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Finance Newsletter – March 2013
March 12, 2013 | 
Author Mercia’s Mortgage Brokers
With house prices moving it’s even tougher for first home buyers to enter the market. If you want to assist a family member to buy their first home there are a number of thing you can do:
- Provide a gift or loan
- Offer equity in your own home as security
- Use Commonwealth Bank or other banks Family Equity products.
Family Equity is a home buying solution unlike any other, designed to help first home buyers enter the property market. It’s a range of financing options that can help customers secure a home loan, repay a home loan, or a combination of both. The main customer benefit is the ability to enter the property market by relying on guarantors for security and/or servicing support.
A family member has always been able to assist with providing equity or funds for a deposit. What’s good about family equity is it also allows servicing support. This means that if an applicant’s income is not sufficient to service the loan required, a family member (or anyone for that matter) can assist by paying some of the repayments on an ongoing basis. The person providing the equity or servicing support is not required to be on the title of the property being financed. Remember there is a grant and stamp duty incentives from the State Government for first home buyers too.
If you have any questions about Family Equity, Reverse Mortgages or any other type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA.
If you would like to speak to a broker, call Dan Goodridge on 0414 423 340 or e-mail dg@iinet.net.au .
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Property Newsletter – March 2013
8 Tips for Picking a Winner in a Rising Market
The prospect of capital growth in the Perth property market certainly looks very good at the moment, which is why many investors are eagerly entering the market. But with the lure of potential gains, there is an added risk of complacency.
Investors need to be vigilant with their investment decisions, particularly when it comes to choosing where in Perth to invest, as some areas will inevitably perform better than others.
Pick the right areas and you could accelerate your path to financial freedom; make the wrong decisions however and you may find the market runs away from you. So, how do you pick the areas that will lead the way in a rising market? Here are 8 valuable tips:
#1 – Ask this powerful question
While property investing may at times seem complicated, asking yourself this one simple question will go a long way to helping you pick a winner. When evaluating an area, ask yourself what will cause demand for this area to increase relative to supply. If there is a clear answer, you are on your way to uncovering a potential hotspot.
#2 – Look for signs of gentrification
Look for areas with signs of positive change, such as people spending money on renovating and extending their homes, or the emergence of fashionable new shops. These can indicate that the demographics of an area are changing, which could signal imminent growth.
#3 – Avoid the population growth trap
While Perth’s strong population growth is one of the main drivers for the rising real estate market, don’t fall into the trap of thinking areas with high population growth automatically make good investments. In reality, most areas with high population growth are on the edges of the metropolitan area and have an abundance of free land, which will constrain capital appreciation.
#4 – Infrastructure equals growth
Infrastructure is always a major driver for price growth because it increases the attractiveness and amenities of particular areas. The benefits of infrastructure, however, are generally only recognised after the new infrastructure is in place, which means buying before this happens can generate excellent returns.
#5 – The location
Location should always be an important factor when choosing where to invest, and it’s wise to look for areas with more than one location advantage. Consider the area’s proximity to the city, major employment areas, the water, and key amenities. Is the area within a sought-after school zone? Is it adjacent to a prime suburb and likely to benefit from the ripple effect? Does the area have good transport options?
#6 – The land
It’s important to choose a property with a high proportion of value in the land, which is the part of the property that will appreciate. Properties with the majority of their value tied up in the building are destined to underperform as the building depreciates.
#7 – Follow the money
One way to locate an emerging hotspot is to follow Government spending. When Governments are spending money beautifying main streets and installing new infrastructure it can give an area that additional boost. Similarly, spending by the private sector on things like shopping centre extensions can also cause demand for an area to increase.
#8 – Zoning changes
Finding areas that are being rezoned can prove extremely profitable for investors. When areas are zoned for higher density it creates opportunities to develop property and subsequently increases the value of the land.
Conclusion
Buying an investment property is a big step and not one to be taken lightly. As the market heats up in 2013, it’s important that you avoid the trap of thinking that “any property will do”. By understanding the various factors that drive property values, and getting professional advice, you can make the most of the rising market and set yourself up for the future.
Rental Returns on the Increase
Low interest rates, strong demand by tenants and higher rents mean that rental yields are now more attractive to investors. The median rent for houses has risen by $10 to $470 per week in the 3 months to January, according to the latest rental data from the Real Estate Institute of Western Australia. Median rents for units, apartments, villas and townhouses however were unchanged at $420 per week, meaning Perth’s overall median rent remains stable at $450 per week. The data also shows that there was a 13 per cent climb in the number of new leases from the December quarter, though the vacancy rate remains stable at around 1.9 per cent. REIWA President David Airey says the large number of people leaving the rental system to buy their first home might be a contributing factor. “It may also be due to the return of some investors who are adding stock to the rental supply,” Mr Airey said. Mr Airey said that low interest rates and the strong demand by tenants meant that rental yields were now more attractive to investors who had been absent from the market in recent years.
Working with a Buyers Agent – Part 1
Here’s a step by step look at what’s involved when you employ the services of a professional buyer’s agent for the purchase of an investment property.
Most people would be familiar with the fundamental role of a buyer’s agent – to help a buyer find, research and acquire a property – but few know the specific steps involved in the process.
In this series, you’ll get a step by step look at what’s involved when you employ the services of a professional buyer’s agent for the purchase of an investment property.
Once you have appointed a buyer’s agent to work on your behalf, there is an important first step which involves discussing and establishing your requirements. This must happen before any property research is undertaken.
For a buyer’s agent to find you the right property, he or she needs to fully understand a number of important things including your current financial position, preferences and plans for the future.
A good buyer’s agent will ask the right questions to help flesh out the main reasons for investing and what you are looking to achieve with the purchase. This is important as any purchase must fit into your long term plan.
Also, he or she will require information regarding your financial situation, other properties or major assets you currently own, how much you are willing to invest and what types of properties you are looking to purchase.
You may have a clear idea of what type of property you want, or preferred locations, however many investors leave this to the suggestions of the buyer’s agent.
The decision of which type of property to search for is influenced by a number of factors, including your budget, goals, risk tolerance and the degree of involvement you want with the property. For instance, some types of property have better prospects for growth but they may also have higher holding costs. Similarly, some properties may offer the potential to add value quickly through renovations and development, while others are more set and forget.
At this initial stage of information gathering, the buyer’s agent may bring in the expertise of a finance broker who will discuss your preferences for finance and offer advice on which structure will suit your plans moving forward.
The success of an investment purchase is not just in the research but also the planning, which is why this first stage is so critical. Only with this direction and foundation can you realistically expect to meet your investment goals within the time-frame you desire.
In the next article we will look at what happens during the property search.
Please Mum and Dad, Can I Borrow Some Equity
There is a loan feature that allows a buyer’s family member to guarantee a portion of the loan, reducing the deposit needed or even eliminating the need for a deposit entirely.
For first time home buyers and investors, one of the biggest obstacles to buying a property is saving for a deposit.
There is however a way for buyers to get into their first property without a deposit by using what is called a family equity loan. In fact, it’s not technically a type of loan but rather a feature that can be added to most regular home loans.
This feature allows the buyer’s family member to guarantee a portion of the loan using existing property as security, reducing the deposit needed or even eliminating the need for a deposit entirely. The guarantor can be a parent, parent-in-law, step-parent or in some case even a grandparent or sibling.
The guarantor can determine what portion of the loan he or she will secure, but it’s normally in the realm of 20 per cent. The guarantor doesn’t need to actually provide the buyer with any cash or make any repayments on the loan.
It’s easy to see how this loan feature can help someone buy a home or invest in residential property sooner, because the buyer can effectively borrow the entire purchase price and costs. Plus, with the added security being provided, the lender may not require Lenders Mortgage Insurance (LMI), which can be costly for a borrower.
Some borrowers have used this feature not just to make a purchase but also to maximise the amount they can borrow and purchase a more expensive property.
Despite the lender having the extra security, the borrower will still need to meet the lender’s borrowing criteria, which may include having stable employment, a clear credit history, and an ability to service the debt.
In rare cases where the borrower defaults on the loan and the newly purchased property gets repossessed, there is a risk to the guarantor. If the sale of the property doesn’t generate enough money to repay the loan, the lender could demand the guarantor pay the shortfall up to the amount that was guaranteed. The good news is that once the borrower has built up enough equity in the property, the guarantor can be removed from the loan.
Garden Maintenance can be a Thorny Issue
Garden maintenance can often lead to issues between a landlord and tenant. So, what exactly is a tenant’s responsibility when it comes to maintaining the garden, and what is the landlord’s responsibility?
Living in a property with a beautiful garden can be a treat, especially in the spring and summer months when the weather is great and we are entertaining outdoors.
The problem with gardens is that they require maintenance. And although some people are happy to spend weekends exercising their green thumbs, for most people garden maintenance is a chore, which is why gardens are so often neglected.
Inevitably, garden maintenance, or the lack thereof, can often lead to issues between a landlord and tenant. So, what exactly is a tenant’s responsibility when it comes to maintaining the garden, and what is the landlord’s responsibility?
Unless the tenancy agreement says otherwise, the tenant is generally responsible for mowing and edging lawns, watering, weeding, pruning, and fertilising. These responsibilities could easily be termed ‘general maintenance’. Ultimately, the tenant is responsible for ensuring the garden is maintained to a standard set at the beginning of the tenancy.
Generally, the landlord is responsible for things such as providing hoses and sprinklers, maintaining the reticulation system, cleaning gutters and tree lopping. However, in some tenancy agreements it is the tenant’s responsibility to replace broken sprinkler heads.
It’s easy to see how uncertainty and issues may arise. For instance, at what point does a tree or shrub require lopping instead of pruning? And although the landlord is generally responsible for keeping gutters clean, it is the tenant’s responsibility to advise the property manager of any potential blockages or water leaks. If an issue is fairly obvious and the tenant fails to report it, the tenant may be liable for any damage caused.
A good property manager will make sure all parties clearly understand their responsibilities, and with the help of a comprehensive Property Condition Report and regular inspections, ensure these responsibilities are met.
Protecting Yourself When Acquiring Your Development Opportunity
You’ve done your research and now you are ready to put an offer in for your development property. It sounds straight forward, but there are some potential traps that you need to avoid.
Although you may have conducted substantial research prior to placing your offer, it’s unlikely that you would have had the time or the opportunity to cover all your bases. With that in mind, it’s an absolute necessity to have a ‘due diligence’ clause in your contract of purchase. This gives you the ability to walk away if you are not satisfied for any reason with the outcome. Despite what some people may believe, a finance clause is not adequate!
You must also remember that sales agents work for the seller, and for that reason their contracts are skewed to suit the seller’s needs and not necessarily yours. A properly written due diligence clause is essential; a poorly written one could cost you tens or even hundreds of thousands of dollars. Using a buyer’s agent is a good way to manage this process as they should have the appropriate clauses to insert into the contract and can also protect your identity and motives for purchasing to give you leverage.
Where possible you should aim to negotiate a reasonable period for due diligence, enough for you to undertake all the extra checks you need to. And also, a longer settlement is also advisable.
Once your offer and all terms and conditions have been accepted, then it’s time for you to get started on your post-acquisition feasibility study. Start by refining your numbers (particularly in light of any new information you acquire), and begin conducting your due diligence. This is your opportunity to look at the property in more depth, find out if there are any nasty surprises, and walk away from the deal if you’re no longer comfortable.
Your due diligence can encompass a number of things. Start by talking more freely with sales agents about realistic sale prices and get the builders on site to ensure your costing estimates are valid. Consider undertaking a soil analysis to ascertain what sort of foundations might be required (amongst other things), investigate the services available and where they are located (such as sewerage lines), and check the title for any restrictive covenants or easements. Talk with surrounding property owners about the site and your plans – this will give you an indication if you’re in for a battle! And don’t forget to liaise with the local council about your plans and their requirements to make sure your proposed development has a strong chance of approval.
There is lots of work to be done once you decide you’re ready to place an offer, it’s definitely not the time to rest on your laurels. But know that if you go into it with your eyes open, you can rest assured that you’ve done all you can to protect yourself and make your development a success
Tax Newsletter – March 2013
No splitting of rental income for couple
The Administrative Appeals Tribunal (AAT) has refused a husband’s argument that he could split his rental income with his (now estranged) wife even though the commercial property was registered under his name only.
The taxpayer had lodged tax returns on the basis that the property was shared equally between him and his wife. However, the Commissioner formed the view that as the property was in the husband’s name only, the rental income from that property belonged to him alone.
The husband claimed that the property was an asset of a “tax law partnership” between him and his wife. He also argued that the property was a “joint marital asset” held by them on a 50/50 basis, that the property was purchased from joint marital funds, and that both he and his wife each applied the income from the property for their own use.
However, the AAT was not satisfied with the evidence presented before it. It noted the absence of the wife from giving evidence, as well as a lack of written documentation, to prove there was a partnership. The AAT found that there was no evidence to show that the property was “jointly owned” or that the couple was in receipt of income jointly.
Winery losses cannot offset other income
A taxpayer has been unsuccessful before the AAT in seeking a discretion under the tax law to allow her to offset losses from a winery business against her other income.
The taxpayer had sought for the discretion to cover the income years ending 30 June 2010 to 30 June 2018. She argued, among other things, that it was acceptable commercial practice in the winery business to stagger the plantation of vines over such a period.
However, the AAT sided with the Commissioner and held that the vines could be planted and become productive within five years. It therefore held that the taxpayer was unable to satisfy the relevant test for the discretion.
TIP: Under the tax law, an individual conducting a business (either alone or in a partnership) may offset losses from the business against income from other sources, such as wages, but only if certain tests are met.
If the individual does not meet any of the tests, the individual may seek the Tax Commissioner’s discretion to allow him or her to claim the loss. Note that there are exceptions for primary producers and artists under the rules. Please contact our office if you have any questions.
Property developers denied GST margin scheme
The AAT has affirmed GST assessments levied at two property developers associated with the sale of real property between 2008 and 2009. The taxpayers had purchased property, which was eventually subdivided and on-sold. The taxpayers said they “never had an intention of not including GST in returns or defrauding the Commissioner” and that “they wanted their returns to be correct”.
However, the AAT affirmed the Commissioner’s assessments. It also decided that the margin scheme could not apply in the circumstances as there was no agreement in writing between the vendor and purchaser that the margin scheme was to apply to the property transaction.
TIP: The use of the margin scheme can provide a lower GST cost to the supplier than would normally be the case under the general GST rules. However, in addition to meeting various eligibility requirements, there must be an agreement in writing between the supplier and recipient that the margin scheme is to apply. Please contact our office for further information.
Superannuation top-up brings on 93% tax
The AAT has affirmed an individual’s excess superannuation contributions tax liability. On 27 June 2008, the individual’s employer made a “top-up” superannuation contribution to a clearing account. However, the funds were not allocated to the individual’s superannuation account until 23 July 2008.
The AAT considered that the payment could not be said to have been “made” in the 2008 income year. This resulted in a $69,665 excess superannuation contributions tax liability for the individual, representing an effective tax rate of 93%!
The AAT also decided that there were no “special circumstances” in this case to warrant the Commissioner’s discretion under the tax law to reallocate the amount to the 2008 year. The AAT said that the imposition of a tax under the tax laws – even a large tax such as the effective 93% tax rate in this case – is not in itself “special circumstances”. There must be some “special circumstances” that exist beyond that in order to warrant the Commissioner’s discretion.
TIP: This case highlights the importance of managing the timing of all concessional contributions against an individual’s contribution caps for each financial year.
As if this was not challenging enough, the concessional contributions cap has been frozen at $25,000 for 2012–2013 and 2013–2014, regardless of age. This unfortunately sets a trap for the unwary that could generate unexpected tax liabilities if contributions intended for June in a particular financial year are not “received” by the fund until July in the following financial year.
GST and residential premises
The ATO has issued a suite of rulings on:
- how GST applies to supplies of residential premises;
- how GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises; and
- how GST applies to supplies of long-term accommodation in commercial residential premises.
In-house fringe benefits – rule changes on the way
The Government has recently said that the existing fringe benefits tax (FBT) concessions in the law were not intended to allow employees to purchase goods and services (usually sold by the employer to the public) from their pre-tax income through salary packaging arrangements. According to the Government, these employees are receiving tax-free, non-cash remuneration benefits for goods and services, while other employees who do not have access to such salary packaging arrangements must pay for the goods and services from their after-tax income.
The Government has introduced a Bill into Parliament in order to deal with this issue. It proposes to remove the concessional treatment for such “in-house fringe benefits” accessed by way of a salary packaging arrangement.
If implemented, the changes will apply to all salary-sacrifice arrangements entered into on or after 22 October 2012. For pre-existing arrangements, the new measures will not apply until 1 April 2014 – but the renewal of, or changes to, an arrangement will trigger the new provisions.
TIP: This proposed change means that employees will lose their ability to pay for in-house benefits with pre-tax salary without their employer incurring FBT.
However, it is essential to note that the concessional treatment of in-house benefits will be retained where the benefits are not provided via salary sacrifice. If you have any questions, please contact our office.
Goods taken from private stock
The ATO has updated the amounts the Commissioner will accept for 2012–2013 as estimates of the value of goods taken from trading stock for private use by taxpayers in certain specified industries.
For example, for a restaurant/cafe (licensed), the Commissioner will accept $4,350 (excluding GST) for each adult or child over 16 years of age. Note that the ATO intends to adjust the values annually.
Finance Newsletter – February 2013
Good news for all borrowers – the banks have broken up with the Reserve Bank.
This means if you look around you are likely to find a better rate than you currently have. Use this opportunity to speak with a mortgage broker to ensure your bank is looking after you and that you have the best loan for your circumstances.
Some banks are currently offering great discounts on home and investment loans. Fixed and variable.
You may be able to save interest by fixing your home loan . You may be able to fix for 1-5 years at a lower rate then you currently have. Why wait for variable rates to go down. Switch to a lower rate now.
A great fixed rate is available from the Commonwealth Bank. You can get a fixed rate of 5.29% for 3 years. Compare that with your bank’s current offering? There are many benefits of using a mortgage broker and our services are provided to the borrower free of charge.
Call Dan Goodridge on 0414 423 340 or e-mail dg@iinet.net.au at Mercia Finance for obligation free finance information.
Property Newsletter January 2013
5 Signs the Market is Looking Up
Since the GFC, the Perth property market has been somewhat sluggish with brief glimpses of what may lay ahead. But now there are very strong signs that the next 12 months will see solid growth in property values. So, why are so many people convinced that 2013 will be a good year for property prices?
For those with their ears close to the ground, it has been coming for quite a while – a gathering of economic forces and market trends that all point to a near certain future.
In fact, there are already signs of growth in some parts of our city and according to recent figures from RP Data-Rismark the Perth market grow strongly in the 3 months to December of last year. In some suburbs, prices are back to pre-GFC levels.
Some commentators believe property prices in Perth could increase between 5 and 7 percent over 2013, and we believe certain areas could achieve even stronger growth.
So, why are we convinced that 2013 will be a good year for property prices? Here are 5 reasons:
1. Population growth
Population growth in WA, and specifically Perth, has been happening at a phenomenal rate. It has been massive not just by Australian standards but also on a global scale. Currently, around 1500 people are entering the state each week.
The growth has been driven by an influx of new arrivals, mainly from overseas, as a consequence of the economic opportunities in the state. With many parts of the world struggling economically, people are coming over for high paying jobs and to build a better future for their family. And, of course, these people need somewhere to live.
2. Rental market
When the supply of new housing can’t keep up with the rate of population growth, there is increased pressure on the housing market. It first affects the rental market, as many new arrivals choose to rent when they first arrive, then the sales market.
The rental market in Perth has been extremely tight in recent years, which has put upward pressure on rents. In 2012, Perth recorded a 17.5% growth in median house rents and 14% growth in unit rents. We’re currently seeing situations where applicants are offering above asking prices in a bid to secure a rental property. This trend is expected to continue into 2013.
It is widely accepted that rental growth is a leading indicator for price growth. As rents increase, there is simply a greater incentive for renters to buy.
3. The Economy
What can you say about the WA economy that hasn’t already been said? It’s the nation’s powerhouse.
Of the eight key indicators typically used to analyse the economy of the states and territories, WA typically leads the way on most of them – economic growth, construction work, unemployment, retail trade, population growth and equipment investment.
A strong economy means money is flowing into the state, businesses are investing and hiring, there are opportunities being created, and consumers are confident in their ability to take on and service housing debt.
4. Development and Infrastructure
Perth is developing rapidly as a city. Not only is the city centre being totally transformed, but there are various strategic centres being enhanced thanks in part to an increased shift towards suburban infill.
All of these developments are creating new opportunities for work and living, and helping to attract people from overseas and interstate.
Importantly, there is massive investment in transport infrastructure, including roads, hard rail and light rail, which is literally changing suburbs and laying the foundations for future property hotspots.
5. Interest Rates
Interest rates are currently very low, making housing debt more affordable, and therefore increasing demand for property. The expectation is that rates may decrease further in 2013 in a bid to help stimulate struggling parts of the national economy. This will add more fuel to the fire of the booming WA economy, putting even more pressure on the housing market.
Conclusion
If you are investing in property right now or already own property in Perth, these are just 5 reasons why you should be excited about the prospect of capital growth in 2013. There are, in truth, many other positive signs as well, such as the current low stock of properties for sale and historically good levels of affordability.
While the upcoming federal and state elections may result in some uncertainty amongst homebuyers and sellers, I expect this to be only a temporary glitch.
With first home buyers, investors and change-up buyers all expected to be active in the market, 2013 is shaping up to be a year of opportunities. For some it will be opportunities maximised, and for others it will be opportunities lost.
Early Signs Perth is on the Way Up
Perth’s median house price grew by around 3% in the December quarter, according to preliminary figures by the Real Estate Institute of Western Australia (REIWA).
It grew from $480,000 in the September quarter to $495,000 by December, a period that also saw sales activity grow by 4%.
While a higher median price could indicate that property values are increasing, it could also be distorted by strong activity at the more expensive end of the market.
“We have recorded more activity in the $600,000 to $700,000 range, as well as with homes over $800,000,” says REIWA president, David Airey.
In another positive sign for the market, only 55% of sellers discounted their price to achieve a sale in the December quarter compared to 60% in the September quarter.
“Now that buyers have more confidence and sellers are meeting the market with better pricing, the number of selling days has dropped from 71 to 62 for the quarter and this figure has been trending down for a while,” says Mr Airey.
The Road to Property Riches
Why is transport infrastructure so important for property investors? And what type of projects can typically impact on property prices the most?
In recent months, the Western Australian Government has announced a number of significant investments in transport infrastructure. This may have pricked the ears of some property investors who recognise the importance of these projects in determining future property hotspots.
These developments generate demand for housing and can cause price rises in adjacent suburbs. Sometimes the benefit to an area is obvious, other times only the truly astute investors will recognise the flow-on effects.
So why is transport infrastructure so important? And what type of projects can typically impact on property prices?
An area’s “value” is based on many things including its proximity to major centres, lifestyle attributes, beauty, and safety. If new transport infrastructure improves an area in one of more of these factors, the value of the area should increase.
New infrastructure, such as major connecting roads, can greatly affect people’s perception of distance. In some instances, a suburb may have better access to the CBD than suburbs closer to the city because of better roads. But it’s not just distance that can be impacted. New infrastructure can also improve an area’s beauty and safety.
What types of infrastructure projects have the biggest impact? In Perth, projects involving the rail network (including the proposed light rail system), new major roads, or significant improvements to existing roads have the potential to impact on property values.
Extensions to the existing rail line can certainly improve the prospects of outlying suburbs by providing better access to the city. Similarly, the proposed light rail system will provide some suburbs that previously relied on buses with direct rail links to the CBD and other major centres.
It’s not just new roads that can make a different but even widening of roads can impact areas by reducing congestion and reducing travel times. Reconfiguring of roads and new bridges can also make a significant change.
How do investors take advantage of transport infrastructure developments? By investing in the relevant areas before buyers realise the full benefit of the projects.
Good transport infrastructure is vital for a thriving economy, and public transport in particular, is becoming increasingly important as our population swells and the price of petrol increases.
Next time you hear an announcement of a new transport infrastructure plan, think about how it will affect surrounding suburbs. Which areas will become more appealing as a result? Or better yet, start digging for yourself and find out those plans and projects that other investors won’t know about.
Have You Had Your Yearly Check-Up?
For anyone who owns a property with a mortgage, now is a fantastic time to get a financial check up, which could save you money or help you to reach your goals sooner.
It’s that time of the year when many of us are trying to make improvements in our lives and planning for the months ahead. High on the list may be a fitter lifestyle and getting that long overdue check-up at the doctor.
For anyone who owns a property with a mortgage, now is also a fantastic time to get a financial check up. This type of review is completely pain-free and doesn’t require you to wear a funny gown. But it can uncover some excellent opportunities that could save you money or help you to reach your goals sooner.
Reviewing your loans will help determine whether they are suited to your current circumstance, which may have changed since you first obtained the loans. A change in jobs, the arrival of children or a new wealth creation plan may all warrant an adjustment.
Even if your circumstances haven’t changed, there is a good chance that new products have become available that could save you thousands of dollars. The home loan market is very competitive and so lenders regularly try to outbid each other with various discounts and incentives.
Reviewing your mortgages can often result in lower interest repayments, higher borrowing capacity or more financing options. It is a vital exercise for both home owners and investors, but particularly the latter who may want to unlock equity for another investment.
Even if nothing changes at the end of the review, at least you have the peace of mind knowing your loans are giving you the best chance of financial success.
A lot of work goes into signing up for a mortgage, so it’s understandable why many people do not review their position regularly. But a financial health check is a simple process with enormous potential for financial gain. And it begins with a quick call to your trusted finance broker.
Choosing Between Different Rental Applications
For a landlord, it’s a nice problem to have. Your vacant property has been advertised, there have been countless inspections and now you have received numerous applications. So how do you pick the right applicant?
Screening rental applications is a crucial process. Choosing the right tenant can mean fewer issues and a better maintained property.
While every landlord has a different situation, here are some general tips on choosing between different applications.
It sounds obvious, but consider what you really want in a tenant. At a basic level, you might want a tenant who pays their rent on time and takes good care of the premises. But you may also want a tenant who is going to stay put for a number of years, and this may affect your choice of applicant. In this case, you may place increased importance on the applicant’s previous rental history and the reasons for the applicant leaving their current property.
What if one applicant is offering to pay above the asking price? While the possibility of extra income may be alluring, selecting on this basis alone can lead to disastrous consequences. While a tight rental market might be encouraging applicants to offer more than the asking price, some tenants are forced to offer more because of a poor history or references.
Checking references is very important and one of the time-consuming jobs typically performed by a property manager. Reference checking generally involves obtaining feedback from the tenant’s previous property managers or landlords regarding the tenant’s tenure, payments, and cleanliness.
A reference check may also involve calling the applicant’s employer to confirm they have a job, can pay the rent, are a good employee, and likely to continue working.
Checking personal references may also uncover information that is useful in screening applicants, though it’s important to allow for a certain degree of bias with references from friends and family.
Above all, when deciding between different applications, discuss this with your property manager. In most cases, your property manager would have met the applicants and this will reveal a great deal of information.
Ask your property manager what their impression was of the various applicants. Good property managers have an instinct for knowing which tenants would best suit a particular property and can therefore save landlords a lot of time and money over the long term.
Suburb Snapshot: Yokine
Yokine definitely has strong fundamentals and with the prospect of the new light rail system, it has strong potential for capital growth.
Yokine is an established residential suburb around 6km from the Perth CBD and part of the City of Stirling. It neighbours Nollamara to the north, Dianella to the east, Inglewood and Menora/Coolbinia to the south, and Tuart Hill and Joondanna to the west.
The suburb was mostly established during the post-war years, particularly from the 1950s to the 1970s.
Today, it’s made up of a range of property types including new homes, medium-density duplexes and villas, older detached housing, entry level units and development sites, with a median house price of around $600,000. Compared to the Perth average, it has a high proportion of renters.
The suburb provides families with plenty of education options, both public and private, and there are numerous shopping precincts including the strangely-named Dog Swamp Shopping Centre, and Flinders Square Shopping Centre. The Mount Lawley coffee strip is also close by.
Yokine is a very green suburb with many parks and a fantastic golf course. The largest park is the popular Yokine Reserve, which incorporates lawn bowling greens, sports ovals, tennis courts and a community recreation centre. The playground within the reserve recently received a major multi-million-dollar upgrade making it one of the best in Perth.
Yokine offers investors development options due to favourable zoning. It is common for older houses to be knocked down and the land subdivided to accommodate new villas and townhouses. These sites typically sell in the high $600,000s.
Yokine is serviced by many bus routes but it has no connection to the rail network. However, this may change with plans for Perth’s first light rail system, called MAX, which will provide residents of Yokine with direct rail access to the CBD. This massive project could benefit the suburb greatly.
Another positive development is the City of Stirling’s plans to develop the Stirling City Centre and make it a large employment area within Perth, which will benefit surrounding areas.
Yokine definitely has strong fundamentals and with the prospect of the new light rail system and the gradual rejuvenation of the suburb, it has strong potential for capital growth, particularly at the cheaper end of the property market.
Growth rate (1 year average) 0.0%
Growth rate (5 year average) 1.0%
Growth rate (10 year average) 9.5%
Population 10613
Median age of residents 37
Median weekly household income 1206
Percentage of rentals 42%
Source: REIWA.com.au, January 2013
Capital Gains Tax (CGT): Main Residence Exemption
One of the few times you can get a tax break is with your main or principal residence which is exempt from Capital Gains Tax (CGT). So what really is a main residence and what rules do you need to be aware of?
The concept of your ‘main’ or ‘principal’ residence is an important one due to its significant influence on your future financial situation. When it comes time to sell your home, it is one of the few windfalls you can receive (assuming you make a profit when you sell) that is not subject to tax. Your main residence is exempt from tax on any capital gains provided it meets a few criteria.
For most people, figuring out what is your main residence is pretty straightforward. But for others, it is not so simple due to their circumstances. In some cases, you may even have a choice as to what property you claim. For these situations it’s important to understand a few key rules:
It must be a dwelling
A dwelling is considered a building or part of a building consisting mainly of residential accommodation with land under the accommodation. Therefore it could be a caravan or mobile home, but cannot be vacant land.
You must reside in the property
Definitions are not explained in the tax legislation; however the Australian Tax Office (ATO) has listed a number of factors that are taken into account to determine whether they would allow your claim for main residence exemption. These include:
• Length of time you lived in the property (it’s often assumed this should be at least 3 months but it’s not stipulated by law)
• Where the rest of your immediate family live
• Whether you keep your personal belongings at the property
• The address where your mail is actually delivered
• Whether your address on the electoral roll matches that of the property
• Connection of services such as gas, telephone and electricity
• Your intention of occupying the premises
Other considerations
One main residence at a time
You can only claim one residence as your ‘main’ residence at any one time. However, you are allowed a six-month overlap of main residences when you are changing homes (between the time of acquisition of the new and disposal of the old).
Temporary absence
If you choose to move elsewhere and rent out your home at some stage, you can continue to claim the main residence status on the property for up to 6 years even though you don’t actually live there. This will not impact on your ability to claim deductions on your now investment property, it will only impact on CGT. The catch is that you will not be able to claim the other property you are now living in as your main residence during this time, if you claim your former home as your main residence.
Partial exemption
There are times when a property can only receive a partial exemption. One of those is when you move house, your new home becomes your main residence, and you then rent out your old home. During the time in which your old property is rented and no longer considered your main residence, it will be subject to CGT. However CGT will not be calculated during the period you lived there and claimed it as your main residence. The other time your main residence will receive a partial exemption is when a part of it is used for business and other such income producing purposes (e.g. a beautician servicing customers in a spare bedroom). In these circumstances, the proportion of the dwelling used for such purposes will be subject to CGT for that period, while the rest of the dwelling will continue to be exempt. This area can be tricky to interpret so do seek professional advice if you have concerns.
Pre-occupation period
If you are building a home on vacant land or substantially renovating a property and therefore cannot live at the property, you can still claim main residency in both examples under a “pre-occupation exemption”. Under this exemption you can treat the property as your main residence for up to 4 years before you actually occupy it provided you occupy it as soon as practicable and live there for at least 3 months after doing so. Naturally, you must not claim any other property as your main residence during this time.
Property in individual names
With a few minor exemptions, property can only be claimed as a main residence if held in individual names. Property held in a company or trust therefore cannot claim the CGT break. Because of this significant tax implication, most people hold their home in their personal names. If asset protection is an issue, best to consider holding it in just one partner’s name which still allows you to access the CGT benefits while affording some asset protection.
Taxation is not always a straightforward area and many rules are subject to interpretation so I encourage you to seek professional advice from your accountant if you have any questions or concerns.