Puzzle Finance Blog

Should you use a trust to buy a property?

When Janet Schier purchased a block of land earlier this year, she didn’t name herself as the title holder. Rather, she bought the property via a trust, subsequently building two sets of duplexes via additional trust structures.

For Ms Schier, the use of multiple trusts was the right choice because of tax minimisation and asset protection; but in reality, it’s a complex process.

And while most people are aware of trusts and the general reasons for their use, many have only a vague understanding of how they work, and under which circumstances they become beneficial.

A trust is an arrangement where a person or company (the trustee) holds assets (property) in trust for the benefit of others (the beneficiaries).

“So before you purchase a property via a trust, you need to establish a trust deed,” says chartered accountant Brett Hetherington. “The deed sets out the rules for establishing and running of the trust. Once the trust has been established then the trustee can go about including or stating the trust will be the owner of the property.”

According to Mr Hetherington, there are a number of reasons for utilising a trust to purchase property, such as asset protection, holding assets for the benefit of children or other family members and avoiding capital gains tax and stamp duty within families.

There are various forms of trusts including unit trusts, discretionary or family trusts as well as hybrid trusts.

A unit trust is where beneficiaries – or unit holders – purchase a fixed interest in a trust by purchasing units.

“A unit trust is useful where parties desire fixed ownership, and the ability to claim interest on a loan to purchase units as a tax deduction,” says Mr Hetherington.

In a family or discretionary trust the trust has the discretion to distribute income and capital to beneficiaries. Beneficiaries do not have a fixed interest but a right to trust assets depending on the trustees desire to distribute income or capital or both.

“A discretionary or family trust is a great investment structure for families as an intergenerational tool, assets can be handed down to children or grandchildren without incurring capital gains tax or stamp duty.

“The trustee has the discretion as to what family members can receive income and/or capital distributions.

“The fact you are a beneficiary of a trust does not mean you have any ownership in trust assets.”

A hybrid trust has the workings of both.

While trust structures do offer benefits, Mr Hetherington says there are some common mistakes to be aware of, such as thinking that you can distribute losses and not structuring the investment to take advantage of tax benefits.

It’s also important to be aware that tax or legal changes might require an amendment of the trust deed.

“Interestingly, professionals agree a trust structure could be an appropriate vehicle to save for retirement other than superannuation,” says Mr Hetherington.

Posted by Nicole Madigan - Domain (Fairfax) on 13th June, 2016 | Comments | Trackbacks | Permalink

Costly mistakes that will blow your renovation budget

Renovating or extending a home can be a significant investment and there is too much at stake for you to get it wrong. Unfortunately, the dream too often turns into a stressful and expensive nightmare. The good news is that it doesn’t have to be that way. Cost control and preventing budget blow-outs starts from the very beginning. It is influenced by the team you choose to work with, the brief you formulate, the decisions you make, the documentation you prepare, the way you engage and deal with your builder and the level of discipline you maintain throughout the construction process.

Here are seven common reasons that I see cause renovation budget blow-outs and a few tips to help you avoid them.

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1. Poorly established scope of works
One of the tricky things about managing a renovation or extension and controlling costs is knowing where to start and where to stop. If you do not understand that properly, the risk of your costs blowing out during the build will increase significantly. However, understanding what needs to happen in your own mind is only part of the solution, as once you’ve got it clear in your head you’ll then need to be able to communicate it clearly to the trades or builder. This is where you will be relying upon your documentation set. Your documentation set should include a set of professionally prepared plans and an Inclusions Specification, which is a document that itemises all of the inclusions, fittings and finishes that are missing from the plans (have a look at the ProSpex tool here).

It is critical that the builders quoting the project have access to this information to ensure that the quotes are accurate, thorough and easily comparable. One good way to ensure that the builder’s understanding of the project is consistent with yours is to ask them to present their own written Scope of Works and to also document what is excluded from their quote. It’s a bit like reverse engineering, as sometimes the clearest way to highlight what is included is to detail what is excluded. This will draw your attention to things that the builder sees that you have not considered and is a great way to iron out any grey areas. Eclectic Bathroom by Studio 74

2. Demolition is expensive!
Demolition is a process that is inherent in any renovation or extension project and it is labour intensive. It can also be like opening a can of worms because it is hard to know exactly what to expect once you start your building project; and that is why demolition can often lead to additional costs. Before a wall is removed, you must ensure that it is not load bearing, otherwise you will need to make an allowance for restructuring the wall.

Where possible, try to minimise the amount of demolition involved and, if it can’t be avoided, make sure you get professional advice about how to deal with removing load bearing walls.

3. The knock-on effect
One of the reasons that renovation projects have a habit of leaking money is because of the knock-on effect, where one decision will have an impact on several others down the line. For example, the decision to remove a non-load bearing wall may seem like the obvious thing to do to open a room up. However, that wall is also connected to the floor, the ceiling and two other walls; and once the wall is removed, you will then be required to repair and patch the gaps that the wall leaves behind.

This is where the knock-on effect can send costs spiralling upward, as you will also need to repaint the walls and ceilings where the repairs have been completed and, because you don’t want it to look like you’ve only painted the patched walls, you’ll need to repaint not only the entire room (which is now one big room because you removed the wall) but also the hallway that the room is now openly connected with. This scenario is played out again with the impact the removed wall will have on the flooring and at a much greater expense if you are trying to retain timber flooring, for example. These costs simply may not be avoided to complete the project as you would like, but you will need to think about it holistically and be realistic about the costs involved so that you can budget appropriately. Contemporary Kitchen by CplusC Architectural Workshop

4. Electrical oversights
Electrical work is one area that often experiences a blow-out in the budget. Unless they are advised otherwise, builders will often only make allowance for the bare minimum requirements of electrical items in their quotes, which may only be one light and one power point per room. Often there will be no allowance for light fittings either, just the batten holder with a globe. If you are not aware of this then you are left exposed to the additional costs of more light points and power points (you will get charged per point) as well as the costs of the actual light fittings.

To rub salt into the wound, any additional expenses over and above what was quoted may also attract a builder’s margin of up to 20% on top of the additional costs. This is another example where using an Inclusions Specification will ensure that the quotes being prepared by builders or trades are thorough and consistent with your expectations. Once again, it’s about being properly prepared and informed so that you can be realistic about the costs.

Browse thousands of lighting options for your home Contemporary Exterior by Vibe Design Group

5. Not making realistic allowances
Too often I hear stories where people have been attracted to a competitive quote only to be disappointed by the outcome and shocked by the final cost of the project. This is often the result of clients not having enough input into the quotes that are prepared, or not properly understanding what is included in them. Unless a builder is given instruction otherwise, they will be left to make their own allowance, for potentially dozens of items, of their own accord. It is important to understand that the allowance is just that; a dollar figure attributed to the cost of a particular item. Quite simply, if the builder has allowed $300 for a toilet and the toilet you select is $800, then you will need to pay the $500 difference as an extra, or variation, as they are known. You will also be exposed to the requirement of paying a builder’s margin of up to 20% on top of the difference for the variation.

When assessing quotes from builders, it is important that you understand all of the allowances contained in them. You will probably also find that the quotes you are assessing are all presented quite differently, which can make it difficult to evaluate and compare ‘apples with apples’. So, unless you have prepared properly, you’ll probably need to ask lots of questions to give you clarity around what is actually included in the quote. Ideally, you should also spend some time visiting showrooms so that you have a better idea about what allowances are realistic for you. The best way to communicate all of these important allowances to builders is by using an Inclusions Specification, which keeps everybody on the same page and will become part of your contractual documentation, providing a clear understanding of your requirements and expectations. Contemporary Living Room by ORBIS Design

6. Not thinking about what’s going on outside
If your project involves any sort of extension, you will also need to consider the impact it will have on the external spaces surrounding the home. We spend a lot of time pouring over floor plans and kitchen layouts, but this is sometimes at the expense of attention we should be giving to the spaces around the home. For example, retaining walls are often overlooked as drawings are developed; which means that the builder will not be aware of any requirement to include them in his quote. Unfortunately they won’t build themselves, so at some point this will become an additional cost you will need to pay for.

You may also need to factor in refinishing of external walls. Rendered surfaces have become popular and people often take the opportunity of an extension to render the entire house to modernise it. Again, the cost to render and paint the whole house will be much more than just the new extension, so you will need to communicate your expectations to the builder to ensure that all of the costs are accounted for and your budget doesn’t blow out.

Look to thousands of home exterior photos for inspiration

7. Surprise surprise…
The most common cause for budget blow-outs in renovation and extension projects is the element of surprise. There are any number of items that can pop up to catch even the most experienced designer or builder, like upgrades to electrical work, remediation of previous work done and structural upgrades; all of which generally can not be assessed until the project is underway. The sobering reality is that a renovation or extension project is inherently more likely to run over budget than building a home from scratch, so it is sensible to keep that in mind and allocate a contingency to your budget so that you are financially prepared. The size of the contingency required will vary greatly depending on how thoroughly you are prepared (see earlier points) and the type of project you are doing.

For a simple extension to a conventional home, a contingency of 5% may be ample if you are well prepared, however, if you are dealing with a much older heritage property, or a terrace-style dwelling, a contingency of 30% may not be enough if you haven’t prepared properly. Preparation is the key to minimising the impact that these surprises will have, as is working with a designer and builder who are familiar with the type of project you are planning. Their experience will help to foresee and minimise any significant blow-outs.

Posted by Houzz Australia (Fairfax) on 10th June, 2016 | Comments | Trackbacks | Permalink

Ten things to check before buying a home

Buying a home is one of the biggest decisions you will ever make so how can you be sure everything will go to plan?

Here are 10 things to check before you sign the deal.

1. Research the local area

“Purchasing a house should never be an impulse buy,” says Bessie Hassan, a money expert at financial comparison website  Finder.com.au. According to recent data from the website, 33 per cent of first home buyers wish they had looked around more before they purchased their property and 22 per cent regret the area in which they bought.

“You should thoroughly research the suburb you’re contemplating. Is there considerable crime in the area? Has the local council employed restrictions that prohibit you from building extensions in the future? What amenities are available that will cater to your requirements?”

2. Find out why the property is on the market

Ask the agent why they are selling, says Anna Porter, principal and senior property adviser at property investment specialists, Suburbanite. “Try to dig into the story a little but do it in a chatty friendly way, not a confrontational way. This might reveal more than you think.” 

3. Make sure your finance is in place

“One of the pieces of advice I give most often when people tell me they are going to buy a house is to get their finance sorted before they even go on  Domain.com.au,” says Ben Munro Smith, licensed real estate agent at McGrath Estate Agents, in Balmain, Sydney.

“I was once at an auction where the property sold to a young couple who had only seen the home for the first time that week. They had the deposit so could exchange at auction, but they later realised their borrowing capacity couldn’t get them the loan for the full amount. In the end, thanks to the bank of mum and dad, the property sale went through, but save yourself the hassle and call a mortgage broker first.”

4. Check out the neighbours

“There is no reason why you can’t knock on the neighbour’s door to have a chat and get their feedback on the area,” recommends Porter. “Remember that you could be living next door to these people for a long time. If they are lunatics, it would be better to know before you move in. A bad neighbour can really impact your quality of life.”

“Neighbours doing extensions can be a reason for people to move” says Munro Smith. “Sometimes there is a falling out, sometimes it’s a gentle push that it might be time to look elsewhere, sometimes they may just hate the finished product.”

5. Visit the property at different times

“I once sold for a client who was selling after only a short amount of time in the property,” says Munro Smith. “When I asked what the reason was for the sale, she confided that she had only seen the property once before the sale, on a Wednesday. She fell in love with it being across the road from a park and had big dreams of walking her dog there on weekends and enjoying the peace and quiet. What she didn’t realise was that there was children’s sport in the park at the weekends and so the street was bedlam during those times. She never had the chance to enjoy the serenity she had hoped for when she bought it.”

6. Get legal advice

“This is simply a must when signing a contract in NSW,” says Porter. “Always get a conveyancer or solicitor to review the contract.”

7. Get a building report, strata report and pest inspection

Have a building and pest inspection even if the property is new as not all properties are built to the same quality, says Michelle Amarant, director of Amalain Buyer and Vendor Advocates in Melbourne.

“We always recommend a building report for all purchases, even units,” agrees Porter. “This is because the builder can find issues that owners and tenants may not know exist. Like failing waterproofing or leaks in the roof. If the property occupants don’t know the problem exists, they will not report it to strata and it therefore will not be in a strata report. A building inspector can also lend commentary to issues that could arise in the future from poor design, problems starting to present that could become costly if not fixed or bad workmanship that will deteriorate.” 

8. Check the surrounding zoning

“This will help you know if a property behind you or next to you is zoned for high-rise units or something else that you may not like to live near,” says Porter. “If you are buying a house in a nice quiet street and next year a seven-storey unit block goes up over the back fence, will that be a deal breaker? The surrounding zoning can give you some indication if this is at all possible in the near future.”

9. Check for proposed arterial roads

Finding out if there are any major road proposals for next to or near you is very important, says Porter. “Imagine buying your dream home, only to find out that a four-lane freeway is being built over the back fence in 12 months. There are a few ways you can find this out. You can check the RTA website, the local council website, call your local council, check the zoning (arterial roads will be zoned differently and you may see a corridor of rezoned homes – this can be an indication of future planning intentions), and in some instances you can see it on online maps like Google maps or  Whereis.com.” 

10. Check for environmental hazards

Always, always, always check for environmental hazards that could impact the property, says Porter. “Known hazards can impact insurances as well as values. If your property is in a known flood zone, land subsidence area or bushfire zone to name a few, this could mean that your insurance may not cover you for these disasters. Or they could significantly premium load your policy to get full cover and that could cost you thousands of dollars extra per year.”

Posted by Sandy Smith -- Domain (Fairfax) on 6th June, 2016 | Comments | Trackbacks | Permalink

Property investors should not be so negative, but look to positively geared property instead

IT IS the tax break that could define a Federal Election, but some property industry insiders say truly savvy investors aren’t focusing on negative gearing.

Instead, many are taking a more positive approach. Those investors hoping to stay financially safe while building wealth though property portfolios are using positive gearing as a tactic.

Just like you wouldn’t run a small business at a loss, experts who live and breathe residential real estate investment say a portfolio built on negative gearing is no way to climb the property ladder either.

Bessie Hassan from financial comparison site finder.com.au said to create a positively geared low risk investment portfolio, investors need to do their homework.

“Positively geared properties are hard to find in areas where property prices are high compared to rents, so it suits someone who has time to select the right property,” she said.

With the bulk of Australian property investors being city-based residents, most are tempted to buy in metropolitan areas they know well, but Ms Hassan said those seeking positively geared investments needed to look further afield.

“For investors who don’t mind slower long term growth, a positively geared property is often located in regional areas (rather than capital cities) where capital growth is generally slower,” she said.

Michael Xia, 31, took that tack when he started building his own property portfolio. Although the first two homes he bought were in northern Sydney where he grew up, Mr Xia’s third and subsequent property purchases were mostly located in regional areas where positive gearing is more achievable.

More than a decade and 14 properties later, Mr Xia has quit his day job in online marketing and launched his own mortgage broking business, Mortgage Channel, where he encourages other investors to concentrate on positive gearing.

“I actually think negative gearing is really dangerous and ultimately it’s a losing strategy. Who in their right mind will go into business knowing they’ll lose money?” he said.

“People who are negative gearing are hoping to gain a lot through capital growth, but capital growth by definition is speculation. No one knows what Sydney will do within the next six to 12 months, or Melbourne, or Brisbane for that matter. So you’re just gambling with the future. And I think as an investor you need to speculate less and invest more.”

Bryce Holdaway, buyer’s agent, property adviser and co-host of the Lifestyle Channel’s Location, Location, Location agreed that investing shouldn’t be a gamble.

“There’s a difference between being an investor and being a speculator. An investor doesn’t go to the casino and put everything on red or black whereas a speculator at times does,” he said.

“They rely on the growth from this one going to fund the growth on the next one. They say ‘I’ll borrow any growth out of the portfolio to service any short fall’ and it just becomes this spiral of credit that’s funding the portfolio and that’s a pretty white knuckle ride, I don’t recommend that to anyone.

“I always say growth is what you get out of the market and rent is what keeps you in the market.

“It’s got to be conservative, it’s got to come back to cashflow, how much cashflow do you have at the end of the month? That’s the first question I ask a client, because that’s going to determine what we buy them.”


Put simply, it’s really the opposite to negatively gearing. Whereas a negatively geared property is an investment that actually leaves the property owner in debt at the end of the financial year (albeit with a Federal Government tax break in hand) positively gearing a property investment means the owner is left with a profit in their pocket.

Positively geared properties are actually giving the property owner an income stream, so at the end of each week, month, or year, the owner has money left over that they can reinvest into that existing mortgage, or put towards a portfolio, save or just spend.


The Labor Party is heading into the July 2 election with the promise of reforming negative gearing in order to “put the Australian dream of home ownership back within the reach of middle and working class Australians” according to the ALP’s website.

Opposition Leader Bill Shorten’s policy is to limit negative gearing to new housing from July 1, 2017 however, all investments made before that date would not be affected by the change.

As for it being a huge election issue, Mr Holdaway said the reality of how most investors used negative gearing had been misunderstood.

“What’s always forgotten in these arguments is that properties are only negatively geared in the early part and then they moved to break even. And with interest rates being so low they move to break even pretty quickly, then they go positive,” he said.

It’s at this moment, Mr Holdaway said, that the government is then making money out of Australia’s passion for property investing.

“When these properties do turn positive, then they’re positive to the tax payer. Investors have got to pay tax on it, but in the early accumulation phase there is a tax advantage to help them get ahead,” he said.

“I mean that’s the whole reason we do it in the first place, then it actually adds to the government’s tax collection profits. No one talks about that, they only talk about the headlines around negative gearing squeezing people out.

“The majority of the people that I see in our business are middle Australians, not rich CEOs. Really, the portfolio’s goal is to go positive as quickly as possible, no one wants to make a loss forever.”

And neither did Mr Xia, especially considering he was walking away from his career.

“I know that personally I would never have left my day job if I’d had a negatively geared portfolio, it would have been too much of a risk. If my mortgage broking business didn’t take off then what would have happened to my portfolio?” he said.

“But the fact that it was returning around $30,000 to $40,000 a year, if everything fell to place then at least I’d have that to fall back on.”


The best candidates for positive gearing are those people who want to get into property investing, but don’t have excess income to service extra mortgage repayments.

The tactic is considered an almost “set and forget” type of property investing as the homes tend to pay for themselves.

Ms Hassan said the real bonus with positive gearing was the income stream that turns into a safety net.

“Cash-flow positive properties can help subsidise personal income if the owner was to lose their job or have a change in circumstances such as a marriage breakup,” she said.

“Surplus funds generated from a positively geared property is a passive income stream that could help with living costs.

“If expenses such as insurance, rates, body corporate fees and water bills don’t have to be funded from other income — that keeps a lot of money in the investor’s pocket each year.”

“Also, the extra income can increase your attractiveness to lenders for additional loans.”

Mr Xia said it the positive approach beat out the negative route almost every time.

“Negative gearing traps you in a kind of rat wheel race because if you’re not creating an income and you can’t service those mortgages then you can’t really escape. If you go down the positive gearing path then it won’t happen over night, but over time you can escape that because you’ve got a recurring source of income,” he said.

“Let’s say you’ve got an average Australian earning about $80,000 a year and they go and buy one or two investment properties. My fear for those people is if they lose their job, if they’re negatively geared they’re going to lose their portfolio.

“If they’re forced to sell at the wrong time, that’s when they crystallise the losses. But if they’re positively geared and they’re not taking money out of their pocket then even if they lose a job the portfolio is all there.”

Posted by Kirsten Craze - News Limited Network on 29th May, 2016 | Comments | Trackbacks | Permalink

Fixer-upper or reno nightmare? Eight warning signs to look out for

The term “renovator’s delight” is bandied about a lot in real estate ads but it pays to know whether a home is a genuine fixer-upper – or a sure-fire flop.

Even rookie renovators will know a lick of paint, a few rolls of new carpet and some fancy appliances can lift a home with minor cosmetic flaws from drab to fab.

Beyond the surface uglies, there is a host of property turn-offs that could stand in the way of a dream renovation. How do you know whether they’re curable ailments or signs a home’s condition is terminal?

Read on …

1. Cracks

A few fine cracks here and there aren’t a huge concern but when they are more than 5 millimetres wide, you might have cause to be afraid. Very afraid.

Jim Elliott, principal of Sydney construction company Elliott Projects, says large cracks could be a sign a house has underpinning problems that can’t be fixed.

“Big cracks could mean major structural issues,” Elliott says.

2. Damp

Likewise, mildew can be tricky – if not impossible – to eradicate. Be wary of homes with damp walls and musty smells. Evidence of crystallising salts in the walls is a warning sign that moisture could be penetrating the building, Elliott says.

“If it’s a small, localised section of damp and the building has been there for some time, it’s probably not as much of an issue, but if it’s extensive, you’ve got a problem.”

3. Ugly kitchen and bathroom

Owners of pink bathtubs and floor-to-ceiling timber laminate kitchens, rejoice! Even the ugliest kitchens and bathrooms can be prettied up or ripped out and replaced relatively easily.

“Old-fashioned, worn-out looking bathrooms and kitchens you can always fix,” Elliott says.

4. Dark rooms

Open-plan living is all the rage these days, so much so that bathrooms are occasionally incorporated into master bedrooms with nary a low shelf for privacy. (Seriously, architects, can we stop this trend?)

Happily, traditional floorplans with separate kitchens, living rooms and dining rooms can usually be opened up by knocking down a wall or two, creating a modern, open-plan living space.

“Skylights and windows can be used to bring light into dark rooms too,” Elliott says.

5. Bad location

The gold standard in real estate is usually the house on the high side of the street with a north-facing backyard.

Of course, the asking price will probably reflect a less-than-ideal location, but remember that location is one flaw that can’t be remedied.

Sarah Wood, director and project manager at The Middlewoman in Sydney, says it’s best not to buy a house built in a hollow.

“If it’s a hot environment, it’s better to buy something on a hill,” Wood says. “Think of the landscape without the houses and whether it gets a lot of shading naturally. It doesn’t matter how many skylights you put in, you can’t change the location.”

6. Mismatched additions

Some homes have had more nips and tucks than all the Real Housewives combined. Wood says a house in original condition – even if that condition isn’t too flash – is easier to renovate than one that has been extended ad infinitum.

“The reasoning is that when it’s had several additions, they’ve usually been done by people who aren’t builders who have been fixing it up without a coherent plan. Most builders will say it’s best to knock it down and start again,” Wood says.

7. Wacky style

From charming terraces to sturdy bungalows, different home types and styles are popular in different areas.

When fixing up with a view to selling for a hefty profit, Sydney buyer’s agent Patrick Bright, EPS Property Search founder, advises researching the neighbourhood thoroughly and making sure you pick a home that is likely to sell quickly post-renovation.

“You’ve got to look at what the area offers, what the demand is now and what the demand is likely to be in the future,” Bright says.

8. Traffic noise

Even the most delightfully decorated al fresco entertaining area isn’t going to be a hit with would-be buyers if it’s covered with smog from the B-doubles charging down the road over the fence.

For Bright, no matter how appealing a fixer-upper is in other respects, he would shy away from buying a home on a noisy road.

“It’s going to affect the resale,” he says. “Every property has negatives but you can’t fix the position. My personal preference is to avoid properties that are going to take a bit of time to sell but there’s a price point for everyone.”

Posted by Elicia Murray - Domain (Fairfax) on 27th May, 2016 | Comments | Trackbacks | Permalink

Negative gearing: how young home buyers can beat investors at their own game

An inner-city cottage with a picket fence and little backyard was my long-held property dream. But on a single salary that dream was never going to be a reality. I had no choice but to revise my expectations and save for an apartment within a 25-kilometre radius of Melbourne’s CBD.

If I couldn’t beat the negative gearing investors at their game, I’d join them. I’d have to live in my investment for at least 12 months to be eligible for the first-homebuyer’s duty reduction, but it would ultimately become an investment and in time I’d return to a suburb closer to work, family and friends. First time buyers in NSW are also eligible for a stamp duty reduction when they buy new. This is how you can enter the negative gearing game and go from owner-occupier to investor.

Buy with your head, not your heart

After a few years of extreme saving, I was able to secure a two-bedroom apartment in Melbourne’s beachside suburb of Mordialloc. I bought in a small, solid block in a quiet street close to good schools, shops and a train station. Living alone in a suburb where I had no network of friends or family was tough, but I sucked it up. I knew that my living arrangements would change again soon enough.

When you’re ready, find a place to rent in your ideal location

It took almost two years before I felt financially ready to move. A two-bedroom cottage with a picket fence in Melbourne’s inner east came up and I signed a 12 month lease. I had a month to find a tenant for my Mordialloc apartment and move. Then I had to find a housemate to split the rent on my new place. Financially, this was a bit of gamble. You need to have a bit of cash in your back pocket in case things don’t fall into place straight away.

Get a tenant for your investment

I spoke to a few agents and appointed one who took care of the advertising and tenant administration. Depending on where you’ve bought, the right tenant might not present themselves straight away. In my case, I had three weeks of open for inspections before I found the right applicant. In the first month I had to cover my mortgage, the rent on my new place and moving costs. To say I held my breath while things fell into place is an understatement.

Find a housemate to split the rent with

Once I’d moved, I advertised for a housemate to share my rental property. I listed the spare room on Flatmate Finders and public Facebook group Fairy Floss Real Estate. There was a steady stream of requests to see the place. I found the right person who agreed to move in within weeks. In the meantime, I gave the room to a friend who needed a place to stay before moving to London.

It gets hard before it gets easier

I do wonder if all professional 30-somethings are being honest with themselves. I know many are truly unable to afford to purchase a home, but I fear some have accepted defeat and invested in their lifestyles instead. If you can afford to rent an expensive inner-city property, ride Ubers like they’re busses and fork out for annual international holidays, it might be time to reassess where you’re putting your money. The dream might look different for our generation, but it’s not necessarily over.

Posted by Nicole Caddow - Domain (Fairfax) on 27th May, 2016 | Comments | Trackbacks | Permalink

One big difference with a self-managed super fund

One of the biggest differences of a self-managed super fund (SMSF) versus an industry, retail or corporate fund is the ability to use borrowed money to invest. 

Remember that while borrowing money to invest can magnify gains, it can also magnify losses. Be cautious as excess borrowing can be catastrophic – as many investors learned the hard way during the depths of the global financial crisis.

Warnings aside, borrowing modest amounts of money within your budget in a rising property market can be lucrative for those with an appropriate appetite for risk.  

In fact, over the past three years the amount of borrowing for property in SMSFs has quadrupled, admittedly from a low base. The east coast property boom has almost entirely contributed to this growth.        

Since September 2007, it has been possible to borrow money from a bank to buy property in a SMSF via what is called a "limited recourse borrowing arrangement" (LRBA). 

Limited recourse means that in the event of a loan default lenders can only take a security over the actual property for which the money was lent. 

Despite many lenders requesting personal guarantees, this opportunity for superannuation investors presents a higher risk for lenders and SMSF loans often attract a slightly higher interest rate. 

So too, banks are reluctant to lend more than 80 per cent of the value of a residential property or around 65 per cent of a commercial property. This percentage is called a loan to value ratio, or LVR to use a popular industry acronym.

When property values retreat, as well as your ability to service the loan, this LVR is essential in assessing your equity in a property. I always recommend paying off a property in a SMSF although many banks now offer interest-only loans that assist with optimising your cash flow. Times of record low interest rates are best used to repay debt.

There's no shortage of rules and regulations that need to be observed when considering a property purchase in a SMSF..  Seeking professional advice from a specialist adviser is paramount. 

Crazily, many of the lenders' employees are unfamiliar with their own regulations owing to the high level of specialist knowledge needed, and real estate agents and property spruikers need to be strictly avoided when seeking advice.

If starting from scratch, expect to pay around $3000-5000 in accounting fees to establish the SMSF and LRBA plus potential establishment, legal and valuation fees from the lenders. 

While many people may find the costs prohibitive, the nature of superannuation being a low-tax investment environment allows each member of a super fund to contribute up to $35,000 per annum (if you're over 50) or $30,000 (if you're under 50) from your gross salary each year into super. This is set to be changed to $25,000 a year for everyone under budget proposals.

Your gross income would usually be taxed at 19, 32.5, 37 or 45 per cent tax (plus levies) but super contributions are taxed at just 15 per cent (30 per cent if you earn over a certain threshold). 

These lowly taxed contributions can then be used to repay the debt faster. So too, the positive effect can be magnified if a husband and wife are both making their maximum contributions to super and thus reducing the debt faster.

If you are five to 10 years away or more from retirement, have high income, a low aversion to risk and $200,000 or more in your combined super funds, then borrowing to buy property in a SMSF may be a worthy long-term strategy to grow your retirement savings. 

For more information go to ato.gov.au and search "SMSF property" and make sure you seek advice from an expert who specialises in SMSFs and ideally is a member of the Self Managed Super Fund Association.

Financial planner Sam Henderson is chief executive of accounting, advice and funds management firm  Henderson Maxwell.

Read more: http://www.theage.com.au/money/super-and-funds/one-big-difference-with-a-selfmanaged-super-fund-20160518-goybu2.html#ixzz49oqcvGvC
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Posted by Sam Henderson - The Age on 19th May, 2016 | Comments | Trackbacks | Permalink

Property market: Will record low interest rates unleash another housing boom?

When interest rates were slashed in the past, Australians responded by piling on more debt and bidding up house prices.

Whether that happens again after this month's rate cut will be of keen interest to many first-home buyers, investors and many homeowners.

This time, however, economists are playing down the odds of a big resurgence in property prices, even though the Reserve Bank this month cut official interest rates to just 1.75 per cent, with the possibility of further rate cuts in months ahead.

Heavy-hitters including Reserve Bank governor Glenn Stevens and  National Australia Bank boss Andrew Thorburn have both also argued the market won't return to its boom-time conditions of last year (when Sydney prices jumped 13.9 per cent and Melbourne's rose 9.6 per cent).       

Consumers aren't predicting much of a bounce in house prices, either. The Westpac Melbourne Institute index of house price expectations has fallen 15.9 per cent in the last year, and dipped this month, as this week's graph shows.

But if low rates have pushed up house prices in the past, why would this time be any different?

Well, the RBA and banks such as NAB certainly have a vested interest hosing down concerns of another house price bonanza.  Neither the commercial banks nor the RBA wants prices to skyrocket as they did last year, triggering fears of a dangerous bubble.

Even so, there are good reasons to think they might be right, and house prices probably won't come roaring back this time around.

First, remember that banks increased their mortgage rates late last year by about 0.2 percentage points. So the latest 0.25 percentage point move from the RBA, which most of the banks passed on in full, only takes home loan interest rates a tad lower than they were late last year.

More importantly, customers can no longer respond to lower interest rates by taking out an even bigger mortgage, as they did in the past. Indeed, banks last year slashed the maximum amount they'll lend many homebuyers by tens of thousands of dollars, by tightening loan criteria.

Even for those customers who can still get ample credit from their bank,  some analysts question whether homebuyers will want to take on yet more debt.

Australians are already among the most highly indebted in the world, with debts worth 186 per cent of their income, a record high. In what is still an uncertain time in the economy, borrowing even more may not seem like such a great idea.

Finally, homebuyers might be reluctant to pay even more for houses which are already very expensive, by just about any measure.

People buying a home in Sydney spent an average of 35.6 per cent of their pay on mortgage payments, the most in the country, and higher than its average over the last 10 years, Moody's reported last week. Melbourne was close behind – households there spend 30 per cent of their income paying off their mortgages.

When it's that expensive to buy a property, and the banks are being tighter with lending, lower interest rates might give house prices less of a kick-along than they have in the past.

Read more: http://www.theage.com.au/money/investing/will-record-low-interest-rates-unleash-another-housing-boom-20160511-gosgcv.html#ixzz49ouR5VWJ
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Posted by Clancy Yeates - The Age on 17th May, 2016 | Comments | Trackbacks | Permalink

What are the golden rules when looking for recession proof real estate?

  BUBBLE or no bubble, boom or bust, some real estate just seems to be bullet proof.

Although most reality “realty” television tells us that top dollar property is all about designer interiors that range from sleek stone kitchens to bespoke bathrooms, experts say it’s actually not what’s on the inside that counts.

Real estate has always been about “location, location, location”, but as property price growth across many major centres begins to slow down, 2016 buyers need to be more savvy when househunting. It’s no longer as simple as pointing to a suburb on a map and making an offer, buying “recession proof” real estate is a skill that means the buyer needs to strike with the head and not the heart.

Buyer’s agent Wendy Chamberlain of Amalain said while making money is a priority for many buyers, it shouldn’t be the only goal.

“It really comes down to someone’s budget, if you can afford the suburb that you really want to get into then buy there, but then the question becomes ‘Why are you buying?’ Is it for your own home to live in and is it a lifestyle choice? But if it’s an investment consider if you actually buy in an equally attractive area that isn’t going to cost you as much but is up and coming then you’ll probably do better over time,” she said.

“As an investor buying into a blue chip suburb you’re probably going to get consistent growth, but you may not get the good rental return that you otherwise would in a less expensive neighbourhood,” she said.


There’s a little known principle when it comes to property buying, stick to it and you can (almost) guarantee your investment will remain solid.

City slickers, who spend weekdays stuck in their cars commuting in hellish traffic or crammed up against some undesirable on a sweaty train or tram, want to spend as little time as possible in traffic after hours. So that’s where the 15 minute rule comes in.

“And when I say 15 minutes, mean a buyer’s agent’s 15 minutes, not a real estate agent’s idea of 15 minutes,” said Chris Gray, buyers agent with Your Empire and presenter on the Sky News Business channel.

“We always look to buy within a kilometre of the centre of a suburb. Because even a few metres can actually make that extra bit of difference between a yes or a now for a future a buyer, or a tenant. It can even be the difference of one side of the street to the other,” he said.

Wendy Chamberlain agreed the 15 minute rule is a great guideline for ensuring capital growth.

“Think about it. If it’s stinking hot, or pouring rain, do you really want to be walking for more than 15 minutes?” she said.

“You want to buy within a five to 15 minute walk to a train or tram, or a bus. And it would be nice to walk to your local little shopping village and cafes. Take a look on any Saturday or Sunday morning and see who’s sitting at these cafes with their prams or bikes,” she said.


Veronica Morgan, buyers agent and host of Foxtel’s Location, Location, Location knows that address is everything in a good real estate deal.

“Take a look at blue chip property. When you think about it, clearance rates never really drop below 50 per cent even when things are slow and that’s not bad. That means there are still half of the properties in a neighbourhood that are snapped up on or before auction day. Then you’ve got to realise that those other 50 per cent might not be great quality so if you buy well you’re in a good position,” she said.

Mr Gray added that savvy buyers aren’t distracted by beauty.

“Essentially I buy lots of ugly buildings, but they’re in great locations,” he said.

“Whereas another investor might buy in a beautiful building not in a great location. You can change an ugly duckling, but you can’t change it’s location,” he said.

Ms Chamberlain said while real estate in inner city suburbs is often recession proof, it is also possible to buy well in other areas if you think outside the box.

“Traditionally, people have had a bias against certain suburbs, but what happens is that through gentrification and governments putting lots of money into a particular area for things like trains or shopping centres, It changes people’s opinion of a particular area,” she said.

“And then you’ve got migrants coming into an area. They don’t know about all that old bias, they don’t care about it’s old reputation. It’s an old school thought that if you’ve lived in a city all your life you’re not going to buy or live ‘out there’ because it’s got this, or it’s got that A neighbourhood could have changed over time, but your thoughts of it haven’t.”


Ms Morgan said while “location” remains the number one rule in real estate, it shouldn’t be looked at in isolation.

“I’d insist that quality is a very close number two. There will always be an underlying demographic for quality properties and it will always be the case in almost any market condition. But let me say I really must underline the word quality,” she said.

“What is fundamental is a great floorplan. When you’re talking about the home itself that is priority number one. You’ve also got to get the architectural style right for the neighbourhood you’re buying in,” she said.

When buying an apartment she said the floorplan can make or break a deal. She added that an apartment with a balcony off the bedroom is not ideal, neither is a flat where the only bathroom is an ensuite, or one bedroom is smaller than the other. None of those factors are ideal for investors who want to capitalise on tenants who share with flatmates.

“With a house there can be a whole miriade of issues with a floorplan but one big one with terrace houses is the bathroom situation. If the only bathroom is downstairs and there isn’t one upstairs then that property can sell for far less than a home nearby with a modern layout,” she said.


A shiny new apartment might sound like a good idea on the glossy surface, but according to the experts it’s not a great plan for gaining capital growth.

“That’s not the kind of quality I’m talking about!” Ms Morgan said.

“Honestly most of it’s awful, we don’t touch it. Our motto is to avoid risk, and those new developments are a great risk. When a property is new in a new building there’s no history, nothing to predict how the building will perform in the future. On top of that there is a real risk of oversupply in some areas. So steer away from those,” she said.

“People need to get away from the idea that a new property is a quality property. Think about it, when you want to resell and it’s no longer new then primary market is gone, who is the secondary market?”

“It’s like buying a new car. The minute you drive it out of the showroom it’s lost value immediately. It can take years to see capital growth. I’m not willing to wait five or more years and have my money tied up,” she said.

Mr Gray said buyers are dazzled by new developments “every day of the week”.

“Developers are wealthy because they do something very well. Trying to buy something that’s beautiful is the last thing you should be looking at,” he said.


The university, the hospital and the good government school. Whether you’re a buyer who plans to live in the property, or an investor hoping to have a steady stream of tenants (and income), this trio of amenities almost always delivers.

Although buyers might baulk at having rowdy university students as tenants or neighbours, they’re not the only residents that come with a tertiary institution in the neighbourhood.

“If you’re near a university don’t always think you’re going to get uni students. There are always going to be lecturers and other people looking to move in,” Ms Chamberlain said.

“And the same could be said about the school catchment. People will pay top dollar to live in an area that has a good government school. It can add tens of thousands of dollars to a sale, maybe more,” she said.

But buyer beware when it comes to student accommodation, said Mr Gray.

“Down in inner Sydney in Ultimo, for example, there are all of these small student accommodation units that are just single rooms and they’re getting a 6 per cent rent return. People love them because they’re cheap, but the purchase price doesn’t really change. If people are buying based on the rental return then they’re always going to be investor clients. What that means is no one falls in love with student accommodation and that’s the kind of thing that ultimately pushes prices up,” he said.

“With hospitals it’s a great idea to buy on the right side of any main road because hospital workers work in shifts and they’re not going to want to cross main roads or walk far in the middle of the night,” Ms Chamberlain said.

Ms Morgan said while hospitals and universities are often good neighbourhoods to buy in, there needs to be diversity in a suburb.

“I wouldn’t buy anywhere that had just one element. It’s like buying in a mining town. You have to give people other reasons to live somewhere. If someone lives somewhere just because they’re working there or studying there — and that’s the only reason — then if things change for them they’ll want to leave. If you’ve buy in a lifestyle suburb then future buyers or potential tenants will want to stay in that neighbourhood long-term,” she said.

Posted by Kirsten Craze - News.com.au on 14th May, 2016 | Comments | Trackbacks | Permalink

5 ways to growth hack your way to mortgage freedom

Owning a home can be incredibly rewarding, but it also comes with a fair amount of financial responsibility. In most cases, this responsibility stretches out over 30 years, sometimes even more, and the regular payments can put pressure on household budgets. Stories about people who pay off sizeable home loans in record time are always talked about – but what are some of the tricks to making this happen? Well, here are some tips to growth-hack your way to mortgage freedom.

1. Go hard at the principle from day zero

Good habits are crucial. Borrowers need to get into the right habits early and then stick to them. Scrimp and save as much as possible to get the principle down early – and make extra payments often. It's the early years that hurt the most in any home loan repayment schedule – and it demands a disciplined approach. Forget the overseas holidays for a while and the fancy nights out. Budget carefully and plan ahead. Try to make one to two ad hoc additional repayments every quarter. It will make a big difference. It should be no real surprise that the number one key to paying a home loan off faster is to make additional contributions.

2. Don't make 'true weekly' repayments        

Make sure repayments are not 'true weekly'. Some lenders calculate 'true weekly' repayments by multiplying the monthly repayment amount by 12 and then dividing it by 52. The key is to get the lender to simply divide the monthly repayment amount by four instead. Because some months contain close to five weeks, this calculation adds the equivalent of a whole extra month's payment over the course of the year. So, the equivalent of 13 monthly repayments are made, instead of just 12. It may sound surprising, but paying this way can cut tens of thousands of dollars in interest off the loan.

3. Think about a split loan

A home loan option split between variable and fixed rates often provides borrowers with the best of both worlds at the same time. The variable portion provides the freedom to make extra repayments without penalty, while the fixed portion provides certainty about what repayments will be each week. It's often a happy and convenient compromise after weighing up the pros and cons of fixed and variable rates. How the facility is split is entirely up to personal preference.

4. Run an offset account 

An offset account is a separate transaction account linked directly to the mortgage. It runs as a regular account providing access to the funds it holds, however the credit balance on the account offsets the interest charged on the home loan. This is also a popular option for investors looking to reduce the interest they are charged without affecting the tax deductibility benefits of their investment debt. Of course, investors should always seek independent financial advice on these matters.

5. Look beyond the big banks

There are more than four home mortgage lenders in Australia. The rates and features that lenders offer vary greatly. So when it comes to finding the best loan, don't think there are only four options. Whether you are a first time borrower, an existing customer of a big bank, or a seasoned property investor, it is worth exploring the different home loan options available on the market. Potentially the best product may be from a lender you haven't heard of before and that is where the services of a mortgage broker can be invaluable.

Heidi Armstrong is Head of Consumer Advocacy at non-bank lender Liberty.

Read more: http://www.theage.com.au/money/borrowing/5-ways-to-growth-hack-your-way-to-mortgage-freedom-20160513-gougb7.html#ixzz49opRx9Sd
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Posted by Heidi Armstrong - The Age on 13th May, 2016 | Comments | Trackbacks | Permalink

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