NEW DEVELOPMENTS IN 2017 / 2018 P.7
NEGATIVE V POSITIVE GEARING PROPERTY P.16
CAPITAL GROWTH WHERE TO BUY P.12
PROPERTY 2017 INVESTMENT GUIDE
DISCOVER OUR BEST
PROPERTIES YOU HAVE TO SEE IN 2017
SAMPLE INVESTMENT PROPERTY REPORT
How to make big profits from investing in property
+ FIRST HOME OWNERS How to get started
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View all our Investment Properties online at www. esteemedproperty.com.au
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Who Are We... The Gold Coast... Why Buy Property... Buying New V Old Property... New Developments... Buying An Investment Property... Investment Property Types... The Buying Process... Location, Location... Capital Growth... Rental Yield... Tax Depreciation and Deductions... What Is Gearing... Investing In Land... Property Demand... Using SMSF... Foreign Investors... Buying Incentives... Secrets To Building Wealth... A Case Study - Investment... A Case Study - Finance... Getting Finance... Preferred Loan Type... Putting It All Together... Getting Help With Conveyancing... What Happens At Settlement... Finding A Property Manager... When To Sell A Property... Why Sell... The Rule Of 72... How To Sell... Handy Property Jargon... Meet Our Team... Contact Details...
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WHO ARE WE Based on the Gold Coast, Esteemed Property is a boutique real estate agency specialising in new investment and lifestyle property in South East Queensland. Relationships The team at Esteemed Property provides a very honest, professional and personalized service to every one of our Clients. We guide you through the whole process from the initial stages of beginning your search, right through to settlement. Relationships are what we are about. This is something we have seen deteriorate in almost every industry over the years, not just real estate. Customer service is the most important aspect of our business. It is the whole reason we exist and continue to grow. Our referral rate is proof of this. Want to Invest but don’t know where to start? Buying a property should be a fun and exciting experience! Investing in real estate is extremely financially rewarding when done correctly. We believe that investing in property to either live in or invest in, will set both yourself and your family up for the future. Specialising in property investment, our team are constantly researching and sourcing the latest projects for our clients. We look at each potential property and study the several influential factors that qualify it as
a suitable investment. It must fit into set criteria and provide potential high yields for investors. Deciding factors for investing are capital growth of the area, local infrastructure, rental yields and occupancy rates. Esteemed Property only partner with the best and most reputable builders and developers located in these areas. Our team will assist with tax benefits, finance options, legal support and any required conveyancing you may need. Call us anytime on 0432 922 592 with any questions you might have. We are always happy to assist you, 7 days a week. Let us point you in the right direction to buying your perfect property!
THE GOLD COAST Venture into the Gold Coast’s endless playground and you’re in for some serious fun, no matter if you’re a ‘big’ kid or ‘little kid’. Feel the excitement of unlimited things to see and do right on your doorstep! Whether it’s an exhilarating swim at one of many goldwww.esteemedproperty.com.au | 0432 922 592 | 3
en surf beaches, an energising hike through the Hinterland, an action-packed day at some of the world’s best theme parks or simply enjoying the shopping, nightlife and entertainment, the Gold Coast is Australia’s fun capital. There’s just something about the Gold Coast’s energising atmosphere that makes you want to get amongst it and have a great time. Fun, laughter and sunshine are the order of the day on the Gold Coast’s golden surf beaches. Each is pristine, perfect in its own way, with a natural energy to revitalise the senses. And the warm climate and inviting outdoor lifestyle are perfect for a 24/7 vibrant social scene with stylish lounge bars, surf clubs, pubs, cafes and alfresco restaurants. Escape to the natural wonders of the Gold Coast Hinterland and experience a sojourn to energise the body, mind and soul. Feel the revitalising freshness of cool mountain breezes while meandering along quiet country roads on the way to more than 100,000 hectares of National Parks and reserves. Ignite your inner adventurer’s spirit with miles of enchanting bushwalks through the rainforest visiting waterfalls, canyons and valleys along the way. Be taken in by the charm of boutique wineries and unique shops along Gallery Walk at Mount Tamborine. An amazing range of accommodation styles adds to the fun of the Gold Coast. You can choose from towering high-rises offering a bird’s eye view from surf to hinterland; or the indulgence of the Versace Hotel; or the non-stop entertainment of some of the most popular family resorts. With theme parks offering a terrific combo of adrenalin pumping thrills, heart-warming encounters and nonstop action - nowhere in Australia delivers as many smiles and happy memories as the Gold Coast. It’s where you can explore your playful side and let loose in Australian’s endless playground. With 300 days of sunshine each year, warm blue water and an average temperature of 25 degrees, the Gold Coast’s 57 kilometre stretch of golden sandy beaches are the perfect playground to swim, snorkel, surf, splash or sunbake. Deservedly known around the World for crystal clear waters and guaranteed waves, the Gold Coast’s sun-drenched beaches offer up barrels of revitalising fun. Whether its right in the action at lively and social Surfers Paradise, lazy secluded coves in Tallebudgera 4 | www.esteemedproperty.com.au | 0432 922 592
or carefree days at laid-back Burleigh, each beach is pristine, perfect in its own way and has a natural energy to reinvigorate the senses. The Gold Coast continues to evolve as a haven for retail enthusiasts with a vast array of shopping options headlined by signature fashion boutiques and larger iconic department store brands. Shopping on the Gold Coast reflects it’s this easy, breezy, resort aesthetic. Markets, outlet malls, boutiques and high end designers all cater to the local love of colour. The two major shopping malls are at Broadbeach and Robina as well as smaller but equally dazzling retail precincts across the Gold Coast in areas including Main Beach, Surfers Paradise, Burleigh, Coolangatta, Labrador, and Sanctuary Cove. With an unmistakable focus on fresh produce, the restaurants of the Gold Coast have taken advantage of the region’s local flavours and strong multicultural heritage to build an unpretentious but diverse dining scene. Families, foodies and holidaymakers can delight in
restaurants with ocean panorama views sprinkled along the coast-line and relish in tropical fruits, the freshest seafood and local produce from Australian beef to creamy cheeses and enticing wines. Be it romantic high-tea, lively night-time beachfront markets or the freshest fish and chips overlooking the glittering city, the Gold Coast offers a sensory feast to suit all palates. Information courtesy of Gold Coast Tourism
WHY BUY PROPERTY South East Queensland has been one of the Australiaâ€™s most consistent property markets over the past 30 years, providing secure returns in excess of 7%pa, and has experienced fewer years of decline than almost any other property market. The Australian property market as a whole has shown an ability to resist downward shifts in prices, this allows investors to hold property over the long term with great confidence and huge financial gain. The price of real estate continues to increase every year, therefore purchasing real estate is one of the safest long-term investments a person can make. If you had the choice between putting money towards a new car or boat or a new house, a house should win every time, as it will appreciate in value over the years whereas a car does the opposite. Once you own a property and build some equity you may also be in a financial position to buy another and rent one out. A stable rental market also ensures that investors can readily obtain tenants for their property, essential for the long-term success of any investor. One of the best things about owning a home is that you are building equity, which gives you more freedom financially as you can access a home equity loan. You may then borrow against the equity you have built in your home for a wide variety of reasons including home improvements, paying for school for your children, medical reasons, or even starting your own business. Right now, the interest rates are at an all time low, which will help you get your foot in the door of home ownership. It is a great time to get into the market and lock into a really good interest rate and build equity. www.esteemedproperty.com.au | 0432 922 592 | 5
When investing in property, the longer BUYING you can hang onto the property, the more profit you are likely to receive.
Assets build wealth not income, so investing in real estate, either as a home or investment is a great way to build wealth as the asset continues to grow in value while the loan remains the same over time, never increasing, if fact the longer you can hold onto the property the more valuable it becomes, the complete opposite to most things we desire in life. The ultimate goal of property is to provide us with the perfect place to enjoy a happy and relaxed life however for most of us the perfect home is out of reach financially and always will be while we can only save a $100 here and there from our wages. With a property investment several years can fly by and when you finally decide to sell the property, you may have $100,000s of dollars in capital growth and equity and while investing in property might be slow and not so glamorous, the financial returns allows us to buy whatever is glamorous. By freeing up equity and purchasing an investment property, the revenue and capital growth can be used to pay down your home loan or purchase another property and set you and your family up for life.
NEW v OLD PROPERTY If you’ve made the decision to invest in property, your next choice is probably between buying a new invest6 | www.esteemedproperty.com.au | 0432 922 592
ment property that is ready for a tenant to move in, or buying an existing property that has an existing tenant that is already paying rent. One big advantage of buying a new investment property is that you’ll get a property that’s been specifically designed and built to be rented out. In other words, it is designed more for durability than a normal home that may be built for luxury, so to speak. The other reason why new property is the most popular property of choice is the great tax benefits. New property offers more tax benefits via tax deductions and tax depreciation schedules. New property often comes with builders guarantees and warranties so that no ‘out of pocket expenses’ are incurred for repairs during the offered time frame. New property is also purchased at the lowest price the property will ever be valued at, as capital growth with increase the overall value of the property over time. The only advantage of older property is the scope to renovate and increase the value of the property. However the down side is the older the property the higher the cost to maintain it to it’s current value, and this is the opposite of what we are trying to achieve. Buying an older property is sensible if you have both the time and skill to improve it and increase it’s value however many renters don’t like living in older proper-
BUYING ty and prefer newer property therefore making newer property far more desirable and in demand.
NEW DEVELOPMENTS New developments offer a great range of benefits for investment buyers. There are tax benefits, quality assurance, low maintenance and even buying incentives. Buying new property that is off the plan or under construction has many benefits. Apart from being an exciting process, buying off-the-plan is one of the easiest ways to get into the property market. Firstly, you only need a 10% deposit today and can pay the balance of the purchase price at settlement or once construction is complete. Established stock in premium areas tends to have a higher initial buy-in cost, compared to new developments. From an investment perspective, newly built properties offer depreciation benefits on fixtures and fittings in the first five or so years, which may be attractive to buyers on rising salaries. It goes without saying that a brand new property – if well built – will not need the ongoing maintenance that an older property often needs. Buying in a new development allows you to buy at to-
day’s price. In a rising market, this can mean you own a property worth more than you paid for it by the time the deal settles after construction. We have new property available in some of the best new developments on the market. Buying a property off-the-plan is exactly as it sounds, buying a property that is not completed yet and the purchase is made only from the plans off what is being built. Used correctly, off-the-plan can be a great investment strategy, but used incorrectly it can be a death sentence. Investors like buying off-the-plan as they can leverage the deal with only a small amount of deposit. The main focus is to buy off-the-plan and hopefully the property has increased in value during the construction period and the investor has made money from capital growth before they have even had to pay the full/last payment and settle the purchase. Now this works well if the property is purchased in the correct part of the property cycle but purchased at the wrong time and by the time the property goes to settle, it may actually have gone done in value. Often stage one of a development is the best time to buy as further stages increase in value and this drags up the price or value of stage one. Most experts advise that if you do decide to buy offthe-plan then make sure the property is atleast 18 months away from completion as this gives the proper-
BUNDALL // Gold Coast WATERFORD 1 Bedroom from...$319,000 2 Bedroom from...$459,000 Waterford One enjoys tranquil waterfront on one boundary and a garden oasis as its heart. This lifestyle centrepiece includes boardwalks, relaxing areas and a Zen-styled water feature. Continuing the tropical oasis theme, Waterford Two comprises 187 apartments that provide residences with all the lifestyle facilities you could ever imagine: resort swimming pool, gymnasium, BBQ entertaining and picnic nooks. With three and four level residences including one, one plus study, two, three and four bedroom apartments, the Waterford Apartments are certainly the Gold Coast’s best kept secret.
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BUYING ty time to increase in value and create capital growth and equity, but I am not so sure about this as I have seen it go both ways.
Different types of property can outperform each other over time. For example, investing in a unit might mean less maintenance costs but higher body corporate
Always plan to settle the property and not sell during the construction period and make sure you have the financial means to settle the property no what the case, and make sure your purchase is under $550,000 as this entry level price appeals to the entire buying market and is easy to sell.
and less capital growth than investing in a house and land package that has huge capital growth but higher maintenance costs. Yet the unit is most often the perfect entry level due to the lower purchase price. Some areas offer higher rental yields, but it does not guarantee high package and getting higher capital growth opportunities.
BUYING AN INVESTMENT PROPERTY
It is also important that a property suits the demographics of renters in the area. For example, if it is near a university more bedrooms will be in greater demand than a big backyard for kids to run around. A family home that is close to schools and parks on a quiet street will be more desirable than a property on a busy road.
Buying an investment property continues to be one of Australia’s favourite ways to invest hard earned money. Buying an investment property should be about growing your wealth and securing your financial future. The cost of owning an investment property can be surprisingly low after you take into account your rental income and the tax deductions you’ll be entitled to. To most, investing in real estate is all about capital growth, so choosing a property that is more likely to increase in value is the most important decision you will make, so buying at the right price is absolutely critical. We have valuable data on different locations and property developments and this will help you pick the best investment property. Ensuring that you have a steady rental income stream is also vital because this cash flow will make the holding of the asset more affordable and provide income. Getting a tenant to pay the rent will also reduce your loan or debt and over a number of years this can be huge amounts of equity created by the tenant on your behalf. In other words, the money they invest in rent ends up in your pocket as equity. 8 | www.esteemedproperty.com.au | 0432 922 592
One reason why the South East QLD triangle is so popular is because it is close enough for one partner to work in Brisbane but also close enough to go to the beach on the weekends. It also has trains, public transport, parks and a direct highway both ways, shops, schools, universities and hospitals. Once you own an investment property it can be quite inexpensive to keep it and service the loan, that’s because you earn rent and get a tax deduction on many of the expenses associated with owning the property and remember that over time rents tend to increase as does your own income – so expect things to get easier over time. Interest rates can vary over time but the good news for property investors is that in times of rising interest rates you can normally expect to be able to increase the rent. You should also know that banks only take 80% of the rental income into account when working out whether
BUYING The first step is the most important because without finance the process of buying an investment property can not begin
you can afford an investment loan. This is due to costs like letting fees and vacancy rates, which may happen.
the $360,000 that is not even your money (borrowed funds).
Negative gearing can offer tax benefits if the cost of the property investment exceeds income it produces. Australian law allows you to deduct your borrowing and maintenance costs for a property from your total income. So, while you are actually making a loss on the property, the advantage is that the loss can be used to reduce the amount if tax on your other earnings.
Returns Over the long term real estate has returned around 10% per year in capital growth and rental yield before holding costs.
Remember that property is a long-term investment and you should not rely on property prices rising straight away. It’s a marathon not a sprint. The longer you can afford to commit to a property the better the return, and ‘investment’ by definition means an asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit. There are a heap of great advantages to buying an investment property. Here are just a few of them: Leverage You can borrow more to fund real estate purchases than any other asset because of its ‘bricks n morter’ high security. You can actually receive returns on money that is not even yours. So in other words, you invest a deposit of $40,000 on a $400,000 property and you will receive from 5-15% annual return on
Security As long as you purchase within your means and you have a deposit so that there is equity in the property you will never go broke as there will always be demand for property (either a home or investment to rent out). Forced Savings Owning real estate forces a good discipline when it comes to saving money. People paying off a mortgage are less likely to waste money on things they do not need as they have a financial commitment each month that is accumulating wealth, not wasting savings. Forced savings also turns into compounding profits so that as the property increases in value, your money is turning into more money that is why the earlier you start investing in real estate the better. Value Adding Property allows you to add value at any point but adding new features, upgrading or just repairing parts www.esteemedproperty.com.au | 0432 922 592 | 9
Added Benefits Of
PROPERTY An investment property produces a regular stream of rental income. One of the really appealing aspects of investing in property is the ability to earn a regular stream of rental income. Unlike other investments like a term deposit or shares, you can expect to receive rent payments weekly, fortnightly or monthly rather than having to wait for six to 12 months or a far longer period to see some cash flowing your way. Property has the potential to deliver a return from day one. The rental income helps with your personal cash flow, and even better, it is fixed for the term of the lease.
of the property that will dramatically increase the value of the property. Sometimes it’s just new paint, tidying the gardening or even new carpet that can dramatically increase the value of the property. Lucky One Some owners of property have had agents calling them asking if they are interested in selling their property as they have a buyer ready to make an offer, well over the normal asking price. This is the result of being in ‘the game’, no one has ever knocked on a door offering anyone double what’s in their bank account. As an owner of a property many opportunities to use the property to buy more property, or sell the property for big profits, will arise, if you don’t buy property none of these opportunities will ever come your way
Residential tenants typically sign leases for terms of six to 12 months, so you know how much rent you will receive and this makes personal budgeting easier. Even when the lease expires, many tenants continue to pay week-to-week rent until a new lease is signed.
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INESTMENT PROPERTY TYPES The market is generally broken up into 2 categories, houses and apartments. While historically houses have made up the majority of the market, the current living trends have driven apartment demand up dramatically and while all of us were taught to buy your own piece of dirt the current generations are foregoing these ideas to live closer to work in major cities in densely populated apartment blocks and residential developments. Many young families these days are time poor and they are not motivated to work in the garden or potter around maintaining their dwelling, they much prefer to live in an apartment that is private with no maintenance requirements. So that means that apartments are growing in demand and with demand comes higher rental yields and high poten-
tial capital growth. So while people continue to want to live in major cities, the demand will always be there for apartment blocks. So understanding this trend will clearly guide us to the following formula: Apartments: should be close to major cities with not too many units in the development, low body corporate and a high amount of owner occupiers and low number of available rental units in an area that is densely populated so further development is unlikely. Houses: should be located on the urban fringe and outskirts of a major city and not part of a development where multi stages are being built with all houses similar in size and design (and no price increases have been allocated for each stage). The choice is yours, many younger people are choosing to buy units as their entry level is a lot lower and they can afford to buy without stretching their financial resources. House and land packages offer far more potential for capital growth and add on value increases however the entry level price is way higher and a stretch for a lot of people, so obviously the type of property you buy is purely decided by your situation.
THE BUYING PROCESS Buying a property should be a fun and exciting experience and if you do your homework and learn how it all works, you will enjoy it even more knowing you are buying the right property for you and your family. Most clients we talk with surf the net and go and visit open home inspections but at the end of the day they all say the same thing….we don’t really know what we
are looking for and don’t even really understand how it works. Luckily it is not that hard and once you understand the process, you will get better and better at it each time. Step 1 This can be as simple as listing all your assets, including incomes and work out your expenses. Contact your mortgage broker and tell them you are looking at buying a property. They will ask you if you have found a property but you will need to let them know you are looking for pre-approval only so you can then look at suitable properties within your approved budget. Step 2 Provide the financial documents that the broker requires to get pre-approval for you. These may include: • • • • • • •
Personal Identification Pay Slips or Income Statements Bank Statements P & L Statements Tax Returns Credit Card Statements Loan Statements
Step 3 Once you have received your pre-approval you will be able to start to source the best property for your needs. If you are looking to become a home owner or an investor, you will need to find property that fits within your budget. At this stage we will start to go and look at suitable properties and work out the clients preferred property. www.esteemedproperty.com.au | 0432 922 592 | 11
BUYING Buying investment property is a great way to build wealth while also creating an extra passive income, if set up correctly.
Step 4 If you find the suitable property it is now time to put in an offer to purchase. If the property is new, this may be in the form of an Expression Of Interest. If the property is lived in, it will be in the form of the Sale Contract with clauses outlining the conditions of purchase at the offered price. If the developer or owner agrees to the price they will sign the sale contract. You should also obtain advice regarding the contract, and particularly any rights or liabilities you have under the contract. Step 5 Complete the final finance application. The contract of sale will generally be subject to finance approved by a set date after signing. This will normally be 14 â€“ 21 days after signing. A small deposit should be paid along with the signed contract and then generally the agreed deposit (most times 10%) will be due upon approval of the finance and the contract going unconditional. You should contact your lawyer and let them know you are purchasing the property for them to handle the conveyancing or finalising of the title and settlement. If you donâ€™t have a lawyer, many law firms specialise in Conveyancing and they can be engaged 12 | www.esteemedproperty.com.au | 0432 922 592
to assist on your behalf. Step 6 On the set date that the property is agreed to settle, the lawyers who have been corresponding will contact you to come in and finalise the purchase. At this point the lender has already finalised the payment for the property to the seller and you are now ready to go in and collect all the keys and what ever else is required for the purchase. The documents may also include release of mortgage documents, and anything else required to ensure you obtain clear title to the property. If everything has progressed well, hopefully this will be as uneventful as possible. Essentially at settlement your solicitor (or your bank) will hand over the money to the seller in exchange for the transfer documents to the property. Step 7 You are now the proud owner of a new property.
BUYING living. New exciting areas like Varsity Lakes and Robina continue to attract new residents due to the fact that they cover many of the bases outlined above...schools, shops, transport and therefore the area prices continue to go up by demand, in other words people wanting to live there. While location is important the location doesn’t have to be perfect to make it a great investment. I know many areas that people told me will never work that are now town hubs fetching massive financial returns for investors from capital growth due to increases in industry and population so when you purchase a property, location is a major factor but don’t let it be the only deciding factor.
CAPITAL GROWTH Capital growth is the increase in value of your property over time and should be considered alongside the property’s yield.
While most experts tell you the perfect place to invest is close to a major city, 5km from the beach in an area close to shops, schools, transport, industry...in a growing area with population increases...blah blah blah. While all of these things are very important it is near impossible to get them all in one property and most of us don’t have a crystal ball to look into the future. The Gold Coast has always been held in high investment regard due to the fact it is surrounded by magnificent sandy beaches to the east and lush green rainforest to the west and continues to population growth, in other words it is a place where both young and old dream of
Some Gold Coast areas have had periods that have seen many home owners with properties that have, in some cases, doubled in value over a short period of time. While there is no guarantee your property will gain in value over any given period, and capital growth largely depends on where and what you buy, historically real estate experiences steady growth over the long term. History has shown that property located within 2 to 10 km’s of the CBD should follow the pattern of around 10 to 11% capital growth over the long term. If your property grows quicker than this, it’s more likely to be for the short term only due to some major changes in the direct area such as an improvement to the local amenities or infrastructure.
SAMPLE AREA CAPITAL GROWTH The following shows the 7 year historical record of capital growth* in St Kilda (Melb) and while this is not typical, it is just an example of how capital growth in an area will increase the value of a $500,000 property. You can see that with strong growth in the area, $297,093 (profit) was added to the value of the property over the 7 years.
* Source Residex Suburb Report
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You can maximise your return on your investment by structuring your finances in the best possible way and ensuring that you pay fair market value in an area within the investment property guidelines. We find, deliver and negotiate property that will achieve good capital growth over the long term after researching the historical data of the chosen area.
COMPOUNDING CAPITAL GROWTH Compounding growth is one the hidden secrets of investment success. Basically compounding growth means that if you invest today and you get a 10% return on the investment via capital growth, next year you will be getting growth on the total of the investment plus the growth from the previous year and so on. You can see how it works below:
One key investment factor is rental yield, or the annual amount of rent you can charge for the property. Rental yield is basically a % calculated by diving the annual rent by the purchase price. This can then show us if we are getting a good annual return or yield from the rent. Now getting a good rental yield is important however capital growth is a more important influence as capital growth in a popular area will return way more money that a good rental yield will. Normally you can either get a high rental yield or high capital growth but every now and then we see both but often they are by good luck more than good judgement. Many people measure the rental yield against the loan interest and then see the capital growth as their real profit. Here is an example of a good rental yield for a property For example:
RENTAL YIELD Running the numbers before you purchase is hugely important. A property can look good visually but when we assess the feasibility, it may come up way short of a good investment.
Sample Compounding Capital Growth Report
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Weekly Rent: $500 Annual Rent: $26,000 Purchase Price: $500,000 Gross Yield = $26,000 / $500,000 Property Yield = 5.2%
A good rental yield normally sits between 5% and 7% however the higher rental demand does not mean the property will increase in value. Often high rental demand can be driven by short term economic factors such as mining or industry booms that may not last for ever and once the boom finishes the value and demand of the property may diminish. That is why rental yield is important however capital growth is what should be valued more when assessing a property’s suitability. An increase in rental yield could return the owner another $1,500 annually against capital growth at 10% that would return the owner $50,000.
TAX DEPRECIATION Of all the tax deductions available to property investors, depreciation is most often missed because it is a non-cash deduction – the investor does not need to spend money to claim it. “Research shows that 80% of property investors are failing to take advantage of property depreciation and are missing out on thousands of dollars in their pockets,” said Bradley Beer, Managing Director of BMT Tax Depreciation.
As a property gets older, items wear out – or ‘depreciate’. The Australian Taxation Office (ATO) allows property owners to claim this depreciation as a deduction. Claiming depreciation on an investment property can make a big difference to an investor’s cash-flow. Both new and old properties have the potential to attract significant depreciation benefits for the owner to claim as a tax credit. Property owners are also able to go back and claim missed deductions on previous financial year’s tax returns. For an investor experiencing negative cash-flow on their property, depreciation can be the key to turning their situation into a more positive scenario. The following is an example of an investor using depreciation to reduce their weekly cost of owning the new investment property: An investor who owns a property purchased at $420,000 with a rental income of $465 per week with a total income of $24,180 per annum; had expenses for the property such as interest, rates and management fees totaling $29,180. By claiming depreciation, the investor was able to reduce their negative cash-flow position from paying $60 per week to only paying $4 per week….
LABRADOR // Gold Coast COAST BROADWATER 1 Bedroom from...$339,400 2 Bedroom from...$484,900 Coast is Labrador’s newest and most affordable, quality residential development. The suburb’s central location and relaxed atmosphere is popular for both young families and those seeking a coastal lifestyle. Positioned opposite one of the Gold Coast’s most popular and pristine natural assets, Coast is set to become a highly sought after residential development for both the owner-occupier and rental market alike. Coast will comprise three 12 storey towers situated on a prime site on Marine Parade, Labrador.
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Some investors use property depreciation to turn negative cash-flow position into positive income. Without depreciation they were paying out $60 per week. By taking advantage of tax legislation and making a depreciation claim, the investor was able to reduce their losses to just $4 per week. This investor saved a total of around $4,000 in just one year. Each new property we offer for sale includes a Tax Depreciation Schedule which will allow you to reduce your losses (or expenses) and by doing so, in some cases, turn the repayments into cash positive income. *Information and Data supplied by BMT. More information available at https://www.bmtqs.com.au
Sample Tax Depreciation Schedule
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GEARING Positively geared properties are when the rental return is higher than your interest repayments and outgoings. Negatively geared properties are when the rental return â€“ the amount of rent you receive from your tenants â€“ is less than your interest repayments and outgoings, placing you in a position of losing income. Neutral gearing is where you earn the same amount from your investment as you pay in interest and other costs, such as rates, insurance and renovation work. Can there be advantages to losing money? This is where it gets interesting for potential investors.
According to Australian tax law, you may be able to claim the interest portion of your loan repayments and also some other costs as an expense, providing that the property is available to be rented. The key benefit associated with negative gearing is that the loss associated with the property ownership may be offset against other income earned, such as your salary, reducing your taxable income and therefore your tax payable. The result is that the cost of owning the property is being funded by your tenant in the form of rent, by the Australian Tax Office in the form of tax savings, and by your other surplus cash flow, such as your savings and other forms of income. In certain circumstances, the savings through tax deductions on this loss can exceed the losses realised from the property. Itâ€™s important to remember, however, that every situation will be different due to personal circumstances. Some things to know: While negative gearing can have financial benefits, thereâ€™s often a lot more to investment properties than tax. The income from positively geared properties, for instance, can help to improve buying power by putting money into your account and can increase your ability to meet repayments. In general, higher taxpayers may choose a negatively geared investment property to maximise their tax returns and benefit from the long-term capital growth potential. Investors closer to retirement or in a lower income bracket may choose positively geared investments to maximise their income potential. As with all investments, strategies should be aligned to personal circumstances and risk preferences. We always recommend talking with your financial adviser before purchasing an investment property.
INVESTING IN LAND Some people say to put your money into land because they canâ€™t make anymore of it. While this is partly true as they are reclaiming some land these days from dredging and what not, the overall theory behind it is www.esteemedproperty.com.au | 0432 922 592 | 17
BUYING very sound.
be extremely high.
The longer you can hold onto to vacant land, the more demand is driven up and so is the price. With land availability drying up you can basically write your own ticket if you are the last man standing in an area with the only available land in an area.
Conversely, if there are more properties being built than new people in the area then demand will be low.
Of course for every action there is an opposite reaction. Holding of land is very expensive and there are no real options for rental income and no depreciation benefits as depreciation is only offset the building and internals, not the land. And while the land value will continue to go up, you have to come up with the money repayments and many banks wonâ€™t lend on an investment where there is no direct financial return from rent so really the buyer needs to come up with a lot of the purchase funds directly and this can be risky as sustainability can be a problem. The upside is if the zoning changes in the area the block could triple in value in a short period of time, but who can see into the future. We donâ€™t sell land as an investment because it is very speculative and comes with a lot of pressure and stress.
The Gold Coast is considered to be a desirable investment hot spot because each year more people relocate to the Gold Coast than properties are built thus meaning property is in demand and therefore high yields and growth are regularly achieved. The formula used is simple: Demand = population / average household size. With increases in population demand will continue to grow so population growth is a very important external driver for investment success in an area.
USING YOU SMSF
Superannuation has got a lot of bad press of late but with your self managed superannuation fund there is a way to purchase your next property. However, there are some important requirements as not everyone qualifies.
Demand is pretty simply to understand, if there are more people than dwellings then demand is going to
1. You must have at least $150,000 combined super 2. You must be employed full time
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Choosing the loan type is as important as the interest rate
Combined means your spouse and yourself; or two family members, providing they are employed and eligible for superannuation. Learning simply and easily how to have your very own self managed superannuation fund with property is easy and allows you to enjoy the powerful leveraging benefits. You can only buy property through your SMSF if you comply with the rules. The property: • Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members • Must not be acquired from a related party of a member • Must not be lived in by a fund member or any fund members’ related parties • Must not be rented by a fund member or any fund members’ related parties. Borrowing or gearing your super into property must be done under very strict borrowing conditions called a ‘limited recourse borrowing arrangement’. A limited recourse borrowing arrangement can only be used to purchase a single asset, for example a residential or commercial property. Before committing to a geared property investment you should assess whether the investment is consistent with the investment strategy and risk profile of the fund. Geared SMSF property risks include:
Higher costs – SMSF property loans tend to be more costly than other property loans which must be factored into your investment decision. Cash flow – Loan repayments must be made from your SMSF which means your fund must always have sufficient liquidity or cash flow to meet the loan repayments. Hard to cancel – If your SMSF property loan documentation and contract is not set up correctly unwinding the arrangement may not be allowed and you may be required to sell the property, potentially causing substantial losses to the SMSF. Possible tax losses – Any tax losses from the property cannot be offset against your taxable income outside the fund. No alterations to the property – Until the SMSF property loan is paid off alterations to a property cannot be made if they change the character of the property.
FOREIGN INVESTORS Australia is the greatest country on earth and offers the best living standards and lifestyle opportunities. We make purchasing property and moving to Australia as easy as possible. Under Australia’s foreign investment framework, foreign persons generally need to apply for foreign investment approval before purchasing residential real estate in Australia. www.esteemedproperty.com.au | 0432 922 592 | 19
The Government’s policy is to channel foreign investment into new dwellings as this creates additional jobs in the construction industry and helps support economic growth. It can also increase government revenues, in the form of stamp duties and other taxes, and from the overall higher economic growth that flows from additional investment. Foreign investment applications are therefore generally considered in light of the overarching principle that the proposed investment should increase Australia’s housing stock (be creating at least one new additional dwelling). Consistent with this aim, different factors apply depending on whether the type of property being acquired will increase the housing stock or whether it is an established dwelling. It is important that foreign investors understand and comply with Australia’s foreign investment framework as strict criminal and civil penalties may apply for breaches of the law, including disposal orders. Foreign persons are normally given approval to buy new dwellings such as house and land packages, home units and townhouses purchased ‘off-the-plan’ that is under construction or newly constructed, but never occupied or previously sold. ‘Off-the-plan’ sales to foreigners are only permitted for new development projects or extensively refurbished commercial structures, which have been converted to residential, on condition that no more than half the dwellings in a development are sold to foreign persons. Foreign investors intending to buy real estate in Australia have relatively open access to the Australian market and mortgage finance, with mortgages up to 70% of the property value typically available. 20 | www.esteemedproperty.com.au | 0432 922 592
If you are interested in learning about the laws governing foreign investment in residential real estate, please visit www.firb.gov.au
BUYING INCENTIVES Rental Guarantees Some developers offer rental guarantees to an investor when they purchase a set property. Sometimes these guarantees are higher than the market yields but not always, many properties we work with have their rental appraisals done several years in the past when the development was under construction and since then demand has increased and rental return has increased dramatically.
Many advisors will tell you that this masks a lack of rental demand for the properties but we totally disagree. Obviously we let the buyer know nothing is free but it is a very good selling incentive for a buyer as the small cost to the developer can be a massive carrot for a buyer. I personally like rental guarantees for several reasons, firstly most of my clients are time poor and work six days a week and live busy family lives. They find the rental guarantee a stress relief as they don’t have to source a property manager, meet them, advertise the property, find a tenant and then manage the property. In fact in many cases the unit may stay empty for a few weeks or even months if the owner is lucky, meaning the unit stays brand new longer while still getting the
BUYING tax benefits and maintaining the quality. Secondly the guarantee means that the unit has that set period to settle and thus the other units will be renting at different times depending on settlement therefore there will not be a glut of new rentals released to the market at the same time. Finally the guarantee period gives the owner plenty of time to decide on how best to manage the property going forward. They can source a property manager or stay with the developer and they can assess the market and decide on the new rent once the current leases are completed. When we explain the pros and cons of rental guarantees most of clients are very comfortable with that incentive as they see it as one less worry for them which is a great thing when buying an investment property.
BUILDING YOUR WEALTH These days we are all time poor, however it seems pretty clear that it is near impossible to get wealthy and really enjoy life from weekly wages. There never seems to be enough money left over to really enjoy. It
seems like wealth generally doesn’t come from blood, sweat and tears like we are all told growing up. It seems like real wealth in generated in the background and is a bit more of a slower process. I mean, even if you are paying off your own home, the forced savings are far better than dead rent, because when you sell it you get your invested money and, in most cases way more, but when you move out of a rented property after 3 years the $75,000 has gone down the drain. Obviously investment property works even better whereby the tenant reduces the debt while the property value goes up by capital growth, it’s a win-win. I do a lot of in home consultations and get to meet some great people, but doing this has giving me a very clear insight into how important having a clear property investment strategy or plan really is. Firstly, when customers tell me they want to buy an investment property I explain the process and steps and also let them know important points for consideration as well as the risk and reward. Generally I explain to them they will need to be assessed by a mortgage broker to confirm a suitable purchase budget to get things underway and tell them what their most likely purchase deposit will be. Most time customers tell me they don’t have much deposit as they hadn’t really decided to buy until recently so they hadn’t really been saving for anything. If they had planned to buy they would have been focused more on saving money.
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Secondly, I ask them what type of property they would like to purchase and in what area. I also ask them about their planned tax benefits and also how they intend to rent it and how much for, their desired returns and also the type of capital growth they are planning for and even ask them what type of loan they plan to get. Every time the answer is the same..’we have no idea’. From here I generally back track and start to create a plan with the customer. This does 2 things 1; it shows them the process and educates them on what they need to do and how best to do it and 2; it gives them complete confidence that they are buying the right property for their circumstances. I have a heap of information that we walk through step by step and the clients really enjoy learning the ‘ins and outs’ of investing in property and it also sets them on a path of financial success. Once they understand how to buy the right investment property it is simply a matter of sitting back enjoying life and letting the property accumulate capital growth. If you are interesting in learning how to buy the right investment property for you, simply call us anytime on 0432 922 592 and we will come to you and walk you through it all. Don’t forget, buying an investment property should be a fun and exciting process.
CASE STUDY – INVESTMENT 22 | www.esteemedproperty.com.au | 0432 922 592
Making a smart decision regarding property investment has set them up for a life of financial security and happiness (and whatever else they want to do). John and June* wanted to buy an investment property. They had equity in their family home but weren’t sure how much. They both earned $75,000 each a year and had been employed for over 5 years in their respective jobs. They talked to their mortgage broker who told them they could use the 20% deposit needed from equity in their home, and borrow the rest against the value of the new property and the rental income it would produce (remembering the bank would only include 80% of the rental income to allow for any un-occupied periods for the property). The broker advised them that they could afford a property around $450,000 - $550,000 providing they could produce the correct documentation required to support their property value, assets, liabilities, savings and income. They came to us and advised us that they wanted to invest in property so we walked them through the process of understanding how investment property worked and why it was so important to set up the property correctly from the start. We looked at the cost of buying their preferred option, a house and land package, against buying a new unit.
BUYING The unit was a cheaper entry point and had less maintenance costs and rented easily, however they felt they wouldn’t get as much capital growth as a house. The house was a lot more expensive to buy and had higher maintenance costs and would be slightly harder to rent due to the higher rental price. The house was also further out of town than the unit, so they weighed up their options. Historical data showed that the area they were looking in for the unit had 6% capital growth each year for the last 5 years, and the area where the house was located had 8% capital growth. The unit was $400,000 and the house was $550,000. While they could see that the house would create more wealth, they were worried about outlaying the extra $150,000 so to start, they decided to buy the unit. After 5 years the unit had increased in value by $24,000 each year totally $120,000 and since they took an interest-only loan, they were able to use depreciation and positive gearing to reduce the loan by $10,000 each year by investing the extra cash back into the loan. That meant they already had $170,000 in equity. They decided to sell the unit. After they paid capital gains tax they decided to put $50,000 into their bank account and use the rest to buy the house and land package they wanted so that the loan amount was quite small. Now after 3 years the house has already increased in
value by approx $38,000 a year while also reducing the debt further from rent, depreciation and positive gearing. They are keen to hang onto this property for ten years as they expect the property to set them up for life.
CASE STUDY – FINANCE Darren is keen to invest in a two bedroom unit in the sought after north Gold Coast area. Having done his homework, Darren has learnt that rental income is high and there are plenty of schools, hospitals and shops in close vicinity. Darren has decided to buy an investment property to make money as it’s less risky than purchasing shares at the time. Darren is keen to invest in a two bedroom unit in the sought after north Gold Coast area. Having done his homework, Darren has learnt that rental income is high, as is capital growth in the area, and there are plenty of schools, hospitals and shops in close vicinity. Darren books an appointment with his broker to discuss options for an investment loan of $400,000. Having done research on recent sale prices in the northern suburbs Darren is realistically looking to invest in a $450,000 property. While living on a tight budget, Darren has been able to save around $100,000. This
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BUYING When investing in property, the longer you can hang onto the property, the more profit you are likely to receive.
is a bit more than the 20% of the value of the new property he is looking into. Anything less and Darren would may have to pay lenders mortgage insurance (LMI).
to pay principal and interest then his monthly repayments would be $2,147 which is significantly higher. His rental income however will be $2,200 a month (a gross yield of $533 a month).
Unlike a standard home loan where you pay interest and principal, there is another option of paying just the interest for a set period. Interest only repayments mean Darren’s monthly repayments will be a lot lower than if he was paying principal as well. That means Daren has the option to re-invest the excess cash back into reducing the loan or keep it. Unfortunately the interest only period doesn’t last forever but the bank will allow him five years interest only.
Having chosen an interest only investment loan Darren now has to choose the type of interest rate that will best suit him. There are three main options; variable interest rate loan which changes with the rise and fall of market rates, fixed interest rate loan where the rate is locked in for the fixed rate term or a split interest rate which is a combination of fixed and variable rates. Darren’s first home loan has a fixed interest rate which he is happy with as it makes budgeting a whole lot easier with set monthly repayments. However, Darren is looking for more flexibility with the investment property loan and additional features such as an offset account. So he chooses a variable interest rate loan.
Using a loan repayments calculator, Darren can see how an interest only loan will work in his favor. Borrowing $400,000 for a 30 year loan term (with an interest rate of 5%) and paying interest only, Darren’s monthly repayments will be $1,667. However, if Darren was 24 | www.esteemedproperty.com.au | 0432 922 592
An additional loan feature Darren has been advised to
go with is one that has an offset account. Any money in the offset account will reduce the total amount of interest Darren pays on the loan and once he builds up the money in the offset account he can access it and use it as a deposit for his next investment property! Once Darren signs the dotted line on the investment property loan he will then have his salary deposited into the offset account linked to the mortgage. This means in theory he is only paying interest on the differential between his loan and what is currently in his offset account, which will reduce his payments even further and allow him higher profits or to pay off the loan quicker, depending on what he chooses. For example if he owes $350,000 on the loan and has $100,000 in the offset account, his interest will be calculated on the $250,000 thus reducing his repayments even further and increasing his net profits. With all the big decisions made in regards to the investment property home loan, Darren now needs to provide the broker with some crucial documents for his application to be processed. He has to prove his identification with a certified copy of documents like his passport, birth certificate and Australian driver’s licence. The broker needs to determine if Darren will be comfortable in servicing an investment loan so he’ll have to provide his latest PAYG Payment Summary from his employer as well as a contract outlining his salary. As Darren has an existing home loan he needs to provide 3 months’ worth of statements to show he has been making his monthly repayments. To prove he’s a disciplined saver Darren will also provide copies of his savings account statements.
With all the documentation sorted Darren will now patiently wait for his application to be approved but in the meantime he’s going to start looking for the ideal investment property, starting in Australia’s most iconic area, the Gold Coast! He calls Dale on 0432 922 592 and they begin looking at some of the best new investment properties on the coast.
GETTING FINANCE When it comes to getting a property loan, the process can seem daunting – especially if this is your first application However, by being aware of the home loan application process – and the documents and information you may be asked to provide along the way – you can ensure everything goes as smoothly as possible. The first thing you’ll want to do is research the type of mortgage rates available from different lenders. Home loans can differ significantly and you will want to factor several considerations – including fixed or variable rates, payment plans and other terms and conditions – into your final decision. You’ll also want to set yourself a budget and determine the amount of money you need to borrow. Getting pre-approved for this amount could be a wise idea if www.esteemedproperty.com.au | 0432 922 592 | 25
BUYING you are still shopping around for the perfect property. Pre-approvals tend to last for up to three months and can help you move more quickly once you have found the perfect property. During this application process, you’ll be asked for several pieces of documentation. If you are self-employed, you may be asked to show tax returns and other financial information from the past two years, while anyone who is employed will need to show evidence of their payslips. Group certificates and 100 points of ID may also be requested. At all stages of this process, it is important to ensure your lender remains informed – they will be able to process your home loan more quickly if they are aware of all the details. This information includes the contact details of your solicitor or conveyancer, real estate agent and vendor, as well as a copy of the contract of sale. At this point, first-time buyers should complete their forms for the First Home Owners Grant – these can be supplied by the lender or through your solicitor or conveyancer. Once a valuation has been carried out and all the other documents have been received and processed, your lender will grant formal approval on your home loan and the documents will be sent to you. At this time, you will need to sign these documents and return them. Your solicitor or conveyancer will then liaise with your lender until the loan settles.
If you are a property investor, you are probably aware of the fact that sourcing a loan for investment properties is a different proposition to finding the right loan for a home in which you will be residing. Property investment loans come with different features and options, such as interest-only repayments, and you generally need to have a solid deposit. How much deposit depends on a number of factors. The minimum deposit you need for an investment property is usually 5% of the purchase price in genuine savings. The dollar amount will obviously vary depending on the cost of the property, and depending on the terms of the loan, you might not need to provide a cash amount. If you do not have enough for a 5% cash deposit, consider using the equity in your other properties as security for your loan. This will eliminate the need for a cash deposit. Alternatively, you can have a family member, such as a parent or a sibling, guarantee your loan – as long as they have enough cash or equity to cover 20% of the purchase price of the investment property in a property they own in Australia. These options can make it easier and quicker for you to get started in property investment. You should also allow sufficient funds to cover associated costs, such as stamp duty, borrowing fees, and legal fees for settlement.
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Lenders typically calculate the permitted loan amount by taking into account rental income. They may also consider negative gearing. What this means is that you should compare different products to find the right product for your situation, and the investment property you want to purchase. This can make the difference between being turned down or approved for your loan.
PREFERRED LOAN TYPE Interest Only Loan Interest-only home loans are often used by investors for a number of reasons. Mainly investment property loans should be interest-only because the interest in fully tax deductible. It is also the best cash flow solution when combined with good capital growth. Simply put, an interest only home loan is when borrowers only have to pay the interest for the period as well as any fees for a fixed period of time. The interest only repayment keeps the payments low and allows for cash flow positive returns from the rental yield. This can also allow for additional injections of cash to reduce the loan or use the extra income to purchase another investment property. The main benefits of Interest Only Loans are:
Smaller repayments: For the first five to 10 years, your monthly repayments will be significantly lower. Tax deductible: As the loan on the investment property is tax deductible debt, investors are often advised just to pay the interest and thereby receive an interest tax deduction for exactly what they pay. By not having to pay principal initially, it also allows them to put extra money towards their non tax deductible debts and funding other assets. Ability to redraw extra payments: Any extra payments on the loan can be redrawn at any point as the extra payment in owned by the investor and not the bank so the investor has full access to redraw and use the extra payments. This is very important if they are panning on building a portfolio of investment properties as the extra payments can be accessed for future property deposits Increased borrowing power: By keeping repayments low your bank will allow greater borrowing power on future property investments as they can see the current payments do not stretch your budget and provide the bank with proof of loan sustainability. Get your foot in the door sooner: An interest only loan could be an option for those who want to ease their way into the investment market without spending too www.esteemedproperty.com.au | 0432 922 592 | 27
much initially. However, most Interest Only loans are generally no longer than 5 years. Once the interest-only period ends, the loan will revert back to a principal and interest loan over the remaining term unless refinanced or re-negotiated. The above table show the difference between the available redraw cash for an Interest Only Loan compared to a Principle and Interest Loan on a loan that has $12,000 added ($6,000 principle + $6,000 extra) on the Principle + Interest Loan and $12,000 extra payments on the Interest Only loan type. You can see that after 5 years the Interest Only Loan will allow enough redraw for a deposit on another investment property.
LOAN ACCOUNT TYPES Getting the right financial lending structure can have a massive impact on your investment success but don’t get stuck on the interest rate alone. Although one of the most important parts of the process, they are not the ‘be all and end all’ as many advertised interest rates don’t include application fees or any benefits lenders offer that separate themselves from the next. 28 | www.esteemedproperty.com.au | 0432 922 592
Some banks will offer loans at 4.5% but when you add the application fee, annual fees and even exit fees you may find the loan actually sits around 4.9%. While we talked about using an interest only loan because the interest is totally tax deductible, the loan account can also be important. Where possible an offset account should be set up so that way any spare cash can be put into the offset account and this will, as the term says, offset the amount of the money owed in the loan. So, if the loan is $400,000 then putting $100,000 into the offset account will mean you are only charged interest on the differential ($300,000) while still having access to utilise the $100,000 at any point. This is only offered in a variable rate loan as compared to a fixed rate but you will need to talk to a financial adviser about which suits you best as they will have an understanding of your financial situation and your financial plan for the future.
PUTTING IT ALL TOGETHER In a perfect world we would all invest in property that kept growing in value and the rental yield continued to increase and when we sold it we had enough money to re-invest part of it and retire to a tropical island with the rest of it.
But like everything in life nothing comes with out some effort and a little blood, sweat and tears. We believe that the greatest chance a buyer has of making huge returns from property is to have a clear plan on what they want to achieve, then set about working out how to do it. We are not buyers agents, we sell property... but when a client asks me for advice on buying an investment property, we use a very clear and set plan that assesses every part of the property from historical data of the area for capital growth, rental demand and yield, local development of infrastructure, transport, industry, schools, sports grounds, walk score (in other words living convenience), cost of purchase and holding costs. Basically all this information boils down into a big mathematical formula that summarises each part of the investment and gives us a good idea of what sort of returns the property is going to achieve and what is the financial potential. However this takes a long time to put together for each property so most investors don’t bother to do it, they simply purchase and hope. Our staff spend all day creating reports on investment properties and our buyers clearly understand the potential or risks before they buy by clearing understanding the spreadsheets.
You can see a sample exert on the next page however our full reports are a lot more comprehensive but this shows you what goes into gaining the knowledge for each property we offer for sale. We know the rent, body corporate, management fees, rental demand, yield, area historical data and potential capital growth, tax depreciation schedules and deductions, finance options and blah blah blah. Thats why our buyers have confidence in what they are buying, because we don’t go show it our market it until we understand all about it...warts and all. If you are looking at investing but have been worried you don’t understand it well enough, simply book a free consultation with us and we will go through the entire process of making an investment successful. If you don’t have time for an in-home consultation we can do it over the phone and once you understand the process, pitfalls and rewards, you will have the knowledge and confidence to dip your toe into the water of property investment because you will know exactly what you are getting into and what your expected returns will be. Who knows one simple phone call could set you on a path of financial rewards that could set you up for life. www.esteemedproperty.com.au | 0432 922 592 | 29
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representatives, and also their Mortgagee’s (where required).
A conveyancer is a licensed and qualified professional whose job it is to provide advice and information about the sale of a property, prepare the documentation and conduct the settlement process.
To complete the transaction the Purchaser’s representative and the Purchaser’s Mortgagee will hand over the funds (as calculated on the statement).
Conveyancers don’t necessarily have to be lawyers but solicitors often undertake this work. What a conveyancer does For the buyer – a conveyancer will: • Prepare, clarify and lodge legal documents – e.g. contract of sale, memorandum of transfer • Research the property and its certificate of title – check for easements, type of title and any other information that needs addressing • Put the deposit money in a trust account • Calculate the adjustment of rates and taxes • Settle the property – act on your behalf, advise you when the property is settled, contact your bank or financial institution on when final payments are being made • Represent your interest with a vendor or their agent For the seller – a conveyance will: • Complete and ensure the legal documents are all sorted • Represent you and respond to requests from the buyer – for example, request to extend dates, title
SETTLEMENT Settlement is when all parties meet to complete the purchase transaction. The parties include both the Purchaser’s and Vendor’s
In exchange, the Vendor’s representative and the Vendor’s Mortgagee will hand over the legal documents. Once the documents are inspected, and the Purchaser’s representative and the Purchasers Mortgagee deem that the documents are in order, the settlement is complete. The Vendor and Purchaser will be contacted by their representative to confirm settlement is complete, and the Real Estate Agent will also be contact by phone and also fax to confirm that keys may be handed over to the Purchaser and deposit monies released to the Vendor (if they are still holding funds). Following settlement, the Purchasers Mortgagee or representative will arrange stamping and registration of the Transfer of Land
FINDING A PROPERTY MANAGER Managing the property yourself is not a good idea as most owners don’t have the time to dedicate to doing the job well and it will become time consuming.
Finding a good Property Manager is extremely important and should be a priority the moment you decide to purchase a property for investment. Many new developments offer onsite managers and done correctly this can be a very good option as they are based onsite, can market the properties before they are completed so there is no down time or vacancies and also can field walk in enquiries and keep powww.esteemedproperty.com.au | 0432 922 592 | 31
tential renters on file as properties become available thus reducing advertising costs. The best time to appoint a property manager for your new investment property is the moment you go unconditional on the property and you officially own it. This will give them plenty of time to understand your needs and expectations and also source a suitable tenant therefore creating income from the moment the property settles and is ready for tenanting.
WHEN TO SELL A PROPERTY If you ask a property guru when the best time to sell a property is, they will tell you...NEVER. The longer you can hold onto the property the more capital growth the property will achieve, however while this is true in theory there are a heap of reasons why people sell their properties but more importantly it is important to know when the right time to sell is. Property goes in 10 year cycles and historically this goes the same, 6 years of growth, 2 years or no growth and 2 years of slight decline in value or negative growth. But the growth always outways the decline over time so patience and knowlede of the market is extremelly important. For example.. if the property has had a couple of low years where it hasn’t gained much value, it is likely that if you hang onto it for another 4 or 5 years it will go through some huge growth and you will make some great profits. 32 | www.esteemedproperty.com.au | 0432 922 592
Like wise if the property has just gone through 3 or 4 years of great growth, then it may be time to sell as you may be coming into a couple of years of no growth and the money could be re-invested elsewhere where it could be entering 3 or 4 years of great growth again.
THE RULE OF 72 The rule of 72 is a measure in real estate that links time and yield to produce a prediction of the time it takes for a property to double in value. It predicts that the current annual capital growth x (the amount of years it will take to double in value) will equal 72 (or close to). So a house that has 7% annual capital growth will take 10 years (7 x 10 = 70) to double in value. If your investment only earns 6% then it will take nearly 12 years to double in value and so on.
WHY SELL There are many good reasons to sell, some of them are: • Receiving an unbelievable offer • Deciding to invest elsewhere • The property has hit it’s ceiling in value • The property is starting to be costly to maintain • The owner wishes to ‘cash out’ and use the capital gain (or profits) for other things in life.
HOW TO SELL When it is time to sell, here are three recommended methods for selling a property: 1. Auction Some of the benefits of selling your property by auction include: • Auctions attract more buyers to your property because prospective buyers aren’t put off by an asking price. • The auction date creates a sense of urgency that prevents buyers delaying their decision and lets them know you are serious about selling. You are protected by a reserve price. This means your property won’t sell unless bidding reaches a preagreed level. There is no ceiling price so you have the opportunity to achieve a price above your expectations. Auctions produce an unconditional contract for sale with a set settlement date. 2. Private Treaty Some of the benefits of selling your property by private treaty include: • A fixed price makes it easy for buyers — they don’t need to ‘guess’ your desired sale price. • The price can be adjusted throughout the marketing stage, based on qualified buyer feedback and local market conditions.
This method of sale is a tried and tested style of marketing. It assists buyers to formulate offers that address your desired selling price, which leads to a faster negotiation process. 3. Tender Some of the benefits of selling your property by tender include: • This method of sale shows you are confident about your property and a successful sale. • Tenders offer the intensity of an auction but without the potential stress of an auction day. • Tender enables you to keep the price you may accept for your property discreet and lets the market dictate the price buyers are prepared to pay. A tender has a closing date to create a sense of urgency in the buying process. This method of sale generates competition for your property.
FINAL THOUGHTS The Investor Mindset When we talk to clients about investing in Real Estate we often ask them what they are trying to achieve
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and why they want to invest in property. Most of them say that their friends and family tell them they should invest but really they are not sure why. Well, the mindset behind investing success must include patience and also outline a clear path of how to make the most return on investment and how to continue to grow and re-invest to create long term wealth. Basically if you break it down, the investment model is simple....use as little cash as possible to purchase a property that creates more money than it costs to hold on to (so you can afford to keep it for a long period so it accumulates huge amounts of growth), re-invest the rental surplus and any depreciation returns into the property to reduce the debt or save the money while the property continues to create equity and wealth via capital growth every year. So while these are not physical gains you can touch or spend, they are â€˜on paperâ€™ gains that are accumulating
Positive gearing an investment property will allow you to put away income for your next investment property and start to build your portfolio.
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until you sell the property and get to access the cash or profits created. Each year you should check the new value of the property and when you have created enough equity in the property you can then afford to buy another property and replicate the system. In the perfect world you would have 4 properties that sell every 10 years but in fact create a sale each 5 years for you and therefore the capital growth will be topping up your bank account for the rest of your investing life. This would also give you time to grow great growth and also be patient enough to never have to sell through a down period of little or no growth. For example - Buying: Year 1: Purchase Property 1 - $400,000 Year 5: Purchase Property 2 using equity from Property 1 - $400,000
Year 10: Purchase Property 3 using equity from Property 2 - $400,000 Year 15: Purchase Property 4 using equity from Property 3 - $400,000
Selling: Year 10: Sell Property 1 - $600,000 (4% annual growth) Year 15: Sell Property 2 - $600,000 (4% annual growth) Year 20: Sell Property 3 - $600,000 (4% annual growth) Year 25: Sell Property 4 - $600,000 (4% annual growth)
Total selling profits (25 years): $800,000
WHAT IS LVR LVR stands for Loan to Value Ratio of a property and is the proportion of money you borrow for a property compared to the total value of the property. It is used to assess the ‘risk factor’ of you as a borrower and lenders will calculate your LVR before deciding whether to approve you for a home loan or not. The higher your LVR is, the more of a risk you may be to your lender.For example, if you wish to purchase a $400,000 property and have a $100,000 deposit saved, you will need to borrow $300,000 and this would be an LVR of 75%. Be wary of high LVR. A LVR of 80% or lower is the best place to be as a borrower. Home loans which are over 80% LVR are considered riskier. As a result, most lenders will charge extra fees, such as Lender’s Mortgage Insurance (LMI), in order to protect themselves in case you default. Another risk of higher a LVR is that you will have larger home loan repayments. A LVR plays an important part in the assessment of a home loan application, so the more you know and understand about how it is calculated, the better chance you will have at finding the right home loan for you.
BENEFITS OF MORTGAGE INSURANCE FOR INVESTORS Almost everyone wants to be able to buy a home sooner rather than later, however saving the typical 20% deposit can sometimes near impossible in this day and age. With house prices rapidly rising in Australia, saving a deposit of as much as $100,000 can be tough. www.esteemedproperty.com.au | 0432 922 592 | 35
By reducing the lenderâ€™s risk at the outset, taking out Lenders Mortgage Insurance (LMI) allows you to purchase your investment property with as little as 10% of the purchase price. This can open up many possibilities such as better location, larger property and so on, so Lenders Mortgage Insurance brings you that much closer to achieving your finacial goals earlier than you ever thought possible. The cost of Lenders Mortgage Insurance varies depending on a number of factors, including but not limited to; the amount of the loan, the level of your equity in the security property (how much of your own savings you contribute to the purchase) and the level of risk associated with the particular loan product you choose. Some lenders will allow you to add the cost of the Lenders Mortgage Insurance premium on to your loan, meaning you will not have to pay this amount upfront. Your loan repayments will increase marginally to cover the cost of the Lenders Mortgage Insurance premium. Mortgage insurance on an investment property can be tax deductable over time as part of borrowing expenses.
ONGOING SUPPORT One of the most important things you have to do to be a successful property investor is be aware of the market and also the value of your property and have a plan on what you are trying to achieve with the property. I often sit with with investors and ask them all sorts of weird and wonderful questions to see where their head is at. Most times I open up with where the property is located and what type and also why they bought it. I then move into the interesting partâ€Śhow long are planning on keeping it and what is its current value. Normally the investor will reply with no idea to both. I ask them how will they know when to sell to get the best profit if they donâ€™t know its current value and the angle the market is flowing in. You need to treat your investment property the same way you treat day to day business, by working it and keeping your eye on the ball. We always advise that you get an independant valuation of the property every 2 years to make sure you know its 36 | www.esteemedproperty.com.au | 0432 922 592
BUYING value and how it is trending. We also supply a range of great resources to help buyers understand the market, trends and external drivers that may be influencing their investing success. Investing success isn’t just buying a property and hoping like hell it grows in value, it is a tight system of processes that you must undertake and continue to manage to get the very best result and the very last dollar of profit out of the property. We are always available to contact if a potential investor has any questions and our website has a huge range of regularly updated information about investing, property and finance that will help investors understand how to get the best outcome for their time and hard earned money.
THE MEDIA - FRIEND OR FOE? Everyday in every newspaper across Australia you will see articles about real estate and investing. Normally articles need to sensationalise the news to sell paper and attract readers so generally you need to see beyond that and look for the core of the article. Often I see a Monday paper saying home prices are going through the roof, Tuesday talks about lack of property affordability, Wednesday lack of rental prop-
erties, Thursday about an investor who lost money on property, Friday says now is the time to buy and Saturday warns about an impending crash. Every day seems to contradict the previous. The old saying about today’s news in tomorrow fish and chip wrapper is very true when it comes to real estate. Very few articles address the reality of the market, purchasing or investing so it is important that were always look beyond the media for market assessment. As we know investing in property is a long term plan and any small reduction in land value doesn’t effect anyone unless they are selling in that period. For the rest of us, falling prices just means we hold off another 6 months, 1 year or even 2 until the market returns to steady or hopefully large jumps in capital values. The media warns of a pending crash after the Commonwealth Games however most people in the know can’t seem to put their finger on why the market will crash. Visitors arrive for 2 or 3 weeks and boost the economy, some buy investment properties and most come and go likes ships in the night. Afterwards we are left with great stadiums to hold international events, more lower end property to accommodate increases in population and general increases in visitors all round. Once again investing is a marathon not a sprint so any small changes in the market won’t effect you if you
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are patient and prepared to hang onto property for the long haul and only sell when the market is right for you to make maximum returns.
HANDY JARGON Application fee / Establishment fee Fee charged to cover or partially cover the lenderâ€™s internal costs of considering and processing a loan application. The fees are sometimes required to be paid upfront and are not usually refundable unless the loan is refused. Assets A list of what an individual currently owns, such as real estate, savings accounts, cars, home contents, superannuation, shares etc. Capital gain The monetary gain obtained when you sell an asset for more than you paid for it. Such gains may be taxable. Deposit An initial cash contribution towards the purchase of the property, usually payable on exchange of contracts. Equity The value of an asset not subject to any lenderâ€™s inter38 | www.esteemedproperty.com.au | 0432 922 592
est, e.g a property worth $500,000 with an outstanding mortgage debt of $150,000 - equity is $350,000. Equity loan A loan that uses the equity in your property to borrow for any personal purpose, including personal investment. It usually operates like an overdraft, where the borrower has a set credit limit to which they can draw funds. The term Equity loan can also refer to a Line of Credit loan. First Home Owner Grant (FHOG) Various State Governments provide financial grants to purchasers of their first home, to assist in meeting the purchase costs. Fixed interest rate An interest rate set for a fixed period. At the end of the fixed rate period, most lenders will allow you to fix again at the prevailing rates or revert to their standard variable rate. Freehold title The form of property ownership where a parcel of land fully belongs to the owner. Interest Only (IO) A loan in which only the interest on the principal is repaid with each repayment for a specified period. Lenders Mortgage Insurance (LMI)
A form of insurance taken out by the lender to safeguard against a financial loss in the event of a security being sold due to the loan going into default. The borrower pays a once-only premium. The insurance covers the lender, not the borrower. Loan to Valuation Ratio (LVR) The ratio of the home loan amount compared to the valuation of the security. Commonly called LVR, e.g for a loan of $270,000 on a home valued at $300,000, the LVR is $270,000 divided by $300,000 expressed as a percentage i.e 90%. Low documentation (Low Doc) loan Loans available to applicants who may not have up to date or complete financial information available at the time of application.
Mortgage A form of security for a loan, usually taken over real estate. The lender (mortgagee) has the right to take the property if the mortgagor fails to repay the loan. Mortgagee The lender of the funds and holder of the mortgage. Mortgagor A person who borrows money and grants a mortgage over their property as security for the loan. Offset account A transactional account linked to the home loan. The balance held in this account offsets the balance in the home loan, helping to reduce the interest paid and the overall term of the loan.
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HANDY TIP If you are a landlord, you have some additional risks to your property that you should cover to protect your investment. Landlord building and contents insurance usually covers your building against risks from catastrophes, such as fire, storms and other natural disasters. It will usually include cover for the fixtures such as light fittings, carpets, ovens, stovetops and window coverings. You can also protect yourself from financial loss caused by damage to your rental property by your tenants or their guests, and loss of income due to unpaid rent. A landlordâ€™s policy will include accidental damage caused by tenants, theft of your property by your tenants, malicious damage caused by tenants, and loss of rent due to tenants leaving without paying.
Principal The outstanding loan amount on which interest is calculated. Principal and Interest (P&I) A loan in which both principal and interest are paid with each repayment during the term of the loan. Redraw facility A loan facility whereby you can make additional repayments and then access those extra funds if necessary. Refinancing To replace or extend an existing loan with funds from the same lender or a different lender. Settlement date Date on which the new owner finalises payment and assumes possession of land. Sometimes called the â€œdraw downâ€? date, as this is the date the loan is usually fully drawn. Transfer stamp duty Calculated on a sliding scale based
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on the purchase price of the property. Significant concessions on transfer stamp duty may be available for First Home Buyers. The amount varies from State to State. Title search A request to the Land Titles Office to ascertain the ownership of a specified property and any encumbrances, covenants and easements that may be recorded on the title. Valuation A report required by the lender, detailing a professional opinion of property value Variable rate loan A loan which has an interest rate that varies according to market forces. The interest rate charged is lower than a standard variable rate loan but the loan may have fewer features. Call us 0432 922 592
MEET OUR TEAM PRINCIPLE - DALE WALSH He brings with him not only a huge passion for Real Estate, but a wealth of knowledge in sales and marketing. Dale has been contracted to work for global brands such as QANTAS, Bentley Motors, CBD International and A1 Grand Prix. In a previous life Dale, was a leading Golf Professional and the Head Golf Professional at Palm Meadows Golf Course, Colonial Golf Course and Golf Central at Brisbane Airport. He won several professional events, including the 1995 Dunhill PNG Open, and twice competed at the World Golf Championships on the USPGA Tour in Atlanta, playing with multiple major winners Retief Goosen and Angel Cabrera.
Dale’s purchased his first property early on and is a big believer in bricks and mortar and security. “We had tenants in place who’s rent each week paid the loan off for us and with capital gains we did well out of our first property.” Dale learned quickly that if he owned a property, he not only had security but also huge revenue potential. “Property is a marathon, not a sprint so I know the longer you can hang onto property, the larger the profit.” “Investing in property will not only set you up for the future, but could also potentially set you up for life.”
After a serious car accident slowed up Dale’s golf career, he was ready to pursue his passion for Real Estate. “I knew that I loved the property market but I wanted to be a specialist in a set field of real estate so I focused on new developments and investment property,” Dale said, “I believe you have to focus on one thing and practice it everyday if you really expect to the best in the field.” www.esteemedproperty.com.au | 0432 922 592 | 41
DALE WALSH T: 0432 922 592 E: firstname.lastname@example.org
This document is designed as a general guide only and does not constitute financial advice. Information and pricing can change without notice and we do not guarantee the accuracy of information on the document, including any information provided by third parties or our partners. Every effort has been made as to the accuracy of the information provided on this document, you must not rely on this information to make a financial or investment decision. Before making any decision, it is recommended that you consult an expert or qualified professional in the field who understands your goals and circumstances. No warranty is given as to the accuracy, reliability or completeness of information which is contained in this document. 42 | www.esteemedproperty.com.au | 0432 922 592