The power of compound growth

Taking the step towards starting a property investment portfolio can be a daunting prospect for aspiring investors. With other financial priorities such as starting a family, organising that much-needed holiday and paying off existing home repayments, many end up delaying the start of their investment venture, with the majority never making it to their second purchase.

With issues of immediate affordability at the forefront of their minds and retirement a far cry away, many people overlook the long-term benefits of investing in property, and their goal of achieving financial freedom suffers as a result. In reality, however, there are huge potential benefits to investing early and giving your investment portfolio time to grow, and the secret lies in a concept called compound growth.

What is compound growth?

Compound growth is when an asset generates earnings which are then reinvested to generate their own earnings. Whilst compounding is commonly associated with interest, it’s also an incredibly powerful concept when applied to the capital growth of a property. For example, if an investor purchases a property valued at $500,000, and this property grows 5% per year, the property will increase in value to $525,000 over the first year. After a second year of growth, it will then increase further to a value of $551,250, and this trend will continue, with the value of the property (and the equity in the asset) increasing exponentially over time.

The snowball effect

Whilst many investors are familiar with the concept, a lot of people don’t understand the actual power of compounding when put into practice. Whilst it may not take a huge effect immediately, compound growth increases by larger and larger amounts each year, and this snowball effect can have huge implications for property investors who hold onto an asset long enough to reap the rewards.

Let’s look at that same property – with an annual growth rate of 5%, the property would be worth over $814,000 after ten years, marking an increase of over $300,000 compared to its value upon purchase. Whilst a non-compounding asset would have only increased in value by $250,000 over the same period of time, in this case the $250,000 in growth has created its own $64,000 in equity due to the compounding nature of property. The equity created from this growth could then be leveraged to purchase a second investment property, which will in turn start to accumulate its own equity through compound growth, and so on.

Time is key

The key to profiting from compound growth, and property investment generally, is time. The earlier an investor starts building their property portfolio, the longer they can hold onto a property, and the faster they can accumulate wealth. Going back to our earlier example – if the investor holds onto that property for a further ten years, it would be worth over $1.3 million after a period of twenty years. Now imagine the potential implications of this if you had multiple properties in your portfolio. Pair this with the fact you would  be paying less and less towards your properties as rental growth and loan repayments take their toll over time, and it’s easy to see how compound growth can become an incredibly lucrative strategy for investors.

Choosing the right property

When it comes to compounding value, choosing a property with high growth potential is integral to success. As an investor, it’s really important you consider the potential growth drivers of a property before completing a purchase. With the right research, strategy and support in place, there are huge potential gains to be made from compounding growth. And the earlier you start to build that portfolio, the greater the potential returns.

Momentum Wealth is a fully-integrated, research driven investment consultancy dedicated to helping investors build wealth through property. Backed by our in-house research team, our buyer’s agents are committed to helping investors identify investment properties with high potential for growth. If you would like to discuss your property needs with one of our Perth buyer’s agents, book a consultation with the Momentum Wealth team today.

Seeking approval: what do lenders look at?

In the past few years, we’ve seen a number of shifts within the lending environment due to changing APRA regulations and the recently appointed banking royal commission, with banks reassessing and adapting their lending criteria to mitigate risk and meet new lending guidelines. As a result of this increased scrutiny, investors (both aspiring and existing) are having to be more diligent when it comes to preparing their finances and approaching banks for loan approval.

Whilst lending criteria and policies vary considerably from bank to bank, here are some of the key factors lenders will look at when assessing your eligibility for a home or investment loan.

Credit Score

One of the key pillars lenders will consider when assessing your eligibility for a loan is your credit score. Are there any red flags that suggest you may not make your repayments on time? From the lender’s perspective, your credit history will provide a key indicator of the level of risk they are taking in borrowing to you. If you’ve failed to make repayments on time in the past or filed for bankruptcy, the lender may consider you a high risk borrower, and this can strongly impact the rates or products they are willing to offer you (or, in the latter case, your immediate eligibility for a loan).

Income and serviceability

Before issuing a loan, banks will also look at your ability to make repayments on time and in full. For lenders, one of the biggest indicators of this will be your monthly income. As well as aggregating your income sources and assessing the stability of this income, lenders will look at your outgoing expenses such as existing debt repayments, your new mortgage repayments, child support and all other outgoings to assess your serviceability. A key thing you also need to be wary of, and something that proves an obstacle to many investors and first-home buyers, is the way that banks assess your credit card debt. Even if you have a proven history of paying off your credit card on time, lenders will still calculate debt based on your credit card limit. If you have a credit card limit of $50,000, they will therefore consider that amount as ‘debt’ and take a 3% monthly liability to mitigate their risk, thereby impacting their assessment of your monthly income. If you have any credit cards that you don’t use, you may want to consider cancelling them to improve your serviceability.

With recent changes in the lending environment, many banks are tightening their serviceability metrics by enforcing stricter housing expenditure models and changing debt-to income ratios. Whilst an investor or home buyer may have once been deemed eligible to service a loan under a given income, this may no longer be the case under the new criteria. In addition, you also need to be aware that lenders will assess different types of income in different ways depending on their individual policies. For example, whilst some lenders may take overtime work into full consideration when assessing your income, others may only consider a percentage of the money earned through overtime when calculating your serviceability. In these fluctuating conditions, this is where a mortgage broker can really help you compare different loan products and lenders in the market to open up your options and find a solution that suits your situation.

Equity

Whilst it hasn’t always been the case, banks in the modern lending environment require borrowers to make a down payment before they issue a loan. As a prospective buyer, you will need to start making provisions for this in advance by building the necessary savings required for a deposit, whether it be in the form of cash savings or equity from an existing property. The amount required for a deposit will vary depending on your lender’s individual policies and the nature of your investment, but many banks are willing to lend up to 95% of a property’s value with Lender’s Mortgage Insurance in place. However, lenders may require higher equity if you are deemed a high risk borrower. To find out more about how your investment strategy can impact your required deposit, read our latest blog on the upfront costs of property.

Property analysis

One of the biggest things that lenders will take into account when determining the loan-to-value ratio they are willing to offer a prospective buyer is the physical state and location of the property being mortgaged. In other words, the lender wants to know that the property would be easy to sell should you default on your loan. If the property is in good condition and located in an inner-city suburb with high demand, the banks will likely be willing to offer a higher loan-to-value ratio, especially if you have Lender’s Mortgage Insurance in place.

We have, however, seen examples where lenders demand a higher deposit due the property type and location. This can be the case with apartments in high density CBD locations. With the high stream of apartment stock coming to market in Perth’s CBD, lenders often see these dwelling types as less secure due to the higher level of supply, and will therefore ask for the full 20% deposit to mitigate their risk. This will ensure they are covered against greater losses should you default on the loan and the property sell for less than its purchase price. This can also be the case in locations that are heavily dependent on one particular industry, as these areas can be more susceptible to price drops should that industry undergo a downturn. A key example of this would be Karratha, where the property market is heavily dependent on the mining industry. These wider market trends are something you will need to take into account when identifying potential properties, particularly if you are purchasing an asset for investment purposes.

Navigating a changing market

Applying for a home or investment loan can be a daunting prospect, especially in a fluctuating lending market with more potential changes on the horizon. With loan criteria tightening and banks now adopting stricter lending policies, it’s more important than ever to seek the advice of a specialist mortgage broker who has the investment knowledge and expertise to guide you through changes in the lending landscape.

If you are looking to secure finance for a property or would like to discuss how to navigate recent changes in the lending environment, our investment finance specialists will be happy to discuss your financial needs in an obligation-free consultation.

Bank vs broker: which is best?

When searching for a home or investment property loan, buyers will generally weigh up between two options: applying for the loan directly with the bank, or enlisting the help of a mortgage broker to compare products from different lenders. Whilst the end game is essentially the same, how and who you choose to apply for your loan can have a significant impact on the final rates and benefits you receive. So what are the key differences between brokers and banks? And how could a specialist mortgage broker better serve your long-term investment goals?

Product choice

One of the biggest differences between banks and mortgage brokers lies in the range of products each service provider offers. Since they are aligned to their own lending solutions, banks will only have access to their products and will adhere to their own unique lending policies. Essentially, this means you’re only being shown a fraction of the hundreds of lending products on the market, and you could be missing out on better rates or benefits from alternative lenders. Mortgage brokers, on the other hand, have access to a broad range of products from different lenders. Since they aren’t aligned to one particular bank, brokers will be able to compare the products and policies of each lender to help you find the loan solution that best suits your individual needs and goals. These options can be particularly important in the modern lending environment especially, as APRA changes and the banking royal commission are creating tighter lending conditions that are limiting many customers’ eligibility for certain products. Whilst this could leave you in a tough position if you don’t meet your chosen bank’s lending criteria, mortgage brokers will be able to search the market for alternative loan solutions that better complement your circumstances.

Brokers work on behalf of the client

One of the reasons that many Australians enlist the help of a mortgage broker over a bank is that brokers generally don’t hold preferences towards one particular product or institution. Whilst bank staff work in the primarily interests of their own company and products, brokers effectively serve as an agent for the client, and will assess both the positive and negative features of a loan before recommending a given solution. This enables the broker to find a solution that really fits the client’s investment strategy, as opposed to selecting the best solution out of a limited range of products.

This difference can also have critical implications on the way each institution structures a loan. A good mortgage broker with a thorough understanding of their client’s investment needs will always look to structure a loan in a manner that supports their long-term goals and enables them to move forwards in their investment journey. Banks, on the other hand, will often look to structure a loan in a way that mitigates risk for them. In some cases, this can lead to issues such as cross-collateralisation, whereby more than one property is used as security against a loan. Whilst less risky for the banks, this can lead to big issues down the line should an investor wish to sell one of the properties under the mortgage contract, and it could also hinder their eligibility for future property investment loans from other lenders.

Ongoing support

Whilst both banks and brokers can help you secure a great home loan deal, brokers offer an additional service that simply isn’t available with lenders – guidance throughout the entire lending process. As well as saving you the time and hassle involved in comparing different lending products, brokers will navigate the entire loan process for you and follow up with lending institutions on your behalf. This guidance can be particularly useful for first-home buyers with less experience and understanding of the steps involved in securing finance. If you are purchasing a property for investment purposes or buying a home with the intention of later turning it into an investment property, this is where selecting a mortgage broker who specialises in investment finance can really make or break your success. A good mortgage broker will take your long-term goals into account, and will have a thorough understanding of the structures and loan features that support your wider investment strategy as well as your short-term situation.

Expert finance solutions

At Momentum Wealth, we understand the importance the right loan solution plays in supporting your wider investment strategy. Whether you’re expanding your property portfolio or kick-starting your investment journey with your first home, our mortgage brokers can help you identify tailored loan strategies that complement your long-term goals, as well as your current circumstances. For more information about our mortgage broking services, or to speak to one of our specialist mortgage brokers about your finance needs, book a consultation with a Momentum Wealth finance specialist today.

Case study: Scarborough development sets client up for retirement

The fundamental aim for most property investors, and the reason many enter property investment in the first place, is to build enough wealth to secure financial independence and generate income for retirement. Depending on an investor’s individual aims, there are a number of different strategies they can use to do this. In our recent case study, we explore how a Momentum Wealth client used a develop and hold strategy to create the cash flow required to retire on property.

Brief

The client approached Momentum Wealth in 2009 seeking a property with high rental growth prospects and medium-term potential for development. Their long-term aim was to develop and hold the property to create an ongoing source of cash flow which would later provide a passive income to fund their retirement. Not yet ready for development, the client was seeking a property that they could land bank until they had built the equity to develop in the right market conditions.

Strategy & Acquisition

With the client’s brief in mind, Momentum Wealth identified Scarborough as an up-and-coming suburb with extremely promising long-term prospects. Whilst well-located in a beachside area between City Beach and Trigg, we also saw future government spending as a catalyst for impending change within the suburb, marking it as an ideal location for future development and rental growth.

Looking further into the local market, our buyer’s agent was able to identify a key property of interest – a 1158sqm property comprising two dwellings. This was extremely well suited to the investor’s land banking strategy, as the second dwelling would allow for an additional source of income to help minimise holding costs until the investor was ready to develop. Whilst we first identified the property in question during a bidding auction, our acquisitions specialist strategically waited until post-auction before placing an offer, and was thereby able to negotiate a better deal for the client, securing the property for $985,000. With the offer accepted and due diligence completed, the property was passed to the Momentum Wealth property management team, who were able to ensure the asset remained tenanted and well maintained until development works began.

Timing the market for development

With the government recognising Scarborough as a suburb primed for redevelopment, they established the Metropolitan Redevelopment Authority to implement and gazette a rezoning of the area in 2014, significantly boosting the development potential of the client’s site in turn. Following these changes, Momentum Wealth’s development team secured development approval for ten multiple dwellings over two storeys in January 2016. After the client secured finance, our development team carefully managed the builder tendering process and the detailed design of the apartments before securing a building permit in April 2017. After the appointment of Daly and Shaw as the builder, construction of the new development began, with the project coming to completion in May 2018.

Result: success in Scarborough

During the time that the client has held this site, Scarborough has undergone a massive period of redevelopment. The suburb has transformed into one of Perth’s most vibrant hubs, with projects such as the ongoing Scarborough Beach revitalisation establishing the area as a key centre of activity for tourists and locals alike. This ongoing redevelopment has brought new amenity to the suburb and boosted the rental appeal of surrounding areas, placing this development project in great stead for success.

Under the management of the Momentum Wealth property management team, five out of the ten apartments in the client’s redevelopment have already been leased for between $425 and $440 per week. With a total projected rental income of $4,380 per week, the client is set to benefit from approximately 6-7% rental yield from this development. This marks a considerable $227,760 per year in rental returns. In addition, the client has also witnessed a significant increase in capital growth, with the estimated total value of the apartments increasing to $5 million. This leaves $1 million of equity when development and purchase costs are taken into account, putting the client in a great position to benefit from short-term cash flow and, in the long run, a comfortable retirement.

Keeping up with claims: the tax deductions investors miss

With end of financial year almost upon us, property investors are no doubt turning their attention towards this year’s tax return. It’s a crucial period for investors, and one that plays a key role in maximising their wealth creation.

Every year, Australian investors run the risk of losing thousands of dollars’ worth of easy tax savings by failing to claim lucrative deductions. Whilst many are aware of their basic entitlements, it’s often the finer details that end up costing them in the long run. So, what are the common property tax claims investors overlook?

Investment property tax

Depreciation of the building
One of the biggest, and possibly most lucrative, deductible claims that investors often miss is depreciation on their investment property. As a property’s structure devalues over time, this decline in value can be offset against an investor’s annual income, substantially reducing their tax bill come end of financial year. This is known as a capital works deduction, and it applies to the structural features of a property such as bricks, walls and fixed wiring. It’s also one of the only non-cash deductions investors can make come tax time, meaning they don’t actually have to spend money in a given year to claim this tax benefit.

The confusion for many investors comes when determining when they can (and can’t) make a depreciation claim. This rule varies slightly between commercial and residential property owners. For commercial property investors, capital works deductions can only be claimed for properties constructed after 20 July 1982. With residential rental properties, on the other hand, a capital works deduction can be claimed for properties that commenced construction after 15 September 1987. However, even if an investment property was built prior to these respective dates, this doesn’t mean there isn’t a claim to make at all. In cases where a property has been renovated and structural elements have been added further down the line, these improvements and alternations may also be eligible for depreciation. Investors who have undertaken renovations should have the alterations assessed by a licensed quantity surveyor, who can then draw up a tax depreciation schedule.

Depreciation of plant and equipment
In addition to depreciation on the structural elements of their asset, investors may also be eligible to claim depreciation for the declining value of the plant and equipment installed within their property. This typically refers to fixtures and fittings that can be easily removed from the property, and includes items such as carpets, blinds, ovens, and air conditioning units. As with capital works allowance, the exact laws for claiming depreciable items differ between commercial and residential property. While commercial property owners are able to claim depreciation for all eligible plant and equipment within their property, regardless of whether these items were installed by themselves or the previous owner, this is no longer the case for residential property investors. In light of the 2017 Federal Budget, residential property investors who acquired a property for income-producing purposes after 9th May 2017 aren’t able to claim depreciation for second-hand plant and equipment. Only investors who have bought the property new or installed the plant and equipment themselves are able to make a depreciation claim.

Borrowing expenses
It’s common investor knowledge that interest on investment loans can be claimed as an immediate tax deduction, but this doesn’t stop investors missing out on the long-term claim associated with borrowing money for a loan. Borrowing expenses refer to any costs associated with borrowing the money needed to purchase a property, and includes items such as loan establishment costs, lenders’ mortgage insurance, stamp duty on the mortgage and mortgage broker fees. These costs aren’t immediately tax deductible, but can be claimed as a property tax deduction over a period of five years or over the term of the loan, depending on which is shorter.

Property management fees
Property managers can be an incredibly valuable asset when it comes to helping investors maximise their rental returns and keeping their property aligned with tenants’ needs. What some investors don’t realise, however, is that these property management fees can be claimed as a tax deduction come end of financial year. Providing investors use their property for income-producing purposes, any fees paid for the management of the property will be classified as part of the overall expenses of the property for that year, and can therefore be offset against their annual taxable income. If a property has only been rented out for half of that year, a deduction can still be claimed for the period during which the property was used for rental purposes, but not beyond this.

Travel expenses
Another common deduction that over gets overlooked by investors is the travel expenses relating to the management of their investment property. This applies to commercial investors who need to travel to inspect, maintain or collect rent for their commercial rental property. Whilst these travel costs were once also deductible for owners of residential rental properties, the 2017 Federal Budget saw the overturning of this law. This was largely driven by the concern that investors were claiming travel deductions for private travel purposes and not correctly apportioning costs. Whilst this change impacts investors who opt to self-manage a residential property, it doesn’t impact their ability to claim a tax deduction for third-party property management.

Please note: Momentum Wealth and its affiliated entities are not accountants or financial planners. While all information is provided in good faith, investors should seek their own independent advice in relation to all tax matters.

Case study: the importance of acting fast in a moving market

When property markets start to pick up after a downturn, entry into the recovery phase is often signaled by rises in property prices and increased levels of buying activity.

For investors, these changes in market conditions can have a very real impact on investor competition. As growing confidence in the market begins to drive increased interest from investors, buyers will need to act faster to snap up their investment property of choice and avoid missing out on key investment opportunities. This is something our buyer’s agents are starting to notice more and more as the Perth market shows increasing signs of recovery and stabilisation.

A case study: signs of a moving market
The case in point is a 3×1 property we recently identified in Willagee. This property was of particular interest because it was a corner block property with R40 zoning, meaning it held high potential for value add opportunities through development and subdivision.

Our buyer’s agents and research team first started monitoring this property back in October 2016. At the time, the property was listed for sale at $499,000, but was later taken off the market in February 2017 after a period of four months.

Fast forward a further fifteen months, and the property was relisted for sale in mid-May 2018, this time at $549,000. This marked a significant 10% increase on its original sales price. And this time round, the resulting outcome was extremely different. After just seven days on the market, the property had already sold for a significant $535,000. Same property, stronger market conditions, and a stark contrast in performance.

This isn’t the only case like this we have witnessed in recent months. In fact, our buyer’s agents are starting to see more and more properties attracting higher levels of competition from investors, with some properties receiving multiple offers after as little as just two days on the market. This, along with the clear improvement in sales performance demonstrated above, provides undeniable proof that the Perth market is moving forward, and we can only expect more of these situations to arise as the market heats up further in the coming months.

Staying one step ahead
As competition from both local and interstate begins to pick up, it’s inevitable that investors will need to act faster to secure high-performing properties. In situations like these, having the professional insights and guidance of a buyer’s agent could provide investors with a huge competitive advantage over fellow buyers.

At Momentum Wealth, our buyer’s agents work with real-time insights from our in-house research team to help investors identify high-performing properties as and when they hit the market. Through these insights, we are able to offer investors a unique advantage when it comes to selecting and securing highly desirable properties which are likely to attract high levels of competition from other investors.

If you are thinking about buying in Perth’s moving market and would like to speak to one of our buyer’s agent, get in touch with us to organise an obligation-free consultation with one of our dedicated property specialists.

Rentvesting: an affordable alternative for first-time investors?

It’s hard to consider investing in property as a young buyer without addressing the elephant in the room – housing affordability. For many young investors, the prospect of paying off a mortgage alongside kick-starting a career, travelling the world and paying back student debt just isn’t a possibility through the “traditional” avenue of home ownership. With property prices in high-demand suburbs becoming increasingly unaffordable, what was once deemed the Australian dream is also losing appeal amongst upcoming investors who still want to enjoy the benefits of the inner-city lifestyle while they’re young.

As a result, in recent years we’ve seen more and more first-time buyers forego the traditional home ownership model in favour of rent-vesting – renting somewhere to live whilst buying an investment property in a more affordable suburb. So what are the potential benefits of this investment strategy? And how could rent-vesting help first-time buyers break into the property market without giving up the new Australian dream?

Young investors 

Invest where you can afford, rent where you want to live
For many aspiring investors looking to enter the property market, buying a home in their dream location isn’t always a possibility. With affordability posing a greater issue in inner-city suburbs, becoming a home owner often means looking further afield and sacrificing perks such as proximity to work, nightlife and activity precincts. By becoming a rent-vestor, however, modern buyers don’t need to give up their dream location to get a foothold into the property market. Instead, they can enjoy the best of both worlds – investment in a more affordable area with high capital growth potential and renting a property in their ideal location. This can be a particularly beneficial strategy for those looking to rent with others and share the living costs. Most importantly, however, it gives first-time buyers the opportunity to get a head start on their investment journey whilst still enabling them to enjoy the perks of the lifestyle they love.

Flexibility to move around
Rent-vesting can be a great option for investors who want to take advantage of the flexible nature of renting. For younger buyers who aren’t ready to settle down in one location, this investment strategy provides a way to enter the property market whilst still allowing them the freedom to move around as they wish. Whilst perhaps not the strategy for families or investors who want to call their house their own, this can be an ideal scenario for young investors who still plan to travel or want the option to relocate for work. And this benefit isn’t just for young investors – rent-vesting is also gaining increasing appeal amongst busy professionals who move interstate or overseas to take advantage of career opportunities.

Tax incentives
By making their first purchase an investment property as opposed to a home, first-time buyers are able to take advantage of numerous investment tax benefits that aren’t applicable to owner-occupier properties. Whilst owner-occupier mortgage repayments can’t be deducted come tax time, the costs associated with owning an investment property can be. This includes expenses such as interest payments on investment loans, the costs of advertising for tenants, repairs and maintenance and more. These tax benefits can make the prospect of owning a property considerably more affordable for first-time investors.

Start your investment journey earlier
For investors looking to purchase a home in a location that suits their lifestyle, it can take years to save up a deposit, which often means putting long-term investment plans on hold. Rent-vesting provides a way for aspiring investors to enter the market earlier through a more affordable avenue so they can begin growing their wealth and building the equity they need to either buy that dream home or start expanding their property portfolio.

If you are a first-time investor looking to make your first purchase an investment property, it’s incredibly important to find a property that aligns with your long-term investment goals. As experts in property investment, our professional buyer’s agents can assist you in finding high-performing properties that fit your investment criteria and, most importantly, provide you with the best possible start in your property investment journey.

Contact us today to organise an obligation-free consultation with one of our property investment specialists.

Essential winter maintenance tips for your investment property

As an investor, it’s important not to underestimate the pivotal role that property maintenance plays in keeping your investment costs down and protecting your long-term wealth. As well as ensuring your tenants remain happy, looking after your property and preventing any issues before they arise could be key to avoiding costly damage that could take a serious bite out of your bottom line.

Whilst property maintenance is important all year round, properties always require that extra bit of attention during the winter months. During winter, the harsher weather will often highlight issues that weren’t previously visible in the warmer seasons, with minor damage at risk of becoming a serious problem with the rain and storms that winter brings. To prevent these small issues turning into costly repairs, here are some of the winter maintenance checks you should be organising to protect your investment property.

Winter maintenance

Inspect for wear and tear
During winter, problems that may have gone unnoticed during the warmer seasons such as minor leaks in gutters and rooves are easier to identify, meaning it’s a great time for investors to check their property for any issues that may need addressing. Problems such as water leaks can cause a substantial amount of damage in a short time-frame if left unrepaired, leading to costly issues such as mould, water stains and damaged walls. To prevent these problems arising, you should organise a professional maintenance check to identify any small leaks in gutters or lose roof tiles that could result in water damage. Whilst these checks may set you back around $180, this is relatively minor compared to the hundreds of dollars you may otherwise need to splash out to repair deteriorating eaves and water-damaged ceilings.

Clean your gutters
Gutters will often accumulate a lot of leaf and debris over the warmer months. Whilst not always a major issue in summer, this build-up of debris can become a bigger problem as the weather gets damper. To prevent blocked gutters causing water damage to your investment property, we recommend investors get gutters professionally cleaned to ensure rainwater is properly diverted during the wet weather.

Pool maintenance
Whilst they can be a drawcard for tenants in summer, properties with pools are often less appealing to tenants in winter. To get around this, our property managers usually recommend that investors include pool maintenance in their lease to reduce any potential hassle-factor to tenants. Although pools won’t be getting much use during winter, it’s important to keep them in good condition to ensure they stay clean and damage-free throughout the colder months. This is especially the case if you’re looking to re-lease their property in winter, as issues such as debris and algae can be off-putting for prospective tenants. Whilst it may cost to have the pool professionally cleaned, this is a relatively low cost investment compared to the huge outlays you could be spending further down the line should the pool incur damage from lack of maintenance, and that extra bit of care could see you making more from rental yields.

Check heating systems
During winter, tenants will often make use of heating systems and appliances that have gone unused over the summer months. This change in temperature and increased usage will often require additional maintenance from investors. As the cold weather sets in, you will need to check key appliances such as heating and hot water systems to ensure they are working efficiently and adjusted to the correct setting. It’s also a great time to organise an annual service for your air conditioning system, as issues with split air conditioning often only become apparent when tenants start using them for heating. With the wetter weather also presenting ideal conditions for the build-up of unsightly issues such as mould, it’s also a good time to check that exhaust fans are in working order to ensure the property remains well ventilated, paying particular attention to damper areas such as the laundry and bathroom.

Professional asset management
As an investor, it’s important to remember that your investment strategy doesn’t just stop at the acquisition of a property. In order to make the most out of your investment property in the long-term, you also need to commit to ongoing maintenance to ensure your property remains appealing to tenants and avoid unexpected costs. As experienced property managers, our asset management team at Momentum Wealth aren’t just committed to taking care of the day-to-day maintenance of your investment property, we are committed to maximising your long-term results. Whether it’s helping you avoid costly repairs or identifying opportunities to add value to your rental property, our property management team are dedicated to protecting your long-term wealth and keeping your investment costs at a minimum through smart asset management.

If you would like to find out more about our asset management services, get in touch with Momentum Wealth’s property management team via our online contact form.

Premium suburbs leading the charge for Perth market

Suburbs in exclusive locations are helping support the recovery of Perth WAs property market, touting some big growth percentages.

The top suburbs, with nine out of ten having a median price of at least $1 million, are all located close to either a river or the ocean, according to Shane Kempton, chief operations officer for Professionals real estate group in Western Australia and the Northern Territory.

“These premium suburbs were either located close to the river or ocean. Applecross was the top performer with a median house price increase of 32.4 per cent over the past year rising to $1.6 million, while Dalkeith was ranked number tenth with a median house price of growth of 8.3 per cent, pushing its median house price in this suburb to $2.6 million,” Mr Kempton said.

“These price growth rates are significant when you consider the overall median house price in Perth fell by 1 per cent over the same period to $510,000.

“Traditionally, it is the top end of the real estate market that leads the recovery in the Perth property market and these figures confirm that Perth is now entering this recovery stage.”

The growth of these suburbs, he explained, can be attributed to two reasons; the recovery in the resources is sector is giving property buyers confidence to purchase premium property and as a result of this, stock has declined, which is driving prices up further.

Mr Kempton said when looking at historical data, when prices rise in Perth’s premium suburbs, a ripple effect is felt throughout the rest of the market over a one to two-year period.

“These second-tier suburbs include areas such as Booragoon, Melville, Manning, Como, NSWComo, WA, Floreat, Shenton Park, Subiaco, Wembley Downs and Woodlands,” he said.

“We should therefore see rising prices in other areas of Perth during the coming two years with the outer suburbs which have been worst affected by oversupply issues, being the last areas to benefit from this upward correction in property prices.

“In vast majority of areas in Perth, property prices are still at rock bottom and buyers should now move quickly to secure a property before the recovery in the market gains further momentum to avoid buyers’ regret.”

The top 10 premium suburbs in Perth, according to Professionals analysis and sourced from the Real Estate Institute of WA, are:

Coodanup, Greenfields among the Perth suburbs with the best rental return

SOME of Perth’s least desirable addresses are proving the most lucrative for savvy landlords.

Investors unperturbed by slim capital gain prospects in battler suburbs are cashing in on cheap underlying land values to pocket rental yields approaching six per cent.

Houses in Mandurah’s Coodanup (5.8 per cent) and Greenfields (5.7 per cent) returned rental yields better than anywhere in Perth in the past 12 months, despite both locations ranking among the most disadvantaged.

According to Australian Bureau of Statistics data, median weekly household incomes in Coodanup ($830) and Greenfields ($948) are about half the WA average of $1595, and almost 11 per cent of adults in both suburbs have not completed Year 10, double the WA average.

It is a similar story in all of the REA Group’s top 10 suburbs for rental yield over the past year, all of which, other than Hilbert, fall into the ABS’ bottom 20 per cent of locations.

The average Coodanup home cost $245,000 and returned $14,300 a year in rent, for a rental yield of 5.8 per cent. That means owners would recoup the value of the home in about 18 years, just over half the length of a typical 30-year home loan. By contrast, the median home price in Applecross — one of the worst locations for rental yield at 1.6 per cent — was $1.65 million and returned $25,740 a year in rent. At that rate, it would take 64 years to recover the original cost of the property.

But Momentum Wealth research adviser Shaun Strickland warned against rushing out to snap up cheap homes based on rental yield alone.

“The potential for strong rental yields may be high, but long-term capital growth is limited by the low land values,” Mr Strickland said.

REA Group chief economist Nerida Conisbee said different strategies would appeal to different types of investors.

“Right now, the Perth market is in the early stages of recovery and blue-chip suburbs are starting to see price growth,” she said. “So for investors after capital growth, it would pay to look there. If you want yield, look to lower socio-economic locations.”

Seven common mistakes investors make

When it comes to winning big in real estate, many turn to property investment. But achieving success takes time and patience, with only a handful making it past their first investment.

To ensure you don’t fall into the property trap, we spoke to the experts from Momentum Wealth to discuss seven of the most common mistakes property investors make.

1. Don’t buy in an overheated market

Momentum Wealth Research Advisor Shaun Strickland said many investors see reports of unprecedented growth in one area and assume this must be the next ‘boom’ suburb.

“If you are reading about a boom in the media, chances are it is already too late to be buying in the suburb. Instead, investors need to be identifying areas that are likely to outperform in the long-term, which is where the advice of a professional buyer’s agent could prove invaluable,” Mr Strickland said.

2. Not doing enough homework

The property market is always changing, and you will never know EVERYTHING there is to know about real estate. But, doing your homework nonetheless is essential and studying the suburb you wish to buy in will make it worth your while.

Mr Strickland believes research is the cornerstone to a successful property investment.

“Identifying high-performing properties requires analysis of demand and supply, knowledge of the local demographic, consistent market monitoring and awareness of other key growth factors,” he said.

“Once investors have narrowed their search to a specific suburb, they will then need to assess the potential of individual streets and properties.”

Another common mistake investors make is that they tend to only research properties within five kilometres of their current location.

Mr Strickland also said “whilst it’s a natural reaction for investors to look in areas they are most familiar with, this could result in them missing out on key investment opportunities elsewhere.”

3. No backup cash

According to Momentum Wealth Finance Team Leader Caylum Merrick, many investors fall into the trap of not saving up a sufficient cash buffer once they’ve actually acquired a property, which could leave them in a disadvantaged position should unexpected scenarios arise such as property repairs, rises in interest rates or tenants leaving a property.

Mr Merrick advises investors to set aside a cash buffer to cover unexpected costs for each property in their portfolio.

“We also advise investors to work with an experienced property manager to understand any of the potential costs that could occur for their particular property,” he said.

Find a property manager

4. Cross-collateralisation

This is when more than one property is used as security for a loan or multiple loans.

“Cross-collateralisation can significantly reduce an investor’s ability to borrow in the future, so it is especially important to seek the help of a mortgage specialist who fully understands their financial needs and long-term investment goals.

“Choosing the right loan strategy from the start can significantly maximise an investor’s borrowing capacity and give them more flexibility moving forward,” Mr Merrick said.

5. No plan, no gain

All property investors have one goal – to build a lucrative property portfolio. However getting there without a plan or goal will backfire. As the old saying goes, if you fail to plan you plan to fail.

You need to have an end vision of where you want to end up and then follow a strategic plan to get there.

6. Thinking with your heart not your head

With the Perth property market starting to show signs of recovery and stabilisation, interest will grow from property investors, meaning buyers need to act fast to secure their ideal property.

An investment should be look at as a business decision. Making an ’emotional purchase’ is to be avoided at all costs. A decision driven by your heart can lead you to over-capitalise rather than prioritise the best outcome for your investment goals.

Base your decision on facts, statistics and research.

7. Choosing to self-manage

Seeking the advice of a professional can help you avoid making simple mistakes, and they can also play a vital role in helping investors identify opportunities to maximise rental returns.

“Property investment experts can assist investors in identifying properties with the highest growth prospects that a single investor may not be able to discover or analyse on his or her own,” Mr Strickland said.

It can be very daunting trying to handle all aspects of property investment on your own, especially if you have a portfolio of more than one or two properties.

Momentum Wealth Asset Management Advisor Clare Christiansen said property managers play an important role not only in the day-to-day running of properties, but also in supporting an investor’s overall investment strategy and protecting their long-term wealth.

“Property investment doesn’t stop at the acquisition of a property,” she said.

“Savvy investors will also realise that smart asset management is key to their long-term wealth strategy.”

Read more about why property managers are vital to a successful investment.

Or, to begin your investment journey, browse properties for sale in Perth, WA.

The most popular suburbs for rentals in Perth: REIWA

White Gum Valley, Scarborough and Shenton Park are among the 10 Perth suburbs where landlords are finding tenants for their rental properties the fastest, according to data released from the Real Estate Institute of Western Australia (REIWA).

REIWA President Hayden Groves said that while on average it takes Perth landlords 45 days to secure a tenant for their rental, many suburbs across the metro area were experiencing faster leasing times.

“In White Gum Valley for example, landlords are finding tenants for their rental properties in approximately 27 days – 18 days faster than the Perth Metro average, while in Scarborough and Shenton Park it takes 28 days and in Pearsall and Leederville 29 days,” Mr Groves said.

The data from REIWA shows all but one of the suburbs on the list have a median house rent price above the Perth Metro median of $350 per week.

This charming two-bedroom house is available for $430/week as featured on Thehomepage.com.au Image: Realmark Coastal

“Number six on the list, Floreat, has a median house rent of $543 per week, close to $200 more than the Perth Metro average,” Mr Groves said.

“Many of these suburbs are well-established areas, typically popular with the trade-up and luxury segment of the residential market. This suggests that tenants are finding good value in suburbs that might otherwise be considered out of their price range, and are acting fast when rentals become available for lease,” he said.

Source: REIWA

The data shows that all of the suburbs on the list, with the exception of Shenton Park, saw a notable improvement in average leasing days over the last year.

“The Vines and White Gum Valley had the biggest reduction in average leasing days, experiencing declines of 34 days and 26 days respectively between May 2017 and 2018,” Mr Groves said.

This sleek two-bedroom apartment is available for rent $400/week in Leederville, as featured on Thehomepage.com.au Image by Here Property.

“A combination of strong leasing activity levels and declining listings has caused the pendulum to start to swing in favour of landlords. This is particularly the case in those suburbs where we are observing quick leasing times.

Source: REIWA

“Prospective investors who are considering purchasing an investment property in one of these suburbs are in a very good position to secure a tenant quickly,” he said.

Find out more information on the rental market in Perth from the Perth Market Snapshot on the Real Estate Institute of Western Australia website.

Applecross – The southern peninsula with a beautiful Perth City aspect

Famous for its Jacaranda lined streets and sweeping river and city views, the suburb of Applecross is one of Perth’s premium inner city suburbs lying on the river banks of the Swan River.

Applecross is located in the City of Melville, approximately 6 kilometres south of the Perth CBD and is the gateway to the Fremantle district.

It features a population of 6,887, making it a medium-sized Perth metropolitan suburb. The current median age is 43 years old, which is older than the Perth median of 36. The difference in median age is due to the higher amount of empty nesters in the area. Applecross is a destination suburb where the extravagant land values outprice a younger demographic.

With close proximity to the Perth CBD, recent ABS census data has stipulated that 35.6% of the population identify themselves as professionals and 20.0% as managers, which is well above the WA average at 20.5% and 12.0%, respectively.

Its neighbouring suburbs include Ardross and Mount Pleasant to the South, which are also largely family-based affluent areas. East of Applecross, across Canning Bridge, lies Como, another expensive family orientated property market. It is bordered by the Swan River to the North.

With high frequency bus transport down Canning Highway, and Canning Bridge Train Station servicing the eastern section of the suburb, public transport to and from Applecross is one of the main drawcards of the area. The Kwinana Freeway runs down the eastern periphery of the suburb allowing for easy access private transport to the Perth CBD as well as to the southern suburbs.

The median house price is $1,600,000 with the dwelling stock comprising of 63% housing, 25% semi-detached dwellings and 12% units, making the area a fairly mixed housing use area.

The high density housing is mainly focused around Canning Bridge, with future development to be prominent with the introduction of the Canning Bridge Precinct Structure Plan which aims at creating a satellite city at Canning Bridge as a gateway to the South. Low density housing of R12.5 – R20 is the predominant coding in the residential area with the lower coding predominantly in place along the river foreshore, where you can find large mansion-style dwellings.

The housing stock has no clear era as redevelopment of the existing housing stock has occurred continuously with 1940s homes being replaced by larger two storey dwellings. Some older 1960s apartments still exist scattered throughout the suburb while brand new apartments are being constructed nearby Canning Bridge.

The leafy family suburb has an abundance of amenity within the suburb and on the peripheries. Ardross Street Café Strip is always bustling with vibrancy, and the Canning Bridge Precinct is bringing more office, restaurants and bars to the area, including the historically significant Raffles Hotel. On the outskirts of the suburb is Garden City for retail needs, and further down Canning Highway is the large Fremantle Activity Centre.

Applecross’ proximity to the CBD and positioning on the Swan River are the two largest drawcards for the area, coupled with tree lined streets, good schooling and lively cafes and restaurants.  The suburb is one of the most expensive suburbs of Perth, with large plans to increase densification and vibrancy in the near future through the highly publicised Canning Bridge Precinct which has already seen the start of high rise development.

Diverse Commercial Investment Key to Property Success

Many investors are familiar with the strategy of diversifying their assets and spreading their wealth (and consequently risk) across multiple investment vehicles.  When it comes to property investment, many savvy investors recognise the need and the role commercial property play alongside an established residential portfolio; however given the usually high cost of acquiring commercial property, few investors have the financial capability or appetite to add multiple commercial investments to their portfolio. This prevents investors from realising benefits of growth and risk mitigation from investing across multiple industries.

Commercial property investment continues to play a crucial role in building a successful property portfolio for savvy investors as net yields for commercial property are typically between 7-9%, compared to residential of between 3-4%. However commercial property generally experiences lower capital growth compared to residential and can be heavily impacted by economic factors influencing industry segments. Longer vacancy periods, higher interest costs and higher deposits are all factors that can present significant risk factors to investors who may only be exposed to one type of commercial property.

For example, the end of 2017 saw significant differences in performance across the industrial, retail, office and medical sectors, with each segment subject to unique market factors at both state and national levels.  An overall flight to quality trend in the commercial space has seen many commercial investors creating more attractive spaces to incentivise long-term leases from tenants and secure cash flow.

While a diverse commercial property investment strategy is attractive to many investors, with quality commercial assets generally costing at least $2 million, with many great assets costing significantly more, this may not be a viable financial option for everyone.

Commercial property syndicates and funds can be considered by investors as an available and logical means to access investment across various commercial segments as they can have the added advantage of an experienced, and hopefully proven, acquisitions team and professional asset management which can better ensure optimum return rates.

When done correctly, investing in commercial property is a valuable asset in a successful investment portfolio and can provide cash flow security. Like any investment, there are several factors that must be considered before deciding if it is the right strategy for you and your goals, and professional advice for your situation should be obtained before making any decisions.

How to select property that outperforms the market

In good times, it’s easy to become complacent when choosing an investment property. The media’s full of hype, prices are skyrocketing, and people are in a scramble to buy. It’s not unusual in times such as these to think that anything you touch will turn to gold. But it’s not until things get a bit rocky that the market really starts to sort out the wheat from the chaff. Properties that never had the right fundamentals get hit hard, while the rest calmly weather the storm.

With the market turning upwards once again, I’m sure many of you are contemplating acquiring an investment property. If you are, learn from the mistakes many others made in the last boom and purchase wisely. You must always remember that not every property is the same. In fact, the potential for growth in each property can vary quite dramatically.

Let me explain. What would you say if I offered to write you a cheque in 10 years time for $75,000, no strings attached? I’m sure you’d jump at it. Well, buying a $500,000 property that experiences a 7% average annual growth compared to one with a 6% average annual growth will result in around $75,000 of extra equity. Even after only 5 years, the 1% difference will put about $25,000 extra into your pocket. It’s a simple example but just goes to show property selection is critical to maximising your wealth.

Selecting the best possible property often comes down to a number of factors. In this article, I’m going to focus on just one – supply.

Supply is just one half of the equation, demand being the other. If demand for houses increases faster than supply, then prices will go up. If demand decreases and plenty of supply still remains, prices go down. And naturally, if they are about equal to one another then prices will remain relatively stable. Not a bad thing, but not a good thing either if you’re looking to build your wealth as fast as possible. So if you’re looking to buy a well-performing investment, it makes sense to look for something in an area with relatively limited supply.

Areas with limited supply tend to be those that are well-established. If you buy a 3×1 in an area that is 30-40 years old not too far from the CBD, you know that supply of that type of property is unlikely to increase substantially as there is no more land available to build on. Assuming people hold a desire to live in that area and, better yet, you predict that desire to increase over years to come, then you can be reasonably confident your property’s value will continue to rise. But just buying in established areas close to the CBD is not necessarily secure for every type of property. Consider a 2×1 apartment just a short stroll from the CBD. If there is surrounding land ripe for development, or plenty of old buildings ready to be demolished for brand new apartment complexes, supply of apartments in that area could be plentiful. When researching an area, I find it valuable to contact the council to find out what plans there are for the area. Potential changes to zoning to allow more subdivision or demolishing of large schools or hospitals to accommodate new estates in the area, may all impact on your decision to buy whether for worse or for better.

Venturing out further from the CBD often leads to areas that are relatively new and perhaps starting or in the midst of development. Many are usually abundant in available land, both in their own suburb and in future areas surrounding it. Whilst I certainly believe there are some good buys in such areas (due to them possessing other key fundamentals), they can be risky due to excess supply issues.

Often supply needs to be considered in light of time. There may be enough land in the area to develop for another 10 or even 15 years, and if there’s a real chance you may sell in that timeframe, you may be caught fighting against a hundred other similar homes on the market at the same time. With plenty of competition, it’s unlikely houses in the area will be achieving significant price growth. In this scenario, you might find your money may have been better invested in another area.

On the topic of supply in outer fringe areas, there’s a phrase that I feel investors should be a little cautious of and this is “growth corridor”.This seems to be the latest catch-cry of a host of suburban fringe developments like the Beenleigh area in Queensland, the Truganina area of Victoria, or the far north-east area of Perth. I hear many investors pronounce what a great capital growth investment they’ve made because they’ve bought in a growth corridor such as these. I need to emphasise that “growth corridor” is not referring to capital growth, it is referring to population growth. And whilst the influence of population growth is another factor that can positively impact property prices, it needs to be considered in light of the overwhelming amount of supply that is almost a guaranteed feature of these corridors.

But sometimes supply is not always about what land or opportunities are around ready for development. A character home from the early 1900’s in an area with plenty of redevelopment going on, will still fare well. That is because character homes themselves are always in limited supply – what stands today is all that will ever be. No matter how much land is created in that area, you just cannot duplicate the age and real features of a character home that are much desired.

The concept of supply and its impact on price growth is actually quite logical but it’s something that many investors somehow seem to forget. Perhaps they get carried away with the excitement of buying, are won over by the beautiful décor of a place, or can’t resist a so-called “bargain”. This is why it’s so important when buying an investment property, to think with your head and not with your heart.

Capital City Dwelling Values Record Their First Annual Decline Since November 2012 While Regional Dwelling Values Continue To Edge Higher
National dwelling values nudged 0.1% lower in April, the seventh consecutive month-on-month fall since values started retreating in October last year according to the CoreLogic April home value index results out today.

Similar to previous months, CoreLogic head of research Tim Lawless found that the declines were concentrated within the largest capitals, while regional dwelling values edged 0.4% higher.

Capital city dwelling values were 0.3% lower over the month, driven by larger falls of -0.4% in Sydney and Melbourne and a smaller decline in Brisbane values (-0.1%).  The falls were offset by flat conditions in Perth and subtle rises in Adelaide (+0.1%), Darwin and Canberra (both +0.6%).  Hobart was the only city where dwelling values rose by more than 1% in April.

Index results as at April 30, 2018

On an annual basis, the combined capitals recorded the first decline in dwelling values since late 2012, with values slipping 0.3% lower, driven by falls in Sydney (-3.4%), Perth (-2.3%) and Darwin (-7.7%).  The only capital city to see an improvement in annual growth conditions  relative to a year ago is Perth, where the rate of decline has slowed from -3.0% last year to -2.3% over the past twelve months.

A reversal of longer term trends  Mr Lawless said, “At a macro level, the latest trends are virtually the opposite of what we have become used to over the past five or so years.  Regional areas are now outperforming the capitals and units are outperforming houses.  Also the most expensive properties are now showing weaker conditions than the more affordable ones.”

Regional areas now outpacing the capital cities  The past five years has seen combined capital city dwelling values appreciate at the annual rate of 6.8% which is almost double the annual rate across the combined regional markets at 3.5%.  The past twelve months has seen capital city dwelling values fall by 0.3% while regional values are 2.4% higher.

Unit values outperform house values  Similarly, capital city detached house values have recorded an average annual growth rate of 7.3% over the past five years, while unit values were up 5.5% per annum over the same period.  Mr Lawless said, “Despite the surge in unit construction over recent years, the past twelve months has seen unit values continue to trend higher, up 1.9%, compared with a 1.0% fall in house values.”

More affordable housing stock has been resilient to value falls  Across the most expensive quarter of the market, dwelling values have increased at almost twice the pace of the most affordable quarter over the past five years, up 8.2% per annum compared with 4.4% per annum.  As conditions have slowed down, it’s been the most affordable end of the housing market where values have remained resilient to falls, trending 1.9% higher over the past twelve months while the most expensive quarter of properties has seen values fall by -1.6%.