Puzzle Finance Blog

Is your superannuation strategy working hard enough?

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

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

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

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

Caution needed on margin lending

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trust me - this is how the rich get richer

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let's take a look at the market.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ballpark costs for fast, effective changes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Surviving rental property disasters

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LENDERS ease mortgage requirements for borrowers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ways to save money by following some simple steps

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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

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


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

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

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

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

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


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

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

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

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


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

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

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

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

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

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

How to choose a mortgage broker

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

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

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

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


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

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

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


Definitely try before you buy.

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

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

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

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

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


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

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

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


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

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

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

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

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

Time to look at ways investors are taxed

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

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

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

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

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

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

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

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

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

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

Daryl Dixon is the executive chairman of Dixon Advisory

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

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

Make your home work for you

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

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

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

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

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

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

Consolidation of consumer debt is also worth looking at.

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

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

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

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

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

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

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

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

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

Salary sacrificing helps you to save

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No golden ratio for bricks and mortar

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Global financial crisis and all.

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

Many ways to escape debt spiral

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Be aware

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

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

Select a strategy

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

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

Debt consolidation

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

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

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

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

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

Get set for success

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

Work out your target

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

Reward yourself

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

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

Call in the support crew

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

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

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

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

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

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

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

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

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

How to make rate cut work for you

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

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

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

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

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

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

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

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

Which brings me to the self-funded.

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

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

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

So what's the point? Exactly.

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

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

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

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

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

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

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

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

Beware the trap of low rates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Melbourne home buyers' top priorities in 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Make a property plan, then jump in

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

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

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

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

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

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

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

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

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

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

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

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

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

The downsides to interest rate cuts

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

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

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

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

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


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

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

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


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

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

But even if you don’t go click crazy, a whole raft of goods in Australian shops will see a price rise. Imported goods such as electronics, clothing and cars will all be shifting upwards over the next few months. Late last year, Australian Retailers Association executive director Russell Zimmerman told news.com.au that shoppers can expect to see increased prices around February and March.

There’s a few months lag in price increases as retailers will have purchased the products when the dollar was more favourable on imports. So if you’re thinking about buying a new TV or computer, now may be a good time to pick one up before it gets more expensive.  

Australian travellers will also be slugged by the tanking dollar, especially for those going to the US or to many Asian countries.


A lower interest rate is terrible news for people who are highly dependent on their savings, such as self-funded retirees. A low interest rate means a lower return. Or barely a return now that the official cash rate is almost level with inflation.

National Seniors chief executive Michael O’Neill said seniors living off simple investments would be the worst hit. “Seniors aged over 65 own 45.3 per cent of bank and financial institution term deposits and most of them are on low, fixed incomes. The cut simply means less money in the pockets of many, many retirees around Australia.” 

For those saving for a large purchase, such as a house, the lower interest rate will hurt their medium or long term savings goals. Before the latest interest rate cut, term deposits were barely paying out 3 per cent, which isn’t ideal for anyone looking to grow their nest egg. Five years ago, term deposits were giving returns up to 8 per cent.


Growth in various property markets around the country have slowed down in recent months, with the exception of Sydney. With unaffordability levels skyrocketing in the main metro markets, home ownership has become more and more unattainable for Australians, especially young people looking to break into the market.

An interest rate cut may very well fuel the property market as prospective buyers decide they can afford to borrow more money on the lower rates. This is in turn, can push prices as up as buyers bring their bigger kitty to auctions.

However, AMP Capital chief economist Shane Oliver said the effect on the property market isn’t a sure thing. “The RBA and Australian Prudential Regulation Authority have been trying to slow the property market down. The RBA is hoping it can cut rates without putting more steam back in the property market.”

Mr Oliver said the RBA and APRA have taken measures to rein in the property market, such as tightening borrowing terms. He said that even if demand for mortgages go up, supply may not rise as banks are more cautious about who they lend money to.


Headlines screaming about historic low interest rates are sure to pique the interest of those looking to take out loans, especially for those who think they can afford to borrow more money than they previous could.

But there is a great risk in borrowers who don’t account for what happens when rates inevitably rise again.

Mozo director Kirsty Lamont warned: “Although it’s tempting to jump headlong into the property market or borrow at high levels when rates are low, you have to put it into perspective and ask yourself whether you’ll still be able to afford the loan when rates inevitably rise again. A home loan needs to be affordable over the long term and fit in with your other financial commitments.”

“When you look back at four years ago, the average home loan rate was 7.32%. It’s now heading down to 5.00% as lenders pass through the latest cut. That’s a big difference in four years.          

“If rates rise to the 7% level again, borrowers would have to find an extra $400 each month to cover their repayments on a typical $300,000 loan. That could have a huge impact on the household budget.”


The reason the central bank has moved to cut the official cash rate is because the Australian economy is sluggish.

In his statement yesterday, RBA governor Glenn Stevens said available economic information suggests that growth is continuing at a “below-trend” pace with domestic demand growth “quite weak”. He also pointed out that the unemployment rate has moved higher while the decline in terms of trade, such as the fall in commodity prices, has led to a reduction in income growth.

The consumer price index has also recorded its lowest increase for several years.

Mr Oliver said that everyday consumers may start to wonder about the state of the Australian economy and the rate cut could create uncertainty on that front.

Posted by Herald Sun on 5th February, 2015 | Comments | Trackbacks | Permalink

The most valuable aspects of a home

Want to know which features buyers find most attractive when house-hunting, and which ones can be troublesome to sell? Then read on…

When you sell property, you’ll find that some aspects are much more valuable to prospective buyers than others. Check out our list of what features get buyers to reach deeper into their pockets, and what aspects can prove difficult to sell.

Adding value

Floor plan is the key, says Damon Warat of Ray White Ascot in Brisbane. “ Entertaining areas, views, elevation and the layout remain the most important. Fixtures and fittings can be amended, but layout becomes difficult and expensive to change.”

Ray White Adelaide’s principal, Brett Pilgrim, is in agreement: “Everybody is different; however, the majority first search by number of bedrooms and/or bathrooms. Then they really spend some time on the floor plan – that has to work for them.

“The wow factor of a property certainly helps things, like renovated kitchen, bathrooms and a nice street frontage; but I think we have seen a big change, more to the opportunity a property provides. So a finished home is not always as popular as something that can be renovated.”

Danny Grant, director of Ray White Lower North Shore in Sydney, says liveability is the chief value-maker for buyers: “A good kitchen is always a big attraction for buyers as it is the heart of the home and tends to leave a lasting impression when buyers inspect a home. Living space is also a huge seller, especially for families. And natural light in a home is also high on the list for buyers.”

Possible detractors

On the subject of features of a property which can be difficult to market or get buyers willing to pay more for, Grant is quick to reply: “Gadgets. Sellers really love their gadgets, but they don’t sell houses. If you push those features on buyers, they feel like they will be paying too much for gadgets they could take or leave! [Also, among] homes I have sold, a spa has added no value whatsoever. In fact, if a bathroom has a spa, it is seen as dated and detracts from the value.”

Pilgrim says certain lifestyle features can limit the number of possible buyers you attract. “A pool area can look amazing but unfortunately there are a lot of people that simply don’t want a pool,” he says.

Don’t overcapitalise!

“The one that is probably the most disappointing and the biggest trap is when someone spends the money to do quality right through their home on all the little things, from tapware, extra insulation, door furniture, electronics, garden; the list goes on,” says Adelaide’s Pilgrim.

Grant from Sydney agrees. “Prestige homes need quality finishes. However, in the majority of family homes, quite often sellers spend too much on personal features. For instance, an Italian white wall tile that is $120 dollars a square metre will achieve you no more money on resale than a white wall tile that is $20 a square metre. Provided the tiler does a good job, there is no difference in value,” he says.

“Light fittings are another [thing] that’s easy to overcapitalise on. Buyers usually see no value in light fittings worth thousands of dollars.”

In some cases, though, it can be a case of not how a renovation is done but whether one was actually needed at all.

“One trend of overcapitalising is buyers purchasing a property already in okay to good condition, then doing a full renovation. If they purchased a ‘raw’ property in need of full instant updates, their money is better spent,” says Brisbane’s Warat.

The most important thing to consider is that just because you love something in your home, it doesn’t necessarily mean everyone else will. Take a commonsense approach to spending money on your home if you intend on selling down the track and ensure any work you do will have broad appeal!

Check out more tips from Domain  on selling property.

Posted by Adam Zuchetti - Domain Blog on 3rd February, 2015 | Comments | Trackbacks | Permalink

Think before adding the kids to your SMSF

Self Managed Super Funds most commonly operate as a joint fund.

Generally two adults who are spouses will act as trustees and be members of the SMSF.                

This reflects not only that many couples organise their retirement planning together but that SMSFs rules require at least two individuals (but no more than four) to act as trustees. 

When they consider what would happen after one of them dies, couples often expect that adding an adult child as co-trustee will be the best way to provide support and meet the legal requirements. However, a range of practical and relationship issues can arise, creating an unintended consequence of increased administration and paperwork – generally the last thing trustees want!

Consider the many SMSF compliance and tax documents all trustees are required to sign. This can be difficult to coordinate when both trustees live under the same roof, let alone across different cities or states.

If the adult child being considered for the role of trustee also has a demanding career, busy family life or little interest in paperwork, the arrangement can become unsustainable.

On top of this, family relationships can be stretched. Although up to three adult children can legally be added as trustees alongside the surviving parent, logistically it makes sense to add only one. Making this selection can cause tension amongst siblings. Further the child chosen as co-trustee may also have their own concerns around consequences if an investment fails or a compliance problem occurs on their watch.

Consider also an adult child with strong investment opinions, even with the best intentions, may steer the SMSF into investment risks beyond the comfort levels of the surviving parent.

A good solution may be to establish a corporate trustee. This involves setting up a company for the specific purpose of being the SMSF trustee. Don't be daunted by the formality of the name – this structure provides a neat solution for SMSF succession planning by allowing a single member fund to operate, with the flexibility to accommodate up to four members in total. This makes it ideal for a couple to use as it will also cover the transition to one surviving spouse.

Adult children then don't need to be appointed as trustee but they can provide support around investment decisions, paperwork or general retirement planning in an informal capacity. Any change to trustees involves costs and considerable paperwork.

Corporate trustees also have additional legal and ASIC fees. For that reason, it is ideal to establish the corporate trustee while both partners are alive to bring forward the paperwork to a time when it can be shared rather than leaving it to be dealt with by a grieving spouse. 

Posted by Nerida Cole - Money Manager (Fairfax Digital) on 3rd February, 2015 | Comments | Trackbacks | Permalink

Brace for a house price crash and you won't get caught out

There's been plenty of talk in the media (and even more around Australia's barbecues) about the sharp growth in house prices. Houses in suburban Sydney are selling for seven figures at a rate never before seen and other capitals (especially Melbourne) are amazingly expensive, too - which is to say nothing of the shoebox-sized inner-city places that are selling for more than a couple of lotto jackpots.

Investors are rushing into the market at a rate of knots, with a sizeable increase in both the number of investors and the proportion of interest-only loans being made by our banks. And with house prices increasing (much) faster than incomes, a little second grade maths will tell you that more and more of our household income is now going towards the roof over our heads.

Don't thank god, thank Glenn

Reserve Bank governor Glenn Stevens is doing his bit to keep affordability reasonably low - but it's unlikely the official cash rate will have a 2 per cent in front of it for any significant length of time. Most mortgage holders today won't have been paying off their homes when interest rates hit 17 per cent in the early 1990s, but just ask someone who was… you'll get a proper definition of mortgage stress!

We won't see 17 per cent again any time soon - if ever - but such is the leverage of Australia's households and property investors, there'd potentially be significant economic consequences if rates hit 7 per cent or 8 per cent - let alone 10 per cent or 12 per cent.

In short, we have a situation characterised by household leverage of a size never before seen, house prices that are growing faster than wages and investors who are banking on prices continuing to rise, and never mind that rental yields don't even go close to covering the interest in many parts of Australia.

So is it a bubble? No one really knows. And it's fair to say that there are far more bubbles forecast than ever eventuate. The problem with bubbles is that they're only really clear in hindsight - which is no good to anyone.

What seems clear is that the combination of leverage and - to put it bluntly - speculation leaves us precariously placed. It may not require much in the way of a shock (internal or external) to do us damage.

Be prepared

If you can't predict a bubble in advance, what can you do? Simply, what our parents and their parents would have told us to do (there's a reason that timeless advice is timeless!).

If you're buying, don't overstretch. If you have a 5 per cent deposit and house prices do fall 10 per cent or 20 per cent (or more), you'll be underwater by a long way.

If you have a mortgage, pay it off, fast. Not in a reckless way, but as super investor Warren Buffett has said, you don't want to be relying on the kindness of strangers (i.e. your bank manager) if rates go up or if prices fall.

If you're a renter, you're probably the most protected from any shocks - and you might even have the whip hand in any subsequent lease negotiations if the landlord is under financial pressure.

If you're a property investor, reduce your leverage. Then do it again. If you think home owners are reliant on the kindness of strangers, property investors are one pen stroke away from being forced to refinance - and if no one else will come to the party, potentially selling at a (big) loss. And if your loan is interest only, that's debt that could bring your finances crashing down.

Foolish takeaway

If there's no bubble, or that bubble doesn't burst, the advice above will let you sleep at night and means you're never at someone else's mercy. But if you ignore that advice and the bubble bursts, you'll have no redress at all.

To return to Buffett, who was speaking about leverage and risk: "To make money they didn't have and didn't need, they risked what they did have and did need... if you risk something that is important to you for something that is not important to you, it just doesn't make any sense."

Maybe there's no bubble. But how much are you risking, if you're wrong?

Posted by Scott Phillips - Money Manager (Fairfax Digital) on 3rd February, 2015 | Comments | Trackbacks | Permalink

Home extensions fail to add value: property experts

Upgrading home fixtures and decor before selling adds more value than extensive renovations, property experts say.

The 2014 Westpac Renovation Report reveals the number of residential alteration and addition projects has more than doubled since 2010, increasing by 147 per cent.

But property experts aren't convinced of the value of renovating, with many home extensions failing to offer a return on investment.                

"I have seen vendors lose six months of their time and spend $150,000 on a home to get $150,000 back, with no profit," says Barry Plant partner and auctioneer Luke Brizzi.

"I have had homes where buyers have walked out and disregarded a home because they hated the new $50,000 kitchen that a vendor put in for sale and couldn't justify buying the home to replace it with one of their own taste," Mr Brizzi says.

Investing in professional styling pre-sale (rather than renovating) can bring a modern touch to a tired home and potentially distracted buyers.

"I recently had two identical apartments owned by the same vendor go to auction on the same day; one was styled and dressed and the other was vacant."

"The styled apartment sold above reserve but the empty one failed to get a bid and sat empty on the market for two months, later selling $50,000 below the other apartment," Mr Brizzi says.

"Truth is, no buyer connected with an empty apartment."                

More modest approaches to renovating such as paint touch-ups and increased lighting don't run the risk of contrasting with buyers' personal taste.

According to Hobbs Jamieson Architecture principal architect Adam Hobbs, "simple techniques like selective wall removal to open up a room, 'rebranding' of spaces to change their use, (dark small living area into a bedroom for instance), can make big changes with limited effort."

"In short, refinish don't restructure if you're looking to keep costs down," says Mr Hobbs.

Ask An Architect manager Cameron Frazer says: "Consider replacing some of the cosmetic elements such as taps, handles, towel rails and shelving.

"These can make such areas appear more modern without a complete renovation," Frazer says.

As buyers become more concerned with running costs and their home's environmental impact, investing in these areas can be more valuable than increased space.

"More costly additions include upgrading windows to double glazing to improve heating and cooling efficiency," Mr Frazer says.

"Adding solar power or solar hot water can also increase the home's appeal."

Rara Architecture director Wesley Spencer works with clients looking to increase the value of their home without building an extension.

"We have a client who is investing $500,000 into their home without extending and the projected value increase is $2 million," says Mr Spencer.

Homes lacking connectivity between rooms can be resolved by reconfiguring room layouts.

"Strategically positioning windows, openings and the television to allow a comfortable flow of space enhance the feeling of connectivity and openness between the rooms," Mr Spencer says.

For one of Mr Spencer's clients, this has reduced the scope of works from $200,000 to $50,000.

"The most successful home improvements I've seen for a sale are when the owner finally commits to doing the things they wish they had done the whole time they lived there but never got around to,"

"They know the space well and can see its flaws," says Mr Spencer.

Posted by Amelia Barness - The Age on 2nd February, 2015 | Comments | Trackbacks | Permalink

Suddenly single? You'll cope

Trading the car in, buying a new home, diving into the share market ... when major financial decisions need to be made, many of us take comfort from talking through the options with a partner who's equally invested in the outcome.

But what happens when death, divorce or relationship breakdown means that you're flying solo? How do "suddenly singles" become comfortable making the big calls all by themselves? And who do they turn to for advice and reassurance when there's no significant other to mull things over with?

Family for hand holding, and financially savvy colleagues for advice on the nuts and bolts, says mortgage broker and former advertising sales executive Kaia Hunter, 45, who has been sailing her own ship since her marriage floundered in 2007.                

Financial settlement left her with enough to buy a block of land outright in Palmwoods, on Queensland's Sunshine Coast, where she built a house for herself and daughter Aspen, 9, while living nearby with her parents.

"It had always been a dream of mine," Hunter says.

"It was daunting but satisfying as well. Because my parents were with me, it didn't feel quite so daunting. I had [them] in the background – not financial but emotional support." Thrashing out the figures before committing to the project provided a little of the comfort that comes automatically when you're in a double income set-up with another adult to bolster you financially and emotionally, according to Hunter.

"I worked out a budget down to the dollar," she says. "There was nothing spare. It was scary, the money side. I thought 'how am I going to afford it?' but I ploughed ahead." After extensive research – "I read every property investment book for about two years, I read all the magazines, I did lots of online research and went to investment seminars" – she subsequently bought two investment properties.

Seasoned investor colleagues, rather than family, acted as her sounding board in this instance and their counsel and encouragement gave her the confidence to take the plunge.

"I talked to my parents briefly, then stopped," Hunter says.

"Dad was very risk-averse so he would have talked me out of it." Hunter is part of a significant minority of Australians making major financial calls on their Pat Malone. In 2011, 24 per cent of households comprised a single person, according to the Australian Institute of Family Studies. The 2011 census showed just under a quarter of families with dependent children were headed by a sole parent.

Those thrust suddenly into the driving seat, after years of being with a partner who's played a dominant role, can face a steep learning curve, according to Nexia financial planning partner Craig Wilford.

"I have had people in tears – they have literally had to start from ground zero," he says.

Seeing an expert – or becoming one yourself – is the only way to become comfortable about your ability to manage your affairs and make the big decisions solo, Wilford says.

"Arming yourself with knowledge is the best way to lose the fear and gain confidence."

Just because you haven't doesn't mean you can't, agrees Psychology Melbourne consulting psychologist Dr Geraldine Lockley.

She says trepidatious types should start small and look to family, friends and professional planners for the perspective and reassurance previously provided by their significant other.

Setting goals and not allowing yourself to become overwhelmed by uncertainty are the secrets to shifting successfully for yourself, according to speech pathologist Helene Frayne, 60.

Now the chief executive of a Queensland not-for-profit organisation, 20 years ago she was left with four children to support, and some tough decisions to make, when her marriage to a banker who'd taken charge of the family finances ended.

Heeding friends' advice that she could not afford to stay in Sydney, Frayne packed up and drove north to Brisbane, where her goals of home ownership and a Catholic education for her brood were more achievable.

She says she applied the speech pathology principles of setting short- and long-term goals to the issue of managing her money and making choices, including returning to full-time work, that would provide security for her children.

"It's an enormous stress being responsible for it all," she says.

"It's almost as if you're running a marathon – you can't slip up or stop. You've got to make good financial decisions." Practising positive self talk – "you don't have another person to bounce things off so you need to do this" – and resolving not to worry about the distant future helps keep fear and uncertainty at bay, Frayne says.

She admits to having lain awake at night in the early years, fretting about her lack of superannuation and picturing herself ending up impoverished in a grim public nursing home.

"I taught myself not to think too long term," she says.

"Don't think about superannuation; think about getting the kids educated. You can't trouble the future – you get too anxious. Life is long and you need different tactics at different stages."

The satisfaction of reaching a point where you can enjoy the odd indulgence, such as an overseas holiday, is difficult to overstate, Frayne adds.

"It was so exciting to be able to get from lying awake worrying about the nursing home to getting on the plane and seeing Italy again.

"Difficult decisions early reward you at the end." 

Read more: http://www.theage.com.au/money/planning/suddenly-single-youll-cope-20150128-1304j7.html#ixzz3QilfXOXD

Posted by Sylvia Pennington -- The Age on 1st February, 2015 | Comments | Trackbacks | Permalink

Housekeeping now will pay off later

By now you will probably have made and broken quite a few New Year's resolutions.  

Resolutions are great idea, but often only that - an idea. For most people it's the financial housekeeping items that can make the biggest difference in the year to come - and beyond. Here are a few: 
  • Mortgage If you have a mortgage, it's probably your largest monthly outgoing. Start the year by ensuring that you are paying no more than you have to. The difference in repayments between a $400,000 25-year loan at 5.7 per cent and 4.7 per cent, is more than $200 a month. Also, ensure that your loan is right for your circumstances: offset accounts, redraw, interest-only and lines of credit are valuable features, but only if you use them. If you're confused about what's best, see a mortgage broker.
  • Savings If you haven't bought a home – and you want to this year – you'll need to save a deposit. Have a look at your savings plan: why did it work or not work in 2014? Assess it honestly and make a new plan to save. Small, regular deposits work better than occasional lump sums; a separate savings account is better than using your daily transaction account; high interest and no/low fees make a real difference; and making a luxury-sacrifice to your savings is always effective. For example, drop your café coffees every day and bank the money you save.
  • Income Financial housekeeping has to include your earnings. If you want to earn more this year than last, you have to work out what needs to change: do you need new skills? A new qualification? A new employer? A new industry? Do you need to start your own business, or just do your job better? Maybe you have to communicate better with your employer, and just make your case for a pay rise? 
  • Costs Most households can find simple savings, ranging from phone plans and electricity usage to vehicle mileage and the eating-out budget. Many small cuts can add up to a large saving at the end of the year, giving you more options with your income. The great thing about cutting costs? It can be as large as a pay-rise, but it's tax-free.
  • Super Make an audit of your superannuation and assess whether your current contributions are sufficient for retirement. Use the online calculators to see how you can boost retirement savings by putting in your own contributions; use the comparison sites to see what your fees cost you – they range from 0.7 per cent of your balance to around 2.0 per cent, and this is a big difference over 20-30 years. Perhaps see a financial adviser?
  • Control debt Are you being smart about your debts? High-interest debt just compounds against you, so doing nothing is a poor option. Make a plan to pay off the debt, the most expensive first. Make a schedule and stick to it.

The financial housekeeping is never glamorous. But if you address it early, it can set you up for a successful year. Good luck.

Read more: http://www.smh.com.au/money/saving/housekeeping-now-will-pay-off-later-20150129-130y5a.html#ixzz3QY430pVp

Posted by Mark Bouris - Sydney Morning Herald on 1st February, 2015 | Comments | Trackbacks | Permalink

Get ready for a busy autumn on Melbourne’s property market

 MELBOURNE’S robust property market is expected to pick up where it left off 2014.

And if you’re planning to get in on the action as a seller, now is the time to start preparing for the market’s second main selling season — autumn.

WBP Property Group’s Greville Pabst expects an early rush from mid-February to get campaigns under way before Easter.

“It’s a good time to sell,” Mr Pabst said. “We’ve still got some good weather. You can see the change in the season, particularly in the leafy suburbs like South Yarra and Kew.”


Easter is the biggest event in autumn and falls early this year. But there’s also Anzac Day and school holidays to contend with.

“In my experience, Easter can be the catalyst for the market,” Mr Pabst said.

“I think there’s almost an expectation that there’s going to be strong demand at the opening and before Easter, so people want to get in and capitalise on that.

“When you start looking a bit longer, people are more uncertain, not sure what the market is going to be like.”

Also, March and April are mild months when potential buyers will be more inclined to attend inspections.

Sellers can make the most of their outdoor spaces, too, showcasing the garden before the weather starts to cool
in May.


Making a strong first impression will help to reel in buyers.

So concentrate on cleaning and remove clutter from the house and yard.

Mr Pabst said sellers didn’t need to spend a lot of money, but presentation was paramount in hooking buyers.

“The difference between somebody looking online and seeing the property is they will typically have a look in the car. You don’t want them to slow down and keep driving,” he said.

Mr Pabst recommended simple things such as landscaping, pruning, maybe some new plants and a new coat of paint to boost your home’s street appeal.

LJ Hooker, Narre Warren South, director Metin Aziret said suburban sellers often competed with new estates for buyers and should concentrate on presenting a home that was ready to move into.

“Properties that buyers walk into and don’t need to spend any money and they get the ‘warm and fuzzies’ are the ones that achieve a premium price,” Mr Aziret said.

“We’re talking blue collar workers and middle income workers. These guys will tie themselves up in a mortgage of $2000 to $3000 a month, which doesn’t leave them much to save every month, so if they wanted to change the carpet, which is a $5000 exercise, it takes them a year,” he said.


Selecting the right agent to sell your property was more important than just selecting a brand, Mr Pabst said.

“Investigating their track record, what type of property they have sold, what value properties do they sell, they are the sorts of questions you should ask,” he said.

“What’s their strike rate. How many auctions have they done in the past six months, how many have sold under the hammer.”

Mr Aziret said sellers should select an agent that could tell them what they needed to do to achieve the best price.

Location will largely determine the type of sale a seller should consider, but it’s important to consider that only 30 per cent of properties in Melbourne are auctioned.

“It really is properties within the inner-city areas of Melbourne that attract interest from investors, owner-occupiers and get that competition that really suits an auction,” Mr Pabst said.

“If you’re in an area that is not an investment area, more of an owner-occupier area and therefore is not going to have the same competition from investors and developers, you might be inclined to run a private campaign.”

Mr Pabst recommended a five to six week marketing campaign ahead of an auction and setting a marketing budget.


Mr Aziret said research was essential before selling, both to present a home for sale and to determine how to set a price.

“Do a bit of research in the market of what is selling and visit some properties and get a bit of an idea about what they think of these properties and whether they think they would buy it,” he urged.

“And see what you should and shouldn’t be doing.”

Mr Pabst said seeking independent advice would also help in making important decisions like setting a price, an agent’s commission and a marketing budget.

Posted by Peter Farago - Herald Sun on 31st January, 2015 | Comments | Trackbacks | Permalink

Smart investment or just a money pit ?

One hazard of taking a holiday at this time of year is coming back owning an extra home.

Who hasn't surreptitiously checked out the real estate prices at a favourite holiday destination?

Even in the era of Airbnb where you can find a dream holiday home without a lifetime financial commitment, the lure of a shack by the sea or a hideaway in the hinterland can be irresistible as the following stories show.

Lisa Marquette and Jimmy Wright have similar tales to tell. They were both spending weekends away and were captivated by homes that had just gone on the market.

"We were visiting friends," says Marquette. "The For Sale sign went up." And that was that. "We did all the things you don't do, " she says. "It was emotional."

For Wright, who also has three investment properties and a unit in Sydney's Elizabeth Bay, buying the holiday retreat at Great Mackerel Beach (on Pittwater, just north of Sydney) "was a completely emotive purchase. The For Sale sign went up that weekend and I put an offer in. I emailed Philip [Sangster of broker Mortgage Choice] to tell him on the ferry coming back." Yet neither regrets rushing in.

Marquette says her holiday house – in Walkerville close to Wilsons Promontory – is a "cheap holiday" and they plan to rent it out at other times.

Mike Phillips, a real estate agent at Rye, a popular weekend destination on the Mornington Peninsula, even cites an extreme case of the local plumber who lets out his home and moves into a caravan on the foreshore at Christmas, which is sort of going on holiday while you're on holiday. 

Don't laugh. The $2000 a week earned helps pay for a trip overseas.

Not surprisingly, interest in a weekender or holiday getaway is at its peak in January.

"We tend to see a pick up in people buying holiday homes as an investment property at the beginning and end of each year," says Mortgage Choice's Lauren Booke.              

Going up?

One thing that tends to get pushed to the back of the mind is prudence.

"Once an investor begins to use the words 'it's a good investment' as justification for purchasing a property which has benefits for them, they are setting themselves up for not only disappointment but a greatly improved chance of investing failure," warns leading property adviser Margaret Lomas.

Property prices in coastal areas and the country are notoriously sluggish. They rise only in fits and starts and it can be a long time between drinks from fit to start.

"People go for the capital gains but we don't get what you get in the city. It's like the country – prices here don't move for years," says Phillips.

According to Lomas a good property investment will be in "up-and-coming suburbs with affordable prices which are attracting families who will settle and contribute to the local area economy." So unless you want a holiday home in Sunshine or Blacktown, forget it.

"The place we choose to holiday is attractive because it lacks these characteristics – it's normally in a quiet spot, has little in the way of population growth and often lacks many of those major infrastructure features like arterial roads, hospitals, private schools and community facilities.

"Therefore the capacity of the property in that area to return a good rental yield and grow in the future is limited, and in many cases virtually non-existent," Lomas says.

Holiday apartments in resorts have performed poorly with "costs often blowing out" and frequently changing operators, according to Lomas.

And whether or not you let out your holiday home, you'll be hit by capital gains (if there are any) tax when you sell as well as annual land tax.

But there must be some financial benefits, surely?

A getaway can be cheap – for a property, that is — and during holidays might pull in a fortune.

"Everybody said it would be a money pit and cost a fortune," says Wright who uses Airbnb and almost has to book to stay at his own place.

But in the first full year I made a paper profit of $1500," he says.

Phillips says he has friends who rent their holiday home out over Christmas for $5000 a week. House values in the area start around $300,000.

Provided you don't hog the home at peak holiday periods, which unfortunately is probably when you want to use it, rentals can help pay off the second mortgage.

Besides, it may eventually become your home in retirement, in which case it's the capital gains on the place in the suburbs that you'll be leaving that matters more.

And yes, there are tax breaks if you let the house out. But unless you've got the house or unit on the market for almost the whole year they won't add up to much.

The taxman will apportion how much of the mortgage and other expenses you can claim according to how long it's rented.

And if you're caught staying there a day or two when it's supposed to be on the market, there go any tax breaks.

Two of everything

For many it's the extra costs that can come as a shock.

"They find two lots of rates, insurance and maintenance. They drive down only to mow the lawns and do maintenance so it's not much of a relaxing weekend," Phillips says.

Finding tradesmen, never simple, can be a nightmare.

"It's not easy getting tradesmen because of where it is. You have to meet when it's convenient for them. It's a 40-minute drive for them. And you need a bundle of work rather than just one thing," Lisa says.

And what about another mortgage? This can bring its own problems too.

A place "might only be accessible by boat but main road access is often the criterion for smaller lenders," says Philip Sangster of Mortgage Choice Woolloomooloo.

Also the banks know that values in holiday resort areas don't appreciate much, so will probably want to see a higher degree of equity.

"I've had the local branch say no but I've been able to negotiate a loan from the same bank," Sangster says.

Another trap is insurance.

"Some insurers will not accept short-term holiday rental properties for any new business because they are generally only occupied during traditional holiday seasons and can therefore often be vacant for long periods between tenants.

"There is also a much higher risk of damage to the property where there are a number of different tenants in occupation," according to a QBE spokesperson.

Wright insured with NRMA paying a "slightly more expensive" premium with a clause allowing you to rent.

Anyway there are other options to buying. If you like the house and the area, maybe you could rent it when you want it during the year with a permanent booking.

Or you could time share by buying with friends. But to avoid arguments or changes in circumstances later you'd need to draw up a contract stipulating how much who pays each month, who can buy you out at what value and when you can use it.

Or just invest wisely and use the returns for a decent holiday somewhere.

Think of the hassles you'll save.

In fact there's a world of cheap and interesting destinations out there that many are finding more attractive than staying in the same place year in, year out.

"The rise of low cost airfares and holiday packages over the past decade and the increasing popularity of international destinations for holidays, such as Bali and Thailand, are providing a growing cost-effective leisure time alternative," says Andrew Wilson, senior economist for the Domain Group.

Another downside is the sprawling tentacles of our major cities which are making workaday suburbs of places that were traditionally a place for weekend retreats.

"Popular holiday destinations close to capital cities are increasingly being absorbed by the relentless spread of metropolitan areas," Dr Wilson says.

"This is clearly the case for seaside locations such as the Mornington peninsula and Surf Coast in Melbourne, the central coast in Sydney and the Gold and Sunshine coasts. 

"These are now becoming settled areas for full-time occupiers." They can still come cheap - if you know where to look

Do you return from the beach and immediately check out what's for sale on the property websites? You do? Well you're not the only one dreaming of buying a holiday escape.

And dreaming's the word. If you don't have a spare $500,000 languishing in your bank account, purchasing a getaway can seem impossible. But believe it or not, there are holiday properties on the market for less than $200,000. It's just a matter of scouting them out.

The experts say that to make the most of your investment a second home needs to be within a two-hour drive of your primary residence. The problem for those of us who live in the big cities is that anywhere that close is often prohibitively expensive. So you might need to go a little further afield to pick up a bargain. Maybe to Tassie.

Take this gem in Scamander on Tasmania's beautiful east coast for $189,000. It boasts ocean views and is only a minute's walk to the beach, pub and nearby river.

The bargains aren't restricted to Tassie. There's this three-bedroom house in Victoria's Venus Bay for $195,000 and this two-bedroom house in scenic Port Macquarie for $162,000.

Property investment expert Paul Sonntagsays most bargain buys will need major renovation or at the very least, a good lick of paint.

"These properties are definitely becoming rarer and most of them would need a bit of love just to bring them up to speed," he says.

"It really depends on whether people want to rent the property out to tenants."

There's an obvious cash gap between buying a holiday property for your own personal enjoyment and buying one you hope to lease to holidaymakers.

Weekenders costing less than  $200,000 commonly need bathroom and kitchen renovations plus heating and cooling upgrades if they are to attract any tenants.

Those seeking a bargain may also have to adjust their expectations when it comes to location, says veteran Melbourne real estate agent Greg Hocking.

"You're more likely to find them inland in a little country town than on the beach," he says.

"You sometimes hear about houses in little towns selling for $50,000 and everyone races out there only to find that house is the only one in the town."

Before setting your sights on a cheap holiday haven, it pays to consider just how much you are willing to sacrifice when it comes to location and how much you can afford in renovations, Hocking says.


Things to consider if you're thinking about buying a holiday home:
  • Don't be emotional and make a rash purchase.
  • Proximity to your home is important – if it takes more than two hours to get there, you won't visit that often
  • Treat it as a lifestyle decision, not an investment even if you intend to rent it out.
  • Suss out the area by renting or doing a house swap first.
  • Check the insurance and mortgage conditions.
  • Be prepared to let it out when you might want to use it.

Posted by Money Manager - Fairfax Digital on 28th January, 2015 | Comments | Trackbacks | Permalink

What you can do now to help get back to the beach sooner

The Australia Day weekend is often the end of the summer holiday mindset for many of us. With kids packed up and sent back to school and no more long weekends in the immediate future we tend to resign ourselves to another year of work.

For many of us there still lingers during those first few weeks back the daydream of our lives being a permanent summer holiday. Perhaps while you were lying on a beach somewhere you caught yourself wondering what it would be like if this was what every week looked like.

Perhaps you even allowed yourself the luxury of daydreaming about sipping a mojito as you look forward to yet another week of freedom. 

Of course with the arrival of your December credit card statement and the reminder of how much you spent over the Christmas holidays, that fantasy is often very quickly shattered. That's because the reality is you need income in order to survive and at the moment you don't have nearly enough investments or supplementary income to support anything other than full time work.

But what if the fantasy of work being optional could come true? What if you could retire sooner? What would you need to change or to do today in order to make that happen? It might be different depending on your age and what is happening in your life but here are my tips for what you can do to make the daydream of a permanent summer holiday happen earlier for you, no matter how old you are.

In your twenties

When you're in your twenties you generally aren't thinking of what you're doing in three months never mind fifty years away.

The thing is, if you're smart about it, you won't have to wait 50 years to stop work. If you're smart in your twenties, you can still have a great time and create options for your future self.

Some things you might want to consider are putting an extra $20 per week into super. This might seem like an insignificant amount now but the power of compound interest can turn this $20 per week into over $200,000 when you retire. That's a tidy sum of money.

Other things to watch out for are credit card debt and car loans derailing you early and creating a whole lot of debt for assets that aren't going to increase in value.

Instead, spend your hard earned cash either purchasing assets that are going to increase in value or perhaps if you're entrepreneurial into a business idea instead.

If you don't have enough cash to do this, consider talking to friends and doing it together.

In your thirties and forties

These decades are where people's life choices can really affect how soon that permanent vacation happens. So if you've chosen to have a family, again even salary sacrificing a small amount into superannuation can make a huge difference down the track.

Or if you're not comfortable with traditional superannuation funds and you have the time and inclination, why not think about self-managed superannuation – particularly now there is the ability to borrow to purchase property.

Again, if you've bought your first home and you have some equity available make sure you use it wisely.

Consider using it as a deposit to purchase an investment property or perhaps some other type of asset that will increase in value.

Or perhaps use that equity as capital to start a business. Now is the time when you don't have quite as long to recover from poor money decisions so think carefully before you use the equity in your home or credit cards to fund overseas holidays or assets that aren't going to appreciate in value.

And if you're desperate to send your child to a private school but the one that you want to send them to will take up  a third of your after-tax salary perhaps do some research to see if there are cheaper options that will give you just as much value.

In your fifties and sixties

Sure you might think you have run out of time to retire early but there are still smart decisions you can make today to ensure you retire sooner or with more cash.

So if you haven't talked to a financial planner, accountant or even a free advisor with your super fund to find out what it's doing, go and make an appointment to do that now so you know what you are facing.

If you haven't looked into Transition to Retirement schemes to see if they're right for you then you should talk to your advisor at the appointment you're going to make.

If you still have a mortgage on your home and you're thinking you can't salary sacrifice anything extra into superannuation until you pay that off then consider only paying the minimum repayment and then salary sacrifice the maximum into super instead.

With interest rates on your mortgage being incredibly low and tax rates lower in your fund this might mean you have more overall cash at retirement. And of course once you retire, you can grab the extra cash out of your super fund in a lump sum and pay your home loan off in one go.

Too many people are looking for a lottery ticket, a magic pill or a fairy godmother to create the fantasy life for them. Instead, why not become your own fairy godmother and do something this year to help you reserve your place on that beach all year round.

Posted by Melissa Browne - Money Manager (Fairfax) on 28th January, 2015 | Comments | Trackbacks | Permalink

Property investment is all about choices

Not everyone that purchases an investment property makes money.

The success  or failure of investing in property is all about making the right choices. 

The first decision that must be made is whether it is a lifestyle property investment or a financial property investment. 

A lifestyle property investment is purchased more for lifestyle and emotional reasons than to just make money.

An example is someone who would like to either have a tree or sea change when they retire. In this situation it can make sense for someone to buy an investment property in an area that they would like to retire to, have tenants help pay off loans needed to make the purchase, and then look to shifting into the property once retired.

When a property is purchased to deliver the best financial return possible a choice must be made between commercial or residential property.

Commercial properties tend to have a higher rental return than residential property, a commercial tenant pays all outgoings including rates whereas a residential tenant only pays the rent, and the rental period for a commercial property is often at least three years while a residential rental period tends to be only 12 months.

Where a residential property investment is often superior  is in capital appreciation.

Because land is a greater component of a residential property  than a commercial property, and because the main driving factor for increasing property values is the increase in the value of land, residential properties often increase in value more than commercial properties.

If the decision is made to invest in residential property the next  choice is whether to buy an existing property or one from a developer off the plan. It has been my experience that the capital gain made by investors buying established properties is greater than buying a yet to be completed property from a developer.

There are often so many layers of cost included in yet-to-be-constructed properties, such as marketing and selling costs, that investors pay more than the true market value. If  a property is purchased from a developer a comparison of its cost should be made with properties offered for sale in the same area. It can also be wise to contact a quantity surveyor and ask for their opinion on the value of the new property.

One advantage of buying from a developer is that the investor will maximise their rental tax deductions. This is because in addition to claiming interest on a loan used to purchase it, and other costs such as agent's fees and rates, a deduction is also allowed for the write-off of the value of fixtures and fittings in the property and the cost of the building itself.

Properties built after 1985, used to produce rental income, receive a tax deduction for 2.5 per cent of the construction cost of the building. The advantage of buying a property from a developer is that they often provide a schedule that details and maximises the deduction for the building and fixtures and fittings write-off.

Once the property has been chosen a decision must be made on the type of loan to use. As a general rule it is best to purchase an investment property using an interest only loan rather than a principal and interest loan. This is because only paying interest on the property investment loan means an investor can use any excess cash to either pay off private loans or make other investments.

The final choice is how long it will be retained. While a person is working and accumulating their wealth a negatively geared residential property makes a lot of sense. The problem is once they retire the low rental income produced by a residential property is a major disadvantage.

A decision should therefore be made as a person nears retirement to sell the rental property, minimise the capital gains tax payable as much as possible, and use the proceeds to provide the highest most tax-effective retirement income.

Max Newnham is the founder of www.smsfsurvivalcentre.com.au

Read more: http://www.smh.com.au/money/investing/property-investment-is-all-about-choices-20150122-12vv5q.html#ixzz3QEsjnpdE

Posted by Max Newnham - The Age on 28th January, 2015 | Comments | Trackbacks | Permalink

Living in the best of both worlds

For people at the lucky end of the scale, there's a new twist to the lifestyle choice of sea-change or tree-change. It's no longer about quitting the city for good, or having a weekender to visit on the odd occasion. The new ideal is to have both — a city dwelling and a blissful retreat — and to live more-or-less equally in two not-too-distant places.

Agents in coastal and country areas of Victoria say the dual life is a growing trend, often financed by selling the big suburban family home. A smaller, inner-city base is used for work commitments, social engagements, family contact, special events and appointments; and the getaway, usually a bigger property in a more affordable location, offers space, fresh air and serenity.

Good security, low maintenance and city parking are key requirements.

The main drivers of the trend are:
  • affluence, some gained from profits made on the Melbourne property market, and some resulting from access to employee superannuation made compulsory in 1992;
  • technology, allowing people to work remotely;
  • discontent with rising levels of stress, traffic and over-crowding in the city;
  • new roads reducing travel time to the Great Ocean Road, the Mornington Peninsula and central Victoria;
  • the spread of Melbourne's vibrant cafe culture out of town;
  • and the meteoric rise of inner-city apartment buildings that make buying a lock-up-and-leave place easier than a generation ago.
Lorne's Smyth Real Estate agent Grant Powell says: "The landscape [of property purchase] has changed over the past 15 years down the coast. It used to be they sold up in Melbourne and moved to the coast; now they do it but retain a bolthole in Melbourne. It comes up regularly. Many people now can afford two places when they sell [the family home]."

Powell says that as well as retiring baby boomers and semi-retirees, professional couples and young families take advantage of technology, flexible work practices and being self-employed to choose their workplace.

On the Mornington Peninsula, the growth of the cafe culture along bustling bayside shopping strips means people can have the best in both of their worlds. Ilze Moran, of RT Edgar Portsea, says: "It's definitely the case that people who can run a business, or their life, on the phone or computer will rent here then buy, to try to spend more time here, say from Thursday to Tuesday each week rather than just the weekend.

"For some people, if they have a house in Melbourne, they're happy to have a lock-up-and-leave here, or if they have an apartment there, they want the house here. It depends on their situation. People who downsize in town tend to have their kids and grandkids come and stay here more often."

Daylesford stalwart Glenda Rozen, of hockingstuart, says the spa country, a sub-90-minute trip up the Western Freeway, attracts many dual-dwellers, from company directors to young families seeking the space they can't afford in the suburbs.

"Twenty years ago they'd just buy the weekender," Rozen says. "Now it's changed. Lots of people have their main residence here and a place in Melbourne, and some commute. Here, their priority is seclusion and peace and quiet."

Lucas Real Estate selling agent Camilla Milic says Docklands apartments make the perfect city abode for people whose main house is out of town. "Lots of our clients do that. It's definitely popular," she says.

A divided life

City base
Apartment: Docklands, CBD, Southbank, St Kilda Road, South Yarra-Toorak, Port Melbourne 
Cottage or terrace house: Fitzroy, Richmond, Hawthorn, Prahran, St Kilda East, South Melbourne 
Unit or townhouse: Elwood, Malvern, Camberwell, Kew, Clifton Hill. 

Southwest: Queenscliff, Barwon Heads, Anglesea, Aireys Inlet, Lorne 
South-east: Mount Martha, Blairgowrie, Portsea, Flinders, Phillip Island 
Gippsland: Cape Paterson, Inverloch 
Spa country: Kyneton, Castlemaine, Daylesford, Hepburn Springs, Trentham, Creswick 
High country: Warburton, Eildon. 

The pros: A change of scenery, peace and quiet, no need to book holiday accommodation, two sets of friends, a break to routine, easy access to city needs (medical, business and work appointments, dining out, sporting, cultural and other special events).

The cons: Cost of running two properties (rates, utilities, insurance, appliances, furniture, household items), garden maintenance, juggling appointments, security, driving back and forth, possibly poor internet service out of town, deciding on shopping/fridge contents, having pantry items in both places, needing two sets of clothes.

Posted by Jacqui Hammerton - The Age Domain on 24th January, 2015 | Comments | Trackbacks | Permalink

More than one way to strike it rich

The path to property investment can seem endless and almost impossible. But there are two wildly different routes investors can take to get there sooner.

Nathan Birch and David Thompson are both 29 and have achieved their dream of making money from owning investment property. However, both men have taken markedlydifferent savings approaches to get there.

One has saved hard and fast, while the other has opted to spend his meagre savings and dive straight in.

Living frugally and working two jobs helped Birch purchase his first investment property at 18.

"I was the epitome of the miser," he says.                

"I would collect coupons to eat. But I was smart about it and turned it into a game of how much I could save." Birch's extreme savings plan started at 13 when he realised he didn't want to work half his life away.

"I came from a blue-collar family and everyone worked hard for their money," he says.

"When I was 13 I realised I wanted to be like rich people. Between 18 and 23, I worked two full-time jobs and really pushed myself. I sacrificed my youth, but now I'm building my mansion on the better part of half an acre."

By day the Sydneysider worked day jobs in real estate and advertising, while pulling beers at a pub in the evenings. His goal was to earn $50,000 rental income by the time he turned 30. Although Birch is yet to reach that milestone, he now earns $400,000 a year thanks to his 160 investment properties.

Admittedly he has $10 million of debt, but says the total value of his properties is $30 million and before expenses his rental income is $2 million.

"The properties I bought a decade ago for $150,000 are now worth $400,000," Birch says.

After ditching his day job at 24, Birch says he threw away his resume. But he found all his mates were still working, so with little company and not much to do, he began to suffer anxiety.

Making YouTube videos tutoring others on property investment proved to be an effective outlet and it morphed into leading property investment group B Invested.

Plan B

By contrast, Thompson skipped the hardcore savings plan and jumped headfirst into property investment two years ago.

The Adelaide building designer realised he did not have enough cash to go it alone, so he joined a group of five investors who pooled their money to buy a property.

"Everyone was different, I put in $20,000 and a couple put in $100,000," he says.  "There was no way I could afford to do it on my own."

The group subdivided the land and built four houses before selling. Thompson made a 25 per cent return on investment and it spurred him on to buy and sell a second investment property.

"Working in the industry, I knew the calculated risks," he says.

"Even if I lost money, I was still young enough to get back on my feet. You can wait and wait, but unless you give it a crack you're never going to know."

Thompson, who owns property design consultancy InProperty Design, is now on the lookout for another joint venture partner. Even though there are risks involved in merging funds with someone else, Thompson says it's a speedier route to capital gain.

"Of course there are risks, but they are worth taking in my opinion," he says.

"There's no way I would have earned that capital by myself in that amount of time, so it was like fast-tracking."

There are pros and cons to both approaches, says Miriam Sandkuhler, property investment author and founder of buyer's advocacy group Property Mavens.

"It really comes down to individual circumstances, such as income and cashflow management," she says.

"People have to be prudent and do their homework."

One thing's for sure, both Birch and Thompson have got a leg-up on investors twice their age. Sandkuhler says the earlier property investment is made, the greater the reward.

"Definitely start as soon as possible," she says.

"Save as much as you can, which means you have to make sacrifices to get started out.

"The earlier you start, the greater opportunity for compound growth and ability to create wealth over time."

However, she warns eager investors lulled into a sense of security by low interest rates to factor in potential rate rises of up to 3 per cent. Save or spend?

The cash-splasher 

  • Faster investment equals longer compound growth 
  • Avoid years of tight-fisted saving 

  • Likely to invest with lower deposit 
  • Greater risk for mortgage stress 

The penny-pincher 

  • Amass a healthy deposit 
  • Be more prepared for interest rate hikes and unexpected expenses

  • Slower to invest means less time to create wealth
  • Sacrifice spending to save hard

Read more: http://www.theage.com.au/money/investing/more-than-one-way-to-strike-it-rich-20150108-12k8ba.html#ixzz3PbMORFgq

Posted by Kate Jones - The Age on 23rd January, 2015 | Comments | Trackbacks | Permalink

Summer market buzzing with sea changers and sun-chasers looking for a beachside pad

As the mercury rises, the eyes of the real estate market shifts from the city to the big, blue horizon.

Summer is when oceanside properties shine and the appeal of a pad that is nestled just metres from the sand may be not just for the holidays, but a permanent proposition.

Some agents in popular coastal villages are reporting that more sea changers have been buzzing around the market - like seagulls on a hot chip - looking to make the move from the big smoke to the ocean front.

Just as the baby boomers - who are often downsizers - have been active in the city apartment market, so too are they responsible for the keen interest around properties at some of Victoria's most picture postcard perfect beaches.

Overall, the mood among coastal agents and their vendors is bouyant and not solely because the skin-prickling sunshine, cold drinks and weekend barbecues at this time of year have everyone in good spirits.

They are prepping for the upcoming Australia Day weekend, which is the traditional sweet spot for selling beach property under the hammer.

Great Ocean Road Properties director Ian Lawless feels confident about the Anglesea real estate market after improvements to prices and turnover over the past year. 

Anglesea is a long-time popular holiday spot for families but increasingly, is blooming into a lifestyle destination for seachangers.

Unlike Ocean Grove and Torquay, local agents say Anglesea retains its holiday-town feel as it is bounded by a national park, with limited new land for release.

Mr Lawless said the number of $1 million-plus sales had soared from four in 2013 to 13 in 2014, with his office completing more off-market transactions than previous years. 

"Anglesea is a discretionary market so a lot of people come into the market when they feel confident," Mr Lawless said. 

Flinders on the southern tip of the Mornington Peninsula may not have the posh status of the millionaires' playgrounds of Portsea or Sorrento, but it still lures the rich and famous.

The coastal town has been home to identities such as businessman John Elliott and singer John Farnham, both of whom previously owned properties on the swish Spindrift Avenue.

Local agents, including RT Edgar director Michael Phoenix, say although the selling season has just started, they have seen more buyers coming back into Flinders, which could translate into prices growth.

"We are seeing more buyers aged in their late 30s and 40s than in previous years," he said. 

"More people are looking to live there permanently because our part of the peninsula is a lot more accessible to Melbourne now the Peninsula Link has opened."  

On the south-west coast, Lorne's permanent population has declined over the past 20 years, but the property market in and around the resort village, including Aireys Inlet, Fairhaven, Anglesea and Point Roadknight, is buoyed by Melbourne-based buyers acquiring weekender properties so they can divide their time between the sea and the city.

Hodges agent Simone Chin expects stock to come on to the market in Lorne even post-summer, when some families prefer to list to so they can have one last holiday at a beloved beach house.

Given Lorne's long history as a coastal getaway, family ties and an emotional connection to the area are a powerful lure for prospective buyers.

"People who have childhood memories of Lorne or parents who have been coming to Lorne for quite a long are coming back," Ms Chin said.

Ms Chin said ocean views are naturally always sought-after, but the quieter forest areas outside the township, near the Great Otway National Park, with waterfalls nature walks, and are growing in cachet and demand.

Tip for choosing a sun drenched destination
  • Victoria's coastal hamlets have distinctive characteristics: Inverloch is renowned for fishing and boating, Sorrento has city-quality boutique shopping and Flinders is a glamour postcode for sun-chasing buyers with deep pockets who want to avoid some of Portsea and Sorrento's bustle and commercialism.
  • You will pay a premium for ocean glimpses. Determine if this is a priority that is within your budget. 
  • The downsizer and baby boomer market may want to consider property that is within walking distance to village shops, for ease and convenience. Look for real estate that allows you to make the most of the sea change by moseying to the corner store, and leaving the car at home.
  • Some families will celebrate one last holiday at their beach home before parting with it, so look to post-summer listings if you are still in the market.

Posted by Christina Zhou & Emily Power - Domain (The Age) on 17th January, 2015 | Comments | Trackbacks | Permalink

Experts provide a window into Melbourne’s property market future

 WHAT does the new year have in store for Melbourne property buyers?

We asked CoreLogic RP Data Victorian market expert Robert Larocca and WBP Property Group valuations manager Adrian Graham to look into their crystal balls and throw some light on what different buyers can expect from 2015.

First-home buyers

RL: It will continue to be difficult for first-home buyers to break into the market. It is going to be outer suburbs or high-rise accommodation in the inner city for them. There doesn’t appear to be any change in financial assistance or reduced taxation on the horizon for them.

AG: The first-home market will still be very competitive and that competition will continue to make it difficult for first-home buyers looking to buy at auction in Melbourne.


RL: Investors have been playing a larger role over the past year or so and I see no reason why that would change. The biggest question for local and international investors is whether Melbourne will remain an attractive place to invest their money. I think it will. That’s why last year’s strong level of investment activity will continue this year.

AG: More investors will come in to the market due to low interest rates, SMSF (self-managed super funds) opportunities and the potential for capital growth. Inner suburbs will be the main focus due to higher capital growth opportunities and more investors will buy apartments due to affordability.

Unit buyers

RL: High-rise apartments in the inner city are unlikely to see much capital growth in the short-term due to the high level of supply. Those looking for better capital gains in the short-term should focus on areas with strong demand for property and reasonable underlying land values. Location matters as much for units and apartments as it does for houses.

AG: There will be strong competition for older established units and apartments within the 10km of the CBD and therefore good value growth. Price growth and sales in modern and off-the-plan units will be patchy because of the high amount of supply coming through.

House buyers

RL: Detached housing in the inner-city saw strong growth last year but the market will probably be a bit flatter this year. We probably won’t see the same rate of price growth. The middle suburbs will provide those priced out of the inner suburbs the opportunity to buy established housing on reasonable blocks. New growth areas are not where you would buy for capital growth.

AG: The housing segment will be the market’s strongest. We are predicting steady growth of 7 per cent to 9 per cent within 10km of the CBD. Growth will be driven by low interest rates, continuing strong demand and relatively low stock levels of good housing.

Inner suburbs buyers

RL: Increasing growth and population in inner Melbourne is a certainty. There will be more apartments coming up while demand remains strong from local and international investors. But a lot of factors will play into that, including the exchange rate, price decisions by developers and approval decisions by government.

AG: Houses in inner Melbourne, particularly for period homes close to the villages, will be in high demand. We predict houses under $2 million within 10km of the CBD will be the strongest sector of the market. They will have the most demand and highest price growth.

Outer suburbs buyers

RL: The state of the economy will impact this segment of the market. It will be hurt if  unemployment continues to rise but helped if interest rates remain at the current low level.

AG: We expect 0-4 per cent price growth for homes under $500,000 in the mortgage belt, 20km-plus out from the CBD. These areas can be impacted by significant supply in land and new housing. Small and middle-sized developers add a lot of supply in these areas that appeals to investors. That can apply downward pressure on values in some of these areas.

Posted by Neelima Choahan - Herald Sun on 17th January, 2015 | Comments | Trackbacks | Permalink

Picking a real estate agent for your home: How to get the right person to sell your property

 BEFORE you whack a ‘For Sale’ sign up on your front lawn, here’s how to find the right seller for your property.

Selling your home is stressful, not least because it’s often just one part of a jigsaw of challenging events.

Your choice of real estate agent is a crucial piece of the jigsaw to get right. This person is going to be right in the thick of your affairs for a while, and you want it to be a good and fruitful relationship. So, where do you start looking? Inside Out has some great tips on how to do it. 

‘For Sale’ signs

Once you’ve decided to sell, you start to see these signs everywhere. They represent two things — information and threats. They tell you who has dominance in the market and who has similar listings to yours.

“There is no doubt in my mind that if there were five boards up in the street for the same agent, you’d get them in to look at your house,” says Mia Fredrix, an agent based in Sydney’s Drummoyne.

Open inspections

Another way to suss out local agents is to attend open houses, even if you’re not in the market to buy. Watch how agents conduct themselves. Do you like the way you’re greeted? Does the agent follow you around, so you can’t get a moment alone? Are you ignored?

When you’re interviewing agents with an auction in mind, ask who the auctioneer will be and see them in action.


Ask people you know in your area who have sold recently who they used and whether they’d use them again. Return business is the best reference of all.

Letterbox drops

Local knowledge used to be king, but the landscape has changed with the advent of the internet. “Before the internet, 80—90 per cent of people we dealt with, buyers and sellers, walked in the door or phoned us,” said Ms Fredrix.

“Now, 80—90 per cent of people don’t come through the door. They look you up online, and know all about you before they make contact.”         

The interview process

It’s time to get agents in to give you a market appraisal of your property and discuss how they would sell it. Invite as many as you can make time for.

What are you looking for in an agent? One key thing is rapport. Do you get on? Do you feel you can trust them? This is followed closely by reputation and track record. Experience is priceless.

If you have seen them at open inspections, you’ll have already gauged a little bit about how they operate.

Some agents go after buyers with gusto, while others take a ‘softly softly’ approach. Pick an agent who will deal with buyers in a manner you’re comfortable with.

Consider the type of sale that’s been suggested and the proposed marketing campaign. Are you happy with these choices? As for commission, there’s not a great deal of variation between agents. In Sydney, commissions might range from 1.5 to 2.2 per cent. On the other side of the continent, “2.5 per cent is pretty standard,” says agent Jeff Hasluck, who works the southern suburbs of Perth.

If in any doubt about an agent, take the advice of Amanda Lynch, CEO of the Real Estate Institute Of Australia. “If you don’t feel an agent is taking your individual circumstances into account, then try another agent. There is a lot of competition in the sector and a good agent will value you as a client.”         

10 questions to ask a real estate agent.

1. How did you arrive at this appraisal?

2. Will you be working on the property?

3. How many other properties are you currently handling?

4. What price will you be quoting to prospective buyers?

5. May I see references from past clients?

6. Do you have people in your database looking for a property like this?

7. How long does it normally take you to sell a home similar to mine?

8. How long have you worked as an agent? How long in this area?

9. I don’t want to go to auction and/or hold open inspections. Is sale by private treaty/inspections by appointment possible?

10. How often will I get progress reports?

Things an agent should do

• Record in writing all payable fees, commissions and marketing costs

• Record in writing your length of contract and the expected sale price range (which should match the price quoted to interested buyers)

• Offer feedback on inspection numbers, contracts issued and buyer feedback

• Tell you of all offers received

• Act in your best interest at all times

• Be aware of the sensitive nature of your confidential information

• Be a member of a professional body, such as the Real Estate Institute

Posted by News Limited Network on 17th January, 2015 | Comments | Trackbacks | Permalink

Lose weight, stop smoking, invest in yourself

Welcome back to a brand new year. If you're like most Australians, you'll be using the change of calendar to review your life and think about what changes you should make. Drink less. Exercise more. Eat better. Change jobs.

They're all worthy goals, of course, but what about your finances? If that sounds less exciting than dropping a size or getting that dream job, you're right, until you consider just what revamping your finances can bring you.

Want to go on holidays? Buy that new television? Have a cruisy retirement? Donate more to charity? Those are the tangible benefits of getting a little financial fitness. And new resolutions shouldn't just be a list of new things to do – so here's a mix of things to start doing, but also a couple to just stop.

Start making a budget Doesn't sound very exciting, does it? But it's immensely powerful. Planning – ahead of time – what you're intending to spend and on what things gives you control. It's a form of self-discipline. If you decide where your money will go, it gives you a reason to say "no" when the impulsive parts of your brain tries to tell you to buy that new phone, dress, game or pair of shoes. Being able to say (to yourself) "I don't have the money for that" is the angel on your shoulder that'll keep you on the straight and narrow.

Start tracking your spending The human mind is a complex beast – but also deceptively simple. In business, there's an old saw: "What gets measured, gets done". In our own lives, what gets recorded gets noticed. Whether you use a phone app, your bank's own internet banking feature (if it has one) or a piece of software specially designed for the purpose, you won't believe how impactful just knowing what you're spending can be. It can be confronting – "Did I really spend that much on eating out?" – but you'll be amazed at how quickly you start changing your spending behaviour.

Stop paying too much Our company gives every employee a "personal finance day" – a day of paid time to get our personal finances in order. Your business may not do the same, but you can still find time to do the simple things that'll make a difference. Go through each bill – phone, mobile, electricity, water, house insurance, car insurance – and call around for a better price. Then call your provider and ask them to match it. My mortgage provider took 0.2 per cent off my mortgage after a five-minute phone call. That's the equivalent of $60 a month on a $500,000 mortgage – every single month, thanks to one call. Most people who read this article will skip this step – don't let it be you.

Stop: Keeping up with the Joneses New cars, new boats, new televisions. Holidays, clothes, gadgets. It's very tempting to want what others have. But if you resist the urge, they'll end up being envious of what you have – a comfortable retirement. Let me put this another way. You can spend $100 today, or you can invest it and in less than 20 years (at 12 per cent) get paid $100. Every. Single. Year.

Start: Investing You're not going to get rich with money in a transaction account paying you no interest, or a term deposit paying only a little bit more. Investing can be risky, but done well, it's less risky than not investing at all. Invest in yourself – get better at your job (or another job) and earn a pay rise. Invest in your knowledge – understand what makes businesses tick and what separates the good from the bad. Then invest in quality companies at good prices.

Foolish takeaway

If the past three decades tell us anything, it's that a diversified portfolio can be a wonderful way to build your wealth. And the more you can save, the more money you can put towards building yourself a sizeable nest egg.

Happy New Year!

Investors, don't miss out: If you haven't taken the opportunity to view my brand-new report on Warren Buffett and two ASX shares Buffett could love, now is the time. Click  here to claim your free copy and discover two top ASX picks now.

Scott Phillips is a  Motley Fool investment adviser. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

Read more: http://www.theage.com.au/money/investing/lose-weight-stop-smoking-invest-in-yourself-20150108-12k8ka.html#ixzz3OedwHn00

Posted by Scott Phillips - The Age on 14th January, 2015 | Comments | Trackbacks | Permalink

Rates may fall further before rebounding

When will interest rates rise from record lows? Financial market types have spent countless hours debating this question over the past year and a half, combing through statistics and carefully dissecting every utterance from the Reserve Bank.

But it appears we are no closer to the RBA pushing up borrowing costs anytime soon. As 2015 begins, most economists reckon rates are likely to stay at their record low of 2.5 per cent for several months more, and could even fall further.

When you look at the state of the economy, this may be surprising. Conditions are weak but not disastrous, and we are not in recession.

Australia's economy has faced much more dramatic events in its history, such as the global financial crisis, the 1990s recession, and the 1970s oil-price shock. Rates never fell this low in these instances.

So why do interest rates need to remain this low now, and maybe even fall further? The answer is that the normal or "neutral" level for the official interest rate – the cash rate – has changed, perhaps permanently. That means that even when it ultimately rises, it is unlikely to go as high as in the past.

The neutral level is the point at which the cash rate doesn't slow the economy, but neither does it stimulate growth by encouraging borrowing. Economists used to think it was about 5 per cent, but now Commonwealth Bank analysts say it is now 3 to 4 per cent.

So when economic growth returns to a more normal pace, which the Reserve Bank expects during the 2015-16 financial year, the cash rate won't need to climb as high as it has in the past.

This is partly because the gap between the cash rate and the rates that banks actually charge their customers has widened, which means the cash rate needs to be lower to have the same effect.

When the cash rate climbed to its recent peak of 7.25 per cent in 2008, the economy was also experiencing historic booms in mining and in borrowing by households. These are unlikely to be repeated, so there may be less need for rates that are as high.

All up, it suggests interest rates will stay low for much of 2015, and maybe even fall further. When they do rise – and borrowers should always assume this will happen – they probably won't rise sharply.

If the markets are right, the third of households with a mortgage can therefore expect their interest payments to remain unchanged, or even fall, over the first half of the year. For the far larger number of people with money in the bank, it suggests more disappointing returns on savings accounts.

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

The fix is in and borrowers can beat the banks

It is usually never a good idea to bet against our big banks, except maybe when it comes to fixing your mortgage.

Researcher Canstar, which has analysed home-lending data going back 20 years, has found that in half the cases where a borrower takes a fixed-rate mortgage, the borrower has paid the lender less in interest than if they had taken a variable interest-rate mortgage.

The results overturn conventional wisdom, which says most borrowers who opt for fixed rate mortgages lose out to lenders.

It is surprising that the banks, with all their resources, get the calls on their fixed rate mortgages right only half the time. Perhaps it shows how hard it is to correctly forecast interest rates.

But for lenders' pricing of their loans it is not all about future interest rates. There is the cost of their finance and their competitive positioning with respect to other lenders.

They also know that fixed-rate borrowers are sticky. Borrowers face a "break" cost that covers the lenders' losses if interest rates fall in the meantime and the money can be re-lent only at a lower interest rate.  

Canstar's research finds the biggest winners over the past 20 years have been those borrowers who took a three-year fixed mortgage in November 2005. At the start of the period the cash rate was 5.5 per cent.

It increased to 5.75 in early May 2006 and steadily rose from there to reach a peak of 7.25 per cent in early March 2008, where it stayed until early September that year.

Canstar estimates these fixed rate borrowers with a $300,000 interest-only mortgage were ahead by about $15,000 over the three years compared with borrowers who have variable rate mortgages.

With the cash rate at a 50-year low and some very good fixed-rate deals on offer, interest in fixed-rate mortgages is running high. Canstar says more than 50 per cent of searches on its database of mortgage are for a fixed-rate mortgages compared to the more usual 30 per cent.  

So how good are the fixed-rate deals? Justine Davies, finance editor at Canstar, says the big banks' standard variable, or advertised rate of interest is about 6 per cent.

She says the advertised rates of smaller lenders are often lower. However, borrowers with a loan of at least $250,000 should be able to get a discount on the advertised rate. She says the major banks' average interest rate on a three-year fixed-rate loan is about 5 per cent.

Borrowers should be at least considering whether a fixed rate is right for them. After all, it is not like the cash rate is at normal levels.

The cash rate will have to return to normal levels eventually; though, some market watchers are forecasting that rates will fall further next year, perhaps by one percentage point. That perhaps means there is no hurry to fix.

Posted by John Collett - The Age on 14th January, 2015 | Comments | Trackbacks | Permalink

Melbourne property market: more sellers making a profit

 THE waiting game is paying off for a growing number of homeowners, with more than a third at least doubling their money when selling.

Melbourne is one of the top spots in Australia for making a profit on property according to CoreLogic RP Data — and people that sit on their homes are the most likely to reap the benefits.

Only 6.5 per cent of sales in the September quarter last year failed to match their purchase price, while 35.7 per cent sold for double or more.

The number of people taking a hit when selling their property has fallen from 6.6 per cent the previous quarter and 7.4 per cent the previous year.

Holding on to a property for the long term was the key to value growth, according to CoreLogic RP Data research analyst Cameron Kusher.

People who made a profit owned their home for an average of 9.9 years, while a 16.8 year wait was the average for doubling the price.

Sellers in Knox were the most likely to pocket a profit, with 98.6 per cent of sales beating the previous price.

Boroondara, Bayside and Monash sellers made the most lucrative gains, with a median windfall of more than $400,000.

The gross profit in Monash was Melbourne’s largest at a whopping $196.7 million in the quarter.

Harcourts Judd White director Dexter Prack said highly regarded schools and infrastructure were the municipality’s main draws.

“Particularly in central Glen Waverley, the demand has just been absolutely crazy,” Mr Prack said.

Asian buyers had a strong presence in the market and were willing to pay a premium to secure properties in the school zones, he said.

Rapid price rises in Monash had pushed buyers to neighbouring areas such as Wantirna.

However, there was no sign of a slowdown as price records continued to tumble, Mr Prack said.

The staggering $2.055 million paid for a basic home at 18 Montclair Ave, Glen Waverley, showed the fierce competition for land.

The buyer had homed in on the 746sq m block’s potential and was planning to knock down the existing house, Mr Prack said.

Posted by Nicole Engwirda - Herald Sun on 13th January, 2015 | Comments | Trackbacks | Permalink

How to get the most profit from your property and avoid a loss

 THE number of properties selling for less than the owners originally paid has increased, with new figures revealing losses worth $383 million in the September quarter.

The latest CoreLogic RP Data, Pain and Gain report on the September quarter revealed 9.3 per cent of properties that sold during the period were for a loss — up from 9 per cent in the previous quarter.

The average loss on a sale was $62,246.

While the vast majority of sales throughout Australia were for more than owners originally paid, the report shows there are two types of sellers who cop a loss.

Those in regional areas were hardest hit with loss-making sales, as were sellers who didn’t hold on to their properties for long.

Of the properties that did sell for a profit during the quarter, a third sold for more than double their original price. 

The average time owners had to hold on to their property to double the price was almost 17 years.

The number of sellers doubling their money has been fairly stable in the past two quarters, but is well down on late 2007 when it peaked at 43 per cent.

Profits on properties sold during the quarter reached $13.5 billion with the average profit made by sellers on resale $223,870.

Sydney was the best market for those looking to turn a profit on resale with only 2.6 per cent of sales during the quarter at a loss.

Perth had 6 per cent of sales at a loss and Melbourne 6.5 per cent.

In other capital cities the proportion of loss making sales increased slightly with Adelaide recording 9.5 per cent of sales at a loss, Brisbane 11 per cent, Hobart 15.8 per cent and Darwin 9.6 per cent.

CoreLogic RP Data research director Tim Lawless said the number of loss making sales was still considered to be at a relatively low level.

He said if there were a few more consistent quarters of an increase in loss making sales then he would consider that the market had bottomed out, but it was not at that stage yet and it was not unusual for fluctuations from quarter to quarter.

“When you look at the different regions you can see a lot of differences (in how many sellers made a loss or profit),’’ he said.

“Sydney is such a strong market, it has had only 2.6 per cent of all sales at a gross loss, that is hardly anything.

“While in regional Western Australia and regional Queensland about 20 per cent of sales were for a loss.’’        

Mr Lawless said markets based around mining towns figured prominently in areas making a large proportion of loss making sales.

Coastal areas also had a high percentage, but that was on the way down.

Mr Lawless said he was not surprised to see that loss making sales had increased in Perth, Darwin and Canberra.

“Really that slow down has been happening over the past six months,’’ he said.

“It is definitely a trend more in those cities.’’

The report analyses how much an owner pays for a property and how much they resell for to determine whether a gross profit or loss has been made.

It does not take into account any of the other costs associated with buying and selling.

Posted by News Limited Network on 13th January, 2015 | Comments | Trackbacks | Permalink

Buyer's guide to beachfront properties

Tom Pikusa and his wife, Sara Hinchey, both barristers, bought a beach house five years ago. For the self-employed couple in their early 40s, the four-bedroom house on a large block of land in Rye on Victoria's ­Mornington Peninsula offered a source of retirement income.

"We thought we needed to think about how we want to transition out of being ­barristers at some point," says Pikusa.

It helped that they were familiar with the area and knew there was a strong demand for rental beach house accommodation. In fact, Hinchey had bought a small house in neighbouring Blairgowrie early on in their relationship after getting frustrated at how much it cost to rent in the area.

Pikusa and Hinchey paid just under $700,000 in 2009 for the Rye property. It was a good call.  Isabelle, as the house is named, last year brought in revenue of $75,000 – three times what it would make in long-term rental income. After (quite considerable) expenses, the net revenue is about twice the long-term rent they would otherwise get. 

"It's an amazing return," says Pikusa.

Theirs is an unusual strategy. The beach house – a source of holiday memories for successive generations of Australian ­families – has never featured strongly as a commercial investment proposition and most owners, such as Sydney retirees Jim and Jolijne Meynink, keep it that way.

The Meyninks bought a shack at Tuross Head on the NSW South Coast in 2011. They use it throughout the year, but rent it out over summer.

"It is a double block which we are ­subsidising [by renting out] to build on so we can accommodate a growing family and grandchildren," ­Meynink says. He doesn't plan to sell the house but wants to pass it on to his children.

Making money out of a beach house is a tough business and price growth alone shows why.

To look at one example, the median value of an apartment in Surfers Paradise on Queensland's Gold Coast – the best generic indicator of beach-location investment dwelling stock – has dropped more than 16 per cent over the six years to September, Domain Group figures show. In the past 30 years, the median unit price on the Gold Coast has risen nearly 3½ times from $97,000 to $335,000, not much more than the near-tripling of the consumer price index over the same period.

Not only do beach houses offer the prospect of a worse capital gain than urban residential property, the associated costs are higher. Property managers tend to cost more. Custom can be patchy. And the market can be fickle, especially when there is a large supply of similar product competing for business. "As a general rule beach houses aren't a good investment because they generally have higher vacancy rates and are higher risk," says Sydney buyers' agent Rich ­Harvey. "As a general rule, beach houses are not something we recommend . . . You can get better yields and capital gains from other areas."

Pikusa and Hinchey, who have made the beach house game work for them, treat the house as a business. It's a commitment that takes up a lot of time. They have an agent who oversees all the online bookings and money but, even so, one of them checks out the house after each visitor has departed. They don't use Isabelle themselves.

"We've never stayed at the house," Pikusa says. "It's just part of the commercial ­property business. It's like an investment."

Head to the AFR for the full story and buyer's guide.

Read more: http://www.smh.com.au/business/property/buyers-guide-to-beachfront-properties-20150110-12ll4l.html#ixzz3OeeWxiHl

Posted by Michael Bleby -The Age on 9th January, 2015 | Comments | Trackbacks | Permalink

Eight things your bank would never ask you

New ways to bank – by telephone, the internet and now your mobile – have saved us a lot of time but have also opened up opportunities for fraudsters.

Their tricks normally involve pretending to be your bank, whether on the phone or via email.

After convincing you that they are genuine, they ask you to carry out various plausible-sounding actions that will result in your account being raided.

Here are eight things that fraudsters might ask you to do – but your bank never will.
  • Call or email to ask you for your full PIN or any online banking passwords If your bank does contact you, perhaps to check that a transaction was really made by you, it would not ask for more than three digits from your PIN to confirm your identity, and would never ask for online passwords.
  • Send someone to your home to collect cash, bank cards or anything else Having posed on the telephone as a bank employee to extract key security information such as your full PIN, the criminals may say they are sending an official courier to your home to collect the corresponding card. These couriers will have bogus "official" identification.
  • Ask you to authorise the transfer of funds to a new account or hand over cash Often criminals, posing as a bank, will instruct you that your account is under threat – usually from a "corrupt employee" or "cyber criminals". You will be instructed to make an online transfer of money into a new "safe account" – actually the fraudster's – or hand cash to a bogus employee.
  • Ask you to carry out a 'test transaction' online Criminals pretending to be from a bank sometimes email customers asking them to perform a "test" transaction online, perhaps because of a "technical problem" on their account.
  • Send an email with a link to a website that asks you to enter your online banking details This is the well-known "phishing" scam.
  • Ask you to email or text personal or banking information Even if the email address appears to belong to the bank.
  • Provide banking services through any mobile apps other than the bank's official apps To download your bank's mobile banking app, follow the link from its official website.
  • Call to advise you to buy diamonds, land or other commodities Reputable investment firms do not cold-call. Fraudulent "boiler rooms" can be very persistent and persuasive, so just put the phone down. 
The new year will no doubt see the scamsters try more and more inovative ways to fleece us. So beware.

Read more: http://www.theage.com.au/money/saving/eight-things-your-bank-would-never-ask-you-20150109-12kyxg.html#ixzz3OedPUiMw

Posted by The Age (Money) on 9th January, 2015 | Comments | Trackbacks | Permalink

A new survey reveals an alarming number of people don’t understand the rules of buying at auction

 AUSTRALIANS might love to talk about property, but a new survey has found an alarming number don’t understand the buying process.

The survey for law firm Slater and Gordon found 42 per cent of potential bidders at auction didn’t even know there wasn’t a cooling-off period when buying at auction.

While most states offer cooling off periods to those who buy through other sales processes, if you buy at auction it is unconditional.

The survey of more than 2000 people also revealed 15 per cent of those intending to bid at auction had not sought legal advice beforehand.

Slater and Gordon lawyer Robert Kern said the results were concerning as there had been a number of huge auction results toward the end of last year and the auction market was starting to pick up again.

He said some bidders at auction didn’t realise they couldn’t change their mind if they were the successful bidder on the day.

“If you’re intending to buy at auction, or even think you might, you would want to do your research properly because, once you sign on the dotted line you’re obliged to buy that property,’’ he said.

“It is very easy to be lulled into a false sense of security, especially if people involved in the selling process say to people (buyers) look there is nothing to worry about there is no concerns, then if something pops up obviously they are taken aback.

“Basically the top three tips (when looking to buy) in order are investigate, investigate and investigate.’’

It was also important to make sure solid finance was in place before bidding.

“For example if after the auction it turns out the property is worth more, or less, than what you were led to believe, your financial institution may not being willing to provide finance,’’ he said.

If you are unable to settle on the sale you could lose your deposit worth thousands.

Mr Kern said this had been a big problem during the GFC.

“We do see it definitely from time to time,’’ he said.

“It is generally not as big an issue when the times are good and the valuations are going up, but it is generally a bigger issue when property values are falling. There was definitely a spike in those sorts of issues around the Global Financial Crisis time.

Posted by Newss Limited Network on 7th January, 2015 | Comments | Trackbacks | Permalink

Property lessons to take into the new year

 If only…

Good advice given too late can be as welcome as a scented candle for Christmas. So, for those of you planning to embark on a property-related adventure this year,  here is some advice from those who wished they'd known then what they know now. 

Use a property lawyer

Jason Scott, from Tipsta, urges anyone who's looking to buy a property to use an experienced property lawyer rather than a conveyancer. Jason's plans to  buy a one-bedroom apartment in Northcote were almost derailed when the bank used a different method of calculating the size of the property to the builder, which reduced the amount they were prepared to lend him from 90 per cent to 80 per cent of the purchase price.

"We had to come up with another 10 per cent for the deposit and do that fairly quickly," Jason says. "The whole process was extremely stressful."

Be selective with your property manager

With professional property managers engaged to look after her three investment properties, Maureen Pound had been happy to take a "hands off" approach until she received a call advising her of issues relating to her Port Melbourne apartment.

She was appalled to learn not only that her tenants were suffering health issues and property damage due to mould, but that they had reported the problem five months earlier and the property manager had failed to act – or inform Maureen.

"(The property management company) have all this high tech online information, from the surface it looks really good, but I guess I didn't ask enough questions or make a good decision to go with them in the first place."

Be very selective when appointing a property manager, Maureen advises.

Be open to new ways of doing things

Phoebe and Russell Cameron were keen to stay and rebuild on their inner-city block when the existing home had passed its use-by date, but access to their irregular-shaped land made traditional building unrealistic.

Undaunted, the enterprising couple investigated their options and decided to have their new home, over two-levels, pre-built, with its modules lifted into place by crane like giant pieces of Lego. Two years on, Phoebe says she wouldn't change a thing. "It's a terrific way of doing it, especially if you have site constraints like we did."

Phoebe's advice to others is to consider designing a pre-built home, and make sure you put a lot of thought into the design.

"Have a think about how you want to live in the home."

Be prepared for bureaucracy

Budget was the key driver for James Kahnbach when he decided relocating a house from Melbourne was preferable to having one built on his property in Maldon.

While James was very pleased with the result, a cosy three-bedroom home that was originally part of the 1950s Olympic Village in Heidelberg, he was shocked at the time and energy it took to deal with trades people and council bureaucracy.

He cautions others who are considering the same tactic to prepare themselves for endless paperwork.

"Getting the house here was the easy bit."

Seize the day

Yolanda and Russell Forte planned to sell their South Gippsland property when they retired but, thinking selling would take a couple of years, they decided to treat themselves to a spa in the meantime.

The couple quickly became spa devotees, so when their home sold within eight weeks, they got back on the phone to Endless Spas to order another one for their new property. Russell says they regularly use the swim jets and the four-seater spa with family and friends.

"We use it 12 months of the year. If we knew then what we know now, we would have bought it years ago," Russell says.

Posted by Kate Robertson - The Age on 6th January, 2015 | Comments | Trackbacks | Permalink

New year, new home: Financial planning for 2015

Whether you’re looking to upgrade, downsize or even purchase your first home in 2015, it makes sense to financially plan ahead.

Futureproof your next move

Principal at Hillross Aspire Lisa Barber has more than 20 years of experience advising clients on how to successfully plan for a property purchase. She says a critical factor is looking ahead and selecting a property that matches your future plans.

“Think about how long you want to hold the property for. Do you plan to live in it for a year while you renovate it, then sell it? Are you planning to live there for five years? Or do you see it as a home you will be in for decades? Your answer will influence the location, style and cost of the property you buy.”

How much can you really afford?

Despite the emotional nature of buying a home, Barber advises clients to be “very honest and realistic when they crunch the numbers, and always stick to their limit”.

She says buyers should apply ‘pressure tests’ to check their personal affordability status.

“First, ensure you can afford to make repayments at 2 per cent more than the current interest rate. If a 2 per cent rate rise would put you under significant financial pressure, you may need to consider dropping your upper limit.”

The other pressure test is to ask yourself if you have the emergency funds to pay the mortgage for a few months if you find yourself in difficult circumstances.

“Around 1 in 3 Australians will be made redundant in their lifetimes. Many also have to stop work for a period due to illness. You need something in reserve so you can financially cope with such situations.”

Tap into professional advice

Barber says using a buyer agent can help you purchase the property of your dreams at a price you can afford.

“As well as having access to ‘off-market’ and ‘urgent sale’ properties, they will also negotiate on your behalf, which could save you thousands.”

While buyer agents charge a fee for their services, Barber says this is often offset by the savings they achieve on the purchase price.

“I also advise property purchasers to see a financial adviser. Financial planners can assist you to work out how much you can afford, negotiate competitive rates from lenders, and give you peace of mind around what’s possible given your unique financial circumstances.

“Unlike family and friends, you can be frank about your finances with a financial planner, who can then provide you with objective, neutral advice.”

Think different

Barber says good financial planning differs at every life stage. “If you’re looking to retire and downsize from the family home into a unit or townhouse, you will need to make sure you have enough funds left over to support your retirement lifestyle.

“Retirees might consider buying off the plan, as many new builds include features they might need, such as a lift.

“Buying off the plan can offer savings because you buy the property at today’s price but don’t pay for it until completion. This strategy can also work for first-home buyers.”

Meanwhile, if you have a growing family and want to upgrade to a larger property, Barber says you might need to think outside the square.

“In capital cities in particular, there’s a big jump in price if you want to move from a unit to a house with a garden. One option is to keep and rent out your smaller property while you rent a larger property in the area of your choice. This can effectively buy you some time to save the deposit on a larger home.”

Making a property purchase in 2015 may be easy with a little financial planning, so obtaining some expert advice could be the best decision you make next year!

Posted by Cathy Wever - Domain (Fairfax Media) on 6th January, 2015 | Comments | Trackbacks | Permalink

Tips to make buying a holiday home a worthwhile investment

 EVERYONE wants to make the holiday feeling last as long as possible which makes buying a holiday home suddenly seem like a good idea.

And it can be — just follow the experts tips and buy with your head and not your heart according to Real Estate Buyers Agents Association president Jacque Parker.

Ms Parker warns would be holiday home owners not to fall for the “romance’’ of a holiday home and use your head to make the best investment decision.

“People generally buy holiday homes with the intent on returning for regular holidays but should also consider the investment merits of such a purchase,’’ she said.

It was important to investigate rental yields, the cost of maintenance and things such as management fees and cleaning not just how far it is to walk to the beach.

Here are her tips for buying a holiday home.

1. Never buy a holiday home at the peak of the market.

“When the property market is flat a quality property in a good location will always find a buyer,’’ she said.

Ms Parker said a good question to ask yourself was: Would this property generate a lot of interest in a buyers’ market?

“If the answer is no, be very careful what you pay for it.’’

2. Have a buffer of funds to cover unforeseen expenses

Ms Parker said even partially leasing to other holiday-makers could incur unforeseen costs.

“Consider having an emergency buffer for common items that may break down more quickly or

require replacement due to increased wear and tear.’’

3. Consider ALL realistic costs

Ms Parker said many holiday home buyers forgot that a second home incurred a second lot of

expenses: electricity, water and council rates, maintenance, cleaning, annual pest

inspections, land tax and insurance.

4. Is it cheaper to holiday-lease yourself?

“Consider the long-term benefits of holidaying in the same place on a long- term basis. Is this really what you want? Financially, would you be better of holiday leasing rather than carrying the costs (and potential stress) of a holiday investment?’’

Posted by News Limited Network on 5th January, 2015 | Comments | Trackbacks | Permalink

House hunting: even real estate experts can get it wrong

Recently I went through the process of trying to buy an investment property. For me this should be a simple process, right? After all, not only do I run a business in Sydney where we assist clients by identifying quality property and negotiating the deal for them, but I also advise people on national television how to purchase real estate across the country. 

Well I am here to say that this was no fait accompli.

There are so many variables when buying property. Every real estate negotiation we are involved in has, at the very least, subtle differences. From the outset I expected to be able to navigate these issues with ease and so I did not involve anybody within my team until the final stages. 

However, this was my mistake, and I will take you through the litany of rules (my own!) that I broke as a result of not asking for help.

Now, I have always harboured a bit of a dream of owning an old shop and running my business in it. So when a heritage Edwardian terraced shop came on the market a few doors up from my office, my interest was piqued.

First rule I broke:

Harbouring a romantic attachment to a particular style of property, particularly one that is to be an investment. Due to this, I was more susceptible to behaving emotionally during the purchase process.

Second rule I broke:

Looking for property seriously before my finance was approved. I had been talking about buying an investment property for some time and had made initial inquiries with the bank, but was a long way from gathering all the documents required  for pre-approval. 

The risk I ran was that another buyer would be in a much stronger position to act and I would end up missing out purely because I wasn't ready.

This shouldn't have been a major risk in this case, since the property was a little overpriced and the market was quite flat, particularly for a property that had a specific buyer profile.

I was a fairly unique buyer in the way that this property would suit my needs. It would function as a dual purpose for me: part business premises and part investment. As well as the original shop front, this building housed a three-bedroom residence and I could have easily separated the two to create an income stream. 

Third rule I broke:

Not looking for an investment property with maximum buyer appeal. In my business we always aim to buy real estate for which owner occupiers will compete when it's time to sell. 

What was I doing here? I was interested in a property that was most likely to appeal to local small business owners like me. 

And how many of these are likely to be in the market at the same time to vie for such a property?

In my own defence, I will say that this property was unique and the most recent comparable sale was made two years earlier. And we do recommend looking for scarcity when looking at investment property.

Fourth rule I broke:

I did drag the chain a bit when it came to getting my finance approved. This meant the longer I took the more opportunity there was for another buyer to come along, which would erode any advantage I had through being the only buyer showing serious interest.

This property had been on the market for two months when I first inspected it. And it ended up taking me another two months to get my finance arranged and due diligence completed. It had been advertised that whole time with a price of "POA", which is usually agent code for "overpriced".  

I had many discussions with the agent over this period, with the prime objective of developing an understanding of where the vendors were at regarding their price. A crucial part of a selling agent's job is the managing of their client's expectations. I also wanted to understand how this function was being performed – or whether, in fact, it was being addressed at all. To be frank, these conversations were very unenlightening and I was beginning to break another rule.

The fifth rule I broke:

Showing my frustration with the selling agent.  It's very hard to negotiate in the dark. I had little faith in the agent's ability to be fully abreast of their client's position. Not one of my direct questions got a direct answer. I kept getting rehearsed dialogue. And none of it rang true nor did it give me the confidence to proceed with negotiations.

I think the core problem here was the approach of this particular agency. Once an agent lists a property, it is then open slather within the office as to who actually sells it. I was concerned, and rightly so, that the agent I was dealing with wasn't the one actually communicating with the vendor. 

Ideally the agent you are negotiating with is also the one directly working with the owners, otherwise competing agendas can come into play. For example, the listing agent may downplay the interest of buyers who are dealing with other agents in the same office, as his/her commission will be reduced if another agent's buyer clinches the deal. He/she would want to list AND sell the property in order to maximise his/her earnings. 

So, if the agent isn't managing the vendor's expectations, who or what is helping them to understand the value of their property? The thing is, if it's overpriced, nobody will make any offers. Then the owner gets no feedback regarding price. So we, the buyers, need to do the job of the agent. A cheeky offer is sometimes needed as the opening gambit so that the owners can start the process of lowering their sights. But this is a delicate process, as you don't want to insult the vendor and negatively impact subsequent negotiations. 

I did my price research and established a range within which I believed the property to be worth. But this was less than the price quoted by the agent. So I decided I needed to make an initial offer at a figure less than I was prepared to pay in order to start the conditioning process.

The sixth rule I broke:

Making an offer before I was ready to sign a contract. Not that this really had much of an impact in this instance, nevertheless, we usually advise against doing this as an offer lacks strength if it can't be followed through with action.

The answer to my offer was, as I expected, "no". So I let it sit for a while. There was no point increasing my offer for two reasons: I wasn't ready, plus I figured the vendor needed to sweat a bit. No counter offer had been forthcoming and I couldn't work out whether this was because the owners were rigid on their price or whether the agent was not capable of negotiating. In fact, it took days for the agent to even get back to me after I made the offer and in the back of my mind I harboured doubts over whether they had even passed it on to their client.

In the meantime I finally got my finance pre-approved, then immediately ordered the bank valuation and building and pest inspection so I was ready to make my final offer unconditional. 

The seventh rule I broke:

Taking the agent's obtuseness personally and almost cutting my nose off to spite my face. This particular agent was so difficult to communicate with that I was very tempted not to submit my final offer. I did in fact delay making an unconditional offer following numerous unproductive conversations after which I was dubious about the vendor's commitment to selling. I also doubted the existence of another serious buyer about whom the agent suddenly started referring to. It was at this point that one of my staff gave me a serious talking to and reminded me of all the conversations that we have with our clients. 

We advise clients all the time on pricing and purchasing strategy. When an agent brings up the subject of "another buyer making an offer" it is often hard to decide whether or not they are bluffing. But if you have done your price research and have a clear understanding of the property's value, it doesn't really matter whether this other buyer exists or not. If they don't exist, it's merely the agent using it as a ploy to negotiate with you (a tactic required if their negotiation skills aren't well honed). If the buyer does exist, you will either pay more than them or not. It is better not to be emotional at this stage.

Certainly we are able to be much more clear-headed than our clients. And as a result, they can have a sense of confidence when we approach negotiations on their behalf. I must say that after my teammate took me aside and reminded me of what was important, I was able to continue with a different mindset. I remembered that I did want the property and was prepared to pay what I had deemed to be a fair price, but no more. Given that I still hadn't made my maximum offer, I would kick myself if the property sold to someone else for less than I was prepared to pay. So I decided to do the very thing that I would have recommended to a client under the same circumstances: put my final offer on a signed unconditional contract and submit it with a deadline for exchange.

One rule I didn't break:

I did my pricing research and narrowed down a range in which I believed the property to be worth. And despite my emotional attachment I was able to remain clear-headed about the value and the price I was prepared to pay, which was at the lower end of that range due to the limited market for this type of property. In the end another buyer was prepared to pay more than me and they bought it. So, I understood value, I set a limit and I stuck to it.  

And at the end of the whole transaction, I have no regrets.  Well, maybe one – I really should have got my act together earlier so that when I was ready to make an offer there were no other buyers in the wings. 

The greatest lesson through this whole experience for me was the reminder of how stressful and confusing it can be to buy a property. And this was an investment for me, not even a home to live in! Not only that, but I do this for a living. In reality, it has further convinced me of the value that we add to our clients' property buying experience.

Veronica Morgan is the founder and principal of Sydney buyers' agents Good Deeds Property Buyers, and co-host of Location Location Location Australia on Foxtel's The Lifestyle Channel.

Posted by Veronica Morgan - The Age on 5th January, 2015 | Comments | Trackbacks | Permalink

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