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.

Negative Gearing for Tax

Negative gearing can have significant tax benefits but don't let it be your only motivation for buying an investment property. The property you choose needs to stand on its own merits so that it has the potential to make money in the long term through capital gains.

What you want to achieve is a situation where tax rebates and your rental income are used to pay off your home loan, and down the track when your property has increased in value you can sell it at a profit or keep accumulating multiple properties.

Indeed, one of the main advantages of negative gearing is that it may let you invest in a more valuable property than you would otherwise have been able to afford using only your cash savings.

When using negative gearing, it's important to be prepared for unexpected impacts on your cash flow, such as interest rate rises, unforeseen repairs in your rental property or a period of vacancy. In these situations you need to be in a financially strong enough position to be able to repay the shortfall and continue servicing your home loan.

You can overcome many of the risks of negative gearing by doing some homework and selecting your investment property with care. When you're ready to invest your mortgage adviser can help you find a loan that suits your needs.

What you can claim on tax

As a property investor seeking a tax benefit you should always look for the greatest amount you can claim in expenses on your rental property. Keep in mind that the Tax Office takes a close look at rental property claims so it's essential to keep good records of all expenses.

Expenses for which you may be entitled to an immediate deduction in the income year you incur the expense include:

• advertising for tenants

• body corporate fees and charges

• cleaning

• council rates

• gardening and lawn mowing

• insurance ( building, contents, public liability)

• interest expenses

• land tax

• pest control

• property agents fees and commissions

• repairs and maintenance

• travel undertaken to inspect the property or to collect the rent

• water charges.

Expenses that may be claimed over a number of income years:

• borrowing expenses

• amounts for decline in value of depreciating assets, such as carpet, furniture and appliances

• capital works deductions, i.e., certain construction expenditure.

Did you Know? 

You can't claim these on tax:

• acquisition and disposal costs of the property - these are usually included in the property's cost base for capital gains tax purposes

• expenses not actually incurred by you, such as water or electricity charges paid by your tenants

• expenses that are not related to the rental of a property

• GST credits for anything you purchase to lease the premises

For more information about common mistakes made when claiming rental property expenses, see 'Rental Properties - avoiding common mistakes'.

http://www.ato.gov.au/content/00131327.htm

Negative gearing or positive cash flow?

There's no easy answer to the much-debated question: do negatively geared or positive cash flow properties make the better investment choice?
There are many investors who swear by negative gearing, which is when the cost of the property, including interest on the loan used to buy it, outweigh the returns it generates. This loss can be claimed on tax, which is where the appeal of negative gearing lies.


Others strongly believe having a positive cash flow is a wiser choice because it means you have more income than expenses and cash in your pocket every week. This is achieved either through positive gearing - where your property's rent returns are high in proportion to the purchase price and cover all the expenses. Alternatively you can achieve a positive cash flow with a property when its outgoings (loan interest, body corporate fees etc) are lower than the income you earn through rent and tax deductions (from claiming expenses and depreciation).
The reason for the divide in opinion is that there is no shortage of successful investors who can vouch for one or other of the strategies or those who have even used a combination of both. Much of the success of property investment depends on individual choice, circumstance and goals, which means that while something works for one, it may not for the next.

The beauty of a positive cash flow property is that it won't burn a hole in your wallet but you'll have to work hard to find one that also delivers good capital growth.
Keep in mind that any profit you make on the rental income is likely to be subject to capital gains tax (after depreciation and other tax deductions), so it's wise to put aside a component of your rent return to meet the tax bill.
Positive cash flow properties are suited to investors who are looking for a conservative investment strategy and are keen to use the extra cash in the pocket to pay down debt and/or increase their equity to make room for further investment.

Here are 10 top tips for finding positive cash flow property:

1. Buy a property that generates a strong rental yield (the return your property generates compared to the property's market value).

2. Know your statistics. Look for indicators that will drive rental prices upwards like a low tenant vacancy rate or suburbs with a shortage of properties for sale/lease.

3. Look for market cycles that are ready - places which have not grown for a while and get in at the right time.
4. Look for property that you can add-value to through renovation.

5. Regional areas are great places to find positive cash flow properties, but make sure your property is exactly what the market wants otherwise it won't make any capital growth. Thoroughly research both property and town: look for high employment rates, a spread of employment sectors and a growing population.

6. Look to buy in places where huge infrastructure spends are being projected.

7. Borrow as little as possible to fund the property. The interest cost on an investment loan can be one of the more significant expenses of a rental property, so the less you borrow, the lower the interest cost.

8. Don't give up on capital growth. In areas that command high rental yields, it's harder to find properties with good capital growth, but not impossible. It's still worth looking for locations where there are factors in place to support property price growth like shops, restaurants, transport links and job opportunities.

9. Buy new. A new property is more likely to provide a positive cashflow than an older dwelling due to its depreciation benefits.

10. Seek advice. Talk to real estate agents, property managers and other investors. The more advice you seek the more you will learn about growth areas and tenant demand. Contact us to find out how the right loan can play a key role in generating positive cash flow for your property.

Sydney prices will continue to grow: RP Data

Sydney prices will continue to grow: RP Data

An Article from The Adviser's Jessica Darnbrough
10th September 2012

The Sydney property market has been labelled the one to watch by RP Data.

Speaking to The Adviser, RP Data’s Cameron Kusher said Sydney will always perform strongly thanks to the supply issue and growing population. “Sydney will continue to be one of the better performers. There are many reasons for this. The first reason is that Sydney has not performed to the same level as some other  capital cities over the past 10 years. As such, the capital city has plenty of room to make up,” he said.
“When you adjust for inflation, property prices Sydney are still 7 per cent below their peak in 2003 and  2004. If you team that with the fact that there is still population growth in the capital city and an undersupply of properties, the market is well positioned for the future.” According to the latest RP Data-Rismark Hedonic Home Value Index , the median property price in Sydney is currently $530,000 – 1.1 per cent lower than this time last year.

That said, values look to be steadily increasing once again, with the Index showing prices had grown by 0.1 per cent over the last month.

http://theadviser.com.au/breaking-news/7678-rp-data-identifies-capital-city-to-watch 

Newsletter - May 2012

Hi Robert, May 2012 What features do you look for when buying a new property? How about a sunny aspect, modern kitchen, good neighbours and a supermarket on the street corner? A recent survey of real estate agents posed the question - 'what do buyers want?' - uncovering some surprising results. Over the page we focus on successful strategies for refinancing - 'Refinancing Mistakes to Avoid' - as well as how to finance your dreams of property investment --- 'Affordable Property Investment'. Also featured in this issue; some handy tips for overcoming networking nerves, including preparing ice-breaker questions and conversation openers ('Network Success' - article 4.) Enjoy this newsletter and feel free to pass it on to family and friends. Kind Regards, Robert Ward & John McLennan Directors - Equitimax Pty Ltd Equitimax Pty Ltd PO Box 929 Chatswood NSW2057 Tel: 02 9411 5322 Mob: 0417 448 691 Fax: 02 9411 5200 1. Buyers Wish List 2. Refinancing Mistakes to Avoid 3. Affordable Property Investment 4. Book Review 5. Network Success 6. Did you know? Buyers Wish List Multiple bathrooms are rated as number one on a wish list of features that buyers look for in a new home. The results of a national pool of 114 real estate agents have uncovered some surprising research about what buyers want. The survey, commissioned by Turf Australia, found that 42 per cent seek more than one bathroom and 41 per cent desire a quiet street. A decent sized backyard was the next most sought out by 34% of buyers, followed by being close to a bus route or shops (20%) and off-street parking (13%). It seems that it is not any old backyard that buyers want, but one with grass - the survey found that nationally a lawn could add 18 per cent, or just over $75,000 in value on the average $420,000 home. Three quarters of real estate agents said buyers want a safe playing area for their kids while a third believe a lawn adds to the look and feel of a home. A lawn was shown to add the most value in Victoria (19%), followed by NSW (16%), Queensland and South Australia (12%) and WA (9%). As a seller, the key message is that it pays to put some time into making sure your backyard - particularly the lawn - is in tip top condition! Refinancing Mistakes to Avoid Avoid these common mistakes and refinancing your home loan should be a simple, trouble-free experience. Successfully navigating the refinancing process can enable you to take advantage of better rates and features, as well as provide finance for a renovation, construction or property purchase. Mistake # 1: A history of arrears Lenders want to avoid taking on risk, which is why they ask for at least six months of loan statements in order to check your conduct. They won't be impressed with missed/late repayments or going over the limit on any lines of credit, so wait until you have six months of clean history before making an application. Mistake # 2: Too many credit enquiries Every time you submit an application to a lender, it is recorded on your credit report. When the lender sees a number of applications they wonder why your application hasn't yet been approved by another lender - this may be all the reason they need to decline the application. It's our business as your mortgage broker to know how the criteria varies among different lenders and which lender you will have most success applying to. Mistake # 3: Not thinking ahead When shopping for a new loan, you're probably looking for one that will suit your needs now, but what about a few years down the track? If you move house or take a career break to raise a family, the loan you choose needs to accommodate these life changes. Mistake # 4: Failure to lock it in If you fail to lock-in the new favourable rate of interest on your new loan, it may increase by the time your loan gets processed. If you wish to lock-in a rate we can offer that facility. Mistake # 5: Not taking costs into account Sometimes the savings you could make by switching loans are outweighed by the expense involved. Make sure you know what up-front fees you will be charged and conduct a thorough cost-benefit analysis before you go ahead. Let us know if you need us to do this for you. Mistake # 6: Poor paperwork Not supplying all the supporting documents when putting in your application can send it back down the bottom of the pile and the waiting game will start over again. It's equally important when your loan is approved to review the documents properly before signing for a clear idea of the terms and conditions. As your mortgage broker we are experts at guiding borrowers through the paper chase and explaining what's in the fine print. Give us a call anytime about helping you successfully navigate the refinancing process. Affordable Property Investment A large bank balance is not a prerequisite for affording an investment property. There are many options available to help you get a foot in the door including using home equity, tax incentives and tailored investment loans. Equity If you already own a property, you can use its equity ('unrealised value') to fund your next property purchase. Equity is the difference between your home's market value and the balance of your mortgage, so when your property increases in value, the amount of equity also increases. Refinancing your mortgage allows you to access this increased equity to use as a deposit on another property purchase. The property you live in is not the only source of equity - you can use the equity in your business, parents' home or an investment property. Contact us for help in working out how much equity you may have available and how it can be used as a source of funding. Negative gearing Negative gearing lets you invest in an asset of greater value than you could afford using your own money. It occurs when you borrow to invest in an income-producing property, which costs more to own and maintain than the rental income you receive from it. This 'loss' can be claimed as a tax deduction, reducing the tax you are required to pay on income earned elsewhere, such as from a salary. Contact us to find out more about negative gearing and what precautions you should have in place to ensure this investment strategy works for you. Loan choice Choose your loan carefully because the way you fund your investment property will impact on the returns you receive. Investment loans differ in their structure and flexibility - while one might be designed to help you reduce your debt more rapidly, another might be designed to help you purchase more investment properties in the future. There are a range of loan features especially useful for investors such as interest only, interest in advance, mortgage offset, split loan and line of credit. We can work with you to match your investment goals to the right type of loan from our large panel of lenders. Book Review 'IMAGINE' By Jonah Lehrer Did you know that the most creative companies have centralized bathrooms? That brainstorming meetings are a terrible idea? That the color blue can help you double your creative output? From the New York Times best-selling author of How We Decide comes a sparkling and revelatory look at the new science of creativity. Shattering the myth of muses, higher powers, even creative "types," Jonah Lehrer demonstrates that creativity is not a single gift possessed by the lucky few. It's a variety of distinct thought processes that we can all learn to use more effectively. Network Success Networking is a great way to make contacts and establish relationships, but not everyone is good at small talk. Luckily there are tried and tested tactics for breaking the ice and getting a conversation going. 1. Be prepared Think through in advance some topics you can talk about. You don't need to have a shared interest to connect with others, you just have to share your interests - talking about something that you're passionate about will automatically engage those around you. You can also prepare some ice breaker questions in advance. Choose questions that are open-ended so the listener can't just answer with a yes or no. 2. Make the first move Finding someone to talk to in a room of strangers can be daunting but remind yourself it is preferable to standing by yourself. A good tactic for breaking into conversations is to make eye contact with someone, smile at them and ask: 'do you mind if I join you?' Another tactic is to ask someone else to break in and introduce you. If you have just arrived at an event and don't know anyone there, ask the organiser to introduce you. Once you have made your first contact, you can then ask them to introduce you to their contacts. 3. Listen People enjoy being listened to, so you don't need to always do the talking to engage with others. If you can get someone to speak about their experience and opinions - while you listen with interest - you have a firm foundation on which to build a relationship. 4. Help others Networking is a two-way street so you have to be prepared to give as much as you take. It's not all about what you can achieve, but also about what you can do to help others. 5. Follow up Don't let all your efforts in making contacts go to waste; always exchange business cards/contact details and follow up after the event. Jot down some details about the person obtained from your first meeting and you can use this as a conversation starter next time you make contact. Did you know? Buying off the plan and co-ownership may be worth considering if you are looking for an affordable way to enter the property market. Purchasing a property prior to construction (buying off the plan) can bring with it tax savings and capital gains, but it is not without its risks. Do your research, get third party advice and triple check the fine print to ensure you steer clear of unscrupulous developers and end up with an investment property that delivers good returns. Teaming up with a family member or friend (co-ownership) can help you raise a deposit and meet your investment goals sooner. It's essential that you treat the arrangement as a business deal and obtain legal advice to draft a co-ownership agreement setting out the rights and obligations of each person with a share in the property.

Property Investment

We are proud to be partners with BlueWealth Property.

Blue Wealth Property makes it easy to make great investment decisions. Their team is at the cutting edge of the industry and has a proven track record in using research to identify growth markets and strong investment opportunities. Their acquisitions team is dedicated to securing the best investment properties - and often negotiates exclusive offers for our clients.

BlueWealth offer a number of Free Property Investment Seminars throughout the year. If you would like to know more please contact us.

For more information Click Here

Newsletter - March 2012

Hello

March 2012

Equitimax Pty Ltd PO Box 929 Chatswood NSW2057 Tel: 02 9411 5322 Mob: 0417 448 691 Fax: 02 9411 5200

1. Price Bubble Debunked 2. What if... 3. Book Review 4. Fix or not? 5. Technology Trends 6. Did you know?

Price Bubble Debunked Despite talk of a housing price bubble, ANZ research shows there is little chance of a housing market crash this year. The bank forecasts prices to remain on hold or fall slightly, but not crash. In its recent property market assessment, ANZ argues that gains in house prices have been driven by lower interest rates and an increase in household income. The ANZ ‘Australian Housing Chartbook’ reports: “A combination of lower interest rates, falling house prices and rising household incomes has improved Australian house purchase affordability over the past 12 months.” “Despite the continued concerns about significant Australian house price overvaluation from some commentators, housing market fundamentals remain supportive.” This is backed up by ANZ compiled data on international house prices, rental yields and house price-to-income ratio comparisons – showing Australian house prices have not deviated from international trends. HSBC Bank chief economist Paul Bloxham agrees that there is little to fear from a price bubble. In the recent HSBC global research report ‘Australia in 2012’, he states there are three main reasons why prices won’t plummet: the majority of houses can service their debt; the undersupply of housing is growing at a greater rate than the decline in population growth; and there is strong demand for housing close to major urban centres. “We remain unconcerned about the possibility of a large decline in housing prices this year,” concludes Bloxham.

What if... Considering investing in property, but worried about all the things that might go wrong? Here we look at how to deal with a number of common ‘what if’ scenarios. What if I buy the wrong property? Rental yield, capital growth, tenant quality and demand should be upmost in your mind when searching for properties, which means not allowing your emotions or personal preferences to influence your decision. Think about what appeals to a tenant and what property types are in demand now and in the future. Researching your market is an important part of knowing what features tenants are looking for. What if I have problems with my tenants? Screening tenants before signing contracts is the single most important tip for protecting yourself against this scenario. If you choose to hire a property manager to screen tenants, make sure their process is thorough and detailed, like using industry databases that list bad tenants. Conduct as many background checks as privacy laws allow and always ask for the tenant’s references to include company names (not just mobile numbers) to ensure their legitimacy. Remain vigilant after the tenant has moved in by conducting regular general property inspections and promptly dealing with any issues that arise. Landlord insurance can cover you against damage by the tenant or loss of rent. What if I can’t get a tenant? This is a common fear among first time investors but you only need look at the low vacancy rates for rental properties to realise you are unlikely to have trouble finding tenants. Of course nothing turns potential tenants off faster than a run-down, dirty house, so for the greatest tenant appeal ensure the property is in good condition and the rent is on par with other similar properties in the area. What if now is not the right time to buy? Many property investors will tell you that ‘when’ to buy is nowhere near as important as actually ‘buying’. With a long term strategy in mind, so long as you take a reasonably cautious approach, a decent property is more than likely going to deliver growth in the long term. The longer you hold off, the more time you spend missing opportunities to enter the market and grow your wealth. What if I get the wrong advice? You wouldn’t take advice from an unqualified doctor, so don’t take property advice from smooth talking sales people. Do your research and triple-check all the fine print before you enter purchasing schemes like rent guarantees and off-the-plan purchases. Remember, if it sounds too good to be true, it probably is!

Book Review A Short History of Nearly Everything by Bill Bryson This book is a quest to understand everything that has happened from the Big Bang to the rise of civilization - how we got from there, being nothing at all, to here, being us. Bill Bryson's challenge is to take subjects that normally bore the pants off most of us, like geology, chemistry and particle physics, and see if there isn't some way to render them comprehensible to people who have never thought they could be interested in science. It's not so much about what we know, as how we know what we know. How do we know what is in the centre of the earth, or what a black hole is, or where the continents were 600 million years ago? How did anyone ever figure these things out? Bill Bryson takes us with him on the ultimate eye- opening journey, and reveals the world in a way most of us have never seen it before.

Fix or not? A drop in fixed rates by a number of banks and lenders has increased the number of borrowers who are fixing their home loans. If you decide to do the same, make sure you are fixing for all the right reasons not just the lure of a cheap rate. Be fully informed of the implications of locking into a fixed rate as you don’t want to later regret your decision if variable rates drop. Your financial situation and personal preferences should always be the guiding factors in whether to choose a fixed or variable home loan. Both loan types have their pros and cons so talk to us for the best advice about what product suits your budget and lifestyle. The insurance of fixing Choosing a fixed loan is similar to buying an insurance policy; it gives you certainty over a period of time. In the current climate of global economic upheaval, a fixed rate can be a good option if you are on a tight budget because it allows you to know exactly how much each repayment will be. On the downside, many fixed loans charge for extra repayments and early payout (break fees). Seek advice before you sign the contract on how the break fees are calculated in case you have to sell or refinance within the set term. The more rates fall, the higher the break cost because the re-financer has to compensate themselves for the loss of re-lending the money at a lower rate. The ups and downs of variables Variable loans have more features and greater flexibility than fixed loans but as the rate fluctuates according to various market conditions they can be risky if you’ve overcapitalised on your loan. If your variable rate falls, you may be making lower repayments than if you had fixed your rate but if the variable rate rises, your monthly repayments increase. When choosing a variable it’s important to plan for the possibility of rate rises and be able to adjust your budget accordingly. Other options Split rate and capped loans are hybrids between fixed and variable loans. Split rate loans allow you to divide your loan between fixed and variable interest rates, which gives you a foot in both camps. Capped loans are often offered as honeymoon or introductory loans and under this type of loan the interest rate is fixed for the capped period. During this period, the interest rate cannot go higher but it may go lower if the lender’s standard variable interest rate falls below the capped rate.

Technology Trends Just as the fax machine has been relegated to dinosaur status, so too will email be considered old hat. Analysts predict that 2012 will see technologies become more social, more connected and increasingly voice controlled. Embracing the rapid movement in technology is not always easy but investing the time and effort to take on a new technology almost always pays dividends. Let’s look at what’s in store for us over the coming year. Voice Command The success of Siri (a speech-recognition ‘personal assistant’ that's built into all Apple iPhone 4S smartphones) will prompt this type of technology to be used in other handsets, computer tablets (mobile computers), PCs and on websites. Email on the Out The popularity of social networks and messaging products marks the decline in email usage. Downloading services that allow the sharing of links has also proved quicker and more smart-phone-friendly than email. App on the Up App stores will grow in the number of available options as more companies come forward to help free us from content overload. Windows 8 - Touch Windows 8 Touch will bring ‘touch’ into the mainstream PC market, narrowing the gap between notebooks and tablets. Users of Windows 8 devices will be able to tap and swipe their way to touch-based applications via big, touchable panels. Social media Social media will continue to grow and insert itself into even more aspects of daily life, particularly those that are geared to photo and video based interaction. Social networks will add more features and get even more competitive, with Google+ trying to dominate the market. Mobile capabilities There will be an increase in mobile phone capabilities in every aspect and a growing number of internet users will demand access to content through mobile devices. Phone hardware and software will become more sophisticated and phone video will continue to improve in quality. Getting Thinner Our TVS, PCs and tablets are thin – so too will our laptops become as thin as manufacturers can allow. The emphasis will be on laptops that look great, run quietly, and are easier to carry.

Did you know? If you apply for a fixed rate loan, the advertised rate offered is current only for that day. By the time your home purchase happens, that rate may no longer be on offer unless you opt for a Rate Lock. Some lenders offer this service automatically, while others require you to pay a fee to put the rate lock in place.