Who really cares about your retirement?

One of the hotly-debated initiatives announced in the recent federal budget is the plan to lift the pension age to 70 by 2035. Under this plan, Australians born after 1965 will have to work until they are 70 before they are eligible for the age pension.

Regardless of your specific views on the matter, the discussions should serve as a wake-up call that ultimately you can’t rely on the government to support you in retirement.

Why is this happening?

It is a well-publicised fact that our population is ageing, just as it is in most modern western economies. Currently 13% of Australians are aged over 65, but this figure will grow to 25% by 2047.

By some estimates, one in three of those aged 65 today will live past 90 and half of those could live beyond 100.

With more people on the pension and a declining tax base, it’s easy to see why the government is looking to reduce expenditure in this area. Whether the details are correct is for the politicians to debate.

The reality of retirement

While few people aspire to live on the pension, most retirees don’t have a choice. Almost 80 per cent of Australians over the age of 65 receive some sort of income support and life for many of them can be tough.

The single aged pension, including supplements, is currently only around $827 per fortnight or just over $21,000 per annum.

There is also the fact that many people will simply be unable to work until they are 70 due to the physical nature of their employment.

Even many of those who are lucky enough to have a sizable superannuation nest egg at retirement may struggle to afford their desired lifestyle in the decades following retirement.

Clearly, if you want something other than the norm, you need to take personal responsibility and actively plan for a better retirement future.

Time to get serious about property investment

I believe a growing number of people will look to property investment for the answer, hoping that a combination of capital growth and rental income will provide adequate financial support in retirement.

But casually owning one or two investment properties probably won’t be enough. More than ever you need to take a professional approach to investing. You need to choose the right type of properties, set up the right financial and ownership structures, manage your investment diligently and maximise your tax benefits along the way.

Unless you have the time and knowledge to do it properly, you should turn to the experts. Momentum Wealth was specifically established to guide people through all the stages involved in building wealth through property investment to provide long-term support through to retirement.

You also need to start as early as possible. If you start at the age of 30 and just buy just one property worth $500,000 and it grows at 8% per annum that will be worth around $5m at age 60. If you wait until 40 that same property will be worth around $2.3m at age 60. If you wait until 50 it will only be worth around $1.1m.

If you set realistic goals, employ time-tested strategies, and make informed decisions, you can enjoy the retirement you desire at a time of your choosing.

Having access to money is an advantage in itself

The Perth real estate market has performed well over the past 18 months, with many suburbs recording double-digit growth in values.

From a finance point of view, this creates an interesting opportunity for investors but one that is rarely exploited to its fullest.

The opportunity involves gaining access to – but not necessarily using – your equity until a future date when the market cools and good buying opportunities present themselves.

You basically want to guarantee that you’ll have access to money when the right opportunities come along, ideally when the market favours buyers more than sellers.

Now is a good time to execute this strategy because it’s often easier to gain access to your equity immediately following a period of growth than when the market is weak. This is because lenders are generally more willing to lend and valuers have the sales evidence to justify strong valuations.

There are always stages in the property cycle when finance dries up a bit, making it more difficult to obtain a loan. When this happens, it severely dampens the demand for property and therefore provides those with access to finance a significant advantage.

Equity can be a powerful tool for building wealth but only if you can use it.

How do you go about gaining access to your equity without necessarily using it? There are a number of options.

Through refinancing you might be able to get a ‘top-up’ or ‘cash-out’ on an existing loan and either put the money in an offset account or deposit it directly into the loan account for future redraw.

The beauty is that you only pay interest on whatever portion of the loan you use, so it can sit there waiting for your next investment opportunity.

Access to credit can be a powerful tool for property investors, but it can also be an unhealthy temptation for some. Just like a credit card, you can essentially use the money for anything, so you need to remain disciplined. If you are, then having the funds available may give you the inside edge on your next investment.

Why first-timers are choosing to invest rather than buy

There is always a lot of media coverage devoted to highlighting the struggles of first-home buyers.

But while some aspiring home owners complain about rising property values and dwindling government assistance, others are taking the bull by the horns and turning conventional thinking on its head.

Rather than trying to buy their first home, many young Australians are wisely choosing to become landlords, while either renting with friends or living with their parents. This goes against what we are regularly told is ‘the normal’ way of doing things.

Why this strategy makes a lot of sense

This strategy clearly works on a number of levels. Firstly, it allows the individuals to get a foot in the door of the property market in a much more affordable manner. This is because rental income and tax benefits can go a long way toward paying the mortgage.

It also allows this lifestyle-conscious demographic to live where they want, even when they can’t afford to buy there, while also providing the flexibility to travel on a whim.

In the long term, the goal for these innovative first-timers is to use rising equity to either expand their property portfolio or get into their dream home sooner.

Interestingly, buyers can still later qualify for the first-home owner’s grant, even if they own several investment properties.

A common trap for first-time investors

The biggest mistake made by first-timers is to invest in the same type of property that first-home buyers are typically buying – namely house and land packages on the outskirts of the city.

This type of property often has a low proportion of value in the land and is located in areas with abundant future supply. This result is that these properties just don’t perform in terms of capital growth.

Investors should always choose ‘investment-grade’ properties, which are more likely to be older and in well-established suburbs.

Dealing with a break up: what to do when your tenant decides to leave

So, you’ve just found out that your tenant wants to leave and you’re only a few months into the relationship. Now what?

Firstly, don’t take it personally. There are many reasons why a tenant might need to break their lease and prematurely end the tenancy. Usual reasons include work relocations and changes in family circumstances.

In fact, when the rental market is soft (as it is now) and rents start dropping, some tenants may decide to break their lease simply to move to a better or more affordable property.

Can your tenant just terminate automatically? No, they need your permission first and any agreement to terminate must be in writing, typically in the form of break-lease agreement that details all the costs and responsibilities involved.

Of course, you can agree to let them out of the lease with no cost, but that would usually be unwise.

A residential tenancy agreement is a legal contract and so you are entitled to ensure your financial position is no worse off as a result of the tenant breaking the tenancy agreement.

What costs are involved? The laws differ from state to state but as a general rule the tenant is responsible for a number of costs. For starters, the tenant will typically have to pay rent until a new tenancy agreement commences or the original tenancy expires (whichever comes first).

But it doesn’t stop there. The tenant will also have to compensate you for reasonable costs, including a proportion of the advertising and letting fees, which you will incur as a result of the break lease. Even maintenance costs (e.g. for lawn mowing) may be included.

The tenant has the option of advertising the property themselves to help find a new tenant, but this doesn’t remove their obligation to compensate you for advertising fees.

What’s your role in all this? Well, both you and your property manager will need to take all reasonable steps to re-let the premises as soon as possible. Otherwise, your tenant could make a claim to reduce their costs by arguing that you haven’t mitigated their risk.

Why the WA government wants small developers to succeed

Governments at all levels, but particularly the state government, recognise that WA needs to produce more housing to keep up with our booming population.

This means that when it comes to buying real estate, they want people to build or buy new homes, as this generally adds to the overall stock of housing.

There’s another reason the government wants us to build homes. It’s because construction activity is good for the economy as it creates jobs and demand for a whole variety of goods and services.

In the recent WA state budget, the government decided to reduce the threshold at which first home buyers pay stamp duty from $500,000 to $430,000, which will come into play from 1 July 2014.

This change will clearly make it harder for some first-home buyers to get into the market. But interestingly, the government didn’t change the stamp-duty-free threshold for the purchase of vacant land. Buyers will pay no stamp duty for land up to $300,000 in value, and the exemption phases out at $400,000.

This move will clearly encourage many first-home buyers to build a new home rather than buy an established one.

Last September the government again reoriented the first-home buyer market by slashing the First Home Owner Grant for people wanting to buy established properties to a meagre $3,000, while increasing the grant to $10,000 for new homes.

Put these two recent “tweaks” together and you get a fairly clear picture of the government’s priorities. They want to encourage first-home buyers to buy, or better yet, build a new home, which is good news if you’re a developer targeting first-home buyers.

With local councils urged by the state government to increase infill development throughout Perth’s established suburbs, there are many excellent sites waiting to be developed.

And thanks to government incentives (and disincentives) for first-home buyers, if you hit the right price point you could easily have buyers lining up at the door.

A quiet achiever destined to keep kicking goals

Lathlain is an established, largely residential suburb located 7km south-east of Perth’s CBD and part of the Town of Victoria Park.

It’s the type of suburb that many people would have heard of but is probably difficult to find on a map. Victoria Park sits to the west, Burswood to north, Rivervale to the east, and Carlisle to the south-east.

Lathlain was first developed in the 1890s (when quarter-acre blocks were on sale for £25–30), but significant residential development didn’t occur until the post-war years. In 1959 Lathlain Park, the most prominent natural feature of the suburb, became the home the Perth Football Club, which it remains today.

The suburb has a primary school and a growing number of local shops, but most commercial and other services are provided by nearby Victoria Park and Belmont.

The suburb has great access to the entertainment facilities of Burswood (and the site of the future stadium), and it’s just a quick trip to the airport for the suburb’s many fly-in, fly-out workers.

Lathlain has the convenience of Victoria Park train station on its south-western edge, and is serviced by various bus routes.

The median house price in Lathlain is $710,000, with a median rent of $500 per week. The real estate market has consistently outperformed the Perth average over 1 year, 5 years and 10 years.

Data released at the start of 2014 by RP Data reveal that units in Lathlain had a bigger annual growth in value than anywhere in the city.

The suburb is predominantly zoned R20, making it of lower density than neighbouring suburbs, but there are still lots of post-war houses on big blocks being demolished and the land subdivided.

The future looks bright for Lathlain. The West Coast Eagles and the Town of Victoria Park recently signed a Heads of Agreement which proposes that the club’s new training, administration and community facility be built at Lathlain Park.

Construction on the project is likely to commence in late 2014 or early 2015, with an expected completion date in early 2017.

The development, which will include a museum, café and sports medicine clinic, is part of a wider plan to transform the area around Lathlain Park and ensure the long-term desirability of the suburb.

RBA Update June 2014

The RBA Board has decided to leave the cash rate unchanged at 2.5 per cent again!

This is great news for property investors in Australia as this means that official interest rates have remained on hold at some of the lowest levels for 60 years. Many economic analysts in Australia believe that the federal budget cuts would prompt the RBA to delay a change in the cash rate.

Glenn Stevens, Governor of the RBA stated “In Australia, the economy grew at a below-trend pace in 2013 overall, but growth looks to have been somewhat firmer around the turn of the year. This has resulted partly from very strong increases in resource exports as new capacity has come on stream, but smaller increases in such exports are likely in coming quarters.

Moderate growth has been occurring in consumer demand and a strong expansion in housing construction is now under way. At the same time, resources sector investment spending is set to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative, as firms wait for more evidence of improved conditions before committing to significant expansion. Public spending is scheduled to be subdued.”

It seems like the RBA are playing it safe at the moment and taking a wait-and-see approach to recent mixed economic data from overseas and are waiting to see how the federal budget is received in the long term.