What are the holding costs of an investment property?

When it comes to property investing, most of the focus is put on the cost to buy the asset. However, there are also ongoing expenses that investors need to be aware of.

If you can’t meet these ongoing costs, then you’ll likely be forced to sell the investment property and end up in a worse situation than when you started. Therefore, it’s essential to know that you can afford the associated holding costs.

But what are some of the typical holding costs of an investment property?

Property management fees. A good professional property management firm will proactively manage your portfolio and deal with any issues that may arise. The cost and level of service will differ between companies so it’s important to complete research and find a company that provides add-value recommendations and annual reviews to optimise your properties’ returns. While this is a holding cost, it’s important to note that property management fees are tax deductible.

Strata fees. Apartments, villas and townhouses will often require investors to pay strata fees, which are the responsibility of the landlord, not the tenant. These fees are used to maintain common areas of the property (i.e. lifts, gymnasiums or garden maintenance). The more additional features there are within a complex, the higher the strata fees will generally be.

Maintenance costs. It’s advised to set aside some buffer funds for annual maintenance jobs, particularly if your investment property is an older house, but could also be required for a villa or townhouse. The buffer funds can be used for any unexpected costs such as replacing rusting gutters, the lopping of overgrown trees or to lay new carpet or for a fresh coat of paint.

Mortgage repayments. Mortgage repayments are generally the biggest holding cost for an investor. However, it doesn’t have to be a drain on your hip pocket. For example, for investors on tighter budgets it would be better to target properties with higher rental yields to help cover more of the mortgage. On the other hand, investors with bigger budgets don’t have to be as concerned with finding a property with high rental yields. As a general rule of thumb, properties with higher rental yields will record lower capital growth, and vice versa. Therefore, investors also need to consider why they’re buying an investment property – for rental income or for capital growth?

Insurance. There are a number of different insurances that investors can buy to help protect themselves, their assets and to minimise risk. These include income protection insurance, landlord protection insurance and life insurance, among others. In the event that you fall ill, lose your job or your property is damaged, these types of insurances will help cover financial loss and keep your investment journey on track.

By factoring in the associated holding costs of an investment property, you’ll minimise the risk of financial difficulties in the future after acquiring your property.

4 factors for choosing a builder for your next property development

To secure the most competitive contract for your next residential property development, thorough due diligence of potential builders is essential. Here are 4 factors that need to be considered to help you make the right decision.

The quality, timeliness, cost and overall service provided by residential builders varies dramatically from company to company, which is why adequate due diligence is important.

To help select the best builder for your project, here are 4 factors that need to be considered.

Don’t necessarily choose the cheapest builder.

While it might be tempting to choose the builder with the cheapest quote, it’s important to consider the quality of their work. By choosing a builder with low specifications, it may cost you more in the long run, as errors may need to be rectified or low-quality building specifications may lead to poor finishes

Consider the type of projects the builder specialises in.

Builders won’t be specialists in all construction types, so it’s important to choose a builder with recent experience in the type of project you’re completing, whether it be a group of villas, apartments, or a triplex. For example, if your development is a group of 2-storey townhouses, engage builders with plenty of prior and recent experience with these types of projects.

What clauses are in the contract?

While price is important, part of the negotiation will need to cover contractual conditions. Does the builder want to include any favourable conditions for themselves, such as inclement weather provisions that provide them with more time to complete the build in the advent of extreme weather? On the other hand, will they allow you to include clauses for penalties in the event that they don’t complete the build on time, or any other special conditions?

What is the financial standing of the builder?

Make sure the builder has a strong financial standing to ensure they’re likely to remain operating in the near and long-term. If the builder goes broke halfway through your build, you’ll have to appoint another builder, which can be very difficult and will lead to delays and extra costs. There are also implications if the builder closes after the project is complete, as your building warranty could become void and defaults may not be able to be rectified. To gain a good understanding of the builder’s finances visit some of their worksites and speak to their trades to see if they are paid on time. You can also ask the company for their latest tax invoice or order independent reports about builder’s finances and risk profiles.

By failing to complete adequate due diligence on builders, you increase the risk of ending up with a poorly built product as well as increase the chances of time and cost blowouts.

So it’s easy to see why it’s highly beneficial to complete thorough research and choose your builder wisely.

Suburb bursting with historic charm

Guildford was one of three towns established during the founding of Perth’s Swan River Colony in 1829.

The historic suburb, known for its colonial architecture, is located in the City of Swan approximately 13 kilometres north-east of the Perth CBD.

It is bound by the Swan River in the west and north, and Helena River in the South.

Its population of 1,882 has a median age of 42 years with 32% identifying as professionals, which is significantly higher than the state average of 19.9%. 14% identify as clerical and administrative workers and 14% as managers.

Housing in the area is predominantly low-density residential with commercial along the main thoroughfare, James Street.

About 83% of stock is classified as houses, 11% as semi-detached or townhouses and 5% as flats, units or apartments.

About a quarter of stock is being rented (26%) and 72% of properties are either owned outright or being purchased.

The median house price for the area is $650,000.

Neighbouring suburbs include Bassendean to the west, South Guildford to the south and Woodbridge to the east.

There is good schooling in the area including Guildford Grammar School and Guildford Primary School.

Features of the suburb include Fish Market Reserve, Stirling Square and Guildford Hotel, while nearby amenities include the Swan Valley, Perth Airport and Midland Gate Shopping Centre.

It also features good public transport with the Midland train line cutting through the suburb offering two stations, as well as bus routes along James Street and Great Eastern Highway.

Deals and Don’ts – Morley, Edgewater, Spearwood

Here we take a look at just some of the different properties on the market and explain why they’re either deals (that represent a good investment) or don’ts (that should be carefully avoided by investors).

Deals

Morley

Purchase price: $520,000 Purchase date: January 2017 Block size: 359sqm Specification: 3 bedroom, 2 bathroom duplex built in 2012, zoned R20/25.

Deal: This property represents a deal as it offers a high specification finish and strong cash flow with a 4.23% rental yield. The duplex is just 9 kilometres from the CBD and has a good 359sqm land holding for a relatively new asset.

Edgewater

Purchase price: $480,000 Purchase date: January 2017 Block size: 723sqm Specification: 4 bedroom, 2 bathroom house built in 1982, zoned R20/40.

Deal: This property represents a deal given its strong development potential, being zoned R20/40 and situated on a corner block, which would allow for an enhanced development design. The dwelling is also in a highly rentable condition with 4 bedrooms and multiple bathrooms suited to families, and delivering an estimated rental yield of 4.55%.

Spearwood

Purchase price: $478,000 Purchase date: January 2017 Block size: 693sqm Specification: 3 bedroom, 1 bathroom house built in 1972, zoned R30/40.

Deal: This property represents a deal given its location opposite a park and high development potential, being zoned R30/40. While the fitout is basic the property would offer estimated rental yields of 3.21% and represents a good land holding.

Don’ts

Wembley

For sale price: $240,000 Specification: 2 bedroom, 1 bathroom apartment

Don’t: This property doesn’t represent a good investment because it is located on a busy road in a large 126-unit complex. The complex is dated and poorly presented with little chance of revitalisation due to the strata-ownership style. State housing is prevalent in the area due to the affordable nature of the property types surrounding. Currently 5 properties are for sale in the complex, showing continual supply being added. The property was on the market for sale for 151 days in 2016, and has been re-marketed in 2017 being on the market for over 60 days without sale.

6 top reasons to consider residential development syndicates

Residential development syndicates are often touted as highly lucrative, but are there other reasons sophisticated investors are choosing this investment type?

Many investors will, at some stage in their journey, consider developing a property on their own. But is direct development always the best strategy, or can joining a development syndicate be a more appropriate option?

Here are 6 top reasons to consider residential development syndicates as part of your investment strategy:

Access to larger, higher-quality investments

Development syndicates will often be multimillion dollar projects that the large majority of individual investors simply couldn’t fund by themselves. Even for high-net-worth individuals, who could bank-roll such projects, the risk of putting all their funds into one project is simply too high. Development syndicates allow investors to access these larger, higher-returning investments that are otherwise out of reach for many.

Lower capital investment

Instead of undertaking your own development or buying an investment property, which would cost potentially $1 million-plus, residential development syndicates generally require a minimum investment of between $50,000-$100,000, making the capital outlay significantly lower.

Greater diversification of assets

As the capital outlay is lower, investors are able to spread their funds across multiple investments. This could be in several residential development syndicates or incorporating commercial syndicates or direct commercial or residential property investment into their portfolio as well. By holding a greater diversification of assets, investors are effectively mitigating their risks.

Shorter-term investments

Residential development syndicates often provide investment terms of 2-3 years, providing returns in a much shorter timeframe compared to direct residential investment.

Managed by professionals

Provided you engage a company with a good track record, residential development syndicates will be managed by a team of professionals who can utilise their expertise to secure the best results for the project. They will take care of researching and negotiating the acquisition of a development site to planning approvals and ensuring the designs are targeted to the right target market. For individual investors wanting to undertake a development, it can be extremely time consuming and difficult to manage all this on their own, which is why residential development syndicates can be a better option.

Less stress than completing your own development

Residential development syndicates are managed by a professional team, meaning investors only have to provide the funds and wait for the returns at the end of the project. The syndicator will complete all the work, from finding and acquiring the site, to assisting with project designs and approvals as well as construction and sales of the project. Good syndicators will provide investors with regular updates regarding the progress of the project.

Residential development syndicates can offer unique opportunities to investors, but that doesn’t mean they are suited to everyone. It is recommended to speak to an advisor to determine how these residential development syndicates fit into your investment strategy.