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.

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.

How walkable is your suburb?

As our lives become busier and our roads more congested, many buyers are prepared to pay a premium to be within walking distance of transport, shops and amenities.

Homes located in 'walkable' suburbs - those with a mix of common daily shopping and social destinations within a short distance - are reported to command a price premium over otherwise similar homes in less walkable areas.

Now Australian cities have been ranked by walkscore.com, a popular US website that measures walkability on a scale from 0 - 100 based on walking routes to destinations such as supermarkets, schools, parks, restaurants and retail.

With a 'walk score' of 62, Sydney comes out on top in the ranking of the most walkable Australian cities and suburbs. Melbourne rates a walk score of 56, Adelaide comes in at 53, Brisbane scores 51, Perth scores 50 and Canberra scores 39.

Australia's walking culture is thought to have begun with the Olympics when people got used to leaving the car at home. Now walkability is believed to add value to residential property just as additional square footage, bedrooms, bathrooms and other amenities do.

Being within walking distance of amenities is not just convenient; it has health and environmental benefits. With today's focus on green living and urban efficiency, being able to ditch the car and use your feet are important considerations when buying your next home or investment property.

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.

Newsletter - July 2012

Hello

July 2012

Please find your Jul/ August newsletter below. If you have any questions or changes please email john@powerport.com.au There is a lot of media hype about out-of-cycle interest rate movements but little in the way of explanation. We have fielded many questions from clients about why lenders are moving their interest rates out of cycle with the RBA and what it means for home owners. Our page two article attempts to answer these questions by explaining the case for both sides of the argument. To understand more about this topic, your mortgage broker is always a good person to turn to for reliable unbiased advice. In this issue we also look at how to build equity in your home loan quickly - page 3 - and the changing face of the Aussie household - below. Our page 4 article explores the topic of empathy and how important it is for effective relationships and communication. 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. A Typical Home In Profile 2. Out-Of-Cycle Rate Hikes 3. Book Review 4. Useful Tips When Purchasing A Property 5. Finding Empathy

A Typical Home In Profile The stereotypical Aussie family home made up of mum, dad and a couple of kids is on the wane, as couples without children fast become the family norm. As our population ages and baby boomers become 'empty nesters', it is predicted that couples without children will increase the fastest of all family types, making up 43% of all families by 2031. Other big changes include a massive increase in the number of Australians living alone - again largely a result of an ageing population. This type of household is expected to increase by up to 91% over the next 25 years, representing the fastest growing household type over the period 2006 to 2031. The number of people in our households will continue to decline until it reaches an average of between 2.4 and 2.5 by 2031. By 2016 Australia's household size is projected to be the same as Japan and New Zealand and larger than England (2.2) and Scotland (2.1). Although there will be fewer people per house, the number of households continues to rise. Estimates place the number of Australian households at over 11 million by 2031, an increase of 4 million households since 2006. Over the same period, Australia's population is projected to increase by 39% to 28.8 million people. So what picture does this paint for property investors? It shows there will be plenty of demand for property into the future but it will pay to keep an eye on projected demographics when planning your next property purchase.

Out-Of-Cycle Rate Hikes There's a very public stoush going on between the banks and the politicians about out-of-cycle rate rises. While each side argues its case, consumers are left confused about whether they are getting a raw deal. Since the RBA began cutting interest rates by 125 basis points from last November, there has been a shift in the tradition of lenders moving their rates in line with the RBA. Lenders have instead chosen in many cases to withhold part of each reduction and to make their rate announcements up to two weeks after the RBA's first-Tuesday-of-the-month announcement. We have lately fielded many questions from confused clients, asking 'who is driving rates', 'am I being ripped off', 'why are out-of-cycle rates rises happening'? Here we'll take a look at both sides of the argument and what it means for you as a mortgage holder. The government argues ... The banks are protecting their profits at the expense of consumers. We've all heard Treasurer Wayne Swan's very public criticism of the banks for moving out of cycle with the RBA. He has suggested they have a responsibility to match the RBA's rate cuts and their 'high returns' give them the profitability to be able to do so. The banks argue ... They have always been independent of the RBA when setting their interest rates and they are under no obligation to follow the Reserve Bank. Their profit margins have been hurt by an increase in 'funding costs' (the amount of interest cost paid by a financial institution for the money they have acquired from various sources), largely as a result of Europe's debt problem and they have a duty to shareholders to adjust rates based on these pressures. The Australian Bankers Association has warned that lenders can't follow the Reserve Bank's cash rate moves without risking the stability of Australia's financial system. "The risk is that if international investors become concerned that the banks in Australia are politically constrained from managing their higher costs, they will perceive us as riskier and they will reflect this in what they charge for the money we raise, adding further funding cost pressures on the banks, and ultimately, customers." We say... If you feel unhappy with the rate movement your lender has made, give us a call to find out if there is a better alternative out there for you. When you come to us you can be sure we will help you find the best deal, answer your questions honestly and provide clear unbiased advice.

Book Review A young woman walks into a laboratory. Over the past two years, she has transformed almost every aspect of her life. She has quit smoking, run a marathon, and been promoted at work. The patterns inside her brain, neurologists discover, have fundamentally changed. Marketers at Procter & Gamble study videos of people making their beds. They are desperately trying to figure out how to sell a new product called Febreze, on track to be one of the biggest flops in company history. Suddenly, one of them detects a nearly imperceptible pattern--and with a slight shift in advertising, Febreze goes on to earn a billion dollars a year. An untested CEO takes over one of the largest companies in America. His first order of business is attacking a single pattern among his employees--how they approach worker safety--and soon the firm, Alcoa, becomes the top performer in the Dow Jones

Useful Tips When Purchasing A Property How to build equity in your home quickly Every home owner has the chance to build equity in their home over time, but here's how to speed up the process. Equity is the difference between the market value of your property and the amount you still owe on your loan. The quicker you build equity, the earlier the opportunity to invest further, expand your portfolio and build your wealth. Buy at a good price At the start of your investing career, it doesn't hurt to knock $25-50k off an average priced home. Paying a lower price not only saves money up front, but also long term through reduced interest payments. Mastering the art of negotiation is your best bet for knocking down the purchase price. Start by doing your sums and knowing your limit, but never let on to the seller what your top price is. Place a time limit on your offer and tempt the seller with something like a quick sale. Stay calm during the process; keep a clear mind and a cool heart. Buy in an up-and-coming area Look to buy your property in areas that market demographics show are just about to boom or that will soon receive new infrastructure or an injection of new business. It can take time to put in the research but the payoff is you will be able to buy a property for a reasonable price and it won't be long before its value starts to rise. Buy a property that can be improved Renovation can increase the value of a property but be aware that it takes time, money and experience. For those would-be-investors not able to make this kind of commitment, the alternative is to buy a property that only needs a bit of cosmetic work. Freshening up the exterior, a lick of paint, new storage areas or a simple bathroom/kitchen tidy up will cost less and can significantly improve property value. Pay your loan off sooner Aim to make your initial down-payment at the time of purchase as high as possible. Then look for ways to repay your home loan early: increase the regularity of your repayments, make larger repayments and make lump sum repayments (ensure your loan has the flexibility to allow this without penalty). Another option is to use the interest offset accounts that come with many loans - these reduce the amount of interest that is charged by offsetting your savings to the value of your loan. As your mortgage broker we are happy to guide you through various strategies for building equity in your home loan.

Finding Empathy Despite the common adage 'never judge a man until you have walked a mile in his moccasins', many of us are too quick to judge others without considering the full picture. How long since you have given someone the benefit of the doubt rather than forming a quick judgement? How long since you stopped to take in someone else's perspective? If your answer was 'today', then congratulations, it means you have what it takes to be empathetic - to place yourself in the shoes of another person and be able to identify and understand their situation. It has been said that a common characteristic of people who are successful as business leaders, teachers, parents, spouses and healthcare professionals is their ability to be empathetic. By gaining an insight into what others are feeling and thinking, they are able to create bonds of trust. They are also able to understand how or why others are reacting to a situation and use this to inform their decisions. Empathy is sometimes wrongly confused with being too soft, giving in or not being assertive. You can be empathetic and yet disagree with another person - it simply means you are in tune with what they are going through and respond in a manner that acknowledges their thoughts, feelings or concerns. How to develop empathy You can strengthen your ability to emphasise by learning to listen attentively and ask questions. To listen attentively means putting your complete focus on that person without getting distracted. For example, if you're doing chores and your child wants to tell you something, stop what you're doing and turn to your child. If you need a few minutes to finish that task or email before comfortably being interrupted by an employee, then let the person know that. To be curious; to ask questions is to learn what the person is feeling and to gain a clearer understanding of the full picture. It also demonstrates you want to know more and you care about what they have to say.

Disclaimer: This newsletter is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this newsletter as a substitute for specific legal or financial advice. All material is copyright 2012. Click here if you would like to unsubscribe from future newsletters.

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.