you can access up to 80 per cent of your own home’s equity.

For example, if you intend to buy an investment property for $400,000, you can borrow 80 per cent or $320,000 provided you meet the lending criteria.

But with legal fees, stamp duty and other charges, you still need about $100,000 to buy the investment property.

You can use your equity to do this. Say you have $200,000 equity in your home (the difference between its $500,000 market value and the $300,000 still owed on the mortgage), you can borrow up to 80 per cent or $160,000.

The next step is finding the right investment loan.

National Australia Bank general manager of home lending Melissa Reynolds said there were a number of options, including interest-only loans, loans where the principle and interest amounts were paid, loans where interest was paid in advance and fixed and variable rate loans.

She said interest-only loans were popular with investors because they meant lower monthly repayments for a set period, typically 10 years, over which time the investment property’s value increased.

Ms Reynolds said it was important investors also factored in the other costs of buying, including stamp duty, government fees and charges, rental agency fees, strata or body corporate levies and rates.

“They all need to be understood in your total budget when you’re looking at an investment property,” she said.

CAPITAL GAIN OR RENTAL INCOME

There are two ways an investment property can work for an investor: by providing rental income and by growing in value over time.

“Some people are looking for a good stable place to store wealth and are most interested in capital gain over the long term,” RP Data Melbourne market expert Robert Larocca said.

“Others are looking for good rental yields and are not as interested in capital gains.

Mr Larocca said generally, the best rental yields in Melbourne were in high-rise apartments and houses in the outer suburbs; while the middle and inner suburbs produced the strongest capital growth.

Regional hubs were another option for good rental yields, with some of these areas also offered solid capital growth.

New figures from RP Data suggest a long-term approach might be best in Melbourne, which has the lowest rental yields of any capital city in the nation. Rental yields for a typical house in Melbourne were 3.2 per cent in the three months to October and units were 4.1 per cent.

WHERE TO BUY

Investors should look for properties close to shops, schools, parks, restaurants entertainment facilities and transport, according to WBP Property chief executive Greville Pabst.

But he warned against buying a property on a main road or too close to train and tram lines.

“Properties in these areas can suffer from traffic congestion, impeded access and significant noise disturbances. Select properties located within walking distance to a bus route or train line in quiet streets or cul-de-sacs,” he said.

HOUSES OR UNITS

While houses had traditionally outperformed units for capital growth, Mr Pabst said changing economic and lifestyle factors were seeing units close the gap.

“As rental affordability in capital cities tightens many tenants are choosing more affordable and convenient apartment living,” Mr Pabst said.

He said land values appreciated while building values depreciated.

“If the value of the property is weighted towards the dwelling ... it is unlikely to benefit from significant levels of future capital growth,” he said.

BE PREPARED FOR TENANTS, LANDLORD SAYS

ADRIAN Barnes has learnt a lot about property investment since he and his wife, Debra, first became landlords about 18 years ago.

They have owned seven or eight investment properties since then and currently have two inner suburban apartments and a Frankston house in their investment portfolio.

“They main lesson I have learnt is that you have to toughen up,” Mr Barnes said.

“We’ve got great tenants now but we’ve had properties with tenants from hell, a real nightmare.

“It’s not their property and a lot of them just don’t care, so you have to make sure you’re tough enough to deal with that.”

Mr Barnes, who lives in Frankston South and runs a property maintenance business, said a key to his success was buying affordable properties that he could improve.

“I always buy the cheapest, nice property I can find and add a bit of value.”

He said being able to do his own maintenance and renovation work had saved him a lot of money over the years.

Mr Barnes said he treated property investment like a side business, devoting up to 10 hours per week to research.

“Research is really important otherwise you are going in totally blind.”

A good finance broker was also key to success, he said.

Posted by Kamahl Cogdon - Herald Sun Real Estate on 15th November, 2014 | Comments | Trackbacks | Permalink
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Property market: Underquoting accepted as the new norm


Sarah Cabret and her partner Thomas Harvey have almost given up their dream of owning a home after spending more than a year chasing properties that sold for much more than their original advertised price guide. 

The couple have become increasingly discouraged after 10 failed attempts to buy a home up for auction and countless wasted Saturdays attending open for inspections. 

"I'm a heartbeat away from giving up," said Ms Cabret, 36, who is now looking to Ringwood after being priced out of Blackburn. 

Homehunters have long complained about underquoting – a strategy to get potential buyers through the door at open homes for properties up for auction. 

But Ms Cabret says there's a new underquoting game in town – "step pricing" – where agents are gradually edging the price upwards during the sales campaign.

"By the end of the advertising campaign, it's gone up by $40,000," the marketing manager of a computer software company said. 

She also claims to have been the victim of more blatant underquoting, where a Nunawading home was advertised for $600,000, only to learn that the reserve was actually $780,000 when it was passed in to her for negotiations.

"We put in several offers before auction and the advertised price was not adjusted to reflect what we had offered either," she said. 

"This agent slightly adjusted the price during the advertising period, but it was well underquoted the entire time, even with step pricing." 

Buyers advocate David Morrell estimates that up to 50 per cent of agents in some Melbourne suburbs are "step quoting" to lure buyers. 

He said agents were also increasingly opting to quote verbally at open for inspections rather than publishing a price on advertisements.

"It's just grubby, misleading and deceptive," he said. 

"It gets them out of jail … so they can say 'our last quote was within 10 per cent of the purchase price [when it's] 30 per cent more than it was three weeks ago."

Sales agents denied step-pricing was a deliberate strategy to trick buyers. It was simply a case of keeping them up to date with offers and adjusting the price guide accordingly.

Jellis Craig Hawthorn director Richard Earle said it was the agent's role to test the market, and there could be up to a 20 per cent difference between the estimated price and the final sale price. 

"We're not valuers, we're negotiators and marketers," he said.  

"The agent is going to start conservatively, but as that campaign moves forward, the agent's got to be progressive, and got to move that quote price up, or he is being seen as being unprofessional and unknowledgeable." 

Barry Plant chief executive Mike McCarthy said underquoting was definitely happening, and the perception of underquoting has increased this year because of the rising market.

He said the market may have outpaced the comparable sale prices by the time the property goes to auction. 

"If there's been an unconditional offer that the vendor has rejected, then the agent should [amend] the price quote to be above that figure," he said.

Marshall White's John Bongiorno said underquoting was not a problem. 

Posted by Christina Zhou - Domain (The Age) on 14th November, 2014 | Comments | Trackbacks | Permalink
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Should you stash cash in the Caymans?


The Cayman Islands is touted as one of the world's top 10 finance hubs. The chief reason that the Caribbean hotspot holds such cachet is an epic perk it provides - freedom from income tax.

The global tax haven has attracted droves of Australian companies. The likes of QBE, News and Macquarie are there. Even the Future Fund has 35 entities on the offshore international tax haven. In step, Australia and the Caymans have a Tax Information Exchange Agreement (TIEA). Yet Australian Taxation Office scrutiny of Aussie companies with Caymans dealings seems unwelcome.

In May, the ATO dropped Cayman tax evasion charges against Sydney accountant Vanda Gould, who fought a decision made by the Cayman Islands Tax Information Authority to give information about his company. Siding with Gould, the Grand Court found that the information should have been withheld and that the authority had breached the Bill of Rights and confidentiality laws. 

Tax adviser Tony Anamourlis said the Gould decision raised doubts about whether TIEAs were "a workable tool to tackle tax evasion, fraud or criminality".

Despite efforts to impose transparency, the Cayman Islands remains a magnet for wannabe tax evaders, according to retired private banker Frederick Parsonage, the author of a novel about area intrigue.

"They will just continue to take the risk of not being caught, aided and abetted by the financial institutions in the Cayman Islands, who - it must be said - tend to condone tax evasion by their clients," Parsonage claims.

Remember that banks represent the client, not foreign tax authorities, he adds, also noting that investors may still strain to repatriate Cayman-based assets, unless their home countries declare amnesty on tax evasion.

Meanwhile, there has been a shift toward stashing assets in inert "shell companies" that act as vehicles for fiscal manoeuvres. Because no central registry of shell company shareholders exists, that tactic creates another layer of confidentiality, he says.

On the wane

In contrast to Parsonage, another Cayman insider - education consultant Emma Donaldson - paints shady dealings as on the wane. "The eye certainly is on the island to ensure fraudulent action is stamped out," she says, adding that wayward Caymanians she knows have had run-ins with United States police.

Investors who play it straight - legitimately seek to move to the islands – still struggle. "You need to arrange a work permit before entering the island, which is wrought with numerous red-tape and labour laws which can make it very difficult to enter or stay," says Donaldson, from St Arnaud in central Victoria.

Keep fighting, she says, but warns that if you gain traction, further paperwork lurks. Realising how tough it is to set up a personal bank account - let alone a business account - was an eye-opener.

Worse, expenses are even higher than here. "Whilst there is no income tax, the cost of living and fees which appear exorbitant in comparison to our native countries can make this advantage non-existent," she says, citing set-up fees, work permit charges and land taxes.

Stealth taxes

The "debilitating" hidden costs, which sound like stealth taxes, are the worst drawback, according to Donaldson, who says the deal works for the uber-rich embedded on the islands for a decade.

"If you are in a profession earning a very high income, the no-tax incentive is a definite benefit," she says, adding that wealth boosts your chances of making Cayman your full-time home.

Likewise, Parsonage depicts the islands as a retired tycoon haven – living costs are exorbitant because everything is imported, he says, adding that property ownership, which you need to win residency, is expensive.

Ditto private medical insurance because, like many small islands, Cayman just has basic facilities – serious sickness must be treated in the US, he says.

According to former Bank of America executive turned whistleblower, Brian Penny, the ethics of using a Cayman-style tax shelter hinge on your status.

"If you're a citizen, you're the little man and need every advantage you can get to compete. If you're a CEO, you have an ethical duty to support any economy in which you do business," Penny says.

"Another perspective to ponder is the angle of the country you're using as a shelter. Nothing in life is free: what's its stake?" he says, raising the spectre of the dreaded fees.

Also assess whether your money is truly safe and whether your deposits are insured, he says. And think about the interest rate you are getting and whether there are withdrawal penalties. Oh, and consider whether currency conversions will sap your savings.

"When you look at the numbers," Penny says, "there's always a possibility it's cheaper to just pay the taxes." Stormy past

The Caribbean paradise designated a British Overseas Territory has been tax-exempt since the wreck of the Ten Sail, which happened six years after Australia was settled, in 1794. When a 10-strong merchant fleet struck a reef in rough seas, Caymanians supposedly saved every soul.

Because one survivor was a British royal, King George III rewarded the islands by pledging never to introduce taxes, legend says. The policy gelled with Caymanian identity, becoming part of the scenery just like the turtles dotting the lagoons.

In 2012, the last premier, McKeeva Bush tried to buck tradition - establish an income tax for expatriates, which he deftly pitched as a "community enhancement fee". Still, an outcry erupted. Eventually, the proposal was killed by the united front that locals and expatriates presented.

Read more: http://www.theage.com.au/money/investing/should-you-stash-cash-in-the-caymans-20141113-11ll4e.html#ixzz3JGSWjYo1

Posted by David Wilson - The Age on 13th November, 2014 | Comments | Trackbacks | Permalink
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Who’s investing in commercial property?


Since the global financial crisis there has been a decrease in commercial property prices, resulting in higher yields.

This has attracted a growing number of investors to consider commercial property as an appealing addition to their portfolios.

Calculating a strong return

Part of what is attracting new investors is the proportionally high yields that can be achieved from commercial property investments.

A yield is calculated by dividing the property’s net yearly rent by the purchase price.

So, for instance, if a property is sold for $700,000 and the lease is worth $60,000 excluding outgoings, then the yield is 8.7 per cent.

If the price is lower, say $600,000, but the rent remains the same the yield climbs to 10 per cent and a greater return on investment is achieved.

So who’s buying?

Many of the investors are owner-occupiers or trustees of self-managed superannuation funds (SMSF).

John Frame, from broking house the Loan Clinic, says the typical commercial investor has a higher than normal risk appetite.

“Your typical buyer has a larger propensity to take on risk because there’s a possibility that the property will be vacated and you may find it takes a long time to get another tenant signed on,” Frame says.

Investing in your own business

Banks will also factor this potential risk when deciding whether to lend. Often they will only lend on a short-term basis (such as for the duration of the lease) in order to reduce their own exposure to default.

For this reason, buyers are often self-employed people who lease the premises back to their own businesses, thereby eliminating the need to rely on a tenant.

A large potential windfall

“For others the risk trade-off is the higher yield they can achieve with commercial assets compared to other types of investments such as residential, bonds or shares,” says Frame.

Estimates of commercial holdings within SMSF hover around 12 per cent, which is double the figure these funds invest in residential real estate.

Look for a long lease

“Savvy commercial investors look for a property that has a tenant on a long lease in an area where there are established anchor tenants, such as a supermarket, bank, post office or pharmacy,” Frame says

“If the property has a parking lot, all the better, because that’s a drawcard for your tenant’s customers.”

Investing with your SMSF

SMSFs began snapping up commercial property in significant numbers from 2010 onwards, when prices softened, and the government rules around the type of investments that small super funds could make were relaxed.

Previously, some investors might’ve been deterred from buying commercial assets because of the larger deposit that lenders require for a commercial investment (often more than a third of the purchase price).

Today, however, buyers can gear their SMSFs to borrow for a property purchase. Those thinking of doing so should seek good financial advice first.

Posted by realestate.com.au on 12th November, 2014 | Comments | Trackbacks | Permalink
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Investors lock up lions’ share of housing loans


INVESTORS are dominating home lending demand at ­unprecedented levels as the central bank strives to cool the property market ­without shattering confidence in more fragile sectors of the economy.

Buoyed by record low interest rates, investors have looked through a flat September for property prices and the prospect of tighter lending measures to snap up more than half the new loans signed during the month.

The total number of home loans approved in September slipped 0.7 per cent, seasonally adjusted, to 51,465 as property prices across the major capitals barely moved.

But the value of that finance climbed 2.3 per cent to $28.87 billion, with finance for investment housing up 3.7 per cent to a record $11.94 billion.

By comparison, the value of loans for owner occupiers climbed just 1.4 per cent, to $16.93 billion.

Excluding the value of refinanced credit, investors accounted for 50.4 per cent of new loans, the Australian Bureau of Statistics figures showed. It is the first time they have boasted the lion’s share.

First home buyers accounted for 12 per cent of finance, barely up from their record low 11.8 per cent share of the ­market a month earlier.

Economists said the rise and rise of the investor highlighted the imbalance in the property market worrying the Reserve Bank. CommSec economist Savanth Sebastian Sebastian said the RBA was yet to succeed in cooling the investment housing market by flagging so-called macroprudential measures — such as forcing banks to hold more capital relative to the amount they lend to investors.

“It’s almost seen them (investors) try to effectively jump the gun to beat any possible macroprudential measures,” he said.

JP Morgan economist Ben Jarman said the property boom, which had been largely centred on Melbourne and Sydney, had seen owner-­occupiers lose some of their appetite to pursue their next dream home.

“Equally, credit growth is still relatively low compared to what prices are doing, so that should start to rein in property prices even before we see what the RBA will do,” he said.

The RBA and the banking regulator, the Australian Prudential Regulation Authority, are within weeks expected to reveal measures to help cool the stronger segments of the housing market.

These could involve tightening the types of loans offered to investors, or increasing the serviceability buffers — which test a borrower’s capacity to meet ­repayments at a higher interest rate — on certain loans.

Posted by Paul Gilder - Herald Sun on 11th November, 2014 | Comments | Trackbacks | Permalink
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Follow these tips to avoid lifestyle property investment headaches


 IT’S the time of year when we all start to think about going on holiday and when real estate agents prepare for an onslaught of visitors dreaming about a permanent sea change or an investment property.

So if it’s not just a passing fancy that disappears after you’ve arrived home and vacuumed all the remaining sand out of the car, check out the five things Gold Coast buyer’s agent Tony Coughran of VFM, reckons you must consider when buying in a lifestyle location.

He said buying in a lifestyle location can be risky, particularly if you are not an experienced investor and if you get it wrong you can lose a lot of money.

“In holiday destinations, rental returns often depend on the local tourism economy which can be strongly affected by global financial markets,’’ he said.

“The key is knowing when to buy and at what price.”

Mr Coughran said while it was great to pursue those property investment dreams, a little bit of work at the outset could stop them from turning into a huge financial mistake.

His tips are:

IDENTIFY YOUR NEEDS

The first step is to identify what it is you want from your investment. Is it a holiday home? is it purely for investment or is it something you may look to retire to? This can help determine where you buy and what type of property is suitable.

LOCATION

Once you have determined what it is you want from your investment property, the next consideration is location. Areas close to the beach or outdoor attractions and infrastructure are preferable as are properties in sought after school areas.

Mr Coughran said any investment in a peripheral area or in areas that lack social infrastructure should not make the cut.

RESEARCH DEVELOPERS IF BUYING OFF THE PLAN

If buying-of-the plan, the developer should ideally be someone who has delivered quality properties in the past, according to Coughran.

He said it was essential to do property due diligence. Find out if the developer has the land tile, if his financial position is sound and the appropriate permissions and certifications are in place.

TENANTS

When buying a lifestyle investment, it’s easy to get carried away with the emotion of a holiday destination.

Mr Coughran said to remember it was an investment which needed to be tenanted in what was often a highly competitive market.

“Generally look for properties that can deliver five to seven per cent minimum gross yields, low vacancy rates and little or low body corporate fees.’’

AVOID

Avoid off-the-plan high-rise units and investment houses, where supply outweighs the demand.

“ Small basic rental box homes on lot sizes under 40sqm, with room sizes under three-by-three metres should be avoided, especially if marketers are involved,’’ Mr Coughran said.

Posted by News Limited Network on 10th November, 2014 | Comments | Trackbacks | Permalink
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Borrowers will be hung out to dry if rates rise


Our major banks are lobbying hard to convince both the government and the Murray Financial System Inquiry that raising the mandatory capital reserve requirements will see borrowing costs rise and  shareholder returns fall. As with all such special interest pleadings, this argument needs to be taken with a grain of salt, not least because higher capital revenue requirements will still leave our banking system over-invested in residential and commercial property debt.

Judging from recent statements, the banks are relying on increased lending to property developers and purchasers to power their business. Despite assurances to the contrary including via a stress test by one of the big four, this is a high-risk strategy because of booming property prices and a heavy reliance on overseas borrowings at artificially low interest rates to fund the loans.

In this situation, the risks for borrowers are much higher than many realise. Unlike in the US where fixed-rate long-term mortgages are the norm, current low interest rates on loans can rise very quickly. Even those with fixed rate mortgages are protected from rate changes for only a relatively short period.

Variable interest rates loans are the normal way of lending in Australia and put the full risk of loss on the borrower, at least until their collateral is used up. Even a modest 2 per cent rise in interest rates would put many new borrowers into negative equity and cash flow situations when property prices fall as they inevitably will.

The warnings for home buyers and even investors whose borrowing costs are reduced substantially by our negative-gearing tax concessions is that increases in the banks' capital reserves will provide them with no additional protection. Buying heavily geared real estate is a dangerous proposition because all the risks of interest rate and property price changes are placed on the borrower.

In the event of another financial crisis, even if it wanted to, the government could do little if anything to help heavily geared borrowers. The government's main priority would be to ensure the survival of the banking system. Borrowers would bear the pain.

There are no indications that the Murray Inquiry will address the options available to assist home buyers in trouble such as allowing the unemployed and disabled people to deposit their super in a mortgage-offset account. Until Australia follows the US and Singapore in providing assistance to taxpayers to acquire their home, Darwinian survival of the fittest rules will continue to apply.

The only strategies available without changes in government policy are to pay off loans as quickly as possible and to ensure there is ample financial room to service debts should interest rates rise substantially.

Posted by Daryl Dixon - The Age on 9th November, 2014 | Comments | Trackbacks | Permalink
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Buying property with your self managed super (SMSF)


Using a self-managed super fund (SMSF) to buy property is becoming increasingly popular but the decision to acquire property through your SMSF is one that requires careful consideration.

You have to ensure it supports your overall investment strategy and avoids unnecessary risk.

So how do you go about it?

Limited Recourse Borrowing Arrangements (LRBA) have increased the popularity of property purchases in SMSFs.

SMSFs can use borrowed monies to purchase a single asset, or a collection of identical assets that have the same market value. The SMSF trustees receive the beneficial interest in the purchased asset but the legal ownership of the asset is held on trust (the holding trust).

The upside is that with an LRBA, your whole super fund is not at risk if the loan is defaulted. There are also restrictions on the way a debtor can recover their funds.

Before you leap in you need to ask yourself:
  • If you use your SMSF to buy property, what sort of property should it be?
  • What do you do if you don’t have an SMSF?
  • Is it worthwhile setting up an SMSF to purchase property?


What are the advantages?

There are significant advantages to having a property in an SMSF, including tax – your super fund will be taxed at 15 per cent – which is considerably lower than most people’s personal tax rates.

If the property is sold during the accumulation phase, the capital gains tax is calculated at a discounted rate. If the asset is sold while the super fund is in pension phase, it’s tax free.

However, there are a few things to bear in mind if you plan on setting up an SMSF specifically to buy property, whether it’s residential or commercial.

Residential purchase in an SMSF

It’s important to note that you can’t buy a residential property to live in, or for any family member to live in.

There’s a condition that the SMSF trustee, its members, or any relatives can’t benefit from the property.

The property purchase must be for the sole purpose of supporting the SMSFs investment strategy in building wealth for retirement.

Don’t have enough savings in super?

If you’re looking for a way to buy a residential property but your super fund doesn’t have enough money, or you don’t want to go through an LRBA, there’s another option you can explore:

A Tenants In Common (TIC) arrangement would allow you to split the borrowing across your family home and your super fund.

For example, if the property you want to buy is $400,000, with a TIC, you could borrow $200,000 against your family home and use $200,000 from your super fund. Commercial purchase in an SMSF

Most commonly, people use their SMSF to buy a commercial property to lease back through their business. But there are a few specific conditions you need to be aware of if you’re considering this:

1. Commercially competitive: The terms of the lease must be commercially competitive. You aren’t allowed to lease it back for “mates’ rates” to give yourself a financial advantage. The ATO monitors and audits SMSFs regularly to ensure all arrangements are compliant.

2. No rental holiday: When things get tight and there’s an income downturn, you aren’t allowed to skip the rent for a payment. The payments must be made on time, every time, in full.

3. Valuations: Compliance of the SMSF relies on regular valuations being done on the commercial property. This can be time consuming and requires a lot of paperwork.

4. Sole purpose test: The investment must satisfy the ‘sole purpose’ test, which is that its sole purpose is to provide retirement benefit to the fund’s members. Still interested?

Ultimately, the test of whether you should buy a property with your SMSF comes down to making a rational investment decision based on facts and advice.

Be sure to ask the following questions about your prospective investment:
  • Is the property a good investment?
  • Will it appreciate in value?
  • What are the risks?
  • What is the yield?
To equip yourself to make the best decision it is advisable to have a qualified, independent third party whom you are paying to have a look at the opportunity to give you their honest opinion. Anyone with a vested interest in selling the property may not be able to give you objective advice.

Posted by Tony Rigby - realestate.com.au on 6th November, 2014 | Comments | Trackbacks | Permalink
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Don't create a renovation disaster for your SMSF


Many self managed superannuation funds (SMSFs) invest in residential property. With finer weather on the way and holiday breaks coming up, a lot of people start to think about renovating these properties – especially if a property is not producing much income. But with the law being quite strict on what you can and cannot do with properties held in SMSFs, it might be enough to put you off taking any action or making any decisions. 

Whether you can renovate a property held by your SMSF depends on whether the property was purchased by your SMSF outright with money accumulated in the SMSF or whether it was purchased using money borrowed.

Properties purchased with borrowings

If the SMSF's property was purchased using borrowed money and the borrowing remains outstanding, then you are restricted from using the borrowed funds to renovate, and thereby improve, the property. You can only use the borrowed fund to make repairs to the property. 

The difference between a "repair" and an "improvement" is that a repair includes work to restore the efficiency of function of the property without changing its character. It merely replaces or corrects a part of the property that is already there and has become worn out or dilapidated through ordinary wear and tear, or is damaged accidentally or by natural causes.

An improvement, on the other hand, is work that provides a greater efficiency of function in the property and usually involves bringing the property into a more valuable or desirable form, state or condition. A property would be considered improved if the state or function of the property is significantly altered for the better, through substantial alternations, or the addition of further substantial features to the property.

Now, you can use money already accumulated in your SMSF to improve a property purchased by your SMSF via borrowings, as long as the improvement does not result in the property becoming a different type of asset. For example, you could add a swimming pool or extension of two bedrooms to the property and the property would still be a residential premise. That is okay.

But if the residential home is converted into a restaurant through renovations which may include fitting out a fully functioning commercial kitchen, then that would not be okay when borrowing is involved.

Properties purchased with accumulated funds

If the SMSF's property was purchased using money accumulated in the SMSF, then there are no restrictions in renovating the property. You could even demolish the property and build a new property or properties on the land owned by your SMSF. But what you do need to be careful of is that firstly, your SMSF's investment strategy allows for such actions; and, secondly you don't do the work yourself unless you are licensed and qualified to do the work required and you provide these services to the general public through your business.

If you are in the building and renovation business, then it is also important that any materials used in the renovation are purchased by your SMSF directly from third parties and not from you directly. This is because your SMSF is restricted from acquiring building materials from you. You need to make sure that any labour provided by you is paid by your SMSF at the commercial rate. Otherwise, the increase in the market value of the renovated property owned by your SMSF may be treated as a personal superannuation contribution and may result in you exceeding your contributions caps.

Just remember, if your SMSF has a loan on the property and is using borrowed money to fix it, you are limited to making repairs. If your SMSF has a loan on the property but is using its own money for the renovations, you can renovate a property to improve it as long as you don't change its character. If your SMSF owns the property outright and is using its own money on the property, you can improve and change the character of the property.

Posted by Monica Rule - Money Manager (Fairfax) on 5th November, 2014 | Comments | Trackbacks | Permalink
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Why rates will fall in 2015: expert


Melbourne Cup is traditionally a day for making bets, and one economist has gone the long odds on what the Reserve Bank will do in 2015.

On Tuesday the central bank left the official cash rate on hold at 2.5 per cent for the 15th consecutive month.

Despite rates being at 60-year lows, Domain Group senior economist Andrew Wilson said they may get even lower.

In stark contrast to the 32 other experts surveyed by mortgage comparison website finder.com.au, who predicted that the next rate movement will be up, Dr Wilson believes a cut is more likely.

"I think the case is certainly stronger for lower interest rates than higher interest rates at the moment given rising unemployment, falling building approvals, a volatile stock market, a still too high dollar and falling house prices," he said.

"We will have to start seeing an improvement in the economy, and certainly no more deterioration in those key indicators, to maybe offset a cut in interest rates some time in 2015."

Dr Wilson said if the jobless rate increased, the Reserve Bank would move to cut rates as early as March next year.

But the majority of experts don't believe the central bank would risk further stimulating the property market by dropping rates. Instead, according to the survey, the most likely outcome is that rates will lift in August next year.

Steven Pambris from the Bank of Sydney said given the "current pressures on residential prices especially in Sydney, a rate reduction will not be considered due to fear of fuelling the residential bubble further".

AAP economist Garry Shilson-Josling summed up the Reserve Banks's predicament as: "The housing market's too strong to allow a cut but the rest of the economy is too soft to cope with an increase."

However, there have been some signs that the property market is already cooling. According to figures from the Domain Group, all capital cities bar Sydney, Melbourne and Darwin recorded a fall in the median house price over the September quarter.

October figures released on Monday by RP Data also pointed a national slowdown, with dwelling values outside of Sydney and Melbourne largely flat or falling.

Dr Wilson said the Reserve Bank had limited options if the economy deteriorated. 

"We do need some stimulus for the economy and with a high budget deficit we really only have monetary policy as the lever to work with at the moment," he said.

But given that previous rate cuts had already "washed through the system", he said it was unlikely a further cut would reinvigorate the housing market.

Posted by Toby Johnstone - The Age (Domain) on 4th November, 2014 | Comments | Trackbacks | Permalink
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Why mortgage-obsessed Aussies could be left without enough money in retirement


 GENERATION X is too focused on paying off their home loans, which could impact them come retirement, experts warn.

Shaving down property debt is the number one priority for Australians aged 35-49, new research released by REST Industry Super today shows.

But that diligent focus on reducing mortgage balances could impact life after work, some experts believe.

About 71 per cent say paying off the home loan is the number one priority and only one in three say long-term savings is their top financial goal.

SUPER SAVINGS: How you can turn $10 a week into a whopping $175,000

Reserve Bank of Australia figures show Australians are an average of more than two years ahead on their mortgage repayments as they take advantage of historically-low interest rates.

REST Industry Super’s chief executive officer Damian Hill said while culling home loan debt was a good financial plan of attack, many would end up relying solely on compulsory employer contributions which currently sit at 9.5 per cent and would rise to 12 per cent by 2025.

“In one sense you can understand people are so focused on paying off their mortgage, it’s a big debt,’’ he said.

“It’s never too early to focus on super ... the mortgage shouldn’t be the focus of the long-term savings because of the other opportunities.’’

He said it can be too late to try and tip money into super in a person’s final working years because of the power of compound interest.

HOME DEPOSIT: How this super idea could move you out of Struggle Street and into a home

The RBA is set to meet tomorrow to make their November rate announcement, and it’s strongly predicted the cash rate will stay on hold at 2.5 per cent — where it has sat since August last year.

Consumer finance expert Lisa Montgomery said splitting a financial plan of attack between paying off a mortgage and tipping money into super was a good idea.

“Paying less interest on your mortgage now when rates are low is a good plus right now, the less interest you pay is vital,’’ she said.

“I think there needs to be a balance — pay off as much of your mortgage as you can while also planning for the future.”

The research also showed 30 per cent of generation X women have no savings at the end of the month compared to just 23 per cent of men.

Posted by News Limited Network on 3rd November, 2014 | Comments | Trackbacks | Permalink
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How to win an auction


The two great Melbourne weekend obsessions of attending AFL games and real estate auctions have a few things in common. Both start out with high-spirited chanting, secret strategies and occasional subterfuge, which can progress to a desperate frenzy of play before ending in either glorious triumph or bitter defeat. Most football fans and auction losers do eventually get over their losses and head out to do it all again the next weekend. However, it is the auction winners that can continue to feel the pain for years if they pay too much.

Auctions are the ultimate game of bluff for all players: vendors, auctioneers and buyers each have their own bag of tricks which starts with how the home is styled and marketed and ends with bidding tactics during the auction. Buyers unfamiliar with or intimidated by the auction process can end up forking out more than was necessary to secure the property. Before raising that hand in pursuit of your dream home, it can help to understand the psychology of selling and have your own game plan for auction day. What you wear, who you take, where you stand and how you bid can all have an impact to varying extents on your opponents and the price you pay, according to industry insiders and psychologists.

"Dress does have an impact," says University of Melbourne consumer psychologist Dr Brent Coker. "I would tend to think that going dressed smartly in a suit would be more beneficial than turning up like a poker player with your dark sunglasses and cap, which I've seen quite a lot of actually." While auctions can be won by wealthy people in casual or even scruffy attire, your auction opponents are trying to size up how deep your pockets are and dressing for business creates a perception of wealth. "It's a similar principle to what we call the price-quality heuristic in psychology," says Dr Coker, which is where consumers tend to perceive products as having higher quality based solely on having a bigger price tag. In auctions, other punters are more likely to become deflated and bail out earlier if they think you have more resources.

Bringing the family along to the auction is probably not the best idea either as other bidders could perceive you as financially stretched with school fees. Your nearest and dearest are also more likely to unravel your plans to stick to a limit. When the offspring gaze up at you with pleading eyes, desperately wanting that backyard for their bunnies, it makes it harder to deny them and stick to your budget. 

"If you are there with the family, you might say 'OK, that is what we are prepared to pay' and then suddenly your wife or your husband or your kids say 'Come on dad, one more bid' and suddenly you find you are going beyond your limit," says Mike McCarthy, CEO and director of Barry Plant.

"There's all sorts of tactics you can undertake but in my view when you enter the bidding you need to be strong and bold, you need to know what your limit is," McCarthy says. Hesitation is a sign of weakness and the biggest mistake that inexperienced buyers make at auction. "Once you get to the point where you are hesitating and you are umming and aahing about your next bid, you are really sending a message to the other buyers there and potentially other people who haven't entered the bidding at that point that you are near the end," he says.

Melbourne's weekend bidding wars are not exactly Game of Thrones but everyone still wants to seize the castle. Be bold and stand up the front near the auctioneer where other bidders can see you rather than hiding down the back of the crowd. Your bids should be delivered loudly and confidently immediately after your opponents' bids, which robs them of a potential sense of victory that comes with holding the highest bid for any length of time. However queasy you might feel as you bid your way into a monstrous mortgage, it's important not to show it.

Auctioneer Andrew McCann, the Jellis Craig Bennison Mackinnon managing director making his auction debut on The Block this year, puts it like this: "I think the best bidding strategy is to bid until your maximum and do it looking like you've got a lot more to spend than you really do."

One seasoned all-rounder of the auction scene is David Morrell, a self-described poacher turned gamekeeper who started out as a licensed real estate agent at age 21 before switching sides to become a buyers' advocate 17 years ago. He has been attending two or three auctions every weekend for the past 36 years and has turned the act of bidding into a form of performance art.

Morrell's auction theatrics range from loud, aggressive bidding to humorous antics. With auctioneers that employ the two-steps-forward, two-steps-back dance, he imitates their steps and gets a laugh from the crowd. When auctioneers with a "slow hammer" launch into a spiel about the property's highlights after the "going once", "going twice" calls after bids have ended, he interrupts by yelling out "SOLD!". "I think that is grubby, unfair and misleading and can cost another $100,000," he says.

You have to control the situation and control what the auctioneer does is Morrell's advice to buyers. "Don't be afraid to take the momentum out of the auction – if they are taking $50,000 increments, you can take control and drop it to $10,000." Another trick is to make a higher bid that isn't a round number (for example, throw in a $14,000 bid when it's rising by $10,000 increments)  which can result in the auctioneer dropping the increments in order to round up for easier maths. "Auctioneers aren't neurosurgeons," he says.

Morrell also has no qualms about talking to other bidders mid-auction. "Humour helps," he says. "I will go over to the other bidder and say, 'Will you please go home? Someone is going to pay more than they need to here'."

An auction is all about presence and bidders should never be timid. "Take control, slow it down, open with a loud aggressive bid, ask if it's on the market, interrupt the auctioneer – you own it," says Morrell. If you can't, get someone else who can says the man proud to be described by some of his clients as their "personal Rottweiler".

While a few psychological approaches might increase your chances of winning an auction, it ultimately comes down to who wants it most and can afford to win. "If someone's got more money and they've got more desire to own the property then they are going to get to buy it," says McCann. "That's the way the auction system works and that's why it has worked for such a long period of time."

Posted by Lorna Edwards - The Age on 3rd November, 2014 | Comments | Trackbacks | Permalink
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The art of securing a home loan


Mortgage  lenders are aggressively chasing new customers as property prices continue to strengthen in the main capitals but that doesn't mean lending institutions are letting their credit standards slip.

The truth is that gaining approval to borrow the sum you need to buy property isn't always as easy as the advertising campaigns of the big banks suggest. This is certainly the case if you have little equity and are asking for a loan  that requires repayments that cannot be supported by your income. But these tried-and-tested ways to prepare for a loan application will boost your chances of success:

- Equity is everything. If you own a property or part of one, or have a deposit of 20 per cent or more of the value of the asset you intend to buy, your loan application is far more likely to sail through.

- Before you approach a lender, "stress test" your finances. Can you meet the repayments if interest rates go up by 1 per cent? What happens if your income falls? What if one half of your household leaves work to have a baby? 

- Borrowers must demonstrate consistency of income. Patchy employment records aren't helpful. But it's a competitive finance market - lenders now ask self-employed applicants for one year's proof of financial returns. The standard used to be two years. 

- Many people are applying for interest-only loans in the hope that property's value will rise. It's easier to qualify for these than for a principal and interest loan, but if you buy a dud property with an interest-only loan you can quickly end up out of pocket.

- The banks can't lose in a market in which prices are rising - and they know it. Beware of incentives such as "free" holidays or a bonus $1000 credit card for borrowing $300,000. It isn't free if you pay back more interest than you need to.

- Lenders balance risk and reward. You might think securing a new job is great news, but lenders may want to know if you're going to stay in the position long-term.

- Banks are more attuned to their customers regularly changing jobs than they used to be. Even so, some won't give you a loan until you've completed a three-month probation, so try to arrange loans before changing jobs.

- If you've left work to have children and are now returning to the workforce, most lenders will apply the standard three-month employment restriction before approving  a loan. You may get around this rule, however, if you return to a similar job with a former employer.

- Mortgage brokers take the legwork out of negotiating loans and can greatly help investors and owner-occupier buyers. Brokers charge the lender a commission for signing you up for a loan, so it's vital to ensure a broker isn't making conflicted recommendations based on commissions received.

- Consider every lender: big and small banks, online banks, credit unions and building societies. A savvy mortgage broker can help to identify lenders who may be prepared to loosen their loan criteria.

Posted by Chris Tolhurst - The Age on 2nd November, 2014 | Comments | Trackbacks | Permalink
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There is a magic formula that turns bad debt into good


We are all taught that we should aim to reduce our debt levels and some of us are better at it than others. There are however a number of strategies to reduce debt effectively and in some instances holding debt can make sense as a wealth creation strategy.

There are effectively three types of debt, good debt, bad debt and very bad debt. So what is the difference?

Good debt is generally debt that attracts a tax deduction because it has been used for a tax deductible purpose such as acquiring an income producing asset such as a rental property or shares. If you are on the top marginal tax rate the tax deduction will, in effect, halve the interest rate. In our current low interest rate environment that may not sound like much but it has a dramatic effect over the longer term. 

Bad debt is really any other form of borrowing that does not attract tax relief. The exception is very bad debt, namely credit cards. With interest rates anywhere between 15 per cent and 20 per cent, they will slug you three to four times the typical home loan rate.

It is very difficult to argue against placing a strong priority on repaying personal loans or credit cards that have been used to fund lifestyle choices. At an interest cost of more than 15 per cent it would be unlikely that money could be used elsewhere to provide a higher return rather than reducing the high cost of this debt.

One effective strategy is to move very bad debt to bad debt. This is available where you have equity in your home and simply involves borrowing against your home at a cheaper interest rate to repay the very bad debt.

Another strategy that is available is the conversion of very bad or bad debt to good debt. A common way of achieving this is to use existing assets. For example you may own a number of shares from various floats such as Telstra. These can be sold to repay bad or very bad debt.

A new "good debt" loan can be obtained and used to repurchase assets equivalent to the value of shares sold. This will, in effect, mean you have the same value of investable assets but your debt mix has changed. Transaction costs and capital gains tax will of course need to be considered.

Many people establish a "good debt" line of credit secured by their home but split from their "bad debt" mortgage to facilitate these arrangements. In this way your overall cash flow will improve as the after-tax costs of your "good debt" will be lower, enabling you to channel further funds into reducing your "bad debt" home loan.

Careful management of your borrowings can result in very significant savings that will compound over a long period of time. Savvy wealth creators are disciplined and work hard to reduce non tax deductible debt as quickly as possible while building a tax deductible line of credit.

Posted by Allan McKeown Money Manager (Fairfax Digital) on 29th October, 2014 | Comments | Trackbacks | Permalink
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Auction tips from those who know


Maybe once there was an element of mystique to property auctions. No longer. Programs such as The Block and the difficult hunt for affordable property have exposed us to every trick in the book.

Have auction tactics lost their potency? In pursuit of fresh perspectives, Money spoke with auctioneers who are experts in fields outside the cauldron of residential property. This is what they would do themselves to gain an edge.

Research

Peter Ruaro, a stock and station auctioneer for almost 40 years, operates in the high country. He has sold 250 cattle in 10 seconds and 10,000 head over three days, and he advises, "A buyer should know the going rate for the property – whether it's dollars per kilo or residential property". Do your research, set your limit.

When to start?

According to Martin Farrah, auctioneer with Lawsons specialising in fine art and antiques, "Trade buyers hang back, while novices are more likely to jump in first so as to get things going. Personally, I would normally hold back."

Ruaro starts low, "but if the auction became really heated, I'd be prepared to go for the punch and a big figure near my limit".

Science of bidding

"I am a fan of getting the card up quickly following someone else's bid, rat-a-tat,' suggests Farrah. "This is what the professional buyers from state art galleries do."

George Savva is the auctioneer and principal of LJ Hooker Coogee and has worked in Sydney's eastern suburbs since the 1970s. His tip? "When the bidding gets down to increments of $1000, don't bother making your own $1000 bid.

 "Everyone can find another $1000! No. This is the time to go up by $5000. Respond rapidly, like you have an inexhaustible supply of bundles of $5000, even if you don't."

But how do you battle against a professional? "Intimidation," says Scott Andrews of Andrews Office Furniture.

"Most of the buyers at my auctions are dealers," says Andrews.

'"Dealers often have already mentally sold the furniture to a customer and they can lose their cool against a bidder who comes at them relentlessly. This is income for them, but they can throw in the towel and move on if you make it too hard. Wait till they think they've won … then trump them solidly.

"This is demoralising, affecting a person's emotions and ego."

Momentum

Andrews also believes in using the momentum generated in a heated auction. "This is what will drive the inexperienced buyer past their 'walk away' point," he says. "But sometimes it's a good tactic to disrupt the momentum too."

Savva agrees. "Near the end, say your bid in full – not '$750' but "seven hundred and fifty thousand dollars". Remind everyone just how much money they are contemplating spending." This tactic serves as a warning to those who have surged past their limit and are bidding on adrenaline and caffeine.

If the auction lulls, "Go doggo and lie quiet," recommends Andrews.

'It's like the situation where the traffic light turns green and you're the only one driving forward; you ask yourself, 'Am I doing the right thing here?'."

Where to stand

All agree with Farrah: "If you are hesitant or reserved, stand at the back. But if you are boisterous or more of a show-off, stand at the front and place your bids with confidence. Give the impression that 'this person is never going to stop, so they might as well have it'."

Body language

Body language is an unreliable indicator. "But I can usually tell when someone makes their last bid – their body language changes. You see them work up to this point and then they seem to drop their shoulders and relax," notes Farrah.

"A good stock auctioneer knows where the buyers have come from and should have a fair idea if they can afford to pay more because their region is doing well," cautions Ruaro. In other words, buyers and agents are watching you too. If you have big-noted yourself earlier or appear wealthy, you can expect pressure to draw you out.

Be there

"Show up," encourages Savva. "People make a mistake when they assume they will miss out at auction. News about an auction boom can discourage buyer numbers. The story is not just about the centre of Sydney or Melbourne."

Vendors commit much time and money to get their property ready. At the tail of an auction boom, prices drop and buyers diminish. Be there.

All the experts agree: if you are not calm and confident, then have someone represent you who is icy – a friend or buyer's agent. Licking your wounds hurts a few weeks …but paying beyond your limit is 30 years of pain at 5.90 per cent per annum. ACTION PLAN

Tips from art auctions
  • Obtain expert advice on condition and value.
  • Hold back initially
  • Meet other bids with a rapid response
  • A knock-out bid can be effective 


Tips from livestock auctions
  • Know the value of what you are buying – others will.
  • Start the bidding low
  • When bidding gets heated, respond with a large bid
  • Gauge the mood from previous sales that day


Tips from office furniture auctions
  • Come out early with a low bid
  • Be bold and intimidating
  • If the auction lulls, watch and wait.
  • Let doubt build.
  • Even professionals can be encouraged to spit the dummy and walk away 

Posted by Peter Cerexhe - Money Manager (Fairfax Digital) on 29th October, 2014 | Comments | Trackbacks | Permalink
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Should you manage your own investment property?


Nothing warms the cockles of a property investor’s heart more than the idea of reducing holding costs by ‘cutting out the middleman’. There are instances where this is possible, such as if you are handy and can do some or all of the maintenance work, but regrettably not when it comes to the management of your rental property.

One key reason is that the potential savings are negligible when compared to the management fees currently charged by real estate agencies in a highly competitive market – and even more so because by DIY-managing, you will forego any tax rebate on professional fees.

Giving a manager the flick will, for example, save you $20 on a $400 weekly rent at a 5% management fee, or $32 on an 8% fee, or $48 on 12%. If you owned 10 rental properties, each rented at $400 per week, and you dispensed with a manager on an 8% fee, you would save yourself a paltry $320 per week on a weekly income of $4000 – or $16,640 per 52-week year on a rental income of $208,000 (again, before any tax rebate you forego). The impact of DIY-management on your running (rental) yield is equally paltry. A saving of $32 on an 8% fee on a $400,000 property with a weekly rental income of $400 will reduce your 5.2% yield by 0.4%.

Time and resources

Should any of these savings above appear attractive to you, the next thing to be aware of is the workload, responsibility and legal liability risk that is involved in DIY-managing a rental property – let alone a 10-property portfolio. Real estate agencies are able to offer their services on such slim margins because of the economies of scale they achieve by typically having hundreds of properties on their rent rolls.

Even at these slim margins, agencies in many areas are readily offering discounts on the average 7% management fee, giving landlords even less reason to DIY-manage their properties. This is because the ongoing general shortage of rental properties affects real estate agents as much as it does renters, only for different reasons.

An agency’s rent roll usually represents the ‘bread and butter’ income for an agency – more so than property sales – and therefore forms the true-value basis of the resale price of an agency. The larger the rent roll of an agency, the better the potential resale price. In times of a shortage of rental properties, therefore, an agency principal will often encourage the property managers to offer generous discounts to landlords on the advertised management fee.

Neutral intermediary

Never mind that a property manager is worth their fee many times over in juggling the many day-to-day tasks, which, incidentally, include advertising properties, vetting tenants, chasing rents and deposit bonds, coordinating repairs, doing property inspections and, when necessary, attending the tenancy tribunal. They’re ‘worth their weight in gold’ in facilitating an arms-length relationship between a tenant and landlord, says Linda Tuck, property investor, commentator and director of Cairns-based specialist residential property management group Property Ladder Realty.

As Ms Tuck reveals, professional property managers serve as a neutral intermediary in negotiations between a landlord and a tenant. This removes the emotions that can quickly erupt between tenants and landlords even over trivial tenancy issues. If left unresolved, these issues can become potentially dangerous, resulting in legal and financial consequences for a landlord.

Professionals balance the interests of the landlord with the needs of the tenants and in so doing they remove a lot of the stress, confusion and time-wasting of an emotional confrontation, she says. By contrast, a DIY manager is usually much less likely to be able to put aside his or her self-interest to negotiate a balanced settlement.

For some, managing their own investment properties can be financially rewarding. Depending on your other commitments DIY investment property management can save you money and let you be more involved in your property. Not everyone has the time to be so hands on, so before you jump in consider your options and weigh up the benefits. 

Posted by Liam Egan - Domain (Fairfax) on 28th October, 2014 | Comments | Trackbacks | Permalink
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Finding the perfect fixer-upper


Renovating an ‘ugly duckling’ property can boost the value of a house and let you create your ideal home. How can you tell a genuine bargain from an overpriced wreck?

Quality home renovations can drastically improve a property’s value and liveability. However, it’s all too easy to get caught up in a downward spiral of expensive works. Here’s the Domain guide to buying the perfect fixer-upper. Find your ugly duckling

As with any property, location is king. Buyer agent and reno guru Patrick Bright suggests targeting shabby properties in suburbs with general upside potential.

“The inner ring of capital cities is a good place to start, as it’s the most bulletproof part of the market,” he says. “Look for areas with decent infrastructure, but make sure you’re not on top of it. A new rail line is great, but not if you can hear it.”

Do you research to understand critical background information; filtering your  Domain search with keywords like ‘renovator’s dream’ is also a good way to start. Look out for deceased estate sales, as these properties are often ripe for renovation. Do the maths

Your budget must be nailed down before you even think about putting in an offer. A key part of that is working out how much renovating will cost and how much value it will add.

To do this, you need to know the value of renovated properties in your target suburbs. To find these, filter your  Domain listing search using keywords like ‘new kitchen’, ‘freshly renovated’ and so on. You can also research actual sale prices.

Inspect as many ‘finished’ properties as you can to check out the quality of fittings and fixtures. When you get home, price-check key renovation zones like kitchens and bathrooms and work out how much it would cost to carry out that renovation.

Once you know what a renovated property in a given suburb is worth and how much it’s likely to cost to bring a run-down house to that level, you can work out your maximum purchase price. Every dollar you save under that figure is pure profit. The biggest bang

It’s all about looking for the opportunities when inspecting a potential buy. Cosmetic renovations usually give you the biggest bang for your buck, so an old kitchen or bathroom should be a big tick for aspiring renovators.

Bright suggests looking for opportunities to add walls to create new bedrooms (or studies) or removing walls to make open-plan spaces. Also look out for small windows – especially if there’s an outlook. “You can introduce natural light or a view by installing a larger window,” he says. Avoid hidden costs

Bright’s major no-no is any property that harbours ‘hidden costs’. “I avoid properties that involve invisible work such as rewiring or new plumbing. If I spend a dollar, I want people to see it.”

A pre-purchase   building inspection  is therefore essential. You should also investigate if there are any legal or heritage restrictions which could stop your grand designs in their tracks. Don’t spend too much – or too little

Staying within your budget when renovating is critical. Anyone who has watched a prime-time renovation show knows the danger of going over budget. However, skimping on your reno can be just as dangerous.

“I see a lot of renovations where people try to save money, usually because they’ve paid too much for the property,” says Bright. “For example, they install cheaper tapware, tiles and carpet, or skip on installing a bath.”

A cheaper reno may save you money in the short term, but it will also reduce the appeal to potential buyers – and therefore the eventual sale price. Cheaper fixtures and fittings may wear faster too.

Your worst enemy when viewing property is yourself. It’s all too easy to get carried away and see a potential goldmine when it’s actually a run-down wreck. Those rose-tinted glasses will soon shatter once you’re knee-deep in paint cans and bad wiring.

Keep your emotions out of the selection process and your fixer-upper will become your palace – and a profitable investment in the long term.

Posted by Kevin Eddy - Domain (Fairfax) on 28th October, 2014 | Comments | Trackbacks | Permalink
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Australian house prices: Then and now


We take a look at the price of property in Australia from 40 years ago to today and the factors that have contributed to this upward surge.

Fifty years ago, you could nab a house for tens of thousands of dollars. Today, headlines tell us that house prices are soaring through the roof, especially in Sydney.

Interestingly, CEO of the Real Estate Institute of Australia (REIA) Amanda Lynch says that housing-affordability issues have actually been brewing in Australia for quite some time. Factors at play

“Although the level of affordability can vary cyclically, house-price and household-income data suggest that there has been an underlying structural affordability problem in Australia over the past half-century. From 1960 to 2006, real house prices increased at an average of 2.7 per cent per annum, ahead of a 1.9 per cent per annum growth per household real income,” Lynch says.

According to Lynch, myriad factors have affected the housing system and property prices in the last 50 years. These include an undersupply of housing, land-development processes and policies, the cost of construction and property-related taxes, as well as outside factors such as comprehensive taxation reform. Spot the difference

To break it down, in 1973, median house prices across Australia’s capital cities looked something like this:
  • Sydney – $27,400
  • Melbourne – $19,800
  • Brisbane – $17,500
  • Adelaide – $16,250
  • Perth – $18,850
  • Canberra – $26,850
  • Hobart – $15,200
  • Darwin – $87,500 (information unavailable until 1986; this value reflects 1986 housing costs)


Nowadays, we’re looking at much higher digits and another set of zeroes added to the price, according to September 2014 numbers from Domain Group’s House Price Report:
  • Sydney – $843,994
  • Melbourne – $615,068
  • Brisbane – $473,924
  • Adelaide – $459,258
  • Perth – $604,822
  • Canberra – $573,326
  • Hobart – $322,274
  • Darwin – $667,115


Now, before your eyes start rolling into the back of your head, let’s put it all into some perspective: back in 1973, the average weekly wage was $111.80 (including full- and part-time workers), according to the Australian Bureau of Statistics (ABS). Today, a full-time worker makes on average $1453.90 weekly (before tax). However, in the house price report, Dr Andrew Wilson, senior economist for the Domain Group, predicts that housing-market activity will continue to decline as affordable housing falls, joblessness increases and consumer confidence wavers. The times, they are a-changin’

“There have been many changes within the property landscape over the last 50 years. We’ve seen a welcome increase in the level of foreign investment in commercial real estate, which has allowed for many inner-city apartment projects and new housing developments in the outer suburbs. We’ve also seen an increase in the level of single-person households, both with retirees living longer and often alone in their family homes as well as with younger professionals who are increasingly living alone in inner-city areas. This, in turn, places extra demand on housing supply,” explains Lynch.

There’s also been growing concern about the low levels of first-home buyers entering the market in recent years. Having said that, Lynch points out that the ABS is currently looking at the methods used to collect information on first-home buyers, due to the fact that they may be buying as investors rather than as owner-occupiers.

All in all, immense changes in the social structure of Australian society, the rise and fall of ‘boom’ industries such as mining, new ways of entering the property market and other financial factors over the years have all had an impact on Australian property prices.

Posted by Nicole Thomas - Domain (Fairfax) on 28th October, 2014 | Comments | Trackbacks | Permalink
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Negative gearing is not so negative


Poor old negative gearing, carrying the can for perceived housing affordability problems, fitted up as a convenient scapegoat, so much easier to blame it than to deal with the myriad factors bearing on housing supply and demand.

The ability to offset losses on one investment against income made elsewhere has actually served the overall Australian economy well and done plenty of positive things for housing affordability as well. (That probably sounds like heresy, but I'll come  back to it.)

Anyway, there's no need to expend too much energy attacking negative gearing as the market is in the process of sorting out any excesses – a process that could see recent property investors retreat from buying in the same way that punters flee the stock market when it takes a turn.

Basically, there's a good chance negative gearing the average residential property won't make much sense for most investors over the next few years.

The tip is in the title: "negative gearing" – the investment loses money unless there's a fat capital gain above and beyond capital gains tax. And the tax benefits of the deduction for losing money on housing aren't really that flash on anything less than the top marginal tax rate, a privilege enjoyed by relatively few.

Given increasing supply and flat or falling rents in key investor markets and subdued capital gains forecasts for at least the next couple of years, negative gearing is looking negative indeed, especially when punters can positively gear into equities instead.

Some of the most investor-centric real estate markets are already showing strain. Reserve Bankers have fingered Melbourne CBD apartments as a potential worry, BIS Shrapnel has issued warnings about Sydney CBD units and Brisbane property analyst Michael Matusik has been ringing the alarm bell with increasing urgency over "investor specials" there.

With an echo of every investment scheme on the edge, Matusik recently wrote to clients that his firm had been approached with offers to become involved in several off-the-plan Brisbane developments.

"The conversation starts with how much commission is available, with the starting figure often 6%, sometimes more," said Matusik. "This, to me, is a bellwether. 
 
"New apartment sales across inner Brisbane are about to get harder.  And they should, as for mine, this market is already saturated.  And despite everybody and their dog trying to put a sunny face on things, it looks pretty grim – investment wise – for some time to come."

Australia doesn't have a housing market; it has hundreds, perhaps thousands of them. Some of our housing markets get more carried away than most – witness the Gold Coast pre-GFC. For that matter, the Gold Coast every decade or so.

Investors who piled into mining towns have seen prices slashed. Negative gearing won't have done any favours for anyone who bought into a mining town over the past couple of years.

But it's Brisbane that is shaping up as the more general warning to investors just when the Reserve Bank is jawboning investor excess.

Resales of recently-purchased Brisbane CBD units have been at a loss. There has been a rush of apartment towers completed recently with more on the way.

Michael Matusik reports local real estate agents as saying it's taking longer to rent units and that rents are falling. Quality but older riverfront apartments are typically empty for four weeks between tenancies and then rent for 10 per cent or more below the previous lease.  Some owners are offering a month's free rent.

And he has an interesting twist to the foreign buyers scare campaign:

"When the foreign investors come to sell, they will not be able to sell to other foreigners.  This is currently not allowed under FIRB regulations.  So the pool of potential buyers will be much smaller.  This could cause significant price decreases for resales of apartments, particularly in larger projects."

Maybe Kelly O'Dwyer's parliamentary committee looking into foreign investors should consider freeing them up rather than further restricting their buying. 
 
There's nothing wrong with an individual losing money on an investment, unless, of course, you are the individual.

Or unless there are a large number of investors losing at the same time, causing a broader economic problem. The one thing worse than sharply rising housing prices is sharply falling housing prices.

Former economic adviser to the Gillard government, Stephen Koukoulas, has pointed to why the RBA and others should not get too excited about hosing down the housing market - or perhaps he has described why the RBA is doing more jawboning than acting on macro prudential means of reducing housing demand.

Roughly two-thirds of Australians own or are in the process of buying their homes and there's an overlapping 10 per cent who own at least one rental property. Rising housing prices have been and are vital for maintaining their consumption desires – the wealth effect – when real wages are falling.

With the economy expected to grow below trend this financial year, the RBA has no interest is further sabotaging consumer confidence.

And then there's the matter of negatively-geared property investors improving housing affordability for those who are most disadvantaged by the high cost of housing: renters.

There is a general media and political bias towards looking at the housing affordability problem from the angle of one minority group: would-be first home buyers.

Of the roughly one third of Australians renting, many are not in the trying-to-buy-a-home class – they are on one form or another of social welfare or at a transient stage of their lives. Excess investor activity, allegedly fuelled by negative gearing, ends up providing excess rental properties that eventually make it cheaper to rent.

There is a rational economic decision for people to make here: if it is cheaper to rent than to buy, including expectations of capital gain and the cost of money, go ahead and rent.

And there is the matter of Harris' Law, as I've named it, after Tony Harris, the former NSW auditor general who coined it: Everything is capitalised.

All government policies end up being built into the price of the goods or services affected by those policies.

Fairfax colleague Gareth Hutchens nicely described examples of that in his article last week claiming that negative gearing should be abolished  – give first home buyers a special grant and it is very quickly built into the price of the properties they are seeking, so the FHBs are no better off. First home buyers' grants would be better titled "first home sellers' grants".

Hutchens attacked negative gearing, quoting the esteemed economist Saul Eslake, because it increased demand for housing, which in turn forced up prices.

But right now, we need increased demand for housing, both because of population growth and an otherwise below-trend economy.

More fundamentally, the article homed in on the negative gearing scapegoat because it only addressed the housing affordability question from one side of the equation – demand – and did not mention the other side – supply. Fixing the supply problem is a better way of solving the housing affordability problem than trying to arbitrarily restrict broad taxation principles for one particular sub-set of an asset class.

Negative gearing does increase demand, but in doing so, it also increases supply.  Increasing supply is a good thing, but there are many other factors affecting it, ranging from NIMBYs to merely incompetent and gutless state and local governments, plus the decline in government investment in social housing. 

What concerns the RBA is the possibility that, maybe, perhaps, too many investors are becoming too exposed to a potential correction, but the Martin Place mandarins are not so concerned as to actually do anything much yet.

Last Tuesday RBA deputy governor Philip Lowe was sounding alert but  less than alarmed about housing investors' animal spirits in a speech that was swamped from a news point of view by Gough Whitlam's death.

Lowe said the increased demand for existing housing assets was translating nicely into increased demand for new housing construction, with residential construction up by 9 per cent over the past year with further increases expected. Monetary policy was working.

But the strong recent increases in prices "together with pockets of higher borrowing" posed questions about financial or macroeconomic risk.

Said Lowe, after a qualification or two: "The judgment we have reached over recent times is that at least some aspects of the housing market have become somewhat unbalanced and that this has generated some increase in overall risk.

"The area that has attracted most attention is the very strong demand by investors to buy housing for the purposes of renting. Currently, loan approvals to investors buying properties to rent out account for nearly 45 per cent of total loan approvals, with most of the investment properties being existing properties.

"Perhaps not surprisingly, the biggest increases in housing prices have occurred in the city where investor demand has been strongest – namely Sydney. Overall, investor credit outstanding is growing at an annual rate of close to 10 per cent, around twice the rate of increase in household income. A fairly high and increasing share of these investor loans do not require the repayment of any principal during the life of the loan. And this is all occurring in an environment in which growth in rents has slowed and the ratio of housing prices to income is at the top end of the range experienced over the past decade or so...

"It is important to make clear that I am not saying that this will end badly, or even that is likely to end badly – just that, on average, recent loans are probably a bit more risky than those made earlier…it is prudent for both borrowers and lenders to be careful."

Yes. And just abolishing negative gearing, if a government could in some future fairy land, would be a poor and inequitable stab at the bigger problem.

There are plenty of ways of reducing demand for property - scrap the capital gains tax concession, boost land tax, amputate the little fingers of every tenth buyer, and so forth. However, in the short-term, parts of the market will do it as a lesson in the cost of exuberance.

Increasing supply, given our population growth, is a much better way of equitably dealing with housing affordability.

Read more: http://www.smh.com.au/business/the-economy/negative-gearing-is-not-so-negative-20141028-11csr4.html#ixzz3HQ5euwKR

Posted by Michael Pascoe - Business Day (The Age) on 28th October, 2014 | Comments | Trackbacks | Permalink
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Parents increasingly helping kids to buy a house


More Australian parents than ever are stumping up large sums of money or providing "family pledge" loans to help their adult children buy property, mortgage brokers and real estate experts say.

Financial strategist and mortgage broker Mario Borg told Domain "there is definitely more of this going on."

He said many parents were offering a portion of the homes they owned outright and which had increased in value by up to 25 per cent in the past two years, as pledge loan security to support their children's home loan applications. Others were buying property in a joint venture with a child.

"I also see many parents provide a cash gift to their kids," said Mr Borg, who runs a training business for mortgage brokers. 

He said real estate prices in the major capitals had increased since 2012 but official numbers for first home buyers gaining housing finance approvals had fallen.

He noted that many family-assisted first-home purchases were not being counted in the first home buyer, or FHB, data collected by the Australian Bureau of Statistics.

"If I bought a property jointly with my son, that wouldn't involve a first home buyer loan, so you wouldn't know about it," Mr Borg said.

The widening access younger Australians have to the bank of mum and dad, coupled with the introduction of more restricted first home buyer grants, appears to be hiding the true extent of FHB purchasing.

Domain Group senior economist Andrew Wilson said the eastern seaboard states now only offered FHB grants for the purchase of new properties.

Established properties no longer qualified for the grants. He said this had made it more difficult for the ABS to identify buyers who were purchasing established property for the first time.

Dr Wilson said baby boomers (born between 1945 and 1964) had a cultural connection to home ownership.

"They have reaped the highest rewards from the booms of the past three decades," he said. "There is an enthusiasm to help out, particularly now that you don't get the first home buyer grant unless you are buying a new property."

Dr Wilson said some first-time purchasers in Sydney and Melbourne were buying $600,000 properties. If they borrowed $480,000, lenders required them to be earning about $2000 a week.

"I can't see the typical first home buyer having $150,000 in cash and earning $2000-plus a week," he said.

Paul Nugent, of Wakelin Property Advisory, agrees it has become much more common for  parents to partner with adult children to buy property or to lend or give them money.

"Over the past three years, you have seen more fathers bidding at auction on behalf of adult children," he said.

In a statement on housing finance last week, the ABS asked lenders to report all loans to first home buyers.

"Concerns have been raised that under-reporting could occur if some lenders were only able to accurately report on those buyers receiving a first home buyer grant," the statistics body said.

The latest ABS data shows the number of housing loans approved nationally for FHBs fell by 9.9 per cent over August to 6054, the lowest monthly result for six months.

Officially, first-time buyers now account for just 8.1 per cent of all national finance for housing sales, which is the lowest proportion on record and below the long-term average of 15.4 per cent.

The average first home buyer loan for NSW fell to $318,400 over August - down by 4 per cent. FHBs now account for just 4.3 per cent of all housing sales finance.

FHB numbers in Victoria were down by 2.1 per cent over August to a four-month low of 1656. The average FHB loan in Victoria is $291,100 - the lowest since October last year - and first-time buyers account for just 8.2 per cent of all housing loans in the state.

Posted by Chris Tolhurst - The Age on 27th October, 2014 | Comments | Trackbacks | Permalink
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Investing in property? Don’t touch these


There are many strategies available for investors. Some strategies can be considered opportunities and produce good cash flow or capital growth; others can be considered a waste of time and detrimental to an investor’s property objectives.

Student accommodation and serviced apartments are considered by many to be a waste of time. investors may be lured in by low entry prices, higher yields and rental guarantees, but there are several reasons why you should think twice.

Consideration 1: Banks will generally not lend more than 60 per cent debt against the value of either type of property. The underlying reason is it is considered one of the most risky residential investment property decisions that an investor can make and lenders do not wish to expose themselves to such risk.

Consideration 2: As lenders will consider only 60 per cent loan to value ratio (LVR), generally an investor must contribute 40 per cent plus costs to the deal. This is a waste of equity/cash as these monies could have been contributed to other investment properties with more capital growth potential, with possible lending to 95 per cent LVR.

For example, (excluding costs and loan mortgage insurance): a $400,000 serviced apartment with a 60 per cent LVR means the investor would have to contribute $180,000 to the deal. Consider a normal residential investment property type assuming a 95 per cent LVR, the borrower would only need to contribute $20,000 toward the $400,000 purchase. The $160,000 difference is a huge amount.

Consideration 3: When the investor wishes to sell the property, there may not have been much capital growth, which is bad enough, but the resale market is considerably smaller than the normal property market.

There would be far fewer buyers mad enough to put in 40 per cent themselves; they would also find it difficult to obtain finance, as the original investor would have found as well, and very few lenders will lend on such a security as already mentioned.

So the seller would not be in a position to demand what they want, and it would most likely, potentially always, be a buyers’ market, meaning sellers would not be in a strong position to negotiate.

Few investors want to plough in 30–40 per cent of their own money, and many won’t have that much money anyway. So don’t think about it in terms of whether you can afford to do it – think of it in terms of how many others can financially or will want to financially do it. The answer is not very many. 

Serviced Apartments

The prospect of capital growth potential is connected to the rental increase of the property, which is limited with serviced apartments. Let me explain why. While some serviced apartment contracts have built-in rental increases over a given period of time, the rental increase directly affects the capital growth. The increase is, effectively, the capital gain.

Be aware that the value may not increase at the same rate, in the same time, as a normal apartment. The added risks with serviced apartments, over and above normal apartments, are: the quality of the management service provider, the use of the dwelling, whether it can be owner-occupied, and the exit strategy. These are very onerous, limiting, controlling and expensive (yet more reasons why lenders don’t like them).

Investors, depending on the type of serviced apartment provider, may be required to spend thousands every few years for the refurbishment of furniture and appliances. What a burden!

Serviced apartments can be good cash flow vehicles, on the surface, but after management and body corporate fees and forced upgrades, the true value of the higher cash flow can be very quickly eroded.

It is always recommended that investors undertake normal research and due diligence as to where they are and how many there are in the location. Their proximity to amenities must be considered.

Sometimes the management contract reverts to the owner, after five to 10 years, which can eliminate the enforced requirement to refurbish (after this period). But, on the other hand, you then have to spend time and effort finding someone to manage the property on your behalf. This may prove difficult if the dwelling is in a building with other dwellings that still function as serviced apartments.

The fact the dwelling itself may have reverted to a normal apartment may not reduce the difficulty in obtaining finance, as it may be in a building which still has other serviced apartments. This is a deterrent for lenders.

Student Accommodation

Student accommodation can be a good income-earner, but these are often very small inside (usually under 50 square metres), which limits the appeal in the aftermarket and can make it difficult to find a lender, as I explained earlier.

Student accommodation may have less onerous contracts, depending where the accommodation is. Some investors turn a house into room-by-room leases, but structurally the dwelling is still a suburban house. This can be a time-consuming responsibility and may not appeal to most property investors.

This is, however, better than a designated student accommodation scenario as it allows the flexibility to borrow normal debt levels.

Furthermore, specific student accommodation purpose securities are not unique.

They are often the same as all the others in the building. Often, there is a large supply of these and strong competition to rent them out, forcing the investor to lower the rent to attract a tenant. The same rule applies when selling. These may always be a monkey on the back of the investor – a perennial hindrance to obtaining a loan, renting it out, and selling it.

In summary, it’s difficult to recommend pursuing an investment in either a serviced apartment or student accommodation. They both provide good cash flow, but investors are likely to encounter resistance in obtaining finance, plenty of fees, a weak aftermarket and a need for continuing investment.

Posted by Andrew Crossley - Australian Financial Review on 23rd October, 2014 | Comments | Trackbacks | Permalink
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Getting the finance you need to ensure business success


BUSINESS lending is shrinking as banks continue to favour home loans over business loans in their short-term approach to capital use and returns.

It is stifling the economy and it is a major frustration for businesses that are seeking capital to fund their growth.

In its recent submission to David Murray’s Financial System Enquiry, Industry Super Australia confirmed that the amount of commercial lending for every dollar of residential property lending has plunged from $3.84 to $1.62 over the past 25 years. The land of opportunity has become the land of property.

How do borrowers navigate these changes? Communication between borrowers and lenders is the key to a successful banking relationship. Bankers do not like surprises.

As a borrower, be proactive and provide financial information that is both timely and accurate. Prepare and deliver on financial forecasts and projected financial covenant ratios. These add to a borrower’s credibility and offer opportunities to negotiate during the loan renewal process. Additionally, business owners should stay focused on their core business and have a solid business plan with contingencies in place.

So businesses who are seeking funding need to carefully consider the way they frame their finance proposal to their banker, positioning it in the best possible light.

A professional, well thought-out application with strong supporting documentation is critical. Understanding what banks are looking for will help you get it right first time and improve your chances of success.     

Banks typically look for three major elements when they assess your business’ credit risk. These are commonly known as the ‘three Cs’.

The first, critically, is ‘character’.

Bankers will assess your character by reviewing a range of documents that provide information about your history, track record and experience in business. They are seeking to understand your commitment to a relationship with the bank. Considerations include:

• Have you been able to meet your forecasts?

• What is your repayment history like?

• Do you do what you say you will do?

The bank will also want to see that you have plenty of ‘skin in the game’. Are you contributing enough to your own cash or equity to the purchase or new project?

The second thing a banker will look for is ‘collateral’.

Here the bank ‘credit department’ reigns supreme. They will be seeking all the first mortgage ‘bricks-and-mortar’ security they can get their hands on supported by a mortgage over your equipment, other assets of the business and personal guarantees from directors. Think twice about pledging all of your assets if you can avoid it as it limits your borrowing options in the future.

Thirdly, a banker wants to look at your ‘capacity’.

They need to know that your earnings are sufficient to pay the loan back without creating distress. When you apply for the loan, you will be asked to outline all of your income, and provide comprehensive financial data on the business. These will include cash flow and profit and loss forecasts and a robust business plan.    

Once you have satisfied the ‘three Cs’ there remains much devil in the detail. Your ranking in this area will determine how much negotiation leverage you have around some very important final points:

Covenants — These are the ratios and conditions that the bank will monitor to ensure satisfactory performance of your loan. They may include the ageing of your debtor’s maximum, stock levels and interest cover (the number of times your net profit exceeds your interest bill). Breaking these covenants give the bank the power to charge penalty interest rates and even call in your loan. So it is sensible to ensure they are achievable. While it is important to monitor them once in place, practically they are usually regarded as a guideline by the bank and a lever to deal with relationships that have deteriorated beyond repair.

Security — We live in difficult and uncertain financial times. While it is necessary to ensure the bank has ‘sufficient’ security, do not be overly generous. Look to exclude the home and personal assets where possible. Maintaining separate banking relationships for business and personal loans can give you options and keep each bank on their toes.

Repayment terms — Interest only terms take the cash flow pressure off your business by excluding the additional burden of the extra loan portion payment particularly in the early period of the loan. Banks however are keen to see a start to the repayment of their loan and are reluctant to extend interest only beyond two to three years.

Even if you satisfy the ‘three Cs’ and all other lending criteria, you may experience variations between banks so it’s important to get some advice. Some banks have particular industry focuses (and usually specialised products to match) and others will seek to reduce their exposure to a type of business purely because the bank has a high total exposure to that area they are seeking to reduce on a pure risk balance basis.

In a challenging borrowing environment a thorough understanding of how banks assess your position, a well thought-out finance proposal, and careful consideration of the terms will give you the best chance to obtain the finance you need to ensure business success.

Posted by News Limited Network on 20th October, 2014 | Comments | Trackbacks | Permalink
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Home loan rates will rise – so be prepared


 As economists talk about rising interest rates for mortgages – probably around mid-2015 – it's worth having a plan for repaying a home loan at a higher interest rate than the rate at which you borrowed. The risk here is pretty basic: you may have budgeted for monthly repayments of around $1700, but two years later the repayments are $2000. Now what?

The risk of defaulting on a mortgage, or going into arrears, is more evident when you consider that first-home buyers who bought a property in the past few years have never experienced rising interest rates. The last time the cash rate went up was in November 2010.

Finder.com.au research says that every 0.25 per cent rise on a $300,000 home loan costs an extra $50 a month in repayments; and in the current finder.com.au Reserve Bank survey, their expert panel predicts interest rates will increase 1.5 per cent in the next two to three years.

Whether you've recently bought your first home, or you plan to buy property this spring, here are some tips on avoiding the rising interest rate trap:
  • Understand that if interest rates rise by 1.5 per cent, it will add around $300 a month on a $300,000, 25-year loan, or around $600 per month for a $600,000 loan.
  • Be honest about your budget before you borrow. Lenders build a margin into your serviceability, allowing for rising interest rates. But those buffers are not credible if you have understated your monthly outgoings.
  • The "stress test" on a mortgage comes down to your household cash flow: if you're looking for a loan, don't "shop" to see what the mortgage providers will lend you – start with what you can afford. If you already have a variable rate loan, do your own stress test: write an honest household budget, and then – if you've borrowed at 5 per cent – run a scenario with rates at 7 per cent. Find where you are vulnerable.
  • Start an emergency fund and have a contingency plan in the event of you or your partner losing their job.
  • Prepare a plan by knowing the costs of closing-out an unaffordable loan and selling early if you have to.
  • Explore renting options. You can preserve your asset by renting-out the property and living in a cheaper rental, but will it work in your favour?
  • Know your refinancing options. Remember, once variable rates are rising, fixed rates are unlikely to be cheaper than variable; and if you refinance to a fixed rate now, you'll still need a plan for when it reverts to a variable rate loan (at a higher rate).
  • Investigate a 100 per cent offset account – it could allow you to build an equity buffer before the rates rise.
The most important aspect for those who have never experienced rising interest rates is to acknowledge and talk about the scenario in advance. If in doubt, speak to a mortgage broker or financial adviser about strategies.

Rising interest rates are not necessarily a disaster – but ignoring them is a big mistake.

Read more: http://www.theage.com.au/money/borrowing/home-loan-rates-will-rise-8211-so-be-prepared-20141015-116kh1.html#ixzz3GcUcO0xK

Posted by Mark Bouris - The Age on 19th October, 2014 | Comments | Trackbacks | Permalink
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Making the beach house pay


From the 1950s through to the 1970s, a beach "shack" meant exactly that, a fairly rudimentary house that celebrated its unique coastal surrounds. In more recent times, the "shack" has become the trophy home, with ensuites to every bedroom and several living areas to boot.

Although these beach homes come with all the bells and whistles, are they a good investment? Or are beach houses a lifestyle choice for those who aren't particularly concerned about the financial return?

Architect Andrew Maynard uses the word "shack" when he's designing a beach house for clients. This term already suggests an image in the mind of clients that a suburban-style home by the beach won't be presented to them.

"The problem at the moment, whether it's a beach or country house, is that it's often simply a replica of what people leave behind in the suburbs," says Maynard, who laments the rise of the "trophy" home.

"People think they need a large place to entertain family and friends, but that could occur only a couple of times a year," he says.

Maynard sees smaller as better when it comes to beach houses, not only for the coastal environment, but also for the return. Maynard's award-winning beach house at Anglesea, a couple of hours drive from Melbourne, is a renovation of a 1970s abode, owned by the same family since it was built.

Initially, Maynard's clients were thinking of a new beach house to accommodate the extended family. But that option would have come with a million dollar price tag. Instead, they went for the less expensive option, a renovation to the value of $450,000.

A bunkroom was added, together with a rumpus room and a second bathroom. A large outdoor deck leading from the living areas on the first floor, sits in the canopy of an established tree.

Maynard avoided suburban-style fixtures and fittings and kept the design of the Anglesea house as simple as possible. "Why do people feel there's a need to import tiles from Italy for a bathroom in a beach house? A simple bathroom and an out-door shower makes more sense," says Maynard.

ITN Architects also prefers to design simple beach houses rather than large suburban-style homes as weekenders. Its beach house, located at St Andrews Beach on the Mornington Peninsula, is simple and low maintenance.

Designed for a couple with three children, the idea was to ``channel" some of the great beach shacks built in Australia from the 1950s through to the 1970s. Clad in timber, the 200-square-metre beach house includes a sunken-style lounge in the living area, four bedrooms and two bathrooms.

Realised with a budget of $400,000, a few elements were altered to save money. Floor-to-ceiling glazing was replaced with off-the-shelf window frames and secondhand blackbutt was used for flooring.

The modest kitchen features plywood joinery and an insitu concrete bench. While some would have built a large expensive home on this site, many feel such a move would lessen the value of this type of property.

"In the long term, the suburban-style beach house holds less appeal for prospective buyers. It isn't a beach house," says architect Aidan Halloran, a director of ITN Architects. And for those thinking that building a beach house is a good investment, it's more for pleasure than financial gain.

"A beach house is generally not a great investment but it's something that can be enjoyed in the long term," he adds.

Keryn Nossal wasn't after a quick financial return when she commissioned ITN Architects to design the St Andrews Beach house.

"We wanted the house to be low key, definitely no marble surfaces," says Nossal, who didn't present Halloran with a budget on the first meeting.

"It was more about how we wanted to use the spaces."

The beach house wasn't purchased as an investment, but as a lifestyle choice that would remain in the family for generations to come.

"It was never about buying or selling real estate. I often say to friends and family it would be 'the last thing to go'," says Nossal.

Fortunately Nossal and Halloran were on the same page when they were discussing plans for the beach house.

"The last thing we wanted was a beach house designed just to impress people. It had to respond to this majestic site, not overpower it," says Nossal.

While architects such as Maynard and Halloran point to the pleasure of owning a simple beach house, others such as real estate agent Jamie Granger, director of Property Central, see the financial benefits of buying a beach house.

Property Central handles a number of property sales on the New South Wales coast including Wamberal and Avoca Beach.

While many beach homes at Wamberal fetch substantial amounts of money (well north of a million dollars), other areas, such as Blue Bay and Toowoon Bay, are less well known.

"Timing is everything when you're buying a beach house. Prices are starting to rise, particularly in the bay areas near Wamberal," says Granger, who also suggests Newcastle as a strong growth area for those looking for more affordable beach houses.

"It's starting to become a strong beach/cafe culture."

However, irrespective of the timing, creating a mansion-style house by the beach, customised to the nth degree, is not only costly, but importantly, not always a wise financial decision.

"Financially it doesn't stack up to add endless bathrooms and slick kitchens you'd find in the city. Do these things really add to the pleasure of getting away?" says Maynard. 

Read more: http://www.theage.com.au/money/investing/making-the-beach-house-pay-20141015-116iqe.html#ixzz3GcTrfsDh

Posted by Stephen Crafti - The Age on 19th October, 2014 | Comments | Trackbacks | Permalink
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Free credit record not always easy to find


Consumers are complaining that they cannot easily access free copies of their credit reports. Queries rolled in after Money ran a story recently about the new regime that came into effect in March, where monthly payment histories on loans and credit cards will be shown and reports will note any missed payments of more than 14 days.

Before March, credit reports, which credit agencies provide to lenders when they check on applicants, held only negative information, such as missed payments of more than 60 days and bankruptcies.

Credit agencies have to make available to consumers a free copy of their credit reports at least once a year. But readers have contacted Money saying they were unable to find the free reports. More than 2 million people, or 13 per cent of the estimated 16 million Australians using credit, are at risk of credit default.

That includes about 600,000 people who are at "high to extreme risk" of defaulting, an analysis of credit records by credit agency Veda found. It is not surprising that consumers want to check their credit reports.

"Veda themselves are charging ... for the most basic level personal subscription; where do you go for the free ones?" wrote one. "How exactly do consumers go about getting their annual free credit reports from credit agencies?", wrote another.

Veda wants people to buy its subscription services, which includes speedy dispatch of the report, email alerts when specific changes occur on the consumers' credit file and the credit score.

On the Veda web pages the paid reports are usually advertised heavily at the top of the pages. A red-coloured button on the Veda pages for the "Free File" is towards the bottom of the pages, just below another red button labelled "Buy Now".

A spokesperson for Veda, which is the market leader, holding more credit files on individuals than competitors, says it has made improvements to make it more accessible for consumers, such as increasing the size and dominance of the "Free File" button and using the same application form for consumers wanting to access the free or the paid credit report.

Previously, the free option required more identification documents than the paid credit report.

The spokesperson says more than 110,000 people have obtained a free report from Veda during the last 12  months. Getting a free report without internet access is difficult. The Credit Reporting Code requires the free report to be as available and easy to identify and access as a paid report.

Veda allows the paid copy of the credit report to be obtained over the phone, but directs the caller to the website for the free copy. Rival credit agency Dun & Bradstreet, on its website, gives equal weighting to the free report alongside its paid-for reports.

And on the website of the other major credit agency, Experian, the link to obtain a free credit report is clearly shown on the home page.

Experian does not appear to provide a paid report. Privacy Commissioner Timothy Pilgrim says access credit reports should be provided on the "same terms", regardless of whether the person is using the free or paid service.

"I have been very clear about my views on this and have written to credit reporting bodies outlining that I expect their websites to provide clear, easy-to-understand and prominent notices to individuals" on how they access their free reports.

Katherine Lane, the principal solicitor at the Financial Rights Legal Centre, says: "People need to know about their credit reports; it is their right." Consumer advocacy groups, including the Financial Rights Legal Centre, have lodged complaints about Veda with the privacy commissioner.


Read more: http://www.theage.com.au/money/borrowing/free-credit-record-not-always-easy-to-find-20141016-116t44.html#ixzz3GcSak5A7

Posted by John Collett - The Age on 19th October, 2014 | Comments | Trackbacks | Permalink
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Five real estate reasons why your house will not sell


 YOU’VE had it on the market for months but no one has made an offer yet.

You love your house but why doesn’t someone else?

Buyer’s agent Chris Gray, CEO of Empire, reveals the five reasons why your house hasn’t sold yet.

1. The house wasn’t priced correctly.

Mr Gray said people were emotionally attached to their own houses, especially if they’ve lived there for a long time. This often led them to think it was worth more than it was.

“You need to take a step back, look at it unemotionally and get the opinions of independent experts in order to know its true value and set a realistic price,’’ he said. 

2. You hired the cheapest agent.

“The agent that charges the cheapest commission can be the most expensive agent in the long run,’’ Mr Gray warned.

He said they don’t always get you the highest price possible and sometimes can’t even close the sale.

“Paying an extra $10,000 to $20,000 for the best agent gives you a better chance of a sale on auction day, and can often result in your house selling for $50,000 or even $100,000 more than what a cheaper agent could achieve.’’ 

3. The house wasn’t presented in the best light.

Believe it or not, everyone doesn’t have the same taste as you in furniture and decorating.

“If you’re moving out of the house you need to emotionally move out of the property at that instant — not after the property is sold,’’ Mr Gray said.

He advised sellers to take advice from their agent about what decorations to use and whether the home needs to be styled.

“It could be a reason as small as this why your house didn’t sell,’’ he said. 

4. No one knew it was for sale.

“You can’t sell a secret,’’ Mr Gray said.

“Many people think that by uploading their property onto a website that offers for sale by owner listings that their house will sell, however a lot of these sites have very little traffic.’’

To maximise your chances of selling at the highest possible price, he said you need to try every marketing tool available; online, print, main listing websites, agent’s websites and social media.     

5. You attended all the open for inspections.

“Many homeowners want to keep across what the agent does and what the buyers are saying, so they attend every open for inspection and pretend not to be the owner,’’ Mr Gray said.

You are not fooling anyone.

Mr Gray said homeowners usually stood out and it could really put buyers off as they don’t feel comfortable speaking openly with the agent when the owners are there.

Posted by News Limited Network on 18th October, 2014 | Comments | Trackbacks | Permalink
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Minimise tax on your investment property


It is no secret the property market has been hot over the past year. Sydney and Melbourne are in "boom" territory and the sunshine state is also giving Brisbane investors a warm feeling.

No wonder then that many investors, upgraders and baby boomers are cashing in on their nest eggs and selling for a profit while the good times roll on. After all, it was one of the world's most famous investors, Warren Buffett, who said: "Buy in gloom, sell in boom." Selling now could be a beautiful reward for years of hard work and sacrifice.

However, capital gains tax (CGT) can quickly eat into that attractive figure on the contract and make your cash payout much smaller than you originally thought.

Domain has spoken to the experts about the 10 best ways to minimise your tax when it comes to selling property.

1. Live and let live

One of the best-kept secrets to dodging capital gains tax is to live, then let live. In other words, you can live in your property, then let someone else live in the same property, but still claim it as your principal place of residence (PPOR) for up to six years.

General manager of ThinkConveyancing.com.au, Christopher Lane, said, generally speaking, your property was not your "main residence" once you had moved out.

"However, there are circumstances where you can treat a property as your main residence after you've moved out for the purposes of avoiding capital gains tax, under the CGT main residence exemption," Mr Lane explained.

"For a period of up to six years, you can treat your property as your main residence if you satisfy the eligibility criteria."

The six-year rule was established to allow for those who have job transfers, either regionally or overseas.

You could still technically move to the next suburb, just a few hundred metres away, according to Momentum Wealth managing director Damian Collins.

Mr Collins said just because you rented out your property did not mean you had to give it up as your PPOR.

"If you rent it out, you get all the benefits of interest deductions and potentially, depending on the debt, the benefits of negative gearing," he said.

"If you buy another property, you then have a choice. You can choose which one is your primary residence and you don't have to choose until you sell it."

The obvious big plus is that if you own two properties, the one with the most capital gain can be claimed as your PPOR. Talk about a good idea!

However, you cannot just guess. Mr Collins pointed out that it was important to get a valuation on each property at the time of renting it out, just in case you used another property as your PPOR later on.

"The other one would be subject to capital gains tax and so you need to know the market value the day you move out," Mr Collins said.

Mr Lane added that many investors and homeowners were not aware of the six-year rule, but it could save them thousands of dollars.

"Recently we sold a property for a James, who had lived in the property prior to moving in with his partner," Mr Lane said.

"They had decided it was time to upgrade to a larger family home so they were selling up. He had budgeted CGT into the equation and was thrilled when he discovered he was almost $27,000 better off by applying the six-year rule."

2. Keep your investment pad for more than 12 months

Cannot avoid capital gains tax? Then reduce it.

Chan & Naylor managing director Ken Raiss said anyone who had bought an investment property should hold it for at least a year, reducing the capital gains tax by 50 per cent.

"This reduced amount is added to the owner's normal income and taxed at the marginal tax rate," he explained.

Do not forget that your 12-month ownership is from the date of contract for both the purchase and sale of a property.

"Particularly in Sydney, Melbourne and even Brisbane at the moment, people like to take a quick profit," Mr Collins said.

"If you purchased a property in April and settled in May, then sell in March with a long settlement until June, it's not 12 months. You must go from the contract dates."

3. Make the most of a low-income year

We all have good and bad years and our income often reflects our personal circumstances, according to Mr Lane.

He said CGT was closely linked with income tax and so the timing of when you incurred CGT was critical to getting the best outcome.

"If you're having a low-income year and you think you'll be in a lower-than-usual income tax bracket, run your numbers on selling out and make the decision with time before the end of the tax year," Mr Lane said.

"Things to watch out for include maternity leave, job loss, extended periods between job contracts and unpaid, long overseas holidays. They all present great opportunities."

4. Delay the contract date

If you are keen to cash in on the Sydney boom, you might be better off waiting to sell until next winter, or more accurately, July 1. This would save you a whole financial year of payable tax.

"If contracts are signed on July 1, rather than June 30, the tax liability is pushed out by 12 months," Mr Raiss said.

"Holding onto your money longer is almost as good as a tax deduction."

You could also put the profits from your sale into an offset account, helping to reduce the tax payable on other mortgages in the meantime.

5. Buy the property­just not 100 per cent of it

Found your dream investment, but worried about holding costs? Why not go in with a partner? If you own 100 per cent of a property, you get 100 per cent of deductions, but you also have to pay 100 per cent of the capital gains tax.

"I'm always one to think that a dollar in the hand today is worth more than a dollar in 10 years," Mr Collins said.

"If it's a long-term investment, buy the property in the name of the person where it's most tax advantageous now."

That means if the property is positively geared, purchase in the name of the person on the lower income.

If the property is likely to be negatively geared, purchase in the name of the person on the higher income.

"It depends on the sort of property you buy and the income that flows from that," Mr Collins said.

6. Put your profit into your own super account

When you sell the property, consider putting part, if not all, of the profit into your own super account. It is just like salary sacrificing, meaning you will not be taxed as much.

"Depending on your age, a taxpayer can contribute a maximum of $30,000 or $35,000, including the 9.5 per cent super guarantee, into super," Mr Raiss said.

"For taxpayers aged over 55, they could even move into a transition to retirement to improve contributions further."

7. Purchase the property in a trust

Alternatively, it might also be a good idea to purchase a property with a number of people in a discretionary trust. Mr Lane said the use of trust structures was on a steady rise and might benefit those on lower marginal tax rates.

"Let's be honest, who knows where they'll be in six months' time, so anticipating your individual financial circumstances into the future is almost impossible," he said.

"A discretionary trust allows many of those decisions to be made closer to the sale event and the outcome better planned, which produces better tax outcomes. It allows you to decide which of the members of the trust will receive the profit from the asset sale. It means you can direct the profits to the most tax-effective person at that time."

8. Sell the lemon with the lemonade

The property market might be booming in Sydney, but not all parts of the country have had amazing results.  If you are selling for a profit, consider also letting go of the lemon.

The loss of the lemon and the profit from the lemonade in the same year will reduce the overall tax rate. For example, if the sale of a property results in a $200,000 gain, but a dud property results in a $50,000 loss, the taxable profit would be $150,000. Suddenly, that sour lemon would taste quite sweet.

9. Claim deductions and keep records

We all know you can claim deductions for things like rates, insurance and body corporate or strata fees, but have you considered all the possibilities?

"Expenses that are often overlooked include writing off any borrowing expenses, including lenders' mortgage insurance, costs associated with advertising the property, including furniture packs, and the original costs associated with investigating the purchase of the property," Mr Raiss said.

You also need to be vigilant with your record keeping. Mr Collins said a lot of people did not include renovation costs when it came to claiming expenses.

"This is part of the cost base of the property and the cost base, being high, means the CGT is reduced," Mr Collins said.

10. Pre-pax tax on another property

Well-known property author and investor Jan Somers said it was pretty tough to avoid the tax man, but investors who were selling and making a profit might also be able to pay their mortgage fees on a second property one whole financial year in advance, if they actually had the cash to do this.

For example, if property A is sold for a profit of $200,000, the interest on property B could be pre-paid for one financial year. This might cost $50,000 and reduce the overall taxable gain across a property portfolio.

"If you have a $1 million loan and you pay the 5 per cent interest on that, which is $50,000, you would have a $50,000 deduction for that year, but you have to have a financial advantage," Mrs Somers explained.

"You would need to get an interest rate of 4.92 per cent instead of 4.95 per cent and it's only worth it if you're selling within a few months of the [new] financial year."

Banking on the six-year rule

Empower Wealth founder and chief executive Ben Kingsley lives by the mantra of buying and holding.

However, he said the six-year rule, where you could claim a property as your PPOR even though it was being rented out, still applied to investors who preferred to hold. After all, you never know where you might be in 20 years down the track.

The property lover and his wife Jane bought a two-bedroom semi in Alexandria, Sydney, for $395,000 back in 2001. They lived there until 2004, when work commitments forced the couple to move to Melbourne.

Even though they rented the Alexandria property out from 2004 until 2010, they could still claim this property as their PPOR during that time, if they want to later in life.

"From 2004 to 2010, it's obviously one of the properties we're now considering for the six-year rule," Mr Kingsley said.

"In 2010 we had it valued, but we also bought a cracking property in Flemington [in Melbourne], which has had amazing gains as well."

The two-bedroom terrace in Flemington was purchased for the same price as the Alexandria property – $395,000 – in 2007. They lived in the terrace until 2009, which means the Flemington property could also potentially be claimed as their PPOR, instead of the Alexandria property.

It is a nice problem to have and it all comes down to which property has had the most capital gain. The property with the most gain could be used as their PPOR, on paper, once the couple hits retirement and sells, to avoid CGT during that period.

Mr Kingsley estimated the Alexandria property would now be worth $1 million, while the Flemington terrace would be worth about $850,000.

"The message is you don't have to sell," Mr Kingsley said.

"You can lock in the gain and have it revalued at the end of that period and that gain is potentially there to realise the benefit, if you ever choose to sell.

"A lot of people think you have to sell at that six-year point. The reality is you don't. The moment you move out, you should get a valuation done and keep it on file, the same way you keep capital costings on file."

Posted by Lauren Cross - The Age on 18th October, 2014 | Comments | Trackbacks | Permalink
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Don't blame the bogeymen for high property prices


It's usually investors and foreigners who take turns in the role of housing sector bogeyman but lately they've teamed up.

Yet foreign investors don't make that much difference to home prices except for off-the-plan apartments. As Rob Mellor, head of property research and economic group BIS Shrapnel points out, even if there were 20,000 mainland Chinese flouting the foreign investment rules – foreigners can't buy established dwellings – that would still only represent 1 or 2 per cent of turnover.

Home-grown, as it were, investors are also getting a bum rap, from the Reserve Bank of all places. Perhaps if it hopped on a plane to Perth it might not be so worried.

Or closer to, um, home it could check out how many Sydney investors are actually frustrated first-home buyers. Often they tell me they're investing in a unit to let because it's their only hope of ever owning a place.

Then there are others who only want to rent so they can live somewhere decent – they need investors to be buying dwellings.

No, blame high home prices on the global financial crisis five years ago. It gave us record low interest rates and a building slump even as the rate of population growth was increasing.

So demand was fuelled by low interest rates and supply constrained by a lack of new building.

If you believe the latest QBE annual Australian Housing Outlook, compiled by BIS Shrapnel, prices are going higher.

I must admit each year it seems overly optimistic about property prices but that was so only once in the 13 years it's been published.  Unfortunately that was a doozy because it got the direction wrong as well, and being in 2010 was just recent enough to survive my short-term memory.

In Sydney, the market where the shortage of housing stock is the most chronic and investors are apparently running amok, it predicts prices will rise 9 per cent. Oops, that's over three years. In fact, the forecasts are for 7 per cent this financial year, slowing to 5 per cent the following year and then falling 3 per cent.

Brisbane is the place to be. Its values are forecast to rise 17 per cent over three years with the Gold Coast not far behind with a projected 15 per cent.

On the other hand, home prices in Melbourne, where there's a glut of units, are forecast to rise only a smidgin: 3 per cent this financial year, then 2 per cent culminating in a 1 per cent drop in 2016-17. Maybe the Reserve bankers should just pop down to Melbourne?

Or perhaps not. They might not get past Docklands which I suspect is pulling the median growth rate down.

Anyway these are all averages. You've heard me say before an average is something that doesn't exist.

Nor is the growth in Sydney and Melbourne where you might expect. It's the middle and outer suburbs that have been going gangbusters, not the inner city.

Hmm, then again that shouldn't be a surprise since inner city prices were relatively high to begin with, not to mention high-rises materially adding to supply.

So why will prices drop in 2016-17? The reverse of why they'll rise first. Supply will be growing faster than demand.  Oh, and interest rates should be higher by then as growth picks up, not that they'll be at killer levels.  

But there's something else too. Australia's net immigration is falling. The number of arrivals on the employer-sponsored skilled workers  457 visa is falling as the mining boom fades away and departures "should increase due to the lack of opportunities for temporary migrants to extend their stay", as the report puts it.

This should please the Reserve Bank. It suggests the property boom is slowing down and will eventually self-correct.

And it may as well stop fretting about the rise in investment loans, mostly concentrated in its own backyard because that's the demographic trend. The  proportion of renters to owner-occupiers is rising, especially in Sydney.

Read more: http://www.theage.com.au/money/investing/dont-blame-the-bogeymen-for-high-property-prices-20141009-113b9g.html#ixzz3GHOOL3gz

Posted by David Potts - The Age on 16th October, 2014 | Comments | Trackbacks | Permalink
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Six reasons why you need an SMSF


Small business owners can reap huge riches from self-managed super funds. 

The popularity of self-managed super funds continues to grow unabated as more Australians look for greater control of their financial destinies through reduced fees, greater liquidity and the opportunity to invest in a wider variety of long term asset classes, including property.

According to research firm CoreData, as at June this year there were 528,700 SMSFs, representing almost 32 per cent of Australia’s total $1.6 trillion super pool. Ten years ago there were only 271,000 DIY funds. Aside from their ability to help fund an independent retirement, SMSFs are increasingly recognised as an effective means for small business owners to add extra funds to their super nest egg, as well as manage commercial properties more tax efficiently.

If you are a small business owner then you are likely to be highly adept at quickly responding to the changing business environment and conditions. Most business owners' guiding priority is to make money, make their assets work for them and create a more certain financial future. SMSFs are a good way to meet these goals. 

SMSFs have six key benefits for small business owners.
  1. Holding a business property in your SMSF, subject to an arm’s length lease arrangement, is an excellent way of increasing your super balance.
  2. If you own an existing commercial property then, subject to relevant state government laws, you may be able to transfer that property into your SMSF with little to no stamp duty (less than $500).
  3. Potentially you will pay little to no capital gains tax when the property is sold (subject to qualifying for the small business tax concessions).
  4. You can lend money to your superannuation fund and this debt can then be changed into non-concessional contributions over time by forgiving the debt, although you need to ensure you do not exceed non-concessional contribution caps ($180,000 per annum or $540,000 over a three year period – a bring forward provision for the under 65s). 
  5. There are no caps on how much you can lend to your super fund, providing the loan is at arm’s length and on a commercial basis.
  6. If you sell the business you can keep the building and use this as an income stream within your SMSF – the gift that keeps on giving.

There are various issues you will need to understand before holding a commercial property in an SMSF. For instance, while every loan to a super fund is a limited recourse loan, loan-to-value ratios are lower for commercial properties than their residential equivalent. Another point to consider is that any increased capital growth cannot be accessed in super. However other benefits include zero tax in pension stage and the ability to access the land tax threshold available to super funds.

An SMSF can be a great way for small business owners to boost their super fund balance above the normal contribution limits and become tax free in retirement, although any SMSF strategy should be based on sound independent financial advice.

Read more: http://www.theage.com.au/small-business/finance/six-reasons-why-you-need-an-smsf-20141015-3i13h.html#ixzz3GAGao5j4

Posted by Ken Raiss - The Age on 15th October, 2014 | Comments | Trackbacks | Permalink
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Crack the property valuation code


Mark Kelman started investing in property 10 years ago, buying two houses in regional NSW for $92,000 and $53,000. Today, he owns 15 properties, including a block of six units, and is the author of Become a Property Millionaire in your Spare Time (Major Street Publishing). His top tip: thoroughly research the value of properties before buying and renovating.

"Some people just get advice from a real estate agent or friends," he says. Or they rely on free bank property valuation apps. But the best information comes from property software such as that provided by  RP Data, Residex or Australian Property Monitors.

"You have to use the different softwares to really research the price the vendor has paid for the property; to know what the comparative valuations are; and if you are looking to renovate the property you want to know what similar properties, that have been renovated, have gone for in the area so you know exactly what your property is worth when you buy it."

 It's particularly important if investors want to build a property portfolio quickly.

"The easiest way [to build a portfolio] is to buy a property, add value to it and then refinance," Kelman says. "But if you want to skip that step you can add value to the property during the settlement period and then have the bank use the end-value in order to do the deal."

In such situations, it's handy to have strong relationships with finance professionals. "Mortgage brokers can be very useful if you're doing creative property deals because the bank's lending criteria changes all the time," Kelman says.

"The good brokers, that work with more experienced investors, keep on top of which banks are allowing which strategy and they have good relationships with bank managers."

The 36-year-old says during the GFC the values placed on his properties came in lower than expected and that slowed the pace of his investment strategy.

"It was basically just a way that the banks could give themselves a bit of extra security," he says.

As Scott McCray, an adviser at Smartline Personal Mortgage Advisers and an experienced property investor explains: a valuation reflects the expected time frame for selling a property, typically 90 days.

"If it must sell within 30 days, then that's going to be a different price," he says.

During the GFC, some banks moved to a 30-day time frame, which affected values. Valuers can err on the side of caution if a property hasn't been sold for some time.

"Because valuers are independent of the bank, they can be legally liable if they over-value the property."

Valuations also depend on who is at the helm. "A bank has a panel of valuers – three or four companies that they use – and some companies can be a bit more conservative than others; some individuals can be more conservative than others," McCray says.

So how do you prevent your plans from being thwarted by a conservative valuation? McCray draws on data from the four property software providers to form a solid opinion of a property's value for clients.

He may also ask a bank for an upfront valuation before a client applies for a loan, which is better than challenging a lower-than-expected valuation.

"I'd say 99.9 per cent of all challenges get declined," he says.

Chris Gray is the chief executive of Empire, a property buyer's agency, as well as an accountant and a mortgage broker, with his own property portfolio. He explains banks may only ask for a "desktop valuation" relying on property software comparative data, rather than doing a "full valuation" where the valuer actually visits the properties.

When he refinanced his portfolio about five years ago, the bank did a desktop valuation, until he insisted on a full valuation because all his properties had been fully renovated. "They then did that and the valuation moved 10 per cent."

Often a full valuation is only carried out when the loan-to-value ratio is more than 80 per cent. To help present your case to the bank, it can be worthwhile obtaining an independent valuation for bigger deals or portfolios. But Gray warns unless you use a valuer who is on the bank's panel, it may not be accepted.

ACTION PLAN
  • Be aware lenders have different valuation policies.
  • Thoroughly research comparative values.
  • Forge relationships with experienced mortgage brokers.
  • If in doubt, get an upfront valuation.
  • Consider an independent valuation for bigger deals or portfolios.

Posted by Christine Long - Money Manager (Fairfax Digital) on 15th October, 2014 | Comments | Trackbacks | Permalink
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Top 5 kitchen renovation tips


Updating your kitchen is one of the best renovations to improve home value. We asked award-winning interior architect, George Livissianis, for his top kitchen renovation tips.

A leading residential and commercial interior architect, George Livissianis has created the interiors of some of Sydney’s most famed eateries, including The Apollo, Longrain and, most recently, the much-lauded Cho Cho San in Potts Point.

Livissianis knows a thing or two about designing stunning interiors that do not compromise on functionality, and when it comes to kitchens, there is no room for error.

“I think everybody values the kitchen space,” Livissianis says. “It’s one of the most highly regarded items when someone’s looking at a house to buy, and if it’s not, then you are very aware that will be one of the first things you do – ‘I’m going to renovate the kitchen and bathroom’.”

Whether the kitchen is the heart of your home, or you are putting a property up for sale or as a rental property, nothing screams ‘deal breaker’ quite like a tired old kitchen.

Here are Livissianis’ top kitchen renovation tips.

1. The quick kitchen renovation

If a complete overhaul is out of the question, here are some quick kitchen renovation ideas that will immediately lift the space and add value, according to Livissianis.
  • Upgrade appliances – a sparkling new cooktop, dishwasher, toaster or fridge not only looks fantastic but will be a pleasure to use. If it’s for a rental property you can claim depreciation on permanent fixtures.
  • Replace benchtops – if the kitchen joinery is in reasonable condition, replace the benchtops. They are one of the most visible and most used features of any kitchen and offer the opportunity to make a design statement. Livissianis favours textured natural materials like white granite.
  • Replace joinery and lighting – consider replacing the cupboard doors and drawer fronts for an immediate visual lift. Updated lighting will modernise the kitchen and can be used as a design feature. Joinery that is in decent condition may benefit from a fresh paint job, but Livissianis recommends replacing worn or damaged joinery rather than re-covering or painting.


 2. Optimise your kitchen layout

It’s all about having a comfortable amount of space in the right places: “You learn a few things from doing commercial kitchens,” says Livissianis. “You need a set-down space on either side of the cooking area and you need ample preparation space. You can water that down into a functional residential kitchen.

“Make sure there is nice flow – if you’re chopping up vegetables then the bin should be close by and you should be close to the sink so you can wash them. When you open up the dishwasher, you don’t want to close off half of the kitchen and have to step over it.”

The kitchen’s aesthetic and floorplan will be dictated by where it’s located and the size of your home. “If it’s on show versus being tucked around a corner, that starts to direct how you design your kitchen,” Livissianis explains.

“If you’ve got a generous-sized three-bedroom apartment, then you don’t necessarily want to be viewing the kitchen from the living space it’s big enough to have the kitchen as a separate room. But in a studio apartment you are forced to integrate the kitchen as a part of the living area.”

3. Consider an island bench

Though designing an industrial kitchen often centres upon the head chef’s cooking requirements and the type of food being prepared, Livissianis has found an island bench is a key design inclusion.

“The kitchens I feel work better are the ones where you have a formal cooking line and an island in the middle. They’ve got a circular rhythm to them – working around that central island table.

“I think an island is a nice thing to gravitate to and depending on how it’s detailed, it can look less like a kitchen and more like a beautiful object,” Livissianis explains. “It’s a gathering spot, really. A lot of people, if they’ve got a formal dining room, choose to eat day-to-day in the kitchen, rather than in a separate space.”

4. Choose the right kitchen appliances

When choosing appliances you need to decide on functionality as well as quality. Livissianis has noticed a trend towards the big-name suppliers that offer longer-term guarantees and follow-up services. If purchasing a number of appliances at once, it is also worth considering buying all in the same brand. This way the set will match – details such as dials, railings and overall geometry will be consistent, and you may be able to obtain a discount.

5. Consider your flooring options

Livissianis’ top renovation tip when it comes to kitchen flooring is consistency. “My choice in the floor is determined by the bigger concept, not the fact that it’s in the kitchen,” says Livissianis. “I’d rather see the floor flow throughout the space so it is all connected, rather than having it as a separate surface just in that zone.”

Make sure you allow at least four weeks for the renovation of your kitchen, excluding planning and design time.

And our final kitchen renovation tip: if perusing the latest kitchen trends is a guilty design pleasure, Livissianis suggests keeping an eye on the leading kitchen joinery companies. Suppliers like Poliform and Boffi create innovative designs that tend to filter through the market.

Posted by Jacqui Thompson - Domain on 14th October, 2014 | Comments | Trackbacks | Permalink
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Top 3 tips for moving with pets


Moving house with a pet adds a whole new dimension to the process. Your pets are particularly precious cargo and require special consideration. 

Make a short-term plan for moving your furry or feathered friends with as little fuss and frenzy as possible, and also think longer-term about how to ease their transition to a new and unfamiliar home. Before you move

We hope that in the process of renting or buying a new home, you’ve had your pets’ best interests at heart, too. Have you asked yourself the following questions:
  • Does your new home have enough space for your pets?
  • Is your new home pet-proofed? For example, if your dog will spend time in the backyard, will he be safe from other animals or obstructions? Is he at risk of getting out and running away? Are there other hazards in the home, such as open staircases or a pool, that could pose a danger to your pet?
  • Have you found a reputable local vet who can care for your pets?

You’ll also want o make sure your pet’s microchip is working properly and updated with your new address. It’s a good idea, too, for the pet to wear an ID tag. Moving day

When moving day arrives, the key words for your pets are safety and stress-free. If you’re moving by car, make sure you invest in safe, sturdy and comfortable travel equipment for Fido, Felix and Tweety. For dogs, this may mean a crate, a carrier or a seatbelt restraint. For cats, a proper travel box or carrier. For birds, their cage. If possible, include some of their favourite toys or familiar-smelling bedding or items of clothing. If your pet suffers from anxiety or motion sickness in a car, talk to your vet about medications or other alternatives. And don’t forget: plenty of treats and words of encouragement!

If you’re moving interstate, you’ll need to work with the individual airlines to coordinate your pet’s travel with your own. Alternatively, companies such as Jetpets can help you with travel arrangements. Most airlines do accept animals, and they may be able to be on the same flight as you, but in Australia, your pet will travel in cargo in the undercarriage of the plane. Again, speak with your vet if you have any concerns around flying with your pet. After the move

Your new home will be full of new nooks and crannies and new smells to explore and investigate. Let them — again, keeping safety in mind. Experts recommend keeping cats indoors at your new location for two or three nights, so they feel safe at home before exploring their new neighbourhood. Dogs, on the other hand, enjoy walking around their new surroundings. Now’s a good time to check out the local dog parks! And depending on how much you’re at home with your pet, you may also want to research local dog walkers/sitters once you settle in.

If you follow this advice, the hope is your pets will find moving house as exciting as you do. And did I mention treats?

Posted by Hannah Hempenstall - Domain on 14th October, 2014 | Comments | Trackbacks | Permalink
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How to choose the right block of land


 ASSUMING you’ve got your finances in order and you’ve settled on the general area you’re going to build in, it’s time to find the right plot of land.

To the untrained eye, there’s usually little to suggest that one plot is significantly different from the next. Menace often lurks beneath the soil, though — or in the nearby offices of local council bureaucrats, or other places you haven’t considered.

The particular plot of land you choose could easily make tens of thousands of dollars’ difference in construction and maintenance costs, and could also determine whether or not you can build the type of home you’re after. In the worst possible scenarios, it could even represent the difference between a stable, well-built house and one that’ll bring you grief and misery for years to come.

It might all sound a bit dramatic — but knowing what to look for when you’re hunting for a plot of land can make a tremendous difference.

WHAT DO I NEED TO CONSIDER?

There are a lot of things to take into account when you’re choosing a plot. Some of them are only relevant in obscure circumstances, others may determine whether you can build at all. Many of these issues will be dealt with by builders, developers, solicitors or conveyancers, but it’s still worth understanding what’s involved.

SIZE, SHAPE, ORIENTATION AND SLOPE

Got a particular house style or design in mind? It’s not normally a problem on bigger plots, but in suburban and urban areas, the width and depth of the plot will determine what sort of house you can build.

Likewise, if the plot is on a significant slope, either the land will need to be cut and filled, or you’ll need to build a house that takes that slope into account. It’s worth remembering that while these things might make your house more spectacular, they’re also likely to cost a fair bit more.

Depending on the angle of the slope and what’s built on neighbouring properties, a slope can also reduce your exposure to sunlight — which in turn can affect how much light you get in living areas, and your potential to harness the sun both for passive solar heating and for collecting solar power. Where we live in the southern hemisphere a north-facing slope is ideal for solar access — a steep south-facing slope not so much.

Another thing to remember about sloping land or land at the top of a hill is that in bushfire prone areas, it’s likely to increase your BAL (bushfire attack level) rating (fire moves faster up a hill). This in turn has the potential to affect the materials you can build with, or force restrictions on how you build.

WHAT TO DO:Check the width, depth and slope of the block against the dimensions of the kinds of houses you would like to build — and consider how neighbouring structures and trees may affect solar access (now and in future). Check with the local council to see if there are any boundary setback requirements or other conditions that will determine where on the block of land you can build, and whether the plot is in a bushfire prone area.

SOIL TYPE

Different blocks will have different types and compositions of soils. One of the most important things to consider when you’re building is how ‘reactive’ the soil is — how much it’s likely to move, particularly in response to increased or decreased moisture content. This is called the ‘site classification’. It’s normally more expensive to build on more reactive soils, simply because special measures like deep pilings or specially engineered slabs are required to keep the house stable.

When you’re choosing a plot it also pays to investigate what the land’s been used for in the past. Nobody wants to buy a plot only to find out the soil’s loaded with DDT or some other noxious pesticide from a farm that existed there decades earlier.

WHAT TO DO:Get a geotechnical report on the plot. This will determine the composition and reactivity of the soil, and allow you to determine what sort of subfloor is required.

EASEMENTS, RIGHTS OF WAY AND ACCESS

An ‘easement’ is defined as a proprietary service that exists on someone else’s land — like an access road to a neighbour’s house, or an underground cable or pipeline that runs through your yard. If an easement exists only to service your needs (i.e. an access road) it’s said to be a benefited easement, while other easements that run across your property are called burdened easements.

In theory, telephone companies, gas companies or even your neighbours can knock down fences, gardens or buildings if you deny their right to access their respective easements. Easements on a plot will affect how you’re able to build, and you will need to understand what kinds of easements exist on a parcel of land before you buy it.

WHAT TO DO:Check with your solicitor or conveyancer to confirm that all easements, covenants or other restrictions have been properly identified. In some states, a vendor’s statement outlining these sorts of things is mandatory, but in others it’s a case of caveat emptor (buyer beware).

EXISTING ROADS AND ACCESS TO ESSENTIAL SERVICES

If you’re building in a newer or more sparsely populated area, you’ll need to take into account how and when basic services will be provided to the plot.

While this obviously includes roads (which you’ll need to get construction gear in unless you’ve got a very impressive helicopter), it also includes things like sewage pipes and water supply, electricity supply, natural gas, telephone lines and broadband internet.

WHAT TO DO:Arranging for the connection of basic services is normally taken care of by the builder. To clarify anything related to access or the provision of any kinds of services in remote areas, have a talk to the local council.    

RESTRICTIONS ON HOW YOU CAN BUILD

Different councils can have very different rules, which can limit how you build. Depending on the council, there may be rules about what style of house you can build, what colours and materials are appropriate, where on the plot you can situate your house and even what kind of fence you can have (among other things).

Also, expect resistance from existing neighbours! If you’re pulling down an existing house to build afresh (or planning big renovations), there’s every chance that they’ll object for any number of reasons.

WHAT TO DO:Call the council for information on local restrictions, heritage overlays or other circumstances that may limit what you can build. Different councils also have different rules about the circumstances that require you to notify neighbours about plans to build. Find out what these are.

PROXIMITY TO PUBLIC/CROWN OR COMMERCIAL LAND

Is the block of land too close to noisy industrial sites? Will it be less safe if it’s right next to a suburban park or alleyway? Visit the site at different times of the day, both on weekdays and on the weekend and take in everything that’s going on. This will let you know how much noise to expect — and also let you know if the neighbours rehearse death metal in their garage or have a motocross track in their backyard.

Property adjoining some crown land has the potential to be real blessing too — especially if it backs onto a nice bit of virgin bushland or an otherwise inaccessible river frontage.

OTHER THINGS TO CONSIDER

There are a few other important things to keep in mind when you’re looking for a good plot to build on. Some of these include:

• How high the plot is above sea level — particularly a concern if you’re building in an area that’s prone to flooding.

• What’s being built nearby — nobody wants to buy a plot of land only to find out a truck stop’s going in next door. Check with the council, or use planningalerts.org.au or a similar service to keep tabs on nearby developments.

• Privacy — nobody wants an entire apartment block staring into their bedroom window. Carefully consider what’s next door, what you’re building, and how secluded you can make it.

• State of existing structures — planning on retaining parts of an existing building or structure? You’ll need to get it inspected to ensure it’s in good shape.

This article originally appeared on Build.com.au and was republished with permission.

Posted by News Limited Network on 14th October, 2014 | Comments | Trackbacks | Permalink
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Styling to Sell


Once the preserve of prestige properties, having a home professionally styled to sell has become, well, increasingly commonplace.

More and more savvy homeowners across the city, looking to give their property an edge in a competitive marketplace and maximise its value, aren't thinking twice about calling in stylists and home stagers to help give their residence a face-lift – anything from a cosmetic touch-up to a full-scale makeover.

"What's changed in the last 10 years is that it's become much more mainstream," says Lisa Hipkins, who runs styling outfit Hiphouse with Heidi Groen. "It started with high-end homes but now it's everyday (places). We do a lot in the middle suburbs."

A major component of styling is refurbishing a home with decor – furniture, colour-matched soft furnishings, artwork and the like – that fit the style and architecture of the home. In many cases, particularly with new homes, this involves a wholesale set-up.

With older homes, property stylists are more likely to supplement, upgrade, rearrange or replace chattels, depending on what already exists. Sometimes, furniture is worn and cat-scratched, outmoded, the wrong tone or scale. If a table's too big or a rug is undersized, for instance, the room can appear smaller. They'll focus on high-trafficked areas, such as living and dining rooms as well as kitchens, bathrooms and master bedrooms. "Deals are made or lost in kitchens," says Keyhole Property Investment's Melissa Opie.

But stylists are quick to point out it's not simply about wheeling in new sofas with some lamps, cushions and a throw rug. Fiona Mallinson, a senior stylist with Melbourne Home Details, says it's about improving flow, making sense of difficult spots (fashioning a study nook from a dead corner, for example), creating points of difference between spaces and visuals that tantalise the eye. "It's finding the best way the house can be used," she says.

Neutralising spaces, through de-cluttering and de-personalising, is crucial. Often larger families with small children will move out during the campaign, placing in storage what's in the way. Splashes of colour (flowers, fruit), warm and welcoming accessories and small details (fragrant soaps, hand-rolled towels, open cookbooks) are important too.

"Our job isn't to make the house look pretty," stresses Hipkins. "It's to make the house look sellable (and) as attractive as possible to the broadest audience possible."

Agents recommend styling because it produces winning campaign shots and bestirs buyers' pocketbooks. "You aren't buying four walls and a ceiling, you're buying a lifestyle," says Marshall White agent Kate Strickland. "We buy houses on feelings and emotions."

At the same time, Jellis Craig's Richard Earle says it's essential to project an idyll without stripping charm and character. "Some buyers prefer to see the odd crack and blemish."

Of course, styling a house properly costs. Consultancy fees vary but typically ring up a few thousand dollars, before rental and storage charges and any purchases. In addition, styling frequently involves more substantial sprucing: a fresh lick of paint; installing carpets, blinds and surfaces (a stone bench in place of laminate); and general repairs.

With our love of all things alfresco, vendors are also increasingly investing in styling the outdoors – returfing, repaving, adding plants, trees and furniture. "You'd be amazed what a big difference a high-pressure clean makes," says Brent Parsons, whose company Phipps Parsons handles general  livability people both aspired to and desired. Style counsel – 10 hot styling tips to sell your property
  1. Neutralise rooms – strip the house of clutter, personal items from bathrooms and anything that interferes with buyers imagining themselves living there.
  2. Ensure furniture and soft furnishings play to the property's architecture.
  3. Scale furniture to fit spaces – smaller if the room's tight (a double bed instead of queen-size), bigger if it's cavernous.
  4. Create an open-arm welcome – keep spaces fluid and open. Don't back a sofa, for instance, to a doorway; don't simply push furniture against the wall to create roominess.
  5. Add "pops" of colour – flowers, fruit, anything that brightens and lightens the house.
  6. Invest in new accessories – cushions, throws and rugs can transform rooms (and hide stains).
  7. Give the house a fresh, new look and smell – a coat of paint (especially the front door), new carpets and, externally, a high- pressure clean.
  8. Keep driveway clear of cars.
  9. Hire a professional who isn't too close to the property and can introduce a dispassionate eye; know the market you're styling for.
  10. Enter the house as if you're a buyer not a seller.



Case study: What a stylist can achieve for you

Having decided to relocate to their native New Zealand with their three children, Sandra and Cam Downs knew they had one shot at selling the family's renovated Californian bungalow in Glen Iris

"We needed to have the home styled to give ourselves the best chance of selling the property for the best price," Sandra explains.

Although they had looked at magazines and shows about selling homes, the couple believed a professional touch was necessary, turning to Von Haus Design Studio interior designer Fiona Parry-Jones, who had worked on the couple's renovation.

Parry-Jones altered the layout of the house, recasting a formal dining room as a second sitting room and a child's bedroom as a guest's, replacing the single bed with a queen-size and adding bedside tables and artwork.

Alternative furniture and artwork were also introduced to other areas of the house to lighten and modernise the place - including a couch for the sitting room, bar stools for the kitchen, a table for the hallway - with existing furniture stored. The Downses also bought soft furnishings.

With repainting, the couple spent $12,000 all up, including $1700 for the stylist. But the investment, says Sandra, was well worth it. Campaign photos, web video and inspections generated huge interest, with the auction smashing their reserve. "We received $200,000 more than we expected," smiles Downs.

Posted by Paul Best - The Age on 12th October, 2014 | Comments | Trackbacks | Permalink
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How to find the right home loan


 THE average Victorian mortgage is at a record $333,000 — $39,700 more than last year — and with interest rates tipped to rise it’s never been more important to get the right home loan.

Commonwealth Bank executive manager of home loan pricing and offer management Ray Ters said it was important to understand the different features offered by different loans and which worked best for individual borrowers.

“A fixed loan gives customers the assurance of knowing their repayments for a set period of time, giving customer confidence to budget accurately,” Mr Ters explained.

“Variable home loans offer a variety of features and flexibility such as the ability to redraw extra repayments and make unlimited extra repayments and can be linked to an offset accounts.

“A split loan gives customers the best of both worlds; offering a balance of certainty associated with a fixed loan, combined with room to move if they want to pay off their variable rate loan sooner.”

Interest-only loans were popular among investors, providing flexibility to reduce loan commitment during the interest-only period, Mr Ters said.

“Alternatively, customers can pay principal and interest to pay off their home loan as soon as possible to own their property,” he said.

While the Reserve Bank last week left the official cash rate at 2.5 per cent, a survey of banking experts by comparison website finder.com.au found most expected interest rates to rises next year.

“The good times for property buyers are not expected to last much longer,” spokeswoman Michelle Hutchison said.

“The cash rate is expected to gradually increase over the next two to three years and hit a ‘new normal’ level of 4 per cent.

“If you’re an existing homebuyer or hitting the property market this mortgage season, make sure you prepare a buffer for when interest rates rise.”   

First-home buyers Tim Wilson and Melanie Cooper are making extra payments on the loan they took to buy their Bentleigh East home last month.

They plan to pay off their mortgage more quickly while they living in the home, then use it as an investment once a chunk of the principal has been paid.

The couple weighed up various loan options before deciding on a principal and interest, variable rate home loan.

“What we initially thought was to split the loan in half — so half fixed and half variable. But looking at the fine print, it only allowed us to pay off $8000 a year,” Mr Wilson said.

“Because it’s our first loan we wanted to see what the market was doing. Down the track, once we’ve got more of a handle on it, we’ll think about fixing it,” he said.

Mortgage Choice spokeswoman Jessica Darnbrough said there was little difference in the interest rates offered by the major banks for their three-year and five-year fixed-rate loans.

“The three-year fixed rates are, on average approximately five basis points lower than the five-year fixed rate,” she said.

“As such, the difference in monthly mortgage repayments between three-year fixed rates and five-year fixed rate products is tiny.”

She said fixing for a shorter period of time of one to three years gave borrowers certainty about their repayments without locking them into a lengthy commitment at that repayment level. If their circumstances changed within the fixed term, such as having a child, they did not have as long to wait to change their loan structure and might not have to pay as much to break the fixed term.

Investors with multiple properties could bundle loans together with the one lender to lower bank fees, or negotiate better interest rates, Ms Darnbrough said.

“It is important to note that if a borrower does choose to bundle all of their assets together and cross-securitise their loans, they will have to attach every loan to every asset. The problem with this is that if something goes wrong and they are forced to sell a property, the bank has recourse to all of their assets, not just the troubled one,” she warned.

Ms Darnbrough also recommended an annual home loan health check to ensure a mortgage continued to meet a borrower’s needs.

Posted by Melissa Buttigieg - Herald Sun on 12th October, 2014 | Comments | Trackbacks | Permalink
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Buying well the key to long-term success


 It's probably a sign of how stable our economy is that we wait for the slightest change in wording when the Reserve Bank decides on the cash rate.

Last Tuesday the RBA board met and decided to keep the official interest rate at 2.5 per cent – not only a historically low rate compared with the 5.2 per cent average since 1990, but also a rate that's been kept the same since August 2013.

But it was the way RBA governor Glenn Stevens expressed himself on property prices and the Australian dollar that is worth looking at during the remainder of the year and into 2015.

For more than a month we've heard strong commentary from economists about unhealthy price inflation in the property market, driven by low interest rates. Some of that comment has predicted an end to negative gearing.

I haven't joined this discussion because lenders' figures don't suggest a problem in the property market, and the Bureau of Statistics' House Price Index series shows we are just slightly above the index average since 2002.

However, the RBA governor in his statement did mention investment property: "Credit growth is moderate overall, but with a further pick-up in recent months in lending to investors in housing assets."

I think Stevens was right to address the property market with a bland statement like this. If nothing else, it's a reminder to property investors that they must do their homework and invest wisely regardless of what official interest rates are doing.

With an investment property, you are interested in a good location and access to infrastructure such as schools, shops, railway stations and playing parks. And you are also interested in average rentals and some historical data on rental yields.

But the first step in a good investment is buying well. This means not just paying a good price for the year, but a good price for the 10 to 20 years you want to generate income from  this property. If you pay too much you'll lose on capital appreciation and it will take longer to generate clear funds from the rent.

It's one thing to get carried away at an auction and pay too much for the house you love, but an investment property is a business that must earn income and capital growth for many years. So keep a cool head.

The other element mentioned by the RBA – that they expect the Aussie dollar to fall further against the US – is something that might give a boost to our economy. When our dollar was at parity with the US, Aussie exports were expensive and local manufacturers found it hard to compete in foreign markets. 

Now that our dollar is at 85USc – and expected to fall further – our non-mining economy has a chance to pick up, expand operations and create jobs. 

So don't be alarmed at the lack of big headlines from the Reserve Bank this month. A steady economy is a great thing when you consider the alternative.

Read more: http://www.theage.com.au/money/borrowing/buying-well-the-key-to-longterm-success-20141009-113ftl.html#ixzz3FtD2zxcl

Posted by Mark Bouris - The Age on 12th October, 2014 | Comments | Trackbacks | Permalink
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More Victorians are living the dream by building a new home


 MORE Australians are achieving the dream of home ownership — one brick at a time.

Building approvals for detached houses climbed almost 20 per cent in the 12 months to August, with plans for 22,916 new homes given the green light, according to Housing Institute of Australia figures. This compares to 19,127 approvals for the same time the previous year.

The HIA’s survey of the country’s largest volume builders also showed sales of new detached houses rose ­26.3 per cent in Victoria to 16,108 in the year to August.

HIA economist Diwa Hopkins said the detached house segment of the residential building sector had improved markedly.

“Broader conditions around new home building remain favourable,” Ms Hopkins said.

“Victoria’s population has been growing strongly for a sustained period, lending rates are low and new housing is becoming an increasingly attractive option for home buyers, given the strong growth in established house prices.”

The City of Casey, in Melbourne’s southeast, is the state’s home building hot spot. Australian Bureau of Statistics figures, supplied by the Master Builders Association of Victoria, shows 2772 new houses were built in Casey in the 2013-14 financial year, the most of any municipality.

It was followed by Wyndham with 2472 new houses, Whittlesea with 2158 and Hume with 1511.

Latest data from Oliver Hume shows the median lot size in all growth areas has shrunk to 444sq m, a far cry from the quarter-acre block which was once the great Australian dream. While most new housing estates are found on the Melbourne fringe or in regional areas, there are a smaller number of “infill” developments in established suburbs.

Oliver Hume’s project director Gerrard Ellis said the company, which marketed over 25 per cent of Melbourne’s land, had seen most of the activity in the west and north of Melbourne.

“Traditionally most projects are selling on average 10 to 12 sales per month,” he said. “But over the last six months of this calendar year, sales have accelerated in these corridors from 20 to 25 per month.”

Intrapac senior development manager Max Shifman said a new home had the benefits of up-to-date designs and was equipped with environmentally sustainable materials and features.

However, he said buyers should ensure a particular housing estate suited their lifestyle before signing up.

“You need to be close to things that actually matter to you — like schools, cinemas, parks, childcare,” Mr Shifman said. “In some estates those things will be created over time, in other new developments, they are already in established areas.”

Mr Ellis said 54 per cent of buyers of new homes were first-home buyers.

First time buyers who opt for new homes over established are still eligible for the $10,000 first- home grant. They can also pocket a 50 per cent saving on stamp duty which is open to all first-home buyers.

Investa Land Victorian general manager Paul O’Brien said first-home buyers were generally looking for a house-and-land package priced between $300,000 and $385,000.

“They are looking for a minimum 160sq m, three-bedroom house, ideally with a double garage and good quality finishes,” Mr O’Brien said.

RESEARCH THE KEY TO BUILDING 

ROLANDO and Karen Navis liked the idea of building their own home so much they are doing it again.

The couple are hoping to move into their new four-bedroom house in Intrapac’s Somerfield estate in Keysborough by Christmas.

Mr Navis said building their own house also offered a saving on stamp duty but that was not the main incentive.

“The major advantage of building your own house is that basically you can design it to your own tastes and requirements and lifestyle needs,” the father-of-two said.

“And you’ve have got less maintenance issues as it is new.”

The family has been living in its current house for three years and wanted to stay in Keysborough.

“The good thing with Somerfield is that it is not as far as other new estates,” Mr Navis said.

“It is still a reasonable distance from the city.”

Mr Navis said he would recommend building but prospective homeowners should do their research including finding out what infrastructure was available.

“People should look at other properties that are in the area they are looking to build in to see how much their land and property value has gone up,” he suggested.

“Also find out what infrastructure like schools, transport is around and if it fits in your lifestyle.”

Posted by Neelima Choahan - Herald Sun on 11th October, 2014 | Comments | Trackbacks | Permalink
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How to turn your new home dreams into a reality


 BUYERS have several options when it comes buying land and building a new home.

Investa Land Victorian general manager Paul O’Brien said the first option was to buy land off the plan.

“Buying off the plan means the land is not titled — they haven’t put the roads, the gas, water and services in,” he said.

“But you get in early to secure your preferred lots and use the settlement period to choose your builder and be ready to start on site as soon as the land is titled.”

Mr O’Brien said buyers who took this option were relying on the performance of the developer and their track record to deliver the estate infrastructure.

Another option is to buy titled land where all the connections and services are already in place.

Under both scenarios, buyers then choose a builder to build their home. They can go for a large building company that has many set designs, also known as a volume builder, or a custom builder that offers more individual designs.

House-and-land packages are another, popular choice.

This usually involves buying a block of land and a home design that has been packaged together by the estate developer and their building partners.

Master Builder Association Victoria chief executive Radley de Silva said house and land packages generally offered good value, especially for first-home buyers.

First-home buyers Daniel Gilbett and Catherine Calleja chose a house-and-land package because it was more affordable and gave them more say in their home’s design.

“We could choose the design,” Mr Gilbett, 25, said.

“We selected all the interior colours, tiles, ceiling heights, the layout of the house, position of the windows.”

The couple hopes to move into their four-bedroom house in Investa’s Bloomdale estate in Diggers Rest later this month,

They stand to benefit from a stamp duty saving of about $10,000.

“Buying a house-and-land package just seemed like a smarter move,” Mr Gilbett said.

Choosing a builder

KEY QUESTIONS

● Is the builder registered?

● Can the builder provide references for homes they have recently completed?

● Have I read and understood the contract?

● Does the contract comply with all the requirements of the Domestic Building Contracts Act 1995?

● Are building permits and planning approvals needed and what is the cost?

DO’S

● Obtain at least three written quotes.

● Check recent projects completed by builders and if possible ask clients their opinion of workmanship.

● Check that the builder can provide warranty insurance for the building work.

● Determine whether the work requires a building and town planning permit.

DON’TS

● Sign the building contract before you read it thoroughly and ensure you understand it.

● Forget to gain knowledge of your site from council, such as sewerage or septic tanks, bushfire areas and termite zones etc.

Master Builders Association of Victoria chief Radley de Silva

Choosing a housing estate

CHECK TRAVEL TIME:Travel time to the places you regularly go is far more important than distance. Good access to highways is a major plus.

DRIVE AROUND:If the estate is established, get a feel for the area, its open spaces and the quality of the homes.

MEET THE NEIGHBOURS:Spend time in the parks and speak to existing residents about the area.

TEST THE AMENITIES:Are you close to schools and shopping? Also, look for childcare services, access to healthcare and sporting and recreational facilities.

ASK YOURSELF THESE QUESTIONS WHEN CONSIDERING BUYING IN A NEW DEVELOPMENT:

● Is it better value to buy new than buy an existing home and rebuild or renovate?

● Do you want a house with a big garden, or a smaller lot with a lower maintenance home?

● Are there plenty of open spaces like parks, walking and bike trails?

Posted by Neelima Choahan -- Herald Sun on 11th October, 2014 | Comments | Trackbacks | Permalink
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The art of securing a home loan


Mortgage  lenders are aggressively chasing new customers as property prices continue to strengthen in the main capitals but that doesn't mean lending institutions are letting their credit standards slip.

The truth is that gaining approval to borrow the sum you need to buy property isn't always as easy as the advertising campaigns of the big banks suggest. This is certainly the case if you have little equity and are asking for a loan  that requires repayments that cannot be supported by your income. But these tried-and-tested ways to prepare for a loan application will boost your chances of success:

- Equity is everything. If you own a property or part of one, or have a deposit of 20 per cent or more of the value of the asset you intend to buy, your loan application is far more likely to sail through.

- Before you approach a lender, "stress test" your finances. Can you meet the repayments if interest rates go up by 1 per cent? What happens if your income falls? What if one half of your household leaves work to have a baby?

- Borrowers must demonstrate consistency of income. Patchy employment records aren't helpful. But it's a competitive finance market - lenders now ask self-employed applicants for one year's proof of financial returns. The standard used to be two years. 

- Many people are applying for interest-only loans in the hope that property's value will rise. It's easier to qualify for these than for a principal and interest loan, but if you buy a dud property with an interest-only loan you can quickly end up out of pocket.

- The banks can't lose in a market in which prices are rising - and they know it. Beware of incentives such as "free" holidays or a bonus $1000 credit card for borrowing $300,000. It isn't free if you pay back more interest than you need to.

 - Lenders balance risk and reward. You might think securing a new job is great news, but lenders may want to know if you're going to stay in the position long-term.

- Banks are more attuned to their customers regularly changing jobs than they used to be. Even so, some won't give you a loan until you've completed a three-month probation, so try to arrange loans before changing jobs.

- If you've left work to have children and are now returning to the workforce, most lenders will apply the standard three-month employment restriction before approving  a loan. You may get around this rule, however, if you return to a similar job with a former employer.

- Mortgage brokers take the legwork out of negotiating loans and can greatly help investors and owner-occupier buyers. Brokers charge the lender a commission for signing you up for a loan, so it's vital to ensure a broker isn't making conflicted recommendations based on commissions received.

- Consider every lender: big and small banks, online banks, credit unions and building societies. A savvy mortgage broker can help to identify lenders who may be prepared to loosen their loan criteria.

Posted by Chris Tolhurst - The Age on 10th October, 2014 | Comments | Trackbacks | Permalink
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How to survive the first year of the mortgage


Before Luke Abraham and his now wife, Carly, bought their first home they put themselves on a training regime.

At that time Luke was paying about $100 a week in board and Carly was living at home rent-free. Neither of them had ever rented. While it meant they were saving, it wasn't helping them learn how to manage the costs of home ownership.

So they decided to test what it would be like to have their potential mortgage repayments coming out of their bank account.

Their try-before-you-buy exercise was a real eye-opener. They quickly realised their expected repayments weren't going to gel with their plans to start a family and drop to a single income in the near future. "We [thought] we're going to be eating vegemite and toast every night," says 28-year-old Luke.

And just like that: they dropped their purchase price by $100,000.

It also highlighted areas they could cut back. They decided on a fixed-rate mortgage and set a goal of saving a buffer of about $2000-$2500 — or a month's mortgage repayments. Even so, Luke, who now works as a mortgage broker, says the six months after buying their Brisbane home, were a little stressful.

"It probably took about six months until it became normal and you didn't have to check the bank account every second day to make sure the cash was in there."

Adjusting to the weighty costs of home ownership can make the first year of a mortgage challenging, particularly if rates rise shortly after you take the plunge. In June the Westpac Home Ownership Report revealed that 31 per cent of borrowers believe the first 12 months of their mortgage are the most challenging, with the perceived difficulty dropping off significantly after that.

The factors that made the first year tricky? Paying the deposit and stamp duty, said 36 per cent of respondents; understanding the best loan structure for their situation (32 per cent); and adjusting their lifestyle to accommodate repayments (25 per cent).

In March the Genworth Homebuyer Confidence Index showed 39 per cent of first home-buyers surveyed were expecting to have difficulty meeting their mortgage repayments in the next 12 months, up from 32 per cent in September 2013.

So what can you do to make the first year of a mortgage painless?

Start well

Do some solid prep-work. Jessica Darnbrough, head of corporate affairs, Mortgage Choice, has several suggestions: "Know your budget; know exactly what you can afford; know exactly what outgoing expenses you will have on top of the mortgage and then think about what's the best way to structure the mortgage so you're still in that home but not breaking the bank to do so."

Acquaint yourself with all the home-buying costs: stamp duty, solicitor's fees, moving costs and potentially, mortgage insurance.

"You need to think of it as a 10 per cent deposit plus costs," says Darnbrough. "That might end up being 15 per cent or 17 per cent."

Upfront decisions on the loan structure may include fixing all, or part, of the mortgage. With lenders competing aggressively, Darnbrough says: "We might not be at the bottom of the rate cycle but what buyers can be comfortable with is the knowledge that fixed rates are competitive."

Peter Cerexhe, a former consultant lawyer specialising in property and author of Only 104 Weeks to Your Home Deposit (Allen & Unwin), has some post-purchase tips for weathering the transition to life's biggest financial commitment.

Don't be rattled

First, Cerexhe takes aim at the emotional turmoil of mortgage stress: "The first rule is don't panic. You must remember that people have had faith in you already. They are lending you a large sum of money. They have looked at your capability to pay."

Think survival tactics. Next, concentrate on getting through the first year and becoming comfortable with the rhythm of repayments.

"Your focus has to be on survival. Not being distracted by ideas of paying down the principal faster or restructuring things when you feel a little edgy."

Spend consciously

If you feel backed into a financial corner, cutting expenses is one way to come out fighting. The Westpac survey showed men tend to cut back on alcohol while women target spending on grooming products, shoes and clothes. Cerexhe advocates putting unnecessary spending on hold for the first year: "You don't need a new car that year or a box set of Game of Thrones DVDs."

Use comparison websites to find competitive deals on utilities and insurances, says Darnbrough. Plus switching to a debit card will help you spend what you have.

Protect yourself

Protecting yourself will help ensure a happy-ever-after home ownership experience.

"I think we need to understand that the next direction for variable interest rates is probably up," says Cerexhe, suggesting variable rate borrowers ask their lender to make sure they can handle a 2 per cent rise in rates.

A home loan with a redraw facility or a mortgage offset account is a way of building an accessible and tax-effective emergency buffer. And income protection insurance can ensure your home is safe if anything happens to your earnings.

But protecting yourself is more than having a financial safety net. Cerexhe encountered a couple who separated after only a few weeks of marriage. "They moved into a new home and the change was so sudden and so rapid in every part of their life that it tore their relationship apart," he says. Ultimately it's about ensuring your financial arrangements don't jeopardise the important things in life. WHY STRESS?
  • One third of first-home buyers are using more than half their income to service their debts, compared with a quarter of home owners.
  • Underemployment was the main cause of first-home buyer mortgage stress (63 per cent), compared with 32 per cent for home owners.
  • Higher costs of living was more likely to lead to mortgage stress in home owners (49 per cent), than first-home buyers (25 per cent).
  • First-home buyers were twice as likely to consider refinancing to another lender in the next 12 months, (47 per cent), compared to 23 per cent of home owners.


Source: Genworth Homebuyer Confidence Index March 2014

Read more: http://www.theage.com.au/money/borrowing/how-to--survive-the-first-year-of-the-mortgage-20140924-10l9n4.html#ixzz3Ffcugcyr

Posted by Christine Long - The Age Money on 9th October, 2014 | Comments | Trackbacks | Permalink
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Patchy outlook for investors


Investors have been driving property prices higher on the back of record-low interest rates.

Property prices have risen by about 50 per cent in Sydney and Melbourne since the start of 2009, says researcher RP Data.

In the apartment market, which is favoured by investors, prices have risen by about 11.5 per cent in Sydney over the past year to September 30. In Melbourne, which is still suffering the effects of oversupply of inner city apartments, prices have risen by about 5 per cent.           

Baby boomers investing with an eye to retirement and home owners upgrading to a bigger or better house have sidelined first-time buyers. Investor housing loan approvals account for almost 40 per cent of the total value of housing loan approvals, the highest share in 10 years.

However, property analysts expect price rises in Sydney and Melbourne to rise in-line with, or a little in excess of inflation over the next several years as interest rates start to rise.

Rate rise tipped

A major reason for the strong rise in prices is interest rates at historic lows.

But analysts are expecting the cash rate and, therefore, mortgage rates, to start rising within the next 12 months.

Robert Mellor, the managing director of BIS Shrapnel, is expecting a rise in the cash rate of about 1 percentage point by the end of 2016.

Due to competition in the mortgage market, mortgage interest rates will probably not rise by the full one percentage point, he says. "We think that the headline (or advertised) variable mortgage rate may rise from 5.95 per cent now to about 6.8 per cent", Mellor says.

That is not much of a rise by historical standards. However, because of the large size of the typical mortgage even a modest rise in interest rates will affect affordability, Mellor says.

Forecasts contained in OBE's Housing Outlook for 2014, conducted by BIS Shrapnel, shows Sydney dwelling prices are expected to rise only by a cumulative 9 per cent over the next three years, or only marginally above inflation.

"Momentum" in the Sydney market could see stronger price growth this financial year with even less growth in prices in the two subsequent years, Mellor says.

He is "less positive" on Melbourne with a forecast of only 5 per cent cumulative growth in prices over the next three years. And, after strong price rises during the winter months, it looks as if property markets are already starting to cool. RP Data says that prices were almost flat across the five largest capital cities over September.

The levelling in price growth over September is largely attributed to slowing of growth in Melbourne and Perth, with both of these capitals recording a slightly negative result over the month of September.

"It remains to be seen whether these softer conditions will persist throughout the rest of spring," says Tim Lawless, RP Data research director.

John Edwards, the founder of researcher Residex, expects price rises to slow and consolidate through 2015; rising in line with inflation.  He says, for would-be investors there is "no rush as there will be good opportunity in 2015, once the market moves into a consolidation phase".

Segmented markets

Mellor says Melbourne is a particularly segmented market. There is continuing oversupply of apartments in Melbourne's central business district, Docklands and Southbank, Mellor says.

There is even a risk that prices of inner Melbourne apartments could fall by 5 to 10 per cent over the next three years, he says.

Louis Christopher, managing director of specialist property researcher SQM Research, agrees that investors should be wary of Melbourne inner city apartments. He favours apartments in South Yarra and St Kilda as likely to provide good capital growth over the long term.

He is positive on Sydney apartments overall. However, investors need to be careful not to overpay, he says. "Some developers in Sydney are pricing [their apartments] at top dollar and getting it," he says.

"Some are charging in excess of $14,000 per square metre for off-the-plan, which is full on," Christopher says. Richard Wakelin, Director and founder of Wakelin Property Advisory in Melbourne, says it is land values that drive capital growth.

Wakelin says the best bets are apartments in small blocks – 10 to 20 unit blocks that are within two to 10 kilometres of the Melbourne central business district. He favours older apartments (and "character" houses) in areas where no more apartments are being constructed.

"Fads" should be avoided, whether it is Gold Coast units, time share or opportunities in booming mining towns, Wakelin says. He is wary of off-the-plan property.

"In Melbourne, we can count the number of multi-unit high rise blocks that have actually worked for investors," he says.

"All the enticements, rental guarantees and all of the glossy stuff can be thrown out the window if the asset is not sound," Wakelin says.  John Edwards says it is "easy to overpay for a property at this point in time and over payment will not be covered by increasing property values over the balance of this growth cycle".

Novices on notice

First-time landlords need to consider the tax and financing issues of owning a property at the outset.

"Many of these issues need to be considered before purchase, such as ownership structure," says Peter Bembrick, tax partner with accountants and advisers HLN Mann Judd Sydney. Other issues include how the property is to be financed. 

Many investors take advantage of "negative gearing".

This where is where the costs of making the investment, such as interest on the mortgage are greater than the rent from the property, the shortfall can be used to reduce income tax paid on the investor's other income.

Bembrick says a loss is a loss, even if there is some tax benefit and positive gearing is preferable.

Investors who negatively gear are hoping to be able to eventually sell the property for a price that more than makes up for the losses incurred along the way. Bembrick says it is very important for would-be investors to be able to cover any shortfalls in cash flow.

"For example, the impact of inevitable periods when the property does not have a tenant, as outgoings still continue even if the residence is empty," Bembrick says.

Consideration should be given to whether some, or all, of the mortgage should be at a fixed interest rate in order to help reduce the impact of future interest rate rises, he says.

Beware of spruikers

 Property spruikers and mortgage brokers are tapping into the booming self managed superannuation funds sector.

Their pitch is that investors can hold investment property inside a SMSF and enjoy superannuation's confessional tax rates.

Some are showing disregard for investors' individual circumstances, says John Hewison, managing director of Hewison Private Wealth, which has many SMSF clients.

Those who do not have the money in their super fund to buy an investment property outright are being advised to take out a mortgage. Hewison says borrowing to invest inside super can be an appropriate strategy for high net worth individuals.

However, younger investors with minimal account balances are encouraged to borrow large amounts of money in order to buy properties in their super funds, Hewison says.

Older people, who should be risk adverse and who will need to draw an income stream in retirement, are also being led down the path of gearing property, Hewison says.

Richard Wakelin is also concerned. Super is a nest egg that most of us are relying upon for a comfortable retirement, he says. "Unfortunately, there are companies that are using the growing interest in SMSFs to market sub-investment grade property developments to the public," he says.

"We're worried that many of these investors will suffer losses that could compromise the investor's retirement lifestyle," Wakelin says. Anyone thinking of going down this path should engage a reputable, independent accountant or financial adviser to look at their specific circumstances, Wakelin says.

They should advise you on the merits of establishing an SMSF and using it to invest in residential property, he says. The Australian Securities and Investments Commission and the prudential regulator of SMSFs, the Tax Office, have issued repeated warnings to the public about property spruikers targeting the  trustees of self managed funds.

Real estate giant moves into advice

News that one of the biggest real estate agencies, Ray White, intends to establish a financial advice arm has sparked concerns it would be used to help facilitate the sale of real estate and mortgages  to people with self managed superannuation funds.

The White family owns a string of real estate agencies across Australia, and also owns a mortgage broking business and an insurance business. These are commission-based businesses.

The new advice business, Wealth Market, which is expected to open before Christmas, will be part of the mortgage broking business, Loan Market.

Sam White, the chairman of Loan Market, has said that, initially at least,  Wealth Market will focus on providing "insurance opportunities" as well financial products from an "approved product list" to clients.

"Our advisers will not be recommending properties to our clients," he said.

Action plan
  • Don't invest for the tax breaks
  • Beware of spruikers recommending property inside DIY super funds
  • Units in smaller blocks can offer a higher land value component.
  • Lower-priced properties will often have higher rental yields, but may have lower capital growth.
  • Factor-in higher interest rates from the current record lows.
  • Consider fixing whole or part of the mortgage, though there may be costs if the loan is terminated early.
  • Make sure there is sufficient cash flow to cover temporary loss of rent

Posted by John Collett - The Age on 8th October, 2014 | Comments | Trackbacks | Permalink
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Home loan interest rates continue to fall on fixed and variable mortgages, but be ready for a rise


 INTEREST rates on fixed and variable-rate home loans are falling despite the nation’s cash rate failing to budge in 14 months.

Savvy home loan customers who haven’t locked in their rates will be pleased they waited as more than 80 lenders have dropped their rates in the past month on nearly 100 fixed rate mortgages.

Some lowered them by as much as 0.7 per cent.

Variable rate home loans are also continuing to fall with dozens of mortgage rates decreasing by up to 30 basis points, new figures by financial comparison site Finder.com.au found.

MORE: Home loan customers on a mission to smash mortgages

The Reserve Bank of Australia kept the cash rate on hold at 2.5 per cent yesterday with Governor Glenn Stevens highlighting the sharp fall to the Australian dollar.    

He said the global economy was “continuing at a moderate pace” and the nation’s “weakening property market” was an upcoming challenge.

RELATED: Australian house prices could fall

Finder.com.au spokeswoman Michelle Hutchison said lenders still had leeway to drop loan rates even further as they continued to hover at historically low levels.

“Variable rates generally don’t move out of cycle but it really does show that lenders do have room to move,’’ she said.

“They haven’t passed on all the cash rate cuts since they started dropping rates since November 2011 so they still have room.

“Lending has got cheaper for the banks and it’s good to see some are passing on rate cuts to their home loans.”    

Ms Hutchison said patient borrowers would have the last laugh now as historically low rates continue to drop.

According to their database the lowest available two-year fixed rate is 4.29 per cent, lowest three-year rate is 4.39 per cent and five-year fixed rate is 4.79 per cent.

All three rates belong to the Newcastle Permanent.

The lowest advertised variable rate is 4.54 per cent, offered by loans.com.au.

But 1300homeloan director John Kolenda said home loan customers would be lucky to see many more fixed rate falls in the coming months despite predicting a further cash rate fall.

“It would be very difficult to see that you would get a much better deal over the next six months,’’ he said.

“I don’t think rates will rise and I think for the next six to 12 months I still think there is a 50 per cent change of rates coming down again.”

HSBC’s chief economist Paul Bloxham said the RBA is unlikely to cut rates further and he expected a rate rise mid-next year conditional to the Australian dollar falling further.

Posted by News Limited Network on 8th October, 2014 | Comments | Trackbacks | Permalink
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No bubble in RBA lexicon


When it comes to housing bubbles, our Reserve Bank prefers not to use the word 'bubble' at all. It doesn't even want us to think about it.

Luci Ellis, the RBA's head of financial stability, appeared before a senate committee in Canberra last week to talk about housing affordability.

Thanks to that meeting we now know that the central bank will soon announce how it plans to clamp down on speculative investor activity in the runaway property markets in Sydney and Melbourne.

Ellis said the RBA was very concerned about the rate at which house prices were growing. But she refused to use the word 'bubble' to describe house prices in Sydney, which have risen by 15 per cent in the past year.

"I don't think that's a particularly helpful way to frame the problem," Ellis told senators.

"What matters is how much speculation there is in the market and what that might mean for a subsequent price cycle, and at the moment there is more speculative activity than we are comfortable with." But given her dislike of the word, it was still surprising to learn that the RBA doesn't spend much time trying to identify housing bubbles.

Ellis admitted so. And her reasoning does make sense. As she put it, when you try to pinpoint bubbles, "you end up with a debate about whose model is best, and people who confidently announce that prices have deviated X amount from fundamentals are usually using some pretty simple metrics to devise that, and they usually turn out to be quite misleading," she said.

"People will confidently proclaim that they can identify bubbles but usually they end up identifying 18 of the last three [property] crashes."  

Ellis said some models may look only at the run-up in house prices, but "that is often not helpful". "The run-up in prices in the United States was not big compared to some of the markets that didn't have the same kind of crash," she said.

"You have to look at the whole picture, including whether there's been overbuilding — which there was in the US and in places like Ireland. You have to look at what lending standards were and what the resilience of the household sector is, to who can afford house prices."

She said that's what the RBA and the Australian Prudential and Regulation Authority have been doing — looking at the bigger housing sector picture.

But having taken that look, they've decided to do something about it.

Read more: http://www.theage.com.au/money/borrowing/no-bubble-in-rba-lexicon-20141004-10powe.html#ixzz3FfbTN2Fl

Posted by Gareth Hutchens - The Age Money on 8th October, 2014 | Comments | Trackbacks | Permalink
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Family trusts still offer investment advantages


Long before self-managed superannuation funds were invented and became today's investment accessory of choice, there were family trusts.

There are 534,000 SMSFs in Australia and about 350,000 family trusts.

The extraordinary growth in SMSFs does not mean that family trusts are no longer relevant. In fact, family trusts provide tremendous flexibility for managing investment portfolios and family wealth. Family trusts are discretionary trusts that have elected with the Tax Office to limit the potential beneficiaries of the trust's annual distributions to "family members". Family members listed can include relatives within two generations. Trusts generally distribute their income annually to beneficiaries who are then required to pay tax on that income. In the case of discretionary trusts the trustee can use his or her discretion to determine which family members to distribute the income to. Generally, income is distributed to those family members who have the lowest taxable income and who will incur the least amount of tax.

Family trusts have an advantage over SMSFs as they have far fewer restrictions and rules. Unlike an SMSF, money can be added to or lent to a trust with no restriction, money can be borrowed from the trust and distributions can be paid out or reinvested. There is no age restriction on adding to or drawing funds from the trust and family businesses can be run through them.

The assets of a family trust are administered and controlled by the trustee of the trust rather than by the individual beneficiaries. This can provide excellent asset protection advantages in certain circumstances, for example, if a family member is sued.

Family trusts are also useful for estate planning purposes. Through a family trust, the ownership of assets such as a share portfolio or holiday house can continue uninterrupted even when a key family member dies. This is because the family member doesn't own the asset, the trust does.

Consequently, the assets don't form part of the individual's estate for the executor to have to distribute. This can make the administration of the estate simpler, and the outcome regarding family assets more certain. Trusts can be multi-generational, and a life cycle of up to 80 years is allowed for trusts formed in NSW.

For those wanting to invest a substantial amount, say more than $300,000, and have either maxed out their contributions to super, or want more accessibility than super provides, a family trust can be worthwhile.

This is particularly so if there are low-income beneficiaries in the family group to whom taxable distributions can be allocated. The reason for suggesting an investment amount of greater than $300,000 is because there are costs to running a trust, such as the preparation of a tax return each year.

The fees incurred need to be outstripped by the tax saved, or the value of other benefits such as asset protection that are obtained.

Michael Hutton is a personal wealth management partner at HLB Mann Judd.

Posted by Michael Hutton - Money Manager (Fairfax Digital) on 1st October, 2014 | Comments | Trackbacks | Permalink
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Seven tips for a financially festive Christmas


I can't believe that I'm writing this but it's less than three months until Christmas. Just getting that sentence down makes me feel a little ill at the thought of everything I want to achieve and complete before the year finishes but it also makes me feel queasy because the lead-up to Christmas for many of us is incredibly busy and let's face it, downright expensive.

There are so many catch-ups with friends and family before the big day, numerous presents to buy, a new outfit or two to purchase and more than one bottle of champagne to take with you if you're a Christmas function guest. Never mind the cost if you're the host of either Christmas day itself or drinks before the big day.

When it comes to presents and functions, I know many of us want to be generous at Christmas to those who  matter to us. That's because we've bought the story that has been sold by Hollywood and Hallmark that it's the season to show those you love just how much you love them. And of course the more you love someone, the more you'd want to spend on them, right? Wrong!

I believe if you truly cared for someone you wouldn't want them to get into financial difficulty through a misguided act of showing you how much they love you. I also believe if you asked your kids to  write down all the presents they received last year they couldn't. They might be able to list their top five but I bet that's it.

That's why I'm an advocate for sitting down three months out (which is now) and working out a budget for the silly season so you don't find yourself in financial difficulty once the tinsel is packed away.

Of course I know some of you are going to be thinking, how incredibly unromantic that sounds: writing a list and setting a budget. You can't put a price on love!

Well actually you can. It depends on how much you have available to spend and how much you can save up between now and Christmas time.

Maxing out your credit cards and being unable to pay off the balance until halfway through the year or spending all your savings and jeopardising long-term plans is not showing yourself kindness. Surely it's time this year to give yourself some Christmas love by keeping your spending in check and starting the new year on a great financial footing.

So if you, like many of us, struggle at Christmas time to keep your spending under control, why not start now with me to ensure that this year is the best year yet, financially and festively. Here are my top seven tips for having a financially festive Christmas:
  • 1 Write a list for everyone you want/need to buy for and put an amount next to each person's name and then total the amounts. If the amount is not realistic or is more than you are able to spend then consider culling your list or reducing the individual amounts.
  • 2  Consider talking to your friends and family and either putting a limit on the amount you are going to spend on each other or organising a kris kringle where you purchase for one person only.
  • 3  Talk to your kids about the budget you have for them this Christmas and ask them to consider presents within the budget or explain that with so many kids in the world Santa has had to put a budget on presents this year and the limit is X amount. Or if they want a pricier item then start searching now on eBay or other secondhand sites. It's never too early for kids to understand that there isn't a never-ending money tree that presents simply appear from.
  • 4  If you as a grown-up genuinely don't need anything (which let's face it, is many of us) why not as a group of friends or a couple decide to donate the amount you would have spent to charity and then buy something silly and cheap for each other instead
  • 5 Write a list for each function you are hosting including a budget for all food and alcohol and make sure you stick to it. Prepare menus and start shopping for items now so the big Christmas food shop cost is reduced.
  • 6 Consider asking guests to bring either nibbles, dessert or alcohol to help reduce the cost of the big day or other functions you maybe holding. That way the cost and the time in preparing and shopping can be shared.
  • 7 Start now. Once you've made your lists, start buying now to spread the cost across a few months rather than a week. But don't be tempted to lift the limit on the presents or hand them over early – find a great hiding space and tick them off.



Christmas can be a wonderful time of year but it can also be financially devastating when the new year hits. This year if you really want to show how much you love them through how much you spend, why not make that "person" a needy family or a charity and do something meaningful with the ones you love instead. Now that would be a worthy hallmark moment.

Posted by Melissa Browne - Money Manager (Fairfax Digital) on 1st October, 2014 | Comments | Trackbacks | Permalink
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Bit by bit, bitcoin is gaining currency


When you can buy a round of drinks at the local with something that can't be seen let alone held, you know bitcoin has made it.

That, or it's the world's most elaborate pyramid scheme.

The Old Fitzroy pub in Woolloomooloo, Sydney and the Grumpy's Green, coincidentally in Fitzroy, Melbourne, many small businesses and big online retailers from Amazon to Zappos accept bitcoins as payment.                  

Flash your phone with its pre-loaded electronic wallet at the till so the two swap computer codes and the drinks are yours. 

Never one to miss a trend, billionaire Sir Richard Branson's Virgin Galactic accepts bitcoin for your next outer space holiday.

It's a bigger challenge to paper money than even plastic cards which, come to that, are also threatened.  

There's even an experimental bitcoin debit card from CoinJar that can be used in supermarkets or anywhere that takes eftpos. The "swipe" card converts the bitcoins into your linked bank account.

So how does bitcoin work? Wish you hadn't asked that, but suffice to say it's all about mathematical algorithms so fiendishly complicated that they're impossible to break.

That, as you'll see, isn't quite the same as saying bitcoins are hacker proof.

Anyway they only exist in cyber space. They have to be held in an electronic wallet on a computer, phone or tablet which is protected by a password.

Forget it and your electronic wallet is forever lost with your bitcoins in it.

Your bank can't send you a new password because bitcoins are outside the financial system, probably part of their appeal.

So if there's no central bank behind them who issues them? Aha, nobody and everybody.

Geek get together

Bitcoins were invented by a Satoshi Nakamoto who probably doesn't exist. Let's just say some geeks got together and designed a computer program that would be the closest thing to a central bank for a crypto currency.

The program restricts their number anywhere in the world to 21 million and we're already halfway.

This is a safeguard to protect their value and prevent inflation. But one bitcoin can be divided into 100 million, um, bits, known as satoshis, named after Mr N.

The weird thing about bitcoins, except for not really existing, is that anybody who's software savvy can create them. Known as mining, far from being frowned upon – and besides, nobody's there to frown in the first place – it's what makes the system work. Miners verify a transaction for a reward of bitcoins which will progressively shrink as more are issued.

Like something out of quantum physics, which perhaps it is, a bitcoin simultaneously doesn't exist yet can never disappear either. Unless an electronic wallet is misplaced, that is.

So for most the only way to get a bitcoin is by buying it from somebody else. Every bitcoin transaction is recorded on a public register, a sort of digital Domesday Book.

Which brings me to the weak link. To cash in bitcoins you must use special exchanges which like bitcoin aren't regulated.

The problem is these can be hacked. The biggest one, Mt Gox which was based in Tokyo, recently went belly up after being sabotaged.

Shady reputation

At least bitcoin has shrugged off its shady reputation from its early days, which only go as far back as 2009, though a lifetime in the digital world.

Contrary to popular belief, bitcoin is a lousy way to launder money because it leaves an electronic trail which is tamper proof.

Although this doesn't show names it does publish the unique address of the wallet it's come from and where it went. When it's cashed out there's another trail at the exchange.

"In many regards it's an auditor's dream. Anyone with a computer browser can see where a bitcoin came from and where it went," says Ron Tucker, chairman of the Australian Digital Currency Commerce Association.

Hmm, that seems to rule out the possibility of a digital pyramid scheme.

The next step of putting a name to an address can't be far off, especially as cyber currencies have attracted the attention of tax departments and central banks.

"Sooner or later it'll be publicly stated whose wallet's whose," Tucker predicts.

The Australian Tax Office, grappling with whether bitcoin is a fair dinkum currency, has issued a draft ruling saying ... well, it's not sure.

On everyday transactions they incur GST that you'd be paying anyway.

But unlike currencies, capital gains tax rules apply if the bitcoins cost more than $10,000. Bitcoin's value fluctuates wildly, a weakness or strength depending on your point of view.

In the few minutes between ordering a $4 coffee and paying by bitcoin it might have cost you $50.

These price fluctuations almost certainly have a lot to do with its attraction. It's a form of payment and a flutter on the side all in one.

Wouldn't you know, one exchange, igot.com, has already set up bitcoin futures so you can lock in a value.

Mind you, it seems to be settling down as it matures. So far this year, at least as we speak, it's held around $500 to $560. At the end of last year it hit $1300 just before China, the biggest bitcoin user, banned its banks from dealing with it.

It's just as well bitcoin ATMs have sprung up at Westfield Central in Sydney and Emporium in Melbourne. From vinyl to virtual

The old and the new are as one for Bill McWilliams.

A finance consultant by profession Bill and his wife Chelsea, an accountant, have followed their passion for music by opening Touch Records, so named because you can see and feel vinyl records.

But they're accepting a crypto currency, bitcoin, which you can neither see nor feel.

They're also riding an unlikely renaissance in vinyl records with demand doubling in the past year, according to the Australian Recording Industry Association, and that's not counting booming second-hand sales.

In fact the most visited part of www.touchrecords.com.au is the section selling record players.

It's not just sentimental baby boomers who are buying, either. Nor for that matter are those paying by bitcoin only Gen Ys and Xs.

But Bill has no doubt that bitcoin, which he started accepting early this year, has pulled in the young.

And not just because they tend to buy online which is bitcoin's natural habitat as a digital currency. It's more like a club.

"What I've been surprised by is that there appears to be a whole bitcoin community that I was unaware of. Those who own bitcoin keep up to date with the latest news about it and are all very supportive of the merchants who accept it," Bill says.

The other pleasant surprise has been that since the website started accepting bitcoins, offshore inquiries have more than tripled "even though I've never marketed Touch Records overseas," Bill says.

The downside of the digital currency is the wild swinging in its value. A merchant selling something for $700 which might have been one bitcoin might only get $500 when it's cashed in.

But it hasn't been a problem for Touch Records.

"It's still only a very small percentage of turnover. It's almost in my marketing budget. And I'm not a massive owner [of bitcoins]. I use CoinJar which converts them to dollars straight away costing 0.5 per cent."

ACTION PLAN

To use bitcoin you need to find an exchange or go to the special ATM at Westfield Central Sydney or Emporium Melbourne.
  • Set up an electronic wallet with a password.
  • Keep your wallet's coded address somewhere safe.
  • If you lose your coded address or password, you lose your bitcoins.
  • Unless speculating or planning a purchase, cash in a new bitcoin straight away to avoid its price fluctuations.

Posted by Money Manager - Fairfax Digital on 1st October, 2014 | Comments | Trackbacks | Permalink
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Big four bank credit cards: Are you paying too much


 IF YOU have a credit card with a major bank, you’re paying way more on interest than you should, according to consumer advocacy group Choice.

Choice completed a review of the credit card market in Australia and found that the Big Four banks — Commonwealth Bank, NAB, ANZ and Westpac — still charge around 20 per cent interest on their credit cards despite official interest rates falling 2.25 per cent since November 2011.

“Choice has long-standing concerns that credit cards are overly complex and designed to distract consumers from very high interest rates by putting a focus on rewards schemes, interest-free periods, balance transfers and ‘low’ annual fees,” Choice head of media Tom Godfrey said.

“While the major banks try to convince you their ‘low-rate’ cards are worth considering with an interest rate of 14 per cent, they are still a long way from the best deals on offer.

Mr Godfrey said the Reserve Bank of Australia identified, in August, the average high rate credit card charges 19.75 per cent. Mr Godfrey said the best rate on offer is 8.99 per cent through Community First while Victoria Teachers Mutual Bank, the Maritime, Mining and Power Credit Union, and Bank Mecu had good rates.    

Essentially, it’s what Choice has dubbed the ‘lazy tax’ — extra charges on those too overcome with inertia to make the move and switch to a lower interest card.

By way of illustrating the difference, consider this scenario: someone with a $2000 debt and paying off $50 a month at the higher 19.75 per cent rate would take five and a half years to pay off the card and would be hit with interest payments of $1289. In contrast, someone with the same level of debt and repayments on the lower 8.99 per cent rate would take four years to pay it off and will have only been charged $386 in interest in the process.

Mr Godfrey said: “Not one credit card from a domestic major bank is in the top 20 products available. If you have a credit card with a big bank, you are paying far too much interest and it’s time to shake off the lazy tax and move your money.

“With 30 per cent of us carrying a balance on our credit cards and most of us still banking with the big banks, there are also big savings to be made by switching to a credit card offered by a smaller financial institution.”

Choice’s advice is that anyone with an interest rate above 14 per cent is getting a raw deal. And that if do want to stay with a major bank, you should ring up and ask for a better rate.

Posted by News Limited Network on 1st October, 2014 | Comments | Trackbacks | Permalink
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Debt that's good, debt that's bad


If you've gone through the pain of paying off a big credit card debt, you'll know it can leave you reluctant to ever go into debt again.

But often borrowing can help us build funds for the future. So what does it take to move through that resistance and discover that debt doesn't have to be a dirty word? For starters, it helps to recognise that there are different types of debt. Some drags you down, while others can give you lift-off. Financial planners like to label the two: good debt and bad debt.

Good debt involves borrowing to purchase an asset that should appreciate in value or provide an income stream. It might be a home; an investment property; shares; managed funds; a business. It's generally secured against the asset so if you can't meet the interest payments there is something to sell that will (hopefully) cover the outstanding debt. Apart from a mortgage, the interest cost is generally tax deductible.Scott Heathwood, executive chairman of Wealthy and Wise Lifestyle Planning, says there can be a great upside to borrowing to invest, particularly in assets such as property, that are not subject to constant revaluations.

 "Good debt can super-charge the return on your equity," he says. "It can double or triple the return."

"If someone has got $200,000 in a super fund if they turned that into a $600,000 property asset and borrowed $400,000 through the bank and say they got a 6 or 7 per cent return on that then they'd be getting 6 per cent on $600,000 as opposed to 6 per cent on $200,000.          

"Assuming the tenant is paying the rent and the rent is paying the interest cost ... then you've got 6 per cent on the bank's money.

In effect, you're getting $36,000 on $200,000 as opposed to $12,000 so it's three times the return."

Bad debt, on the other hand, is associated with spending on things that will have little value in the future. Think holidays; clothes, eating out, groceries.

It might also include an 'asset' that begins depreciating the minute you drive it out of the showroom or furniture that goes onto the nature strip before you've paid off your no-interest-for-24-months loan. It's unsecured and is not tax deductible.

"Credit card debt is the bad one because it's unsecured, it's expensive and it's at a very high rate," says Heathwood.

So far, so straightforward but debt doesn't always slot neatly into textbook categories. You can still find your so-called 'good debt' growing horns and sporting a pitchfork if you lose your job, experience a drop in income; a relationship breakdown or an accident.

A Jekyll to Hyde switch can also be caused by a dramatic change in the financial weather.

Crisis strikes

Caroline and Craig Makepeace owned an Australian investment property debt-free when they decided to use their equity to fund some wealth-building manoeuvres.

"We used the equity from that to invest in property in America and we also used some of the equity to invest in shares and a couple of other things," explains Caroline.

"We were looking to create our own business so we got sucked into that internet world of how to make money overnight and we chased those kinds of schemes all over the place."

What happened next: the global financial crisis triggered a financial crisis for the couple. In the space of two years their good debt turned horribly bad.

"The investment property in the United States just collapsed so that went really badly and the shares went really badly so everything kind of fell apart for us."

The couple ended up walking away from the American property and selling their Australian investment property. But the two-year struggle to try and hold it all together left them with $30,000 of credit card debt.

"In the end because our situation was so bad we were using the credit card to invest in different things but also to cover our living expenses," she says.

As Caroline's yTravelblog.com details they spent the next three years doing everything they could to pay off the debt including moving in with Craig's family and using bonuses to pay off large chunks of debt.

"Even when everything was falling apart we knew the ramifications of bad debt," says 38-year-old Caroline.

"We'd always been very good with money up until that point so we knew that it was something that we had to get on top of."

Once the debt was repaid they started a travel business and it now funds their travels around Australia with their two children. While they plan to return to investing in property, their financial confidence has taken a body blow.

"I'm not confident enough at the moment to get back in," says Caroline. "It really shook me. It really shook my confidence a lot and I guess I'm kind of frightened of that responsibility."

As their story shows adding debt firepower to your returns is something that needs to be handled with care.

How secure are you?

Heathwood says one of the first things that should be considered is security of income.

"Are you secure in your job? Do you have mobility? One of the things that concerns me sometimes with people is they may have a good job but if they lose it they are going to be unemployable."

Relationship stability can also be key. The quality of the asset is crucial.

"Don't buy exotic investments. Don't go into structured products," says Heathwood.

"If you're just an average person stick to plain vanilla stuff — average sustained growth over time is good."

He advises people to buy quality property assets in growth corridors in capital cities and to look for areas earmarked for infrastructure developments or urban renewal.

"If you're going to invest somewhere and the government is spending money on a hospital or a railway system – get in early – not after the event. If you get in during the planning stages you'll make money."

Similarly, he advises sticking with quality stocks, adding: "We wouldn't gear anyone more than 50-50 because the market has got to drop 30-35 per cent or more before you're in margin call."

Borrowing capacity and your investment time horizon will impact whether borrowing to invest is a good idea. It's not for someone on the verge of retirement. You also have to be able to withstand interest rate rises, ideally an extra 3 per cent in rates.

Wally David, a Melbourne financial planner and the author of thesmartmoney.com.au, thinks we have become too comfortable with carrying large amounts of debt and he advises clients to get rid of most – if not all – of their non-deductible home and car loans before borrowing to build wealth.

From a tax point of view it's going to make most sense for someone on a reasonable income.

"If there will be a shortfall in terms of what you are paying in interest vs what you are earning in income the tax benefit is obviously more skewed if you are on a higher tax rate," he says.

"There has also got to be money left over in your week-to-week expenditure to allow you room to service that extra commitment which if you've previously been making repayments on your home loan now you can redirect it elsewhere." Turning debt to your advantage

Using a credit card doesn't necessarily mean you are doomed to a debt disaster.

Plenty of people turn a rewards credit card to their advantage. According to creditcardfinder.com.au's Winter 2014 Insights Report, one in five cardholders chose a credit card for the rewards program, compared with only 6 per cent two years ago.

There are now 49 cards offering bonus points on sign-up, up from 21 in 2013.

Brisbane resident and author of The Travel Tart blog Anthony Bianco makes the most of his credit card linked to an airline rewards program. To rack up points he puts everything on his card including concert and sporting tickets on behalf of groups of friends.

"I've also volunteered to pay for work functions which are a very quick way to rack up points," he says. He only uses the points for international flights as the points required per kilometre are less than those for domestic flights. His point-hoarding strategy has already translated into several overseas trips, including one round-the-world trip involving five stops.

Michelle Hutchison, money expert with creditcardfinder.com.au, says rewards cards are not for everyone. To get the benefit out of one you have to spend $12,000 to $14,000 a year and pay it off in full each month.

That's because the average purchase rate for a rewards card is 19.66 per cent and the average annual fee $180, compared with 15.9 per cent and $65.34 for a non- rewards card.

Those with the highest sign-up bonuses – American Express Platinum offers 80,000 points and the Citi Select Credit Card 60,000 rewards points – have annual fees of $1200 and $700 respectively.

A lesser known feature of the Amex card is that you can apply to have its annual fee of $395 waived. That card comes with a complementary economy return flight to one of seven international destinations and 29 domestic destinations or an overnight hotel stay.

Check out the add-on costs too. American Express card-holders pay higher surcharges than Mastercard and Visa credit card-holders. Hutchison says there can be conditions imposed on the sign-up bonuses.

For instance, "ANZ's card has a bonus 50,000 points but you need to spend $1500 on eligible purchases within three months."

Could people sign up, grab the bonus points and then switch to another card? Yes, says Hutchison, but be aware of the impact on your credit file.

Plus, she adds: "Some credit card providers will look at how many times you've switched in the past, say 12 months, two years, and if you've switched a certain number of times within that period you may be rejected." ACTION PLAN

To make the most of "good debt":
  • Ensure you have job and relationship stability
  • Check you can withstand interest rate rises
  • Stick to quality assets
  • Check you have the excess cash to service any shortfall between the income from the asset and the borrowing costs
  • Cover yourself against any loss in income through an accident or job loss

Posted by Money Manager - Fairfax Digital on 24th September, 2014 | Comments | Trackbacks | Permalink
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