3 easy tips to increase your borrowing capacity

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

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

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

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

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

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

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

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

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

1. Close unnecessary credit cards and review credit card limits

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

   Furthermore, you should consider closing unnecessary credit card accounts and, if possible, only keep one card open.

2. Reduce personal debt

   Personal loans will affect your serviceability rating because these generally require expensive monthly repayments, which means you will have less disposable income to repay the proposed home loan. You can combine your personal debts into your home loan, which can increase your serviceability rating, but this will mean you repay the personal debt over the life of the home loan and subsequently more interest repayments in the long term. If possible, it’s best to repay personal debt as soon as possible or avoid it all together if you know you will be purchasing an investment property in the near future.

3. Maximise incomes from existing investment properties

   If you own existing investment properties, even just one, you should seek to maximise rental prices to increase your disposable income, which will be taken into consideration by lenders and in the serviceability test. Your property may be undervalued or you could complete some low-cost improvements to the dwelling to demand more rent. Even allowing tenants to own pets is a quick and easy way to demand higher rental prices.

5 basic features your next investment suburb must have

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

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

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

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

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

1. Good public transport links

   Rental properties near public transport links will attract more interest from prospective tenants and subsequently yield higher rents. Ideally the suburb will have its own train station but a good bus exchange can be just as attractive. This is increasingly important as urban sprawl continues to impact many capital cities.

2. A vibrant retail and café strip

   Tenants want to live near vibrant public spaces, including retail and café strips where they can shop and dine out with friends and family. Shopping precincts and supermarkets in close proximity are also highly desirable.

3. Reputable schools and child care centres
   This is particularly important for families. Now that NAPLAN and TER results are freely available to the public, it is easy for families to determine which are the best-performing public schools. Many families will want to buy or rent in catchment zones with a high-performing public school, particularly as private school tuition fees continue to rise.
4. Parks and recreational facilities

   Just as vibrant retail and café strips are appealing to potential tenants, so are parks and recreational facilities. Well-maintained parks, sporting facilities and other social amenities that can be readily utilised by tenants are appealing to tenants.

5. Within close proximity to the employment centres

   With urban sprawl continuing to affect most Australian capital cities, rental properties close to employment centres will prove to be highly desirable for young professionals and families. In most cities the CBD is the major employment centre, however you should consider other areas if they have solid employment opportunities. Accordingly, higher rental growth may be achieved, as well as higher capital growth prospects.

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

5 tips to maximise returns from your investment property

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

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

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

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

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

1. Update or renovate where required

   This is one of the most obvious, and generally most effective, ways to maximise rents. It could be as simple and low cost as giving the interior a fresh coat of paint or something bigger, such as renovating the kitchen or bathroom. Upgrading the kitchen, though, doesn’t have to be an expensive exercise as you can complete a cheap facelift by updating fittings and fixtures and installing new benchtops.

2. Install additional appliances

   A dishwasher, reverse-cycle air conditioner, alarm system or other ‘value-add’ appliances can help to maximise returns on rental properties. For example, in a hot climate tenants may pay extra for an air conditioner, while a large family might pay more for a dishwasher.

3. Be pet-friendly

   Because most landlords will not allow tenants to own pets, permitting animals on your property can attract premium rents. While there are downsides to allowing pets into your investment property, it remains a reasonable option that should be considered thoroughly.

4. Price the property right

   It might be tempting to ask that little bit extra for your rental property, however, if it’s overpriced you’re highly unlikely to secure a tenant, which will ultimately cost you more if the property sits vacant for an extended period. Do your research and price the property right to ensure you maximise returns.

5. Property development

   While you might initially think property development isn’t feasible, simply because of the financial cost, changes to planning rules and regulations in recent years have made it an attractive options for many. On a block in which you might currently have just one dwelling you might be able to build additional dwellings or even ancillary accommodation, which can command more rent and potentially increase the value of the property overall.

Boost rental yields with a dual-income strategy

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

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

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

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

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

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

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

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

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

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

Boost rental yields with a dual-income strategy

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

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

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

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

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

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

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

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

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

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

1960s suburb receives new life

This Perth suburb, which was largely developed in the 1960s, is poised for growth as billions of dollars are poured into infrastructure projects in the area.

Kardinya, traditionally a family-orientated suburb, is set to benefit from some big-ticket infrastructure items in the area, including the $2 billion Fiona Stanley Hospital and $750 million redevelopment of Garden City.

The Murdoch Activity Centre (MAC), which comprises the new hospital, is set to be a major drawcard for Kardinya.

The MAC will be a mixed-use hub incorporating public and private health care, education and residential and commercial development.

In the long term, the MAC is tipped to support 35,000 jobs (currently 11,000) and nearly 44,000 students.

To support the MAC, government has identified the need to increase housing density in key areas around major transport hubs and introduce a new retail centre to service the growing population.

With Kardinya incorporated in the activity corridor of the MAC, the suburb is set to benefit from the increased economic activity and broader development plans.

Located just 12 kilometres from Perth’s central business district, Kardinya boasts good access to public transport links, including the Bull Creek train station, as well as major bus corridors of South Street and North Lake Road, which access Fremantle, the train station and the city.

Located in the City of Melville, its neighbouring suburbs include Winthrop, Murdoch, North Lake and Samson.

The Kardinya Park shopping centre is the main retail centre for the suburb with a supermarket, butcher, hairdresser, baker, bottle shops, restaurants, bars and other everyday amenities.

Major shopping centres are also found on the periphery, including Bull Creek shopping centre and Garden City, which is receiving a planned $750 million redevelopment, making it the largest shopping centre in Western Australia.

There are high-level schooling facilities nearby, including Corpus Christ College and Murdoch University, making the area even more attractive for families.

The housing stock is a mix featuring low-density housing with many older, 1960s single-residential houses surrounded by newer, duplex construction on the back of recent zoning changes to R25.

Kardinya also boasts a number of large, open spaces and parks dotted around the suburb, including North Lake, Murdoch University grounds, Alan Edwards and Morris Buzacott Reserve. In all there are 13 parks covering 11% of the total area.

About one in five houses (19%) are rented in Kardinya, which is below the Perth average of about one in four (26%).

The Roe Highway extension to Stock Road, which is part of the $1.6 billion Gateway project, will also make Kardinya more accessible from the east and west

Is the RBA likely to change the cash rate in 2015?

Property investors have enjoyed access to cheap finance in recent times as Australia’s official cash rate has remained at a record low for 17-months consecutively, but what’s in store for 2015?

The Reserve Bank of Australia (RBA) last changed the official cash rate in August 2013 when the bank cut the rate by 25 basis points to 2.5%.

RBA governor Glenn Stevens noted recently that the historically-low cash rate had flowed through to consumer interest rates, which were “very low and have continued to edge lower over the past year or so as competition to lend has increased”.

The lower interest rates on offer have created a good environment for property investors to access cheap finance, as lenders battle to grab their share of the home-loan market.

But what will happen in 2015? Will the RBA continue to hold the official cash rate at 2.5% or is there a chance that it might be changed?

Over the past year Glenn Stevens has largely been pushing the same message – “the most prudent course is likely to be a period of stability in interest rates”.

This was again reiterated in the RBA’s most recent meeting on December 2. However, since then there has been a growing chorus of industry analysts predicting a rate cut in 2015.

This includes a range of investment banks and asset managers, as well as two of the biggest banks in Australia – Westpac and NAB.

Both Westpac and NAB believe the RBA will make two separate cuts in 2015 to reduce the official cash rate to 2%.

These predictions came in late 2014 after national business conditions remained flat and sentiment weakened, along with further falls in commodity prices.

Given the present economic conditions, the large majority of analysts are predicting rates to remain on hold or to be cut in 2015.

The Commonwealth Bank of Australia recently changed its stance on interest rates. The bank had predicted that the RBA would increase rates in 2015 but now anticipates they will remain on hold for the entire year.

Meanwhile, ANZ’s latest forecast, issued in November, predicts rates to rise in late 2015.

Either way, the forthcoming 12 months will prove to deliver favourable conditions for property investors to access cheap finance.

Furthermore, it will also be a good time for property owners with established mortgages to refinance to secure a better deal.

In 2015 we can expect more borrowers taking up refinance opportunities to lock in record-low fixed-rate products.

The RBA next meets on Tuesday, February 3 to decide whether to change the cash rate or leave it on hold.

4 benefits of buying a property in a downturn

Many investors are inclined to adopt a pack mentality when buying an investment property, but what are the benefits of going against the herd?

When the market is hot, and property prices are climbing sharply, many investors will feel the need to buy a property to avoid missing out.

Conversely, when the market experiences a downturn, and property prices stagnate, many investors will shy away and abandon their intent to make an acquisition.

This herd mentality simply comes down to human nature.

However, if you’re looking to purchase a property next time the property market softens, it might be wise to continue unabated because there are many benefits to buying in a downturn.

Four reasons to buy in a soft property market.

1. Increased housing stock – generally during a downturn there will be more listings on the market, which means buyers will have a much wider choice. Subsequently, buyers are more likely to find a more appropriate and better dwelling.
2. Less competition – given that most property investors follow the herd mentality, during a downturn buyers will encounter less competition and can secure a property that they might not have been able to in a booming market.
3. Secure properties for less – reduced competition means buyers can purchase properties at a lower price or even below asking price. Furthermore, in a cooler market buyers are less likely to have to outbid others.
4. More control in contract negotiations – with less competition in the market buyers can have more control in contract negotiations and ensure contracts are weighed in their favour.

While buying property in a cooler market presents advantages, there are also many benefits to purchasing property when conditions are more favourable.

However, when purchasing property to create long-term wealth, it’s generally best to make acquisitions sooner rather than waiting for the ‘perfect’ environment.

Como: ideal location with comprehensive amenities

In a desirable location on the Swan River, Como is the epitome of a family suburb containing many reputable schools, large parks and in close proximity to Perth’s central business district.

Como, located 6 kilometres south of the CBD, is home to more than 12,000 residents living in a mix of housing stock.

This includes low and medium-density dwellings with many older 1950s single residential houses surrounded by newer villa and townhouse complexes.

The suburb, which is within the City of South Perth, has good accessibility to major arterial roads, such as Kwinana Freeway and Canning Highway, and sits next to the Canning Bridge train station, which links Mandurah to the Perth CBD.

Three major shopping centres can be found on the periphery of Como, including Victoria Park’s Park Shopping Centre, Karawara’s Waterford Plaza and Booragoon’s Garden City.

Como’s main retail centre is the Preston Street shops, which host a supermarket, butcher, hairdresser, baker, bottle shop, restaurants, bars and other everyday retail and hospitality facilities.

With several highly-reputable schooling facilities in and around Como, including Penrhos College, Como Secondary School, Aquinas College and Wesley College, the area is highly sought after by families.

The Swan River foreshore, McDougall Park, Collier Park and Collier Golf Course also make it an attractive area to live.

Como is also likely to benefit from major plans by state and local governments to redevelop the Canning Bridge precinct to include further high rise buildings, restaurants, cafes and a new bridge.

There are also longer-term plans for the precinct to contain a bus and ferry terminal, making Como even more accessible to other areas of Perth.

Buying a tenanted property – help or hindrance?

Acquiring a tenanted property can deliver many benefits, however, there can be various pitfalls as well. So what are the pros of cons of buying a property with existing tenants?

It’s a situation that many property investors find themselves in.

After securing finance, spending months searching the property market, scouring the internet and attending countless home opens, you’ve finally found a property that meets your requirements and budget. But then you’re told the property is tenanted.

Depending on your situation and your intentions for the property, this can prove to be either a help or a hindrance.

So what are the pros and cons you need to be aware of?

Pros

• Save money: you don’t need to pay a letting fee or spend money on advertising to find a tenant.
• Save time: you don’t have the hassle of having to vet applications and choose a tenant.
• Receive rent immediately: you can start receiving rent from day one and can rest assured that your property won’t sit vacant while you look for a tenant.

Cons

• Sub-standard tenants: the existing tenant may not meet your standards, fail to pay rent on time or take care of your property in an appropriate manner.
• Difficulties with the tenant: the tenant may not appreciate your style of management compared to the previous owner. The previous owner may have been too complacent and not held the tenant accountable.
• Inadequate contracts: the tenant’s lease may be inadequate (in some cases no contracts at all) or the terms of the lease might be unfavourable to the owner (under-priced rent, long-term contract, inspections too infrequent).
• Maintenance requests: with a new owner, the tenant may see this as an opportunity to lodge their list of maintenance requests, leading to unexpected costs for you.

When acquiring any property, particularly a tenanted property, it is crucial to ensure all relevant documentation is reviewed prior to unconditionally purchasing.

This can help to mitigate the risks and ensure you have a comprehensive understanding of the associated contracts, such as lease agreements.

Additionally, in the case of tenanted properties, it pays to do your research on the tenant by asking questions of the current landlord, property manager and selling agent.

Red tape to be slashed for property developments

Red tape on residential and commercial developments will be slashed under the largest planning reforms in Western Australia in 50 years.

As part of the proposed changes more property developers will be able to bypass Local Government Authorities (LGAs) and apply directly to the state’s Development Assessment Panel (DAP) for construction approvals.

The shake-up of WA planning laws is expected to cut costs for developers and save time in the pre-development process.

Under the reforms developers with projects costing between $2 million and $10 million can choose to submit planning applications to either their respective LGA or the DAP.

The threshold is a change from the previous range of between $3 million and $7 million.

The reforms apply to developments in all metropolitan and regional areas of WA, excluding the City of Perth, where the threshold would be between $2 million and $20 million.

Developments costing less than $2 million will be required to apply for planning approval with the relevant LGA, while those costing more than $10 million, or $20 million for projects within the City of Perth, will be required to be processed by the DAP.

The changes are expected to be passed within the next 12 months and were recommended as part of a review of the DAP.

The planning reforms are part of a wider review, which started in 2009 by the Department of Planning and the Western Australian Planning Commission, to improve the state’s land use, planning and development approvals process.

The reforms have been tipped as the most significant since WA’s metropolitan region scheme in 1963.

Momentum Wealth named as finalist at Better Business Awards

Momentum Wealth is proud to have been shortlisted as a finalist for the 2015 Better Business Awards in the best independent office category.

The awards recognise Western Australia mortgage brokers and their achievements and excellence in customer service for the past year.

Momentum Wealth won the best independent office category (fewer than five brokers) in 2014. However, after growing our mortgage broking department over the past year, we have entered the ‘more than five brokers’ category in 2015.

Furthermore, two of our mortgage and finance specialists have also been named as finalists in individual awards, including best customer service and best residential broker categories and the rising star award.

The winners of the 2015 awards will be announced at the Better Business Summit in March. 

Information in the Property Newsletter kindly provided by Momentum Wealth.