Should I sell my investment property?

“Should I sell my investment property?” is a question that will likely be a serious consideration for most investors at one time or another, whether it’s a structured sell down as part of your property investment strategy, or because the asset isn’t meeting your expectations.

Here are 6 questions to ask yourself first to help ensure selling is the right move for your property investment strategy.

1. Does the property meet long-term investment criteria?

When using the buy-and-hold strategy to capture capital growth of a property, it’s important the asset meets long-term investment criteria. Investors need to consider the macro factors, such as population growth and employment prospects, as well as micro factors, such as local amenities and demographics, for example. It’s not uncommon for investors to start to doubt the quality of the property if it doesn’t rise in value as expected. Therefore, investors must recognise if they’re being impatient (and the property does meet long-term investment criteria) or if the property is likely to continue to under-perform.

2. Is the decision to sell being driven by temporary financial pressures?

A change in life circumstances, unexpected costs or a strain on your cash flow could create financial pressures that may lead you to reassess if holding an investment is the right decision. Before deciding to sell, it’s essential to determine if these short-term financial pressures can be alleviated by refinancing your loans or through budgetary adjustments, for example. Selling an investment property may end up costing you more when taking into consideration selling agents fees.

3. Is it a good market to sell?

The cyclical nature of property markets may mean that selling straight away might not be the best option. If the market is in a downturn it could be better to hold on to the property until conditions rebound or at least stabilise. Consider the conditions of the wider property market as well as the sub-market in which the property is located. Is it a seller’s market, or is it a buyer’s market?

4. Are there loan debt structure issues that could impact the sale or expected proceeds?

In instances where loans are cross collateralised, lenders will typically revalue any co-secured properties. If your borrowing capacity has changed or a property has dropped in value, the amount of money received from the sale may be reduced. In some extreme instances, lenders may force investors to sell a second property to maintain a specific loan-to-value ratio.

5. Are there any opportunities to add value to the property before sale?

If you’ve decided the answer to “should I sell my investment property” is yes, then you’ll want to maximise your property’s value first. Tidying garden beds, applying a fresh coat of paint, installing modern blinds or laying new carpet are a few options that can rejuvenate a tired and ageing property. These types of cosmetic upgrades and add-value opportunities can help demand a higher asking price.

6. Are there likely to be changes to the property’s zoning?

If a property’s zoning is likely to be reclassified to allow for higher-density development, it might be worthwhile holding the asset to achieve a higher selling price. For example, a property that’s appropriately zoned for 4 dwellings is likely to be worth more than a property in the same suburb that is zoned for only single dwellings.

Be the master of your money

Money management is the foundation to building a large property portfolio and should be implemented before starting your investment journey. Here’s what you need to know to be the master of your money.

The first thing that many start-out property investors will do is begin their search for a suitable investment property, whether by trawling property web portals, attending home opens or brushing up on market insights.

However, this is typically useless if you don’t have adequate money management systems in place that will show you how much cash you can allocate each week to servicing (i.e. repaying) a loan for an investment property, after allowing for the income on a property. Most higher growth residential properties have negative cash flow in the first few years if you borrow around 80% or more, so understanding what it costs is vital.

When it comes to building a property portfolio, your personal cash flow is critical because this will allow you to hold your investment properties by meeting your loan repayments, and subsequently capture the capital growth of the assets over time.

This is why every investor should create a household budget that will detail their income and expenses to determine how much surplus money (i.e. cash flow) they have left over at the end of each month.

What should my budget include?

In short, your budget should detail all of your income and all of your expenses – whether on a weekly, monthly or annual basis.

Your income will include your salary from your job as well as any government payments, dividends from shares, rental income or interest accumulated from savings deposits.

Your expenses should comprise an estimate of all your outgoings including household (utilities, groceries, council rates, mortgage repayments, insurance etc), transport (fuel, car registration, repairs, public transport etc), health (gym, doctor, dentist, cosmetics, haircuts etc) and personal expenses (clothes, entertainment/eating out etc).

Your budget should also set aside money for holidays and funds for upgrading your car, as well as any other expenses you might have.

By allocating a certain amount of money to ‘entertainment’ you don’t have to account where every dollar is spent, such as $17 per week on coffee or $40 per month on movies, for example.

The money allocated to ‘entertainment’ can be treated as your weekly pocket money that can be spent on any discretionary items.

In addition to helping you manage your money, a budget will also alleviate any guilt or buyer’s remorse you might feel when buying a new leather jacket, booking a holiday or purchasing your morning cup of coffee. If you’ve allocated money to these things in your budget, then you know the funds have been set aside and are there to be used, while you’ve also allocated money for ‘savings’.

When making a budget, you obviously have to be sensible about how much money you allocate to ‘non-essential’ items, and perhaps make some compromises. For example, if you have Foxtel which you rarely use, it might be worth considering stopping your subscription. Instead of buying a coffee every day, perhaps start buying it every other day.

It’s all about finding what works for you. You don’t want to make your budget so conservative that you have to live on baked beans for the next 10 years, but if there is room to make some savings then try and make them.

With your budget set, you will know your surplus cash flow and can allocate part of this as repayments for an investment loan.

Finding a property that suits your cash flow

Depending on the type of property you buy, the rental income will help you cover either part or all of your investment loan repayments. Typically though there’s likely to be a shortfall that you’ll have to cover.

However, you can target different types of properties that will suit your cash flow circumstances.

For example, if you have limited cash flow available, you can target properties that are neutrally or positively geared, meaning the rent will cover all of the repayments.

Typically these types of properties will be villas or apartments and are generally more modern builds. Generally, the downfall of these types of properties is they will deliver lower capital growth.

On the other hand, if you have a high cash flow then you can target properties that are higher growth and lower cash flow, meaning the rent won’t cover the loan repayments and you’ll have to cover the rest from your own pocket.

Typically these types of properties will be older houses on larger lots. Generally, the benefit of these types of properties is they record higher capital growth.

There are other factors to consider when determining what type of investment property is right for you, such as your risk profile, your investment strategy and your borrowing capacity.

However, by mastering your money management by creating a budget, you’ll form the foundations needed to build a large property portfolio and help avoid financial distress from buying the wrong type of property.

Syndicate given green light for construction

Momentum Wealth’s Silk Oak residential syndicate received development approval recently, paving the way for construction to begin on the 38-apartment project early next year.

The Silk Oak Fund was launched in early 2016 before raising $6.4 million from a group of investors for the residential development syndicate.

Following the raising, Momentum Wealth’s research and residential syndicate teams identified and acquired 3 adjoining sites in Highgate in an off-market transaction.

A key feature of the sites is their superior location, being just 2km north of the Perth CBD, 400 metres to the local train station, 400m to the popular Beaufort street café strip and opposite a lush park.

To complete design of the project we engaged Scanlan Architects, who have designed some of Perth’s most recognisable buildings including the Indiana Teahouse in Cottesloe.

Given the existing supply of ‘box-on-box’ style apartments on main arterial roads in the area, the design brief was for a premium market product that’s suitable for young professionals and downsizers.

The end result was a modern design that reflected the character of the existing streetscape and included green vegetation and mature trees, while the spacious 1, 2 and 3 bedroom apartments have been formed to a high specification, many with double car bays.

Following the 38-apartment project being granted development approval last month, construction is expected to begin early next year and take approximately 12 months to complete.

Returns for investors are expected to be circa 15%-20% per annum with payments to occur in mid-2019

New rail and redevelopment to gentrify suburb

Forrestfield is located within the Shire of Kalamunda and is approximately 15 kilometres south east of the Perth CBD.

It is bound by Welshpool Road in the south, Tonkin Highway and Abernathy Road in the west and Sultana Road in the north. Its main arterial roads include Tonkin Highway, Roe Highway and Hale Road.

Forrestfield has a population of 11,811 with a median age of 37 years.

Neighbouring suburbs include Maida Vale and High Wycombe to the north, Wattle Grove to the south, Lesmurdie and Kalamunda to the east and the Perth Airport to the west.

Forrestfield is an established residential suburb with settlement dating back as far as the late 1800s. The area wasn’t significantly developed until the 1950s with rapid growth occurring up until the 1970s. Population has stayed relatively stable since the 1990’s.

The majority of Forrestfield is currently zoned R20, with pockets of R25 and R30. A proposed amendment to the local planning scheme will allow for dual-density coding across the suburb from R20/30 up to R25/60.

The suburb will greatly benefit from the $2 billion Forrestfield-Airport Link, which is under construction.

The Link will provide a brand new train station to Forrestfield, connecting it with the Perth Airport and the Perth CBD by rail.

The station will be located adjacent to Dundas Road, east of the Forrestfield freight marshalling yard and south of Maida Vale Road.

It has been designed as an end-of-line station with parking bays for 2,500 vehicles and 180 bicycles.

Houses in areas surrounding future train stations often experience above average capital growth as was seen when the rail lines to Joondalup and Mandurah were completed.

Transperth currently provides peak-hour and off-peak bus services to and from the Perth CBD, as well as bus services to Midland or Cannington Train Stations.

Approximately 90.4% of dwellings in the suburb are houses, 7.6% semi-detached, row or terrace house and townhouses and 0.6% flat, unit or apartment. The median house price is $408,500.

About 73.1% of properties are either owned outright or being purchased, 21.6% of properties are being rented.

Just 10.4% of the population identify as professionals (WA and national average is 19.9% and 21.3%, respectively), while 19.3% are technician and trades workers and 17.9% clerical and admin.

Features and amenity of the suburb include Hartfield Country Club and Golf Course, Darling Range Sports College, Hartfield Park and Recreation Centre and Forrestfield Forum and Marketplace.

Deals and Don’ts – Bibra Lake, North Perth, Lynwood

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

Bibra Lake

Purchase price: $461,500 Purchase date: May 2017 Block size: 696sqm Specification: 4 bedroom, 2 bathroom, double garage, built in 1982, zoned R20.

Deal: This property represents a great investment because it is subject to rezoning, which would change its coding from R20 to R40, allowing for higher density development. The property is also appealing as it sits on a corner block, allowing for greater design specifications, it is also on a pleasant streetscape and a short walk to a local park. It was also purchased at an excellent price point, more than $50,000 less than the median house price for the suburb.

North Perth

Purchase price: $682,000 Purchase date: April 2017 Block size: 253sqm Specification: 3 bedroom, 2 bathroom house, fully renovated to a high specification

Deal: The property represents a deal because of its location and condition, which provides good yield and capital growth prospects. Tucked away in a quiet cul-de-sac of a blue-chip suburb, it is situated just 3km from the CBD and walking distance to multiple café strips. The recent, high-quality renovation means the property could be easily leased at a high yield.

Lynwood

Purchase price: $414,000 Purchase date: April 2017 Block size: 812sqm Specification: 4 bedroom, 1 bathroom, enclosed single garage, built in 1967, zoned R30.

Deal: This property represents a good buy as it’s situated on a large land lot and within close proximity to the Perth CBD. It’s located on a quiet, attractive street just a short walk from local parks. Its zoning allows for future subdivision.

Don’ts

Redcliffe

For sale price: $490,000 Block size: 627sqm Specification: 4 bedroom, 2 bathroom house, built in 1998, zoned R20.

Don’t: This property doesn’t represent a good investment because it backs onto the recently completed Gateway WA road project and is located under the Perth Airport flight path, both of which would provide significant noise impediments.

Expanding your medical practice: Opportunities for growth

For medical specialists seeking to expand their practices in Perth, location is key and can be the difference between lucrative growth or a financial black hole. So which Perth suburbs should medical practitioners be targeting?

When considering expanding a medical practice, there are a number of ‘big picture’ locational factors to consider.

The current spatial framework and development blueprint for Perth – Directions 2031 – sets out a plan and hierarchy for primary and secondary activity centres so that they may grow and develop as community focal points.

These centres feature higher-density housing and commercial precincts to comprise retail, entertainment, civic/community, higher education and medical services.

Activity centres vary in size and diversity and some present better opportunities than others for medical practitioners – population growth, demographic shifts and public and private investment will have significant influences on these areas, for example.

Perth’s key activity centres

Second only to the Perth CBD on the activity centre hierarchy, primary centres are large urban nodes that are intended to provide entire regions with a full range of economic and community services.

The Western Australian state government places important focus on the connectivity of these centres, with passenger rail and or high frequency bus transport considered essential to their operation in the long term.

Directions 2031 outlines Cannington, Fremantle, Morley and Stirling as the four primary metropolitan centres for the Perth central sub-region.

Due to major visitor drawcards, such as department stores, supermarkets, major offices and state government agencies, medical spaces in and around these centres present good opportunities for medical practitioners looking for high rent returns and strong capital growth.

Specialised centres are a slightly different hub to typical activity centres as each has a strong specialised role based on a major institution within the centre.

Directions 2031 identifies the major specialised centres of Perth as Murdoch, UWA/QEII, Bentley/Curtin and the Perth Airport.

Both Murdoch and UWA/QEII are focussed on delivering high-quality education and health services, Bentley/Curtin provides education and technology while the airport’s primary function is aviation and logistics.

Murdoch and UWA/QEII present opportunities for the development of complementary medical activities nearby and allow for benefits from agglomeration to be gained, however medical practitioners should be cautious of these centres as competition is high and many strong medical practices are already well established here.

Sitting beneath primary centres are the slightly smaller secondary centres, which are generally dominated by retail but can also include office, housing, community services and recreational activities.

They share similar characteristics with primary centres but serve smaller catchments and offer a more limited range of services.

Directions 2031 outlines Belmont, Booragoon, Claremont, Karrinyup, Leederville, Mirrabooka, Subiaco and Victoria Park as the central sub-region secondary centres.

These centres play an important role in the wider economy and provide residents within their catchment with essential goods and services.

Medical spaces within these centres are common and present an excellent prospect for specialists.

They are designed to service up to 150,000 persons, enough to provide steady demand for health care needs, and property within or around these centres is generally more affordable than the higher profile primary centres.

At the bottom of the hierarchy, servicing the daily and weekly needs of residents are district centres and neighbourhood centres.

Their smaller scale means they have a greater local community focus and can provide the immediate residents with services that reflect the particular needs of their catchments.

Hubs such as Dog Swamp, South Perth, Kardinya, Jolimont and Noranda are all examples included in the long list of district centres identified in Directions 2031.

Medical specialists can uncover opportunities in these centres by targeting specific suburbs with demographics that require frequent medical needs.

For example, certain health services might succeed in a district centre with a catchment that includes a high proportion of aged residents as this demographic hold a strong and steady demand for health care.

Population growth and favourable demographic shifts

The population of Greater Perth has grown rapidly since the turn of the millennium and despite a recent dip in growth rates, the region remains on track to hit 3.5 million residents by the year 2050 as pre-empted by the state government.

Not only is the population growing, it is ageing and this shift in demographic will become increasingly pronounced in the years to come.

The latest census data shows that the biggest proportion of over 65s are residing in areas within the western suburbs as well as Fremantle and its surrounds.

It is this information that medical specialists should consider as they select locations that will facilitate strong demand and therefore have the best chance of receiving high rent returns and strong capital growth.

As outlined in Directions 2031, areas earmarked as major activity centres will be the target of increased residential density and with the popularity of mixed-use developments increasing, new spaces and opportunities are becoming available.

Medical suites and pharmacies are commonly proposed tenancies for such mixed-use developments. Taking advantage of such initiatives, which create greater amenity and act as major drawcards for local residents, present good opportunities for medical practitioners.

What’s more, investment opportunities aren’t solely limited to these new developments as the surrounding streets or nearby commercial precincts may also benefit and provide favourable opportunities as such areas are transformed.

Thorough research, analysis and feasibilities are needed, however, to ensure any medical spaces in these areas perform as expected.

There are also site-specific demand factors that medical specialists need to consider, such as parking, exposure, accessibility and location of competitors and referral partners, for example, that need to be taken into account to help ensure the success of any expansion.

This article is an extract from Momentum Wealth’s Perth Medical Property Report. For more information on what medical specialists need to know when expanding their practices, click here to download your free copy of the report

Benefits of buying property counter cyclically

Given the cyclical nature of property markets what are the benefits of buying an investment property in a downturn?

While property markets are cyclical and experience ebbs and flows, many investors will only buy when the market is running hot and retreat or delay an acquisition during a slowdown.

However, is that the best strategy that property investors should utilise?

Although sentiment suffers during a property market slowdown, there are advantages to building your property portfolio when everyone else wants to sit on their hands and take an ‘I’ll-wait-and-see-what-happens’ approach.

So what are the benefits of buying an investment property in a market slowdown?

1. Fewer buyers. During a downturn many buyers, including property investors and owner occupiers, retreat from the market and wait for a recovery. Those left in the market wanting to make an acquisition will therefore encounter fewer buyers and less competition.
2. More choice. When property markets cool, the amount of housing stock available typically increases meaning buyers have more options to choose from and are more likely to find a property better suited to their needs.
3. Better bang for buck. With fewer buyers in the market and more stock available for sale, sellers have to price their properties more competitively and are more likely to discount their asking price. Buyers have a better chance of securing a property for less or can even purchase a superior property that they otherwise couldn’t have been able to afford in a normal market.
4. More control over contract negotiations. Given the market is weighed in buyer’s favour, buyers have more control over contract negotiations, whether that be for negotiating more favourable settlement periods, rent-back periods with owner-occupiers or early-entry clauses, among others.
5. While it’s easy to become disheartened when residential property markets slow, there are definite advantages to buying property in a downturn.
6. Regardless of market conditions, though, investors need to take a long-term view with their investment decisions, keep property investment fundamentals at the fore and buy when they are ready, rather than trying to time the market.

WA strata reforms back on the agenda

After being put on the back burner for more than a year, reforms to Western Australia’s strata titling system are again in the spotlight with the newly-elected state government supporting an overhaul of the existing arrangements.

One of the biggest changes will be the introduction of community titles, which will allow multiple strata schemes to be managed individually under one umbrella management structure.

This is particularly beneficial for mixed-used precincts and buildings that feature a combination residential and commercial space, whether that be office, retail or other, as it allows more efficient management of the area

For example, the community title will enable schemes to cover specific areas of a building or precinct. So one scheme can exist for the common areas that are used by all individuals, such as driveways and foyers, while a separate scheme can exist for an individual building, which may have a pool that not everyone can use.

Another major benefit is the ability to terminate old strata schemes. Currently, it requires 100% of landlords to agree to terminate a strata scheme but this will be dropped to 75%, which will allow for greater utilisation of sites through development.

Property buyers will also benefit from a more transparent system as sellers of strata-titled property will have to provide specific strata information prior to purchase.

There are more than 300,000 strata lots in Western Australia valued at more than $170 billion.

The strata reforms were first announced in January 2016 after a 2-year consultation period.

However the changes were put on the back burner in the lead up to the WA state election in early 2017 when the Labor party rose to power.

The reforms will be the first major shakeup of the strata legislation in 20 years and comes after significant growth in strata living with strata development making up 40-50% of current development.

Why every property investor needs a cash buffer

Cash buffers are essential when building a large property portfolio as they provide a safety net for investors. So how much money should you set aside for a cash buffer and when should it be used?

When building a large property portfolio, it’s important to set aside a sum of money that can be used for contingency situations.

Without an adequate cash buffer, you may find yourself in a financial bind if you suddenly need to pay some unexpected bills.

Typically, there are two income buffers that you should keep – a personal income buffer and an investment property buffer.

A personal income buffer is important in the event that you lose your job or need to take an extended period of time off work because of illness or another reason.

The aim of this buffer is to allow you to maintain loan repayments on your home loan and investment loans during the period that your salary is reduced or cut off.

The size of your personal income buffer should depend on your risk profile, stage in life and job security, among other factors, but it’s typically recommended to hold 2-4 months of your current income on hand.

The second type of buffer, the investment property buffer, is useful for repairs and vacancy periods.

The aim of this buffer is to ensure you have enough cash on hand should you need to complete maintenance works on an investment property, such a replacing a hot water system or fixing a leaking roof, or to maintain loan repayments during vacancy periods.

The size of the investment property buffer should vary on the age of the property (the older the property the more maintenance that is generally required), the vacancy rate in the area and likelihood of changes in the market. Typically, it’s best to hold 2-4 months of rental income on hand as an investment property buffer.

By failing to hold adequate cash buffers, investors can easily find themselves under financial pressure should they need to address urgent maintenance works or if their salary is suddenly reduced or cut off.

This can have significant consequences on investors’ property investment plans and goals and could even lead to forced sales.

However, by planning ahead and putting these cash buffers in place, investors can have peace of mind that they can continue to meet their financial obligations should repairs be required or there are disruptions to their income.

Retail and rail to benefit this suburb

This suburb is poised to benefit from a new train station under the state government’s Metronet plan in addition to a major redevelopment of a local shopping centre.

Embleton is located within the City of Bayswater about 7 kilometres north east of the Perth CBD.

The suburb is bound by Broun Avenue, which runs into Beaufort Street, in the north and west and Beechboro Road in the east. As well as these roads, it is also highly accessible via Tonkin Highway, Embleton Avenue and Collier Road.

Its neighbouring suburbs include Morley to the north, Bedford to the west and Bayswater to the east and south.

While Embleton doesn’t offer a train station, residents in the south of the suburb are in close proximity to the Bayswater train station. There are also bus services that run down Broun Avenue into the Perth CBD.

Development of the area dates primarily to the late 1950s when much of the land was resumed by the State Housing Commission, which subdivided and developed the residential lots still present today.

Embleton is predominantly low-density residential stock, with practically the entire suburb zoned R25. The suburb’s median house price stands at $502,500.

Of the existing stock, 85.4% are houses, 10.4% are semi-detached, row or terrace houses and townhouses and 4.2% are flats, units or apartments.

About 61% of properties are either owned outright or being purchased, while 35.4% of properties are being rented.

The suburb’s 2,737 residents have a median age of 38 years.

Of Embleton’s population, 20.3% identify as technician and trades workers, 13.7% as clerical and administration workers and 17.7% as professionals (WA average is 19.9%)

Features of the suburb include the Embleton Public Golf Course, Embleton Primary School, Bayswater Waves, Broun Park and McKenzie Reserve.

Nearby amenities include Morley Galleria (1km), Bayswater Train Station (1.5km) and the Beaufort Street Café Strip (3km).

The City of Bayswater has recently recommended planning approval for a proposed $350 million redevelopment of Morley Galleria, which would increase the size of the centre from 78,000sqm to 128,000sqm, including the establishment of a town square and an urban plaza.

This is set to add a significant amount of amenity to nearby Embleton, with works expected to commence in 2018.

Furthermore, the recently-elected Labor government’s Metronet public transport plan is set to greatly benefit Embleton with a station planned for Walter Road that would service the area.

The Walter Road station is expected to form part of the Ellenbrook train line, the North Circle line and the Wanneroo line.

The Ellenbrook train line is the first stage of Metronet with construction expected to start in 2019 before opening in 2022. This would include the Walter Road station that would service Embleton.

Deals and Don’ts – Wanneroo, Heathridge, Yokine Deals

Wanneroo

Purchase price: $375,000 Purchase date: April 2017 Block size: 792sqm Specification: 3 bedroom, 1 bathroom, house with double garage built in 1971 zoned R20/40

Deal: This property is a great buy because it’s located on a corner block with zoning of R20/40 meaning it has good development potential. Its location is also excellent being within 350m of Lake Joondalup and within 800m of the Wanneroo town centre. The streetscape is also highly desirable and it’s a short walk to Taywood Park.

Heathridge

Purchase price: $445,000 Purchase date: April 2017 Block size: 723sqm Specification: 3 bedroom, 1 bathroom house with double garage built in 1977 zoned R20/40

Deal: The main feature of this property is its subdivision potential and the fact that it is opposite a neighbourhood park. It’s also close to amenity with Belridge City Shopping Centre just 300m away.

Yokine

Purchase price: $486,000 Purchase date: March 2017 Block size 353sqm Specification: 3 bedroom, 2 bathroom house with enclosed double carport, built in 2002

Deal: The main features of this property are its proximity to the CBD, being just 7km away, and its relative affordability. It is in excellent condition making it easy to lease, and the fact that it is situated on a green title block means it has no common property with neighbours.

Don’ts

Spearwood

For sale price: $425,000 Block size: 721sqm Specification: 3 bedroom, 1 bathroom, house

Don’t: This doesn’t represent a good investment because it backs onto the freight railway line and it is located in close proximity to the busy Rockingham Road. The condition of the house would also make it difficult to lease and the irregular block shape will put constraints on any future development potential.