Mercia | Taxation, Business & Finance Advisers

Property Management: Is Being Anti-Pet Costing You Money?

The decision of whether or not to allow your tenants to keep pets in your property is a personal one. For most landlords, the decision is ‘no’. Surveys have shown that only 1 in 4 landlords allow pets, and WA landlords are among the least pet-friendly in the country.

So why are so many landlords anti-pet and could they be putting themselves at a financial disadvantage?

The general concern for anti-pet landlords is about the potential property damage that a pet can cause. Animals, particularly those of the four-legged variety, can certainly cause damage to carpets, floor boards, paint work, and not to mention the garden.

Animals can also affect the ‘aroma’ of a property. How many times have you walked into a home and knew instantly that a dog lived there. And there are noise issues as well. Barking dogs and fighting cats can often create issues between neighbours and put a landlord in a difficult position.

There are, however, plenty of positives to allowing pets in your investment property. For those landlords concerned about vacancies (and who isn’t?), being open to pets can dramatically increase your pool of potential tenants. This can mean shorter vacancies and better quality tenants. Around 60 percent of Australian households have pets and with so few pet-friendly rental properties, it’s easy to see why allowing pets could put you at a competitive advantage.

Some people argue that tenants who own pets are more likely to stay in a property for longer than those without pets. The reason is two-fold. Firstly, pets help tenants feel more ‘at home’ in a property. And secondly, tenants with pets are less likely to want to move for fear of disrupting the pet/family-member..

Clearly, some properties are just not suitable for pets including some strata properties or those with no suitable outdoor areas. But in many cases, it is simply the preference of the landlord not to allow pets. Landlords who are themselves pet owners seem to better understand the relationship people have with their pets and are more open to the issue.

Being too quick to close the door on pets could mean longer vacancies and missing out on quality long-term tenants. This is especially true for owners of property in pet friendly areas such as near dog beaches and parks. And it’s not just families who own pets but also many couples and singles, a growing segment in society.

When making the pet/no-pet decision, it’s perhaps human nature to think of the worst case scenario. There are ways to minimising the risks associated with pets by requiring a pet bond (this only covers fumigation costs), putting restrictions on the number or size of animals and by asking for ‘pet references’ that demonstrates previous good pet behaviour.

Property Acquisitions: How Buyers Can Tell the Difference Between a Salesperson and an Advisor

One of the things all property investors need to understand relates to who you should trust for advice and, specifically, the difference between a salesperson and an advisor.

For anyone considering investing in property, there can be a lot of information to take in, and it’s not just about property. One of the things all property investors need to understand relates to who you should trust for advice and, specifically, the difference between a salesperson and an advisor.

You would think that this is an easy distinction to make, but not so. Many salespeople wrongly present themselves as “advisors” and go to great lengths to convince you of this. They do this to build trust, knowing that you would probably rather buy from someone you trust. So how do you tell the difference? Here are some key things to look out for.

The ready-made solution

There are many skilled and honest salespeople out there, and many of them may genuinely want to help you. The problem lies in the fact that salespeople often have a solution already in mind before they even know what you might need.

Salespeople may appear as though they are representing you, the buyer, but in fact they are working for a seller or property developer. How many times have you heard a salesperson recommend a competitor’s product or steer you towards an option that doesn’t result in a sale? And you can’t really expect any different because it’s their job to sell.

Advisors will generally provide a consultation before recommending any course of action, carefully listening to your needs before considering a variety of options. A true advisor won’t be swayed one way or another but rather focus on what is best for you.

It’s their duty

Salespeople are trained to overcome objections, win trust and ultimately get the deal done. Advisors, on the other hand, are trained to asses a client’s circumstances and offer the best alternatives in the area of their expertise, whether it is property investment or taxation.

Advisors generally have a legal duty to do what is best for their clients. But it’s important you always know whether or not you are actually ‘the client’. Many buyers take the advice of selling agents, for instance, even though these agents must represent the interests of their sellers.

Follow the money trail

If you’re unsure whether someone is a salesperson or an advisor, just ask them how they get paid. Generally, people who are paid by the seller are sales people, whereas those who charge a fee for their service are more likely to be advisors.

Buyers’ agents typically get paid when you buy, but their fee is fully disclosed at the start in a very transparent manner, which can’t be said for many salespeople cloaking themselves as advisors.

Conclusion

Whenever seeking advice or guidance on buying property, it’s important to be acutely aware of the differences between an advisor and a salesperson. While you are free to hear anyone’s advice, you should always put the advice into the correct context and consider whether the advice has been tainted by any specific motivations. Your ‘advisor’ may end up just being a salesperson in disguise.

Suburb Snapshot: Inglewood

Inglewood is sometimes noted for being ‘where you buy when you can’t afford Mount Lawley’ but this is probably an unfair description as the suburb has a lot to offer beyond its proximity to its “fashionable” neighbour.

Inglewood is located 5km from the Perth CBD and part of the City of Stirling. It borders Mount Lawley to the south, Dianella and Yokine to the North/East, Bedford to the North/West and Maylands to the West.

Inglewood is a relatively small but affluent suburb that is popular amongst families and professionals. It is sometimes noted for being ‘where you buy when you can’t afford Mount Lawley’ but this is probably an unfair description as the suburb has a lot to offer beyond its proximity to its “fashionable” neighbour.

It is admired by its residents for its safety, strong community feel, cafe culture, wonderful mix of character and modern homes, and attractive tree-lined streets.

Dwellings in the area are predominantly of pre-war vintage, including many Federation and Californian Bungalow style homes sitting on green title lots. There are also a number of unit developments and flats, mainly constructed after 1960, as well as many modern homes scattered throughout the suburb.

Like Mount Lawley, Inglewood is designated a Heritage Precinct by the Council, ensuring streetscapes are protected and the demolition of older dwellings is all but impossible.

The main commercial area and cafe/restaurant precinct within Inglewood is concentrated on Beaufort Street, which contains retail services, fantastic eateries, a library and a recreation centre.

Young families in the area are well catered to with Inglewood having two very popular local primary schools. However, secondary school students typically attend either Mt Lawley Senior High School or John Forrest Senior High School in Morley.

There are plenty of parks and recreational facilities for residents in Inglewood including the popular MacAuley Park, Mount Lawley Tennis and Golf Clubs (both located in Inglewood) and the Terry Tyzack Leisure Centre.

With its location so near to the city, public transport options are in good supply. There are numerous bus services passing through the suburb, especially on Beaufort Street, and there is a train station in nearby Maylands.

According to REIWA, the median price in Inglewood currently sits at $792,500. In terms of price growth, the suburb has outperformed the Perth metropolitan area over the past 1 year and 5 years, but not over 10 years. The proportion of renters in the suburb is higher than the Perth average.

Recently, Inglewood received prominent attention when it was identified in Australian Property Investor magazine as one of only a few WA suburbs considered to be “immune” to drops in home prices. This is based on data that showed it ended each year in the past decade in positive property price territory.

There seems to be nothing significant on the horizon that could change the landscape of the Inglewood property market. The proposed MAX light rail system will have a stop adjacent to Terry Tyzack Aquatic Centre, which will benefit the northern end of suburb, but this project is certainly not set in concrete.

With its mix of ‘suburbia’ and inner-city living, which many people crave, Inglewood will always be a popular choice for owners and renters. As a destination for property investors, it should remain a reliable if not an extraordinary performer.

Source: REIWA.com.au, September 2013

Finance: Two Ways to Fund a Renovation

Planning a renovation? One of the difficult decisions you will face is how to pay for it. You have 2 main options when it comes to getting a loan for a renovation.

In Australia, renovating is one of the most popular reasons for refinancing, whether it is for lifestyle purposes or to add value to a property. But one of the many difficult decisions facing would-be renovators is how to pay for the renovation.

Some people may have savings or the ability to redraw funds from their home loan. Others may use a credit card or personal loan as a quick way of getting the money they need. But most renovators, especially those planning large renovations, will need to organise financing.

You have 2 main options when it comes to getting a loan for a renovation.

The first is to borrow against your equity, which either involves increasing or refinancing an existing loan or taking out a new loan on an existing property. This is probably the most common method because it’s relatively easy.

The amount you can borrow is determined by the amount of equity available and the lender’s servicing criteria. Typically, you can borrow up to 80 percent of the value of the property without paying Lender’s Mortgage Insurance (LMI), but every lender has different policies.

With an equity loan, interest only starts accumulating when equity is drawn down. This is why these loans require discipline because the money can essentially be used for anything.

The key thing to remember about this type of renovation financing is that the lender won’t take into account the post-renovation value of your property, which could limit the amount you can borrow.

If you don’t have enough equity to fund your renovation, you could consider another option: the construction loan.

This sort of loan is similar to an equity loan but in this case the lender will take into account the finished value of the property when determining how much to lend you. This means you could potentially borrow a larger amount, making the loan a good option for more substantial renovations.

Like an equity loan, interest on a construction loan is only charged when money is drawn. But the lender won’t give you all the money upfront because a construction loan is a riskier prospect for the lender. The money is generally released in stages as the renovation progresses, just as if you were building an entirely new home. This gives the lender more control and ensures the money is not used for other purposes.

Getting approval for a construction loan may require you to have council-approved building plans and a fixed-price building contract in place. Plus, the lender will not only organise a valuation pre-renovation but also assess the project at each stage before an instalment is paid. When the project is completed the loan will generally revert to a standard variable loan or you may be able to refinance to a loan of your choice.

Beware the Lure of the ‘Sexy’ Investments

In Greek mythology, there lived a beautiful but dangerous creature known as the Siren. This femme fatale would supposedly lure nearby sailors with an enchanting song, causing them to shipwreck and ultimately perish.

For property investors, there are modern day equivalents of the Siren that need to be resisted at all costs. I am talking about the types of property that look unbelievably good – sexy even – but that don’t particularly make good investments. For those without the right knowledge or cool head, the consequences can be disastrous.

Here are some of the common culprits…

Culprit #1: Brand new house and land packages

Let’s face it, we all love shiny new things, which is why it’s easy to see the appeal of investing in a new home and land package. Not only does this type of property look amazing in the brochures, but it is loved by tenants and can even be tailored to suit your specific needs.

The tax benefits of new property, with its depreciation, are well-documented, plus there should be no maintenance, at least for the first few years. Clearly, investing in a beautiful house and land package is an easy option.

Like so many things, however, what looks good isn’t necessarily good for you. And when it comes to house and land packages, there are a few reasons why they often let investors down.

Firstly, when you buy new property, you’re not just paying for the building and land. Factored into the price are also the developer’s profit margin and a proportion of the marketing costs that come with selling this type of property. These hidden ‘costs’ could be the equivalent of a few years of capital growth, putting you behind the eight ball from day one.

Secondly, the superficial appeal of these properties is often enough to distract investors from the fact that the location of the property is less than ideal. The majority of house and land packages are located on the outskirts of the city in areas with abundant potential supply.

The bottom line is that while investing in new property can seem appealing, it often proves unsatisfying over the long term due to poor capital growth.

Culprit #2: Off the plan apartments

Like a brand new house and land package, a stylish off the plan apartment can seem an attractive option. The innovative architecture, modern interiors and funky inner-city location can make any investor weak at the knees. Add into the mix potentially strong rental yields and great tax benefits and you have one pretty package.

Sadly, however, the reality rarely lives up to the fantasy. Low valuations and finishes that don’t meet expectations are common outcomes after settlement. Worse still, investors later realise that their property is one of hundreds of similar properties all competing for tenants and buyers, driving values down.

When it comes to off the plan apartments, you must not be distracted by the glossy brochures, incentives and promised rent returns. In the cold light of day, these investments just don’t deliver the capital growth on offer with other types of investments.

Culprit #3: Holiday homes

Who hasn’t been on holiday, fallen in love with a place and thought to themselves ‘I should buy an investment property here so I can enjoy it while also earning an income’.

Holidays have a wonderful way of distorting reality – making everything seem better – and this can lead a normally astute investor to make extraordinarily bad decisions.

There are certain types of holiday investments, such as short stay apartments, that are particularly risky. But even a regular type of property in a holiday location can seem a far better investment than it actually is.

Holiday destinations typically have a very transient population, which means that demand for property can fluctuate immensely. Property investors often have to put up with massive vacancy periods, putting a major dent in their wallet. Also, a holiday home investment can require many additional costs to furnish, maintain and manage the property, which investors fail to take into account.

Selling a holiday home investment can often be tricky and take far longer than an equivalent property in the city. Property values in holiday destinations are notoriously vulnerable to changes in the economy. It’s an asset that quickly gets offloaded when times are bad, which drags down prices. Holiday destinations were some of the hardest hit during the GFC and many have yet to recover.

Competition with your future self

Why are so many investors lured in by these seemingly attractive investment options? I think it comes down to the fact that when faced with certain decisions, especially involving your future, it can be hard to put the needs of your future self ahead of your present impulses.

Some investments look good and might even seem satisfying at first, but they are ultimately not good for your future self. And making the wrong investment decision can cost you.

Ugly is often the way to go

If you care about building wealth and retiring wealthier or sooner, you need to beware of the types of investments I have mentioned. This advice applies not only to investors but also to home buyers who want to build equity and upgrade their home down the track.

There is always a compromise with ‘sexy’ investments. You’re paying for all the ‘gloss’ and in most cases sacrificing important aspects such as location, which inevitabley leads to poor growth. They may offer short term benefits because they are ‘easy’ and immediately gratifying, but the lure quickly fades.

Sometimes the best property investment option is the ‘ugly’ one. Picture an old house needing renovation, sitting on a large block in an established suburb. It might not look that great to the eye, but it could offer an exceptional opportunity for the investor who can see its true beauty – potential for strong capital growth.

Unglamorous properties don’t attract a lot of attention, which means you can often secure them at a great price. Plus, they allow you to manufacture growth by making them a little sexier.

The bottom line is that before entering the market as an investor, you need to be absolutely clear on why you are investing. Is it to show-off to your friends and family? Is it to pay less tax? Or is it to build serious wealth that provides you with a financially secure future? Keeping your eye on the prize will help you stay on course for the long term, even if you encounter many distractions along the way.

Perth Offers Above Average Yields Despite Being Growth Leader

The big story for property investors in Perth is that despite very strong growth in values, the city’s rental yield remains above the average for all capital cities.

Perth currently has the strongest housing market of all the capital cities, according to RP Data’s Australian Housing Market Update for September.

House values are up 9.7 percent over the past year, while the growth in unit values was lower but still significant at 6.1 percent.

Accompanying the lift in values has been a monumental jump in the number of properties sold. In the 3 months to June 2013, there were 23.2 more sales than over the same period last year.

Rents in Perth have also increased, with house rents growing by 5.6 percent over the past year and unit rents growing by 6.5 percent.

However, with many renters taking advantage of cheap credit to buy their first home, the pressure on the rental market has now eased and the vacancy rate has increased.

Properties in Perth are selling much quicker than they were last year with the average time on the market falling from 64 days to just 34 days.

The big story for investors is that despite very strong growth in values, the rental yield remains above the average for all capital cities. The average rental yield for a house is 4.4 percent and 5.0 percent for a unit