Beware the pitfalls of going guarantor

Great article from the Sydney Morning Herald - below. 

It outlines the dangers of providing a Parental Guarantee.  If providing a Parental Guarantee the loan needs to be properly structured and a plan developed to exit the guarantee as soon as possible.  Ask Premium Broker for more information about this.

Sydney Morning Herald

November 16, 2013
By John Collett - Personal Finance Editor

Source: www.smh.com.au

Going guarantor for adult children can seem like the simple solution to helping them onto the property ladder.

But going guarantor for your children's loans comes with considerable risk.
A guarantor is under a legal obligation to keep making repayments on a loan if the borrower is unable to continue to make the payments.

Sometimes the guarantor's home is required by the lender as security for loan but often the guarantee can be limited to a certain dollar value.

''I generally advise against it,'' says John Hewison of Hewison Private Wealth. ''I have seen it come apart many times. The mere fact that a lender needs a guarantor indicates the borrower has insufficient funds to justify the borrowings.''
What would happen if your son or daughter loses their job, divorces or separates, or suffers illness or injury and cannot manage the mortgage repayments, asks Laura Menschik of WLM Financial Services.

''What if they get into trouble with their business or they are sued, and their home goes into the pot to pay damages?'' Then the parents - looking forward to a comfortable retirement - can be stuck with their child's mortgage.
It is not just the finances of the guarantor that can suffer.

Disputes and ill feelings over money can pull families apart. Often the problem is not that the adult child cannot service the loan, but that they cannot save the deposit.

And in Sydney and Melbourne, even a 10 per cent deposit can be a considerable amount of money. House prices have risen faster than incomes and so the required deposit has risen faster than incomes.

There are alternatives.

If they can afford it and it does not disrupt their retirement plans, parents could lend the money to them, Ms Menschik says.

But they should draw up a formal loan agreement and seek legal advice.
The parents have to make it clear in what form the assistance is provided - whether it is loan that is to be repaid or a gift, says WealthPartners' Andrew Heaven.

The parents could have their offspring move back home for a while to help them save for the deposit, he says.

A lot of people want to give their kids a start in the market and think that buying them an investment property may be a good idea. But their children will likely want to do different things and may not want to live in the same city or even the same country.

''Don't go buy a unit for the kids thinking that they will want to live there,'' Heaven says.


Source: http://www.smh.com.au/business/property/beware-the-pitfalls-of-going-guarantor-20131115-2xmf0.html#ixzz2kkwsTiak

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.

World Economy Explained with 2 Cows

Saw this and thought it it was a good economic explanation

                                                 

SOCIALISM 

You have 2 cows. 

You give one to your neighbour. 

COMMUNISM 

You have 2 cows 

The State takes both and gives you some milk. 

FASCISM 

You have 2 cows. 

The State takes both and sells you some milk. 

BUREAUCRATISM 

You have 2 cows. 

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

TRADITIONAL CAPITALISM 

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. 

VENTURE CAPITALISM 

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. 

AN AMERICAN CORPORATION 

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. 

A FRENCH CORPORATION 

You have two cows. 

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

AN ITALIAN CORPORATION 

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

You decide to have lunch. 

A SWISS CORPORATION 

You have 5,000 cows. None of them belong to you. 

You charge the owners for storing them. 

A CHINESE CORPORATION 

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. 

AN INDIAN CORPORATION 

You have two cows. 

You worship them. 

A BRITISH CORPORATION 

You have two cows. 

Both are mad. 

AN IRAQI CORPORATION 

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. 

AN AUSTRALIAN CORPORATION 

You have two cows. 

Business seems pretty good. 

You close the office and go for a few beers to celebrate. 

A NEW ZEALAND CORPORATION 

 You have two cows. 

 The one on the left looks very attractive. 

A GREEK CORPORATION 

 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.

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.

What's the deal with Lenders Mortgage Insurance?

Great quick Article by Kevin Boyle - Tuesday 09 July 2013
www.mozo.com.au 

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.

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.

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.

Current Market Conditions - Premium Broker's Perspective

The Reserve Bank has cut interest rates, fixed rates are dropping, rental returns are increasing and the supply of quality properties on the market are very low. This means that home affordability is up and quality properties are being snapped up very quickly. In our opinion there is no doubt that the property market is up, maybe by as much as 10%.

RP Data Market Indicators show that Sydney auction clearance rates are now around 75% up from 50% a year ago. New listings are down 12.7% from a year ago and the average time a property is on the market is down to 35 days.

Many economists have predicted that it was Sydney's time for some capital growth and it appears to be happening right now.

What to do if you are looking for property now.

RESEARCH

Does as much research as you can - Ask us for some Free RP Data Reports, attend as many open houses and auctions as you can.

PRE-APPROVAL

Make sure you have a pre-approval so you can jump on a property as soon as you can. You need to be more prepared than those other buyers in the market.

CONSIDER A PRE-AUCTION BID

Most vendors will consider an offer prior to auction. It saves them time an money. Don't be afraid of making an offer prior to auction . . . . just make sure you have an approval and the contracts are checked by your conveyancer or solicitor.

UPFRONT VALUATION

If you need act quickly, then Premium Broker can help with obtaining an Upfront Valuation. We have access to a number of lenders who allow us to order the Valuation upfront. This can save days that can be critical to obtaining your dream house . . . . . . before someone else does.

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

Rents increasing across Australia

Rents increasing across Australia

Wednesday, 22 May 2013

Brendan Wong

Australia’s capital cities are experiencing a healthy growth in rents, particularly two cities, according to figures by RP Data.

Most of the rental growth has been in Perth and Darwin, where rents have increased by more than 10 per cent over the past year.

In Sydney and Brisbane rents have increased at about three to four per cent, while Adelaide and Melbourne’s housing markets have experienced one to two per cent growth.

RP Data senior researcher Cameron Kusher told The Adviser that rents were generally trending higher. The exceptions were Hobart and Canberra where they had fallen by 1.5 per cent and 0.9 per cent respectively.  

“[Rents] have typically grown at a faster pace than values over the past year, so we are tending to find that rental yields are improving,” he said.

“You’ve got strong yields in Darwin, up around six per cent, so too in Hobart and Canberra. There’s been some big improvements in yields in Perth, and Brisbane units are now yielding more than 5.5 per cent. From an investor perspective, some of those product types are becoming more attractive.”

Source: http://www.theadviser.com.au/breaking-news/8713-rents-increasing-across-australia  

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.

A trusted Mortgage Adviser

Wouldn't it be great to know you can trust your mortgage adviser to give you the best advice and steer you down the right path? Well you can! Here's why...

We are licensed

The mortgage industry is regulated by the industry bodies MFAA and FBAA, with a Code of Practice that requires high professional standards, fair business practices, ethical behaviour and compliance with laws and regulations.

New national regulation for the credit industry, including mortgage advisers, commenced in July 2010 (known as the National Consumer Credit Protection Act), bringing the regulation of residential investment property under the control of ASIC (Australian Securities and Investments Commission).

By law mortgage advisers have to practice "responsible lending", which means extending credit that is unsuitable to the needs and financial capacity of the consumer is an offence.

We are honest

It's standard industry practice for mortgage advisers to be remunerated by lenders and receive commission on the loans we settle. This puts us in the position to be able to negotiate with a range of lenders and mortgage providers on your behalf to find the best situation for you.

We are up front about the fees associated with our service and we will happily provide client testimonials.

We offer premium advice, service and support

It is our job to advise, educate and help you to meet your financial needs. We are well versed in financial services, have years of market experience and a wealth of market knowledge.

Combined with this expertise is the personal commitment we make to our clients to listen and respond to their needs. We care about our clients and thrive on keeping you happy and being available when you need us most.

We recently had a client who told us "you made this so easy for us - I couldn't have done it without you."
It's feedback like this - from a happy client - that reminds us why we became mortgage advisers and why we love our job!

Premium Broker

Equitimax Pty Limited ABN 40 105 746 692 trading as Premium Broker
Australia Credit Licence 392625

Vow Premium Brokers are Accredited Members of Vow Financial Pty Ltd & Mortgage & Finance Association of Australia.  (MFAA)