Tuesday, July 30, 2013

Six Mistakes of Investing

Learning from the mistakes of others is a great way to become a successful property investor. Here's a list of what to avoid on your way to the top.

1. Putting if off

'Too busy', 'too risky' or 'not the right time in the property cycle' are common excuses for not taking action, but in reality there may never be a perfect time. Live by the slogan 'never put off tomorrow what you can do today'.

2. Not enough research

Look at multiple properties and do financial analysis on many properties before committing to buy. Remember the real estate agent is there to sell the property so although they can be a good source of information, don't rely on their word alone.

3. Getting emotionally attached

Don't picture yourself living in the property; instead keep your thoughts focused on the big picture: 'can I sell this property at a higher price?'; 'will this property be popular with tenants?'

4. Over-extending your finances

You are investing to improve your life, not to end up with a mortgage that is too high. Circumstances change and your finances need to be ready to deal with an unexpected blow like losing your job, a period of rental vacancy or a rate increase.

5. Not having the appropriate insurance

Landlord's insurance can cover you for not only damage to buildings and contents, but also for rental default and damage by tenants. Make sure you read the fine print because cover and service can vary significantly between policies.

6. Not using the equity in your home

Using the equity in your home to buy an investment property reduces your reliance on savings. Equity is the difference between your home's market value and the balance of your home loan. Typically lenders will allow you to access up to 80 per cent of this equity and use it as a source of credit on your mortgage.

Ready to take the plunge into property investment? Contact us for more information on any of the above issues like financial approval, insurance and equity.

Tuesday, July 23, 2013

World Economy Explained with 2 Cows

Saw this and thought it it was a good economic explanation
You have 2 cows. 
You give one to your neighbour. 

You have 2 cows 
The State takes both and gives you some milk. 

You have 2 cows. 
The State takes both and sells you some milk. 

You have 2 cows. 
The State takes both, shoots one, milks the other and then throws the milk away. 

You have two cows. 
You sell one and buy a bull. 
Your herd multiplies, and the economy grows. 
You sell them and retire on the income. 

You have two cows. 
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.  
The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. 
The annual report says the company owns eight cows, with an option on one more. 

You have two cows. 
You sell one, and force the other to produce the milk of four cows. 
Later, you hire a consultant to analyse why the cow has died. 

You have two cows. 
You go on strike, organize a riot, and block the roads, because you want three cows. 

You have two cows, but you don’t know where they are. 
You decide to have lunch. 

You have 5,000 cows. None of them belong to you. 
You charge the owners for storing them. 

You have two cows. 
You have 300 people milking them. 
You claim that you have full employment and high bovine productivity. 
You arrest the newsman who reported the real situation. 

You have two cows. 
You worship them. 

You have two cows. 
Both are mad. 

Everyone thinks you have lots of cows. 
You tell them that you have none. 
Nobody believes you, so they bomb the crap out of you and invade your country. 
You still have no cows but at least you are now a Democracy. 

You have two cows. 
Business seems pretty good. 
You close the office and go for a few beers to celebrate. 

 You have two cows. 
 The one on the left looks very attractive. 

 You have two cows borrowed from French and German banks. 
 You eat both of them. 
 The banks call to collect their milk, but you cannot deliver so you call the IMF. 
 The IMF loans you two cows. 
 You eat both of them. 
 The banks and the IMF call to collect their cows/milk. 
 You are out getting a haircut.

Tuesday, July 9, 2013

Rent or Buy

If there's one topic that's bound to cause debate, it's whether you are better off buying or renting a home.

Although the debate has been around for decades, the climate of low interest rates and rising rents has once again stirred discussion. Numerous studies have attempted to compare the finances of each option but with so many variables to take into account, few studies have been able to reach a substantive conclusion.

Comparing like with like is a difficult task when factors such as interest rate charges, rent increases, maintenance costs and appreciation are hard to predict. Assumptions have to be made about how often rents increase, and likewise, any calculations of property purchase has to take into account costs like the deposit, loan establishment fees, property maintenance and strata/council costs.

Reasons for Buying

Thankfully money is not the only contributing factor in the decision about whether to buy or rent. The most obvious advantage to buying a home is the sense of security and stability it brings. It gives your family an asset to call their own that can be passed down through generations or downsized to fund retirement.

Another great advantage is that the family home is generally exempt from capital gains tax unless you rented it out for a time or it's on more than two hectares of land.

Property ownership also allows you the freedom to do what you want with the property. Whether it be hanging a picture, replacing a hot water system or owning a pet - it's your own little piece of Australia under your control!

Reasons for Renting

But perhaps you feel that you're not in a financial position to buy or you enjoy the freedom of being able to move around, in which case renting may be your best choice. Renting gives you're the opportunity to live in an area where you may not be able to afford to buy and you are free of the costs of maintenance, rates and insurance.

Renting also allows you to move homes more frequently, but on the other hand there is the uncertainty of not knowing whether you will be able to remain in a home you have grown fond of.

Ultimately the decision to buy or rent will be determined by your individual circumstances and finances. It's important you are able to meet the monthly mortgage repayments, and this is where we can help - by tailoring a home loan suited to your lifestyle and financial position.

Monday, July 8, 2013

What's the deal with Lenders Mortgage Insurance?

Lenders Mortgage Insurance

Home Loan borrowers are being slammed for an insurance on their mortgage that they may not even fully comprehend, according to the Motely Fool Australia.

Lenders Mortgage Insurance (LMI) is often poorly understood by mortgage borrowers yet is compulsory for borrowers with less than 20 percent equity in their home, almost 25 percent of all home buyers. Many borrowers may not even realise that they are paying for an insurance to protect the lender against default, not the home owner.

The insurance provider is chosen by the lender and even if borrowers were given the option they would be limited to two main providers in Australia, Genworth and QBE Insurance. QBE lenders mortgage insurance premiums have reportedly risen by 17 percent since 2012. According to mortgage broker Home Loan Experts LMI for a typical $500,000 property for a borrower with 10 percent deposit has risen from around $6000 up to almost $9000.

While the insurance is enforced on those who can least afford it, it also puts a major barrier in front of those looking to switch to a cheaper home loan provider as it is not portable with the loan and borrowers looking to switch to a home loan with a better interest rate would be required to pay the LMI over again.

While homeowners do not yet have any choice for switching their LMI, those who are in a position to switch and save on their mortgage can have Premium Broker assist.

Have a question about lenders Mortgage Insurance? Give us a call.

Tuesday, July 2, 2013

Tips for Buying at Auction

The property you want is up for auction and you are determined to buy it. What can you do to ensure yours is the winning bid?

1. Attend multible auctions

It will take at least this many auctions to familiarise yourself with the process, the emotions and atmosphere. It can also help with understanding terminology like 'reserve' and 'vendor' bid, 'on the market' and 'passed in'.

2. Have your finances pre-approved

If you win you will need to have the deposit ready to pay straight away. Financial pre-approval is also a good idea because it gives you a clear idea of your borrowing power and helps you set your bidding limit. As your mortgage adviser, we can step you through this process.

3. Make a limit that reflects the property's market value

Pre-determine the maximum 'walk away' price you are willing to pay and make a resolve to stick with it. This price should be a fair reflection of what you feel the property is worth based on the research you have done of recent sales in the area and the prices of similar properties that are up for sale.
Set your maximum at an odd number because if two people have the same limit, which is more likely to happen on a round number, then the first one to get there can buy the property.

4. Check your state laws

In certain states all bidders are required to be registered - a tactic designed to stamp out 'dummy' bidding. As the legislation varies from state to state, check the laws with your real estate agent or fair trading body.

5. Have a solicitor/conveyancer go over the sale contract

Once the hammer has dropped, it is taken that you accept the sale contract in its current form. There is no cooling off period - when the contract is signed you are committed to buying the property. For this reason it pays to have a solicitor/conveyancer review the contract and any amendments you wish to make (such as the amount of deposit, settlement period, inclusions) need to be agreed by both parties prior to the auction.
Don't assume fittings, fixtures and appliances like the blinds or dishwasher will be included with the house unless they are specifically outlined in the contract.

6. Don't scrimp on inspections

If you are really serious about this property, you should consider having it inspected by a licensed building and pest inspector prior to the auction.

7. Be assertive when bidding

Bid with confidence because you know that provided you follow the above steps you are as ready as can be.