ARE THERE DOWNSIDES TO POSITIVE CASH FLOW PROPERTIES?

                                                             

ARE THERE DOWNSIDES TO POSITIVE CASH FLOW PROPERTIES?

Positive cash flow investment properties are considered by some investors as gold in today’s hot housing market.

Having a positive cash flow property provides you with another stream of income, while giving you the capital you need to pay off your loans faster than if your investment was negatively geared.

Investment properties that provide positive cash flow are often located in regional areas where housing prices and stamp duty are lower than inner city areas These factors make properties in these areas perfect for first-term landlords and investors with a strict budget.

The potential for the housing market to turn resulting in falling property prices means investment properties can fail to deliver strong capital growth. With cash flow positive properties, this risk can be counteracted with a regular return on investment. Like all investment models, however, there are downsides to positive cash flow investing. Below, we’ve detailed some of the key things you need to take into consideration with positive cash flow property investing.

Affordability and upfront costs

With the whole focus of a cash flow positive property being regular income after all expenses are covered, weighing this up against property prices and deposit requirements today can mean there are large upfront costs and affordability limitations with the strategy. While cash flow positive properties may have been easier to find a few decades ago, the capital required for deposits and costs like stamp duty today can quickly render a cash flow positive property investment unviable.

Location and market volatility

The regions where cash flow positive properties are most commonly available in today’s market are located in regional areas. Price movements in these areas can be volatile due to the seasonal cycle of economic activity in these areas. This means the capital growth of these properties can be inconsistent too. It’s important to consider here whether your capital would be better invested in regions with properties that experience a more consistent rate of capital growth.

Due diligence.

Obviously, due diligence is part of any astute property investor’s purchase process, however, with positive cash flow properties in regional areas, you need to take into account the long-term cash flow potential of the property. Property investor services company Real Estate Investar suggests investors search for properties with an 8% to 16% yield while being located near a hub such as a university.

Positive cash flow properties can be a fantastic addition to an investor’s portfolio. You do, however, need to do your due diligence to make sure the cash flow positive properties that you find fit into your long-term investing goals.

IS THIS THE END FOR INTEREST-ONLY LOANS?

As the regulatory environment for lending shifts to maintain stability in the economy, the amount if interest- only loans approved has dramatically decreased. Regulatory changes have made interest-only loans costly for property investors, making principal and interest loans a more popular route. This, however, hasn’t always been the case.

 The trend about 10 years ago was for advisers and brokers to recommend interest-only investor loans as only the interest is tax deductible. At the time it was viable to go down this path as a means to free up cash flow and maximise tax deductions.

 With the shifts that have occurred i the economy since then, however, more investors are securing property with a principal and interest loan. 

With a principal and interest loan, borrowers usually benefit from a lower interest rate compared to interest-only loans. The borrower also reduces the amount they owe immediately through making principal repayments. These factors, coupled with today’s lending environment, are making principal and interest loans the most viable financing option, saving them money from the first year of their loan. 

Here’s an example (Adapted from API Magazine: Why Interest Only Loans No Longer Make Sense):

 Sally earns a salary of $118,000 per year and she wants a loan of $544,000 to purchase an investment property worth

$680,000. She plans to rent out the property at $300 per week.

 

Sally is considering her options — an interest-only loan at a rate of 4.3 per cent or a principal and interest loan at 3.89 per cent.

 If Sally picks an interest-only loan:

Sally would have an additional $937 tax benefit from an interest-only loan.

The monthly mortgage repayments would be lower.

In the first year, however, Sally would pay an extra $2,403 in interest.

 

 If Sally picks a principal and interest loan:

Sally will pay $9,764 off her investment property home loan in the first year.

This equates to a net benefit of $3,865 in the first year compared to the interest-only loan.

Over five years, this equates to an additional $25,803 paid off the loan principal.

 The choice to save on interest and fees, while paying down the loan principal as shown in the example above is becoming an increasingly popular option for property investors as the interest-only lending environment for investors continues to shift.

 Remember, the example above is for information purposes only. You should consult a finance professional to discuss your specific circumstances before making financial decisions.

WINTER MAINTENANCE TIPS FOR YOUR INVESTMENT PROPERTY

As the winter months approach, it’s essential for landlords and property managers to keep their properties in peak condition throughout the seasonal change. Taking the steps now to prevent any potential damage or costly repairs to your property in the winter months will save you money in the long-term and keep your property in excellent condition. Follow the steps below to make sure your investment properties are winter ready. 

Inspect rain gutters

 Clogged gutters can cause severe leaking and water damage. Make sure your rain gutters are clear from leaves, twigs, and other debris to prevent water damage in the event of heavy rain and storms.

Check for loose roof panels and tiles 

If roof panels and tiles aren’t properly maintained, leaking and water damage could occur. This can quickly spread to other parts of your investment property making it a costly problem to repair. A clear indication that you may have loose roof panels or tiles is if the eaves at your investment property are showing signs of rotting or water damage.

Keep trees and gardens tidy

 Hanging branches and unruly gardens could injure a tenant or damage your property in a severe storm. If any trees or plants at your investment property overhang the property, consider pruning the plant. With the height and skill involved in this maintenance, it’s best to call in a professional for this one.

 Inspect for and get rid of condensation and mould

 Mould can be a major health risk if left untreated. Monitor your property for constantly wet areas and act quickly if mould is forming. With the cold of the winter months, mould can often be worse. Mould is commonly caused by heated roofs with poor ventilation, water leakage, and water damage. If you find mould at your investment property, consult a professional to have the cause of the mould repaired and the area thoroughly cleaned.

Check windows and doors

 Inspect all windows and doors at the property to ensure everything is properly sealed. This will keep cold air and water outside to keep the temperature of the property consistent and prevent water damage.

Just like preparing for the other seasonal changes in the year, inspecting and being proactive about any potential maintenance hazards at your investment property will save you time and money on expensive repairs down the track.

WHO IS THE AVERAGE AUSTRALIAN RENTER

Ever wondered who makes up Australia’s population of renters? Based on ABS data and research from Rent.com.au, the key trends and demographics of renters around Australia have been identified. This research found the average renter in 2018 is a 34-year-old female, earns around $66k per year and lives with 2.4 people. The average renter sends an average of five enquiries or applications throughout her property search.

 The Northern Territory is home to renters with the highest income of all states and territories at an average of $72k per year. In contrast, Tasmanian renters earn an average of $45k per year.

 The oldest renters in Australia are in Queensland with the average age of renters about 35 years old, while Tasmania has the youngest renters at 32.8 years old. Tasmania also has the highest number of renters aged 15 to 24 years of age, while the highest number of 24 to 34-year-old renters live in Victoria.

Compared to Australia’s broader population, renters are typically in the younger age ranges with renters under 35 years old making up more than 60% of Australia’s renters. Over 30% of renters are between 25 and 34 years old and 28% of renters are between 15 and 24 years old.

Based on this research and ABS data, New South Wales has the highest proportion of renters at 30.8% — hardly surprising as the cost of property in Sydney maintains its high prices. Queensland has the next highest proportion of renters at 26.4%. The lowest percentage of renters are in Tasmania and the Australian Capital territory at 1.6% and 0.9% respectively.

Across all employment types — employed, retired, student, and between jobs — employed renters earn an average of $73,761 per year. This is higher than the other employment types and is also above the Australian average of $66,643.

RATIO OF HOUSEHOLD DEBT TO DISPOSABLE INCOME RISES

The Reserve Bank of Australia (RBA) recently released its latest household finance ratios. The latest release of these figures indicates that the “ratio of household and housing debt to disposable income continued to climb over the December 2017 quarter, reaching a new record high,” according to CoreLogic’s most recent Property Pulse.

“The ratio of household debt to disposable income was recorded at 188.6% and the ratio of housing debt to disposable income was 138.9%. Over the past 12 months, the ratios have increased by 4.4% and 4.3% respectively,” CoreLogic said.

As the ratio of household and housing debt to disposable income grew, the ratio of household assets to disposable income has also gown. At the end of the December 2017 quarter, the ratio of household assets to disposable income was 961.5%, while the ratio of housing assets to disposable income was 525.3%.

These figures indicate that the value of household and housing assets are significantly greater than the value of household debt. The ratios for household debt to assets at the end of 2017 was 19.6%, while the ratio of housing debt to housing assets was 26.4%. These figures remain unchanged from the December 2016 ratios.

 “It is important to recognize a few things about this data. Firstly, it is a macro view so there are households in a significantly weaker position (marginal buyers, recent buyers and owners in markets where values have fallen substantially) as well as households in a much stronger position (households that have held their properties for many years),” CoreLogic said.

 The data also takes into account households that don’t carry any housing debt. This is estimated to be around 40% of households.

 With the value of household assets rising at a faster rate than debt in recent years, a shift is now starting to occur. As a slowdown in the value of household assets occurred in the last year, household debt continued to expand.

KEEP YOUR ELECTRICITY BILLS DOWN THIS WINTER WITH THESE COSY TIPS

As the weather cools down across Australia, it can be tempting to swap out your air-conditioning or fan with heating. While heating is a necessity in colder parts of Australia, taking some simple steps to keep yourself and your home warm this winter could see you using less heating and saving on your electricity bills. Try these easy tips to stay cosy this winter while keeping your electricity costs low.

Close windows and doors after dusk

 As the sun goes down for the day, the weather naturally cools. To ensure your home doesn’t get too cold as the sun sets, make sure you don’t leave too many doors and windows open around your place. In winter, leaving one secure window open in a central living area or your bedroom for fresh air overnight is often enough.

Keep curtains open during the day 

When the sun is shining during the day, leave the curtains open in south-facing rooms to let heat from the sun stream into your home.

Bundle up 

One of the cosiest parts of winter is wearing warm jumpers and curling up on the couch for a good movie or book. Keep your go-to warm jumpers, socks, and throw blankets easily accessible so you can warm up without putting the heating on or needing to turn your heating up too high.

Be mindful of cold coming through your floors 

In winter, the cold can often come up through the floors of your home especially if your floor coverings are tiles, laminate, or timber. Make sure you wear thick socks and slippers to keep your feet warm. You can also insulate your floor and minimise the amount of cold coming up into your home by adding a rug to your living area.

 Switch your ceiling fans

 Ever noticed a small switch on your ceiling fans and wondered what it was for? These switches can be turned onto summer or winter mode. In summer mode, your ceiling fan will rotate counter-clockwise to push hot air up. In winter mode, your ceiling fan will rotate clockwise to keep heat inside rooms. Try using your ceiling fan on a low setting in winter mode to keep hot air inside your rooms.

And, if you really need your heater…

 Try to use heating in the rooms you use. If you know you’ll mostly spend time in your lounge area and bedroom, heat those areas and leave the doors to other parts of your home closed so your heating system or space heater doesn’t need to work too hard.

ACCESSING YOUR PROPERTY EQUITY TO GROW YOUR PORTFOLIO

ACCESSING YOUR PROPERTY EQUITY TO GROW YOUR PORTFOLIO

Accessing the equity in your investment properties is essential for growing your portfolio and staying nimble as the property market goes through cycles of change. As the mortgage market continues to undergo changes, understanding how to access your equity is key if you come across investment opportunities.

As a property investor, equity is likely something that’s always on your mind. Recent changes in Australia’s economy including low household income growth, property price growth, and an increase in investor loans have all impacted the mortgage market. In response to these changes, the big four banks have increased interest rates for investors and lowered the number of interest-only loans that can be administered.

Like any investment strategy, staying nimble and knowing your options in the face of market changes and challenges is key. For this reason, equity is top of mind for many property investors.

To tap into your equity, refinancing of your mortgage will be required to reflect the increased value of the mortgage while making equity available for other investments. Using this strategy to continue building your property portfolio can help you build the amount of properties you hold quicker than if you waited to pay off the full mortgage on one property, while saving a deposit for the next property.

That being said, cash buffers and contingencies that will keep you secure in the face of any market shocks or financial challenges are paramount as you expand your investments.

Calculating your available equity will involve having your property valued. Most banks will allow you to have debt equating to 80% of the value of your property. Anything higher than this will incur lenders mortgage insurance. To ensure you have a buffer available for unexpected maintenance, vacancies or changes in your personal circumstances, you should avoid using all of your available equity at one time.

When you’ve worked out how much equity you have available to take out and reinvest, you will need to talk to your bank about securing an equity loan. The bank will take into consideration factors such as your age, number of dependents, other debts, your living expenses, income, and rental income.

From here, you can explore your options for an equity loan option that suits you. Ensure you do thorough research and due diligence with the help of a finance professional to secure an equity loan that suits your personal situation.

Let us keep you up to date in the market, Click the below link

https://app.inspectrealestate.com.au/IRE-BDM/Register.aspx?AgencyName=TrendResidential&Source=Blogs&BDMID=81510

BUYING PROPERTY WITH YOUR SMSF

BUYING PROPERTY WITH YOUR SMSF

The number of self-managed super funds (SMSF) has grown across Australia in recent years. Property investment through SMSFs has grown in popularity as it became possible for SMSFs to borrow money to fund a direct property purchase.

Setting up an SMSF and buying property through the SMSF takes considerable research and preparation. It’s not for everyone and you need to have a full understanding of your administration and tax obligations before you establish an SMSF. We’ve listed the key details of investing in property through an SMSF to provide you with an overview of how investing with an SMSF works.

Residential property investing with an SMSF

Any residential property purchased with an SMSF must remain an investment property and cannot be lived in by you, any trustee, or anyone related to the trustees. The property cannot be rented by you, any other trustee, or anyone related to the trustees. This means, for example, you can’t buy a holiday home with your SMSF and live there in the summer months.

Commercial property investing with an SMSF

One of the most popular ways people invest in property with an SMSF is in commercial property. ‘Business Real Property’ can be purchased by an SMSF and the space can be used by its members and related parties. This is provided that it’s done at an arm’s length basis.

For example, many small business owners use their SMSF to buy their business premises and then pay rent directly into their SMSF. This process is important to get right and the rent must be paid at market rates. The property will also need to meet the sole purpose test meaning that the overarching function of the property is to provide retirement benefits for its members.

Your tax obligations

If you purchase a property through your SMSF, the fund will be required to pay 15% tax on any rental income from the property. For properties held longer than 12 months, the fund receives a one third discount on any capital gains made upon the sale of the property. This brings any capital gains tax liability down to 10%.

It’s also important to note that, if you make a loss on a property, tax losses cannot be offset against your personal taxable income outside the SMSF.

Using an SMSF to purchase property has a number of administrative and accounting steps that need to be taken. As always, you should do your own research to see if investing in property through an SMSF is suitable for you.

To get more information regarding property management click the below link

https://app.inspectrealestate.com.au/IRE-BDM/Register.aspx?AgencyName=TrendResidential&Source=Blogs&BDMID=81510

 

LOOKING AFTER YOUR HOME

LOOKING AFTER YOUR HOME

When you’re renting, it’s important make the place feel like it’s your own. Part of making a rental property feel like it’s your own, is looking after the property and keeping the place in great condition. Keep reading below for our top tips on looking after your place to make sure you feel at home, while keeping your landlord and property manager  happy.

Keep things clean and tidy

Make sure you keep your place feeling clean and fresh by regularly fixing any marks or holes in your walls, wiping dusty surfaces, vacuuming and mopping your floors, and putting away your dishes. Spending a little bit of time each week to do these jobs around the house will help your living space feel clean and fresh at all times.

Keep the bathroom clean

Cleaning the bathroom doesn’t need to take all day, especially if you’re keeping it clean throughout the week. Make sure you wipe down any marks off your vanity and vanity mirror, shower screens, and toilet each day so dirt doesn’t build up. If you have a shower screen that has stubborn watermarks, try using Shelley bathroom cleaner or a specialised cleaning solution to remove the marks. Wiping down your shower screens regularly with a squeegee will also keep watermarks from staining your shower screen.

Keep the garden presentable

If you have a yard and garden at your property, make sure you take some time each week or minimum fortnight to cut the grass, water the plants and get rid of any weeds in the garden beds. Spending a little time regularly to do this will save you hours of hard work tidying up overgrown and unruly plants.

Don’t forget about the range hood fan and air conditioner filters

It can be easy to forget about cleaning your range hood fan and air-con filters when they’re tucked away out of site. Keep your range hood fan cover clean by removing it and gently washing it with warm soapy water every couple of weeks. To clean your air conditioning filters, remove the filter covers and get rid of any dust and dirt build up before placing them back into the unit.

Let the fresh air inside

If you’re out of the house at work all day, your home can often feel stuffy and stale because the windows and doors have been closed all day. When you’re home and the weather is fine, leave your windows and doors open for a couple of hours each day to let fresh air into the property.

Following the steps above regularly will help keep your place in top condition and will make your living space feel clean and fresh at all times.