Property Newsletter – February 2015 | Mercia | Taxation, Business & Finance Advisers

Property Newsletter – February 2015

February 4, 2015 |

Author admin

3 easy tips to increase your borrowing capacity

Having problems financing the purchase of your next investment property? Here are three easy tips to increase your borrowing capacity.

Recently Australian banks and other lenders have been forced to comply with regulations that encourage responsible lending.

While these regulations might inhibit the amount of money that an individual can borrow, the rules are vital to ensure the financial system remains robust and protects borrowers from verstretching their financial capacity.

The amount an individual can borrow is determined by an ‘ability to repay test’, otherwise known as a ‘serviceability test’.

The serviceability test allows lenders to prove that borrowers can repay their loans. However, different lenders interpret this in their own way and the size of a loan for an individual can vary greatly from lender to lender.

So the serviceability test isn’t necessarily a broad, ‘cookie-cutter’ system but rather a tool that is interpreted differently from lender to lender.

This is why someone might be approved a $300,000-loan at ‘Lender A’, while the same individual could be approved a $400,000-loan at ‘Lender B’. The lenders simply interpret the client’s ability to repay the loan in a different manner.

Therefore, it pays to shop around or visit a mortgage broker that has a wide variety of lenders and lending products available.

To maximise your borrowing capacity from any lender, there are three easy steps you can take.

Close unnecessary credit cards and review credit card limits
As part of the serviceability test, lenders will assume that your credit cards will be drawn to their limits. For example, a credit card with a $10,000 limit will be deemed by lenders as a $10,000 debt in your name, even if you haven’t used the card. If you have a credit card with a $10,000 limit but you only ever use a portion of this, then you should reduce the limit to a more appropriate level.

Furthermore, you should consider closing unnecessary credit card accounts and, if possible, only keep one card open.
Reduce personal debt
Personal loans will affect your serviceability rating because these generally require expensive monthly repayments, which means you will have less disposable income to repay the proposed home loan. You can combine your personal debts into your home loan, which can increase your serviceability rating, but this will mean you repay the personal debt over the life of the home loan and subsequently more interest repayments in the long term. If possible, it’s best to repay personal debt as soon as possible or avoid it all together if you know you will be purchasing an investment property in the near future.
Maximise incomes from existing investment properties
If you own existing investment properties, even just one, you should seek to maximise rental prices to increase your disposable income, which will be taken into consideration by lenders and in the serviceability test. Your property may be undervalued or you could complete some low-cost improvements to the dwelling to demand more rent. Even allowing tenants to own pets is a quick and easy way to demand higher rental prices.

5 basic features your next investment suburb must have

When searching for your next investment property the sheer amount of information can be overwhelming. Here are five basic features your next investment suburb must have.

Once your finance has been approved and you’re in a position to make your next acquisition, the real work begins – searching for the perfect investment property.

This can be one of the most exciting times in your property investment journey. However, it can also be immensely frustrating as countless people have an opinion on where’s best to invest.

With so many different and often conflicting views, it’s no wonder that, without the help of a professional buyer’s agent, many investors fail to make the best decision and unintentionally waste their opportunity to grow wealth through property.

The following are five basic features that every good investment suburb must have.

Good public transport links
Rental properties near public transport links will attract more interest from prospective tenants and subsequently yield higher rents. Ideally the suburb will have its own train station but a good bus exchange can be just as attractive. This is increasingly important as urban sprawl continues to impact many capital cities.
A vibrant retail and café strip
Tenants want to live near vibrant public spaces, including retail and café strips where they can shop and dine out with friends and family. Shopping precincts and supermarkets in close proximity are also highly desirable.
Reputable schools and child care centres
This is particularly important for families. Now that NAPLAN and TER results are freely available to the public, it is easy for families to determine which are the best-performing public schools. Many families will want to buy or rent in catchment zones with a high-performing public school, particularly as private school tuition fees continue to rise.
Parks and recreational facilities
Just as vibrant retail and café strips are appealing to potential tenants, so are parks and recreational facilities. Well-maintained parks, sporting facilities and other social amenities that can be readily utilised by tenants are appealing to tenants.
Within close proximity to the employment centres
With urban sprawl continuing to affect most Australian capital cities, rental properties close to employment centres will prove to be highly desirable for young professionals and families. In most cities the CBD is the major employment centre, however you should consider other areas if they have solid employment opportunities. Accordingly, higher rental growth may be achieved, as well as higher capital growth prospects.

Note: these are not all the factors you need to consider when making an investment decision but they are a good place to start.

5 tips to maximise returns from your investment property

Whether you’ve recently acquired an investment property or have a long-held portfolio, it’s always beneficial to review your assets to ensure returns are maximised.

If you’re the type of property investor that relies on your property manager for guidance, particularly for direction to optimise rental returns, you’d want to make sure that you’re using a company that offers an advice-driven service.

It might come as a surprise to hear but as long as your property is leased and you and your tenants are happy, then the average property manager wouldn’t think to look at increasing your rents.

However, it’s important to review your property portfolio, ideally on an annual basis, to ensure you’re receiving the best rental returns.

Here are five tips to maximise your property portfolio’s returns.

Update or renovate where required
This is one of the most obvious, and generally most effective, ways to maximise rents. It could be as simple and low cost as giving the interior a fresh coat of paint or something bigger, such as renovating the kitchen or bathroom. Upgrading the kitchen, though, doesn’t have to be an expensive exercise as you can complete a cheap facelift by updating fittings and fixtures and installing new benchtops.
Install additional appliances
A dishwasher, reverse-cycle air conditioner, alarm system or other ‘value-add’ appliances can help to maximise returns on rental properties. For example, in a hot climate tenants may pay extra for an air conditioner, while a large family might pay more for a dishwasher.
Be pet-friendly
Because most landlords will not allow tenants to own pets, permitting animals on your property can attract premium rents. While there are downsides to allowing pets into your investment property, it remains a reasonable option that should be considered thoroughly.
Price the property right
It might be tempting to ask that little bit extra for your rental property, however, if it’s overpriced you’re highly unlikely to secure a tenant, which will ultimately cost you more if the property sits vacant for an extended period. Do your research and price the property right to ensure you maximise returns.
Property development
While you might initially think property development isn’t feasible, simply because of the financial cost, changes to planning rules and regulations in recent years have made it an attractive options for many. On a block in which you might currently have just one dwelling you might be able to build additional dwellings or even ancillary accommodation, which can command more rent and potentially increase the value of the property overall.

Boost rental yields with a dual-income strategy

Would you like to increase rental yields from your residential property to more than 7%? You might think this is impossible, but many investors are taking advantage of this opportunity already.

Ancillary dwellings, traditionally known as granny flats, have recently become a viable option for investors in Western Australia to increase rental yields.

Planning and development changes implemented in WA in 2013 mean an ancillary dwelling may be rented to anyone, not just to the property occupier’s relatives, as was previously the case.

The changes also saw an increase in the permissible size of ancillary dwellings to 70 square metres, up from 60sqm.

The changes created new housing choices for many, including students, singles, couples or renovators needing temporary accommodation, and have proven to be a great lower-priced housing alternative for many.

For investors, an ancillary dwelling provides a secondary source of rent from one property, or what’s known as a dual-income strategy.

Rent from an ancillary dwelling, combined with the primary dwelling, means investors can reap yields of more than 7% from one property.

Furthermore, the benefit of ancillary dwellings is that landlords don’t need to subdivide their land, saving thousands of dollars, and construction can take as little as 12 weeks.

While this means that an ancillary dwelling can’t be sold separately from the main dwelling because they share the same land title, it can be a good strategy for those who are planning to hold a property for the long run.

An ancillary dwelling won’t suit all property investors and their respective strategies but it’s worth considering given the great rental returns that can be secured.