The little tax secret to massively boost your cash flow

Wouldn’t it be great if you didn’t have to wait for your tax refund? With this little-known trick, it’s possible.

Investors who own negatively-geared properties will understand that it can sometimes be an agonising wait for your tax refund. You’ve scrimped and saved all year to invest for your future, and finally the taxman rewards you with a big fat cheque.

While some people like the idea of getting an annual tax refund, it doesn’t really make financial sense. By paying more tax than necessary, the tax office is essentially ‘holding’ your money. Wouldn’t you rather have the money in your pocket from day-one to do as you please? You could pay off your mortgage sooner, or maybe buy another investment property.

Well, it’s possible to get your refund as part of your regular salary payment using a feature of our Pay-as-you-go (PAYG) withholding system.It involves submitting what is called a PAYG variation. This is basically an application telling the Australian Tax Office how much of a loss you expect to make on your investments, so that you only have to pay tax on the adjusted amount.

Once approved, your employer will reduce the amount of tax withheld from your pay to reflect your anticipated deductions (such as interest payments and depreciation), which could easily add a few hundred dollars to your pay packet.

Strangely, many investors don’t know about this strategy, but it can really make a difference to your cash flow.

To find out more about a PAYG variation, it’s best to talk to your accountant.

Expat’s guide to choosing the right Australian investment property

How can you find a high-performing investment property from a distance? Here are a few tips to get you started. Property is a popular investment vehicle for many Australian expats because it appears safe and stable. It’s widely believed that all properties will grow in value, and that the “worst case scenario” is simply a lower rate of capital growth.

Sadly, this is not the case. As property investment specialists, Momentum Wealth is regularly contacted by owners of properties that have significantly dropped in value, severely undermining their investment goals. Some properties have stayed stagnant and are likely to continue in this vein for a number of years to come.

One factor in buying a high-performing investment property is choosing the right location. But what if things have changed while you’ve been working away? Some neighbourhoods improve over time, while others deteriorate or plateau once they have peaked. How can you tell from a distance? Professional property analysts consider a wide range of factors in their research. Here are a few tips to get you started.

• Look for rising demand. Is there something about a suburb that will make it more popular in five years’ time than it is today?
• Look for new infrastructure – new facilities which make a location more convenient or desirable. But don’t sacrifice long-term desirability! Many investors get hooked by the allure of a new school, train station or shopping centre, but if the suburb is still an hour from the main city centre, and lacks job opportunities then these amenities may not be enough to drive significant price growth in the long term.
• Look for signs of gentrification. If you see a large proportion of residents renovating and extending their properties, and new café strips or shops opening in an area, it often means that the demographics of a suburb are changing for the better. Rising household incomes support rising house prices, which is great news for investors who get in early.

So where do you find this information? As expected, there is plenty of information online, some good and some not very good. For many expat investors, the logical choice is to hire a local property specialist to do the research for them.

Choosing “the one”

Even within a high-performing location, the wrong property choice could cost you significantly in lost capital growth, and even prevent you from buying more properties in the future. There are over 46 factors in choosing an individual property such as: the market appeal of the house itself; impact of the neighbouring property; add-value opportunities; rental appeal; future property maintenance and repairs required; features and specifications; structural and building issues; price and scope to negotiate, and more. Extensive research is critical to ensure that you aren’t disappointed with your choice. If you don’t have time to conduct this research yourself, a buyer’s agent can undertake it on your behalf.

When it comes to inspecting the property, it’s critical that you have someone viewing the property on your behalf. Some opportunities (e.g. a great floor plan, or room for a granny flat) or defects (moisture damage, issues with neighbouring properties) are impossible to see from photos alone.

5 things to consider before renovating your rental property

There are many reasons why you might want to undertake a renovation. But before you get stuck in, here are some key points to consider.

It’s often towards the end of a tenancy that rental property owners consider undertaking some minor renovations. It is, of course, easier to do work on an empty property than a tenanted one.

There are many reasons why you might want to renovate.  It may be to improve your rental yield, increase the value of your property, attract better quality tenants, or a combination of factors. The renovation needn’t take a lot of time, as there are many little things you can do to rejuvenate a property in a short amount of time. But before you get stuck in, here are some key points to consider.

#1 – Don’t skip the planning stage

Even if you are only considering a small renovation, don’t think you can bypass the planning stage. You should still have a clear budget in place and carefully plan the various activities, so as to avoid a cost blowout and an extended vacancy period. Remember that tradespeople have lead-times and most won’t be able to start a job immediately.

Try to inspect your property before the tenants vacate to give you the most time for planning, and a good tip is to ask the outgoing tenants for feedback on what could be done.

#2 – Consider your return on investment

Don’t get carried away in the renovation whirlwind. Be realistic about what things cost and only replace items when it is absolutely necessary.  Always consider your return on investment. Will the increase in rent justify the cost? How long will it take to recoup your investment?

It helps to research the market and talk to your property manager about what is expected in the area and the features that are most sought-after.

 #3 – Think before you scrap

Many investors are unaware of the fact that certain plant and equipment, which may seem worthless and ready for replacing (like carpets and hot water systems), can actually be claimed as a tax deduction.

Before you discard or demolish anything, make sure you get a quantity surveyor to put a value on the items you are scrapping. The residual value of these items (i.e. the amount that is yet to be written off) can generally be claimed as a 100% tax deduction in the financial year that they are disposed.

#4 – Concentrate on the right areas 

Focus on the upgrades that will be most welcomed by prospective tenants. A lick of paint and new carpets are always popular choices because they make a strong impact. New benchtops and window coverings can also help to transform the look of a property.

But it’s not always about looks.  Some of the best upgrades may involve enhancing the security or comfort of your property.

And don’t ignore the outside, as street appeal is very important. You don’t want prospective tenants dismissing your property after a quick drive-past. Little things like painting the fence and tidying the garden can do wonders.

 #5 – Suitability

Whichever areas you decide to focus on, remember to always choose tenant-friendly items. Buy things that are durable and hard-wearing as this will save you time and effort over the long term.

 Does a sloping block mean money down the drain for a potential development site? 

When assessing a potential development site, one of the major considerations should always be the slope of the land. The slope is important because it can significantly impact on the feasibility of a project. Some developers will instantly dismiss a sloping block, but is this strong aversion warranted? Let’s look at some of the potential impacts of developing on a sloping block.

Drainage

Drainage is perhaps the biggest area of concern for developers considering a sloping block. Generally speaking, a block that slopes towards the road, where the sewer line is located, shouldn’t have a problem with drainage. But one that slopes away from the road can cause all sorts of expensive headaches, depending where the sewer line is located.   It’s worth noting that, when it comes to drainage, a flat block isn’t always straight-forward either, as it may need to be built up in certain parts.

Excavation

When building on a sloping block, you generally need to do some retaining of the land, which can be rather expensive. There are also likely additional excavation and filling costs to consider.

Building height

Depending on the state residential planning codes and local council policies in regards to the measurement of building height, this can impact the development potential of a block.

An opportunity?

Can a sloping block offer any unique advantages for the astute developer? When developed correctly, some sloping blocks can provide outstanding views, prized by buyers and tenants. By forcing the developer to work with the natural restrictions of the land, a sloping block may also result in a better design and more interesting development. This could potentially improve profitability.

Conclusion

Does a sloping block mean money down the drain? It certainly presents some unique challenges, but it is often possible to work around any potential issues.  The fact that it is sloping may deter other developers and leave a potential great opportunity on the table.

The important thing is to always approach a potential development with your eyes fully open, factoring in any additional costs that may result from having a sloping block. But if you do your sums and it all stacks up, there’s no reason why a development couldn’t be a success.

 Is the stigma lifting on this underutilised riverside suburb? Ashfield

Ashfield came onto the radar of many investors when talk first emerged about the Ashfield Precinct Plan, which was formally released at the beginning of 2010. Ashfield is located on the Swan River, 9km from the Perth CBD and part of the Town of Bassendean. It’s a very small but well-located suburb serviced by major strategic transport routes, including Guilford Road and Tonkin Highway.

It has its own railway station on the Midland line and the Perth airport is located just on the other side of the river. The suburb was mainly developed in the mid 1900s, but many older homes have now been renovated or replaced by newer ones.

With its high proportion (20%) of state housing and reputation for anti-social behaviour, Ashfield has always carried with it a certain stigma. Though, it’s fair to say that this has been improved over recent years. In real estate terms, the suburb’s median house price is $515,000, below that of Perth, but its growth has generally outperformed the Perth average over the past 10 years.

The Ashfield Precinct Plan, published by the state government, is intended to guide future development within the precinct, which roughly encompasses an 800m walkable catchment of the Ashfield Railway Station. This area actually includes parts of neighbouring Bassendean and Bayswater.

The aim is turn the area into major employment activity centre by utilising large pockets of relatively underutilised but strategically located land. Recommendations include increasing the utilisation of public transport by improving accessibility to the train station, and facilitating higher residential densities. With plenty of demand for affordable housing in Perth, Ashfield could be a promising target for developers looking for residential subdivision opportunities.

Momentum Wealth’s own research has uncovered some potential risk factors and we buy selectively in the suburb. But all in all, there is enough to warrant a look at this changing suburb.

Four rules for outperforming the market

The Perth property market seems to have entered a period of cautious stability where any value growth in the short-term is likely to be patchy. This isn’t surprising given the market’s strong performance in 2013 and the current high vacancy rates.

With the heat taken out of the market and many buyers sitting on the sidelines, there is a fantastic opportunity for savvy investors to enter the market and make a cold and calculated purchase.

Forget the days when you could casually make a purchase and rely on the general movement of the market to help you achieve your investment goals.

More than ever you need to acquire properties that have the inherent characteristics for driving growth, regardless of what the wider market does. But this is no easy task, so here are 4 key rules to help you on your way.

Rule #1 – Put greater emphasis on supply

The impact of supply on price growth is a very logical one, but it’s something that many investors somehow overlook. Demand-side factors always seem to garner more attention and focus.

Put simply, when the supply of a particular type of property is insufficient to meet the level of demand, the value of that type property should increase.

You therefore need to pay close attention to the supply of property in the areas you are evaluating and particularly the potential for future supply, given the long-term nature of property investing. This is critical for finding high-performing properties in today’s market.

A property in a location where there is an abundance of developable land will generally underperform as there is an endless conveyer-belt of newer properties competing for buyers and tenants.

Naturally, areas with limited future supply tend to be those that are well-established. If you buy a house in an area that is 30-40 years old and not too far from the CBD, you know that the supply of property is unlikely to increase substantially as there is no more land available to build on.

Assuming people hold a desire to live in that area and, better yet, you predict said desire to increase over years to come, then you can be reasonably confident your property’s value will rise.

Oversupply issues are of particular concern for apartment buyers in some parts of Perth at the moment. If an area has a lot of land ripe for development, or plenty of old buildings ready to be demolished for brand new apartment complexes, supply of apartments in that area could be plentiful. This is bad news for values.

Rule #2 – Think about the value-add potential

One way to outperform the market is to manufacture your own growth. This means finding a property whose value can be improved beyond the cost of making the improvements.

But increasingly, you need to be a little more creative than simply whacking on a fresh coat of paint and installing new carpets. You need to look for opportunities that the average investor will miss, such as the potential for adding a granny flat or developing the property in a clever way.

Even if you plan to buy and hold for the long-term, it makes sense to choose a property that has value-add potential. This way, when the time is right you can manufacture your own growth through renovation or development and ultimately outperform the market.

Rule #3 – Pay close attention to local planning

In the current market, it’s important to take a ‘local’ focus and look out for areas that are changing both physically and in the minds of buyers and renters.

There are many examples of such areas in Perth and these should outperform the rest of the market. The key is identifying which areas are being ‘reassessed’ and investing before the changes are reflected in values.

A good place to start is by closely monitoring relevant plans and policies by local councils, which often set the scene for the gentrification of an area.

But keep in mind that it can take many years (even a decade) for new policies to be introduced and there can often be numerous changes before policies are finally implemented.

Rule #4 – Follow the infrastructure trail

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.

Within Perth, there is a vast array of major construction and rejuvenation projects currently in progress, recently completed and planned for the near future. From new hospitals and stadiums to major upgrades of transport infrastructure, these projects will create a number of local real estate hotspots that will outperform the market.

Conclusion

All investors should try to ‘beat’ the market by finding investment opportunities that will generate above-average returns. And this is especially true in the current market when average returns are unlikely to be spectacular.

While these rules will help guide your search, the reality is that finding the right properties requires a great deal of hard work and know-how. This is why more and more investors are relying on professional organisations such as Momentum Wealth that have the expertise and resources to dramatically increase the chances of success.

Five ways a mortgage broker can save you money

We all know that working with a competent mortgage broker can save you a tremendous amount of time that you would otherwise spend tracking down and comparing loans.

But can mortgage brokers really save you money? They certainly can, and in some cases the savings could add up to thousands of dollars. Here are 5 ways it can happen.

#1 – Finding a better interest rate

The obvious way a mortgage broker can save you money is by getting you a cheaper interest rate. Even a small difference can equate to thousands of dollars in interest payments over the course of the loan.

Most brokers will explain however that the interest rate isn’t always everything. For instance, some loans may have features that save you money in the long-term even if the corresponding interest rate isn’t the cheapest one around.

#2 – Avoiding those nasty surprises

Another area where a mortgage broker can save you money is with regard to fees, penalties and any other costly additions that are typically packaged into a loan. Some loans look good on the surface but they can come with a nasty sting. A broker knows about these potential traps and can steer you well away from them.

#3 – Leveraging their inside knowledge

Mortgage brokers understand what goes on within the large, reinforced walls of Australian lenders. They have inside knowledge about quotas and the (sometimes hidden) motivations of bankers, which they can leverage to your advantage. Knowing which lender to use at which time can really pay off financially.

#4 – More negotiating power

With their regular and direct links to key individuals within lending institutions (some are on a first-name basis), a mortgage broker can often negotiate in ways that you cannot. This can mean anything from zero fees to discounted interest rates.

Many borrowers think they can negotiate a good deal with their lender, but the reality is that a broker can generally do it better.

#5 – Promoting healthy competition

Another, albeit far less obvious, way that mortgage brokers save borrowers money is by promoting healthy competition in the loan market. They keep lenders honest by constantly shopping around for the best deals. Given that around half of all loans come from the broking industry, mortgage brokers have probably saved consumers millions of dollars on the whole.

An investor’s take on the renting versus buying discussion

There has been a lot of media coverage lately about the difference, financially speaking, between buying a home and renting one.

It stemmed from a paper released by the Reserve Bank of Australia, which was largely interpreted by journalists as an endorsement for renting.

One of the problems with the paper, a fact rightly acknowledged by the authors, is that it didn’t take into account the non-financial benefits of home ownership, such as pride, security of tenure and the freedom to renovate.

But for those with an investment mindset, there was another gaping hole in the discussion: what it all means in terms of wealth creation.

Sure, it might be cheaper to rent on a week-to-week basis than buying a home. But what are you left with at the end of the day when the time comes to retire? Will you be able to rely on your superannuation or the age pension for an income? Will you have to rent throughout your retirement years?

One can only make an economic argument in favour of renting if the ‘extra’ money that would have been spent buying and owning a home is used to build wealth (ideally through property investment).

And there are plenty of people who have successfully executed the strategy of renting a home and ploughing all their additional income into building a property portfolio.

But ultimately most people aren’t financially disciplined to do this and they value the other benefits of home ownership too much.

This is why for most people, owning a home will always be the preferred choice, not just from a lifestyle point of view but as part of a plan for building wealth.

7 nightmares you can avoid by hiring a professional property manager

Being a property investor certainly has its moments. It can bring spectacular highs as well desperate lows.

Property management is one area that has more than its fair share of challenges, especially when a property is in inexperienced hands.

For those who manage their own property, there are many potential nightmares lurking around the corner. This is why most investors employ a professional property manager to minimise their risk and allow them to focus on what they do best.

Here are some of the common nightmares a professional property manager will help you avoid.

“I can’t find a tenant!”

There’s nothing that worries an owner more than a vacant property, as every day represents lost income.

Professional property managers will actively advertise your property to source a prospective tenant and they typically have a wider variety of options than the average Joe. For instance, private landlords may be unable to advertise on major online portals, which can dramatically reduce the pool of potential tenants.

Property managers will also have a database of potential tenants, which can save you a considerable amount of time.

“I’ve broken the law!”

A real risk of being a private landlord is that you may inadvertently break the law, opening the door to liability and fines of potentially thousands of dollars.

Property managers understand the rights and obligations of owners and tenants under the Residential Tenancies Act and they know how to navigate the minefield of compliance requirements, which are constantly subject to change.

“I’m drowning in a sea of paper!”

Managing a property, like any business, involves dealing with a whole range of paperwork, which can easily overwhelm a private landlord. A property manager will take care of most of the burden and provide you with the necessary income and expense statements at regular intervals.

“My property is falling to pieces!”

No owner wants to see their property being neglected or, worse still, intentionally damaged. A property manager will ensure, though a detailed Property Condition Report and regular inspections, that your property is being adequately maintained. Private landlords often get lazy when it comes to inspections.

“I’ve been scammed!”

Private landlords are prime targets for criminals and unscrupulous operators because they don’t have the skills, systems and procedure in place to identify potential scams.

“I’m bleeding money!”

Private landlords typically don’t have the up-to-date local market knowledge of a professional property manager. This means that they don’t get full market rent for their property, which has a knock-on effect to their overall investment plans. Property managers will regularly conduct market reviews to make sure you are maximising your returns.

“My tenant is a lunatic!”

The importance of tenant screening is not to be underestimated. A bad tenant can really set you back financially and emotionally. Property managers have the tools and systems to put applicants under the microscope before placing them in your property. Private landlords tend to rely on ‘gut instinct’ alone which can be problematic.

Is it worth being green when developing property?

Whether you’re doing a simple multi-unit development or a larger-scale project, you’ll have to decide how much to spend on the build to get the best possible return.

So, financially speaking, is it worthwhile investing in features that will make your property more environmentally friendly?

One thing is for certain, environmental sustainability and eco-friendliness have become far more mainstream issues today than in the past. They are no longer simply the domain of hippies. And while green homes were once seen as visually unappealing (think of those unsightly solar panels), they have now become largely indistinguishable from their non-green counterparts. So it’s fair to say that the market for green properties is a growing one.

Some things just have to be done

It’s important to be aware that there are certain green standards that are mandated under the Residential Design Codes and the Building Code of Australia.

The Building Code, for instance, requires that all new buildings meet a minimum standard for energy-efficiency, measured by a star rating. The current requirement for Western Australia is 6 stars with an additional requirement for water-efficiency called 5-star plus.

Some local councils may also have their own additional energy-efficiency requirements that must be met in order for a developer to secure a particular zoning.

What else can be done?

There is a seemingly endless list of things you can do to make your property greener from the simple, such as installing energy efficient light globes and appliances, to the more expensive options, such as installing solar panels.

In Australia, conserving water is another important issue. Some of the things you can do in this area are installing rain tanks, and insisting on water conserving showers, toilets, washing machines and dishwashers. Establishing a drought tolerant garden is another positive step you can take.

Some people take the issue further and decide to use only sustainable and renewable materials in the construction of their property. Some will also commit to using non-toxic paints to improve air quality.

The point is that are numerous things you can do to make you property more eco-friendly. The added costs can range from a few dollars to tens of thousands of dollars per property.

Will it pay off?

We know that going green will be good for the environment and it could go a long way to reducing the running costs of the property. It may even help improve air quality. But will it pay off financially?

Firstly, there may be government subsidies or tax credits for installing certain features. But this will be of minimal incentive for developers.

In terms of lowering heating and cooling costs, yes, there is often a direct return on investment. If you are an owner occupier, the longer you spend in the property the more chance you have to recoup the additional costs. But more often than not, a developer is not responsible for paying power, water and gas consumption bills.

For those developing properties to hold the inevitable question arises, will a tenant pay more to rent a property that has lower running costs? Generally speaking, it is unlikely. While many tenants would prefer an environmentally friendly property, when it comes down to the crunch most tenants won’t pay a premium. At best I think an investment in green features could perhaps help to minimise vacancy periods by making your property more desirable.

Will a buyer pay more for your property if it has green features? Practically speaking a house that saves the occupants money should be worth more. However, I think it is unlikely you’ll get a huge premium. But it will definitely help your property stand out, especially in an oversupplied market.

The issue of whether a green property will attract a premium from renters or buyers depends on the location. People in some areas may recognise the value more than others. The high end of the market is perhaps a good place to look for buyers who would be willing to pay a premium.

Conclusion

Logic says that if you are going to invest in making your property greener with the explicit goal of generating a financial return, choose the features that are most visible to tenants and buyers. A stylish rain tank may put a tick in the box for many people, but how many will appreciate the fact that the timber floors came from a sustainable forest? Go with the items that will give you the biggest bang for your buck.

Of course, your reason may not be a commercial one and you may simply want to minimise the footprint you leave on the planet. This is of course commendable, even if there is no financial reward at the end of it.

Caution required when investing in this booming suburb

Rivervale is located on the Swan River, 5km from the Perth CBD and part of the City of Belmont.

It is predominantly a residential suburb with a commercial area along Great Eastern Highway, which is the main road linking Rivervale with the City and the airport.

Rivervale was predominantly developed in the post-war years but today its housing stock is a veritable mix of older houses on full blocks and recently developed townhouses and villas. Apartments also dominate the area to the north of Great Eastern Highway.

Currently the median house price is around $600,000 and the median unit price is $380,000.

Rivervale’s main selling point is its proximity to the CBD and the airport, and there are also many amenities surrounding the suburb, including the Burswood Entertainment Zone.

There is a major shopping centre in neighbouring Belmont, which also contains a commercial/industrial district, and plenty of schooling options for local families.

A train station is located a short walk from the very north-western portion of the suburb, and there are frequent bus routes that traverse the suburb, particularly on Great Eastern Highway, Alexander Road and Kooyong Road.

Rivervale will benefit greatly from the ongoing development of the nearby Crown Complex and Perth’s new stadium, which is expected to be completed by 2018.

There is also considerable investment in transport-related infrastructure surrounding the suburb, which should reflect positively on capital values in the area.

Rivervale has been a very strong performer over the past three years, accelerated by rezoning which occurred in 2011, and one could argue that it has become a victim of its own success.

Development in the suburb is currently running strongly, with boutique apartment complexes being advertised in high numbers. Although Rivervale remains a solid investment option over the long-term, the current oversupply in the unit market should certainly be of concern for investors.

Should people be opposed to higher density?

Under the planning framework, Directions 2031 and Beyond, the WA government has set a target for almost half of new residential development to occur in established urban areas.

If Perth is going to accommodate a rapidly growing population, which increasingly wants to live near work and amenities, we simply can’t afford for the urban sprawl to extend indefinitely. We need to embrace infill development regardless of the challenges it might bring about.

Perhaps the biggest of those challenges relates to planning and rezoning, specifically, the opposition from local residents who don’t want to see housing density increased in their suburb.

This is not just a challenge for Perth but for cities around the world. In fact, this type of opposition has become so prevalent that there are a number of acronyms used to label its proponents.

The most well-known of these is NIMBY (Not In My Back Yard). There is also the broader CAVE (Citizens Against Virtually Everything), and the extreme BANANA (Build Absolutely Nothing Anywhere Near Anything).

Understanding the opposition

Every citizen has the right to protest against change, especially if they believe it will adversely affect their personal situation.

In the case of those who are against development in their area, protests are generally sparked when residents of a particular area believe their normal suburban lifestyle is under attack by plans to increase housing density.

The cause is typically fronted by resident groups, who can garner significant suburban media attention and put significant pressure on the local council to protect the status quo.

Interestingly, it is the residents in wealthy suburbs that tend to be most vocal and most persuasive on this matter.  They have the financial means, political influence and the organisational ability to go about protecting their cherished lifestyle.

What are the groups afraid of? One of the major areas of concern is the fear that infill development will disrupt the cohesion of their neighbourhood. They don’t want to see beautiful, tree-lined streets ruined by unsightly apartment complexes or other developments that are out of character with existing properties.

Clearly, it’s not just about how developments will change the look of streets, but how they will impact on things like privacy, traffic, parking, access to sun and even the environment. While some might not admit it, there is probably also a fear that ‘the wrong’ type of people will move into their suburb.

Impact on property values

While it can be a complex issue,  ultimately it boils down to one thing: the fear that proposed changes will negatively affect local amenity by making the area less desirable.

You can’t criticise people for wanting to protect their financial security and way of life, but I’m unaware of any evidence that shows properly planned infill development causes property values to decline.

In fact, there are many suburbs in Perth that have recently seen property values increase considerably on the back of zoning changes. In some cases, individual properties have gone up by more than $100,000 after being rezoned for higher density.

Affordability, choice and the fringes

One of the impacts of people and councils limiting development in their area is that it merely moves development elsewhere – generally to the fringes of the city.

Fringe development might be good for car manufacturers, but it often requires enormous taxpayer-funded expenses for the roll-out of necessary infrastructure.

There is also the impact on affordability. Locking up land reduces the opportunity for affordable housing in established suburbs. And ironically, it is the children of those opposed to development that often suffer when, like other first-home buyers, they are forced to move to distant areas where essential services are inadequate.

By opposing infill development, advocates are also limiting housing diversity and this can reduce their own opportunities to downsize within their current suburb.

The traffic conundrum

Often a major concern for groups is the fear that higher density housing will increase local road traffic and there is some validity to this argument.

However, ‘protecting’ suburbs can sometimes have unforeseen consequences. By pushing people to the fringes, this can actually create local traffic problems as desperate commuters try to find ‘local routes’ to beat the peak-hour traffic. We’ve all seen how normally quiet residential streets can become major thoroughfares at certain times of the day.

The traffic argument also fails to consider the fact that infill development can actually take cars off the road when it is concentrated around public transport nodes and jobs.

Conclusion

The views of groups opposed to development can’t and shouldn’t be ignored. The worry, however, is that overly fierce ‘protection’ of our suburbs will ultimately undermine any chance of delivering the affordable and diverse housing we desperately need. As is often the case, what makes sense on an individual level can be a recipe for disaster on the larger scale.

Is Lenders Mortgage Insurance a friend or foe?

Lenders Mortgage Insurance (LMI) is generally seen by investors as a costly expense to be avoided. But this view isn’t entirely accurate. Sophisticated borrowers understand that LMI can, in fact, be a valuable tool.

If you’re not familiar with LMI, it essentially involves a one-off insurance premium paid by the borrower to protect the lender’s interests in case the borrower defaults and the sale of the property does not cover the loan balance.

The premium varies depending on the size of the loan, the loan type and the level of deposit, but it can add up to thousands of dollars. Luckily, the amount can often be capitalised (added to the loan).

So how can such a thing be advantageous to an investor?

Firstly, with LMI you can borrow a higher percentage of the property value, beyond the normal 80 percent limit. So, if you haven’t accumulated enough of a deposit, LMI will help you to get into the market sooner than you otherwise could.

In a growing market, getting in early can be a real advantage. Capital growth can quickly cover the expense of LMI and put you thousands of dollars ahead.

LMI could also help you to buy a better quality property than you otherwise could or allow you to buy additional properties with the same amount of equity.

Instead of paying a 20 percent deposit on the purchase of one property, you could potentially buy two properties paying a 10 percent deposit for each.

Whether or not LMI provides an advantage depends on your plans, circumstances and how quickly you want to build a portfolio. But in the right hands, it’s certainly not the ‘evil’ it’s often portrayed to be.

Bear in mind that the mortgage insurers regularly change their policies, so it’s best to check with your mortgage broker about current requirements and lending criteria.

Seven reasons you should aim low when investing in an apartment

It’s easy to understand why some investors are attracted to apartments, with their low maintenance appeal, strong rental returns, and relatively affordable entry price.

When it comes to apartments, as with any investment, numbers matter. And one of the numbers that can play a major role in determining investment success is the number of apartments in the complex.

High-rise complexes, which often contain hundreds of apartments, can sometimes provide good investment opportunities, especially when there are scarce views on offer. But as a general rule, investors are better off investing in low-rise or boutique complexes. Let’s look at why.

1. Scarcity and future supply

Low-rise complexes are typically in areas with strict height planning controls, reducing the likelihood of any significant future supply that could dampen capital growth. High-rise towers, on the other hand, are typically built on converted land in and around the CBD and can quickly shoot up in clusters.

2. Competition

If you own an apartment in a complex with hundreds of almost identical properties, you will always be in competition for tenants and buyers. This will increase the chance of vacancy and restrain value growth.

3. Land value

Apartments in a low-rise complex typically have a higher land-to-value ratio than their high-rise counterparts. This means they generally have a better likelihood of achieving capital growth, as it’s the land that appreciates.

4. Owner-occupier appeal

Low-rise complexes are typically targeted to owner-occupiers, which ironically makes them a better proposition for investors. Owner-occupiers tend to take pride in their home and are less likely to sell up when times are tough.

5. Unfavourable comparisons

In high-rise complexes, which are mostly investor-owned, distressed sales happen more frequently. This is bad news for the value of comparable properties, as it’s easy for valuers and buyers to make comparisons.

6. Strata Fees

High-rise complexes typically have more amenities and facilities, such as lifts, pools, and gyms. This is great if you are a tenant, but it often means higher strata fees for the owner, which can quickly erode rental returns.

7. Control

Property investors like to be able to control their investment as much as possible. As the owner of an apartment in a low-rise complex, you have greater control over the actions of the strata company as your ‘voting share’ is greater than with owners in a high-rise.

Eight tips on managing the pain of a rent reduction

The Perth rental market isn’t particularly strong at the moment and, for landlords whose property has recently become vacant, securing a tenant may involve accepting a rent reduction.

This may seem like a backward step, particularly if you have experienced rents moving in only one direction. But don’t despair. Here are eight tips to help manage the situation.

1. Remember to consider the drop in context of all the gains you’ve had in recent years.
2. Focus on the bigger picture. Is the drop going to make much difference over the long term? Rental income is certainly an important part of property investment but the ultimate prize is capital growth.
3. Vacancies can be expensive. You are generally better off reducing the rent to attract a tenant quickly rather than holding out for more money. Consider how a $10 per week drop compares to an extra few weeks of vacancy.
4. When a property is first listed on an online real estate portal, it tends to go out as an email alert to a database of potential tenants. You don’t want to miss this initial burst of activity by pricing your property too high.
5. When setting a new price for your rental property, consider the price brackets that potential tenants will search within. Your property manager should be able to help with this.
6. You don’t want to play ‘catch the market’. If you price your property too high at the beginning of a campaign and the market drops, you’ll need to make a disproportionally large drop to catch the market.
7. The rental market can be quite seasonal, with some seasons better than others, so try to time your leases accordingly, which may allow you to later increase the rent.

If you’ve followed the real estate market over many years you’ll know that a turnaround is always around the corner. All you have to do is be patient.

Should you build on your subdivided lot or just sell the land?

Small subdivision projects have become a popular wealth-creation strategy for many everyday investors. The impetus has no doubt been the various planning changes occurring throughout Perth’s suburbs allowing for higher density housing.

One of the questions commonly asked by these developers is whether, following the subdivision process, they are better off selling the lots or building on them before selling.

Every situation is unique and so it’s impossible to make a blanket statement one way or another. However, a good start is to understand the major pros and cons of each option.

Selling the land

For the developer, selling the subdivided lots means an immediate cash injection and the potential to quickly move on to another project. This is assuming, of course, that the lots can be sold without too much difficulty, which certainly isn’t a given.

It’s possible to make a reasonable profit using this strategy, however, most success stories involve the developer holding the property for some time before developing.

Anyone who has sold land knows that it can be difficult to get top-dollar because it’s relatively easy to compare one lot with another and buyers will probably be looking to make a profit themselves.

Selling the subdivided lots works better in areas where there is a scarcity of land and higher density living is common.

Creative strategies may involve selling the land with approved plans and permits in place, or by working with a builder to advertise the property as a home-and-land package.

Building and then selling

On the surface, building is a riskier option in the sense that the developer must fund the cost of construction. There is also the added hassle and longer time-frames to consider.

The profit, however, will generally be greater than when selling the land on its own, partly because the building process often adds value beyond the cost of construction. Plus, it’s easier to achieve a strong price when selling a beautiful brand-new home to an emotional buyer.

Building also creates additional opportunities. If, for instance, it becomes difficult to sell the completed homes, there is the potential to hold the properties and benefit from the strong rental income and depreciation allowances.

Conclusion

Determining which option might suit your particular circumstances involves detailed calculations involving the likely end values and various costs involved, while also taking into account the risk and effort involved.

Critically, there are also many tax implications which may dramatically affect the decision. Therefore, you should talk to your accountant and other professionals before doing anything.

Accessibility is the key for this small suburb

Bedford is a Perth suburb located six kilometres from the Central Business District and part of the City of Bayswater.  It is bordered by Inglewood to the south, Dianella to the north-west, Morley to the north-east and Bayswater to the east.

Bedford is a relatively small suburb, less well-known than its neighbours, which is why its residents consider it a little suburban secret.

Homes in the area have plenty of character with many being built in the 1940s and 1950s and sitting on large blocks. However, there is also a spattering of newer duplex and triplex developments.

The median house price is around $650,000, almost $200,000 less than neighbouring Inglewood, and the median rent is $460 per week.

With its central location and largely suburban nature, Bedford is all about accessibility. It has direct access to Beaufort Street, with its many shops and cafes, and is just a short drive to one of Perth’s largest shopping centres in Morley.

It contains few major amenities itself, consisting mostly of tree-lined residential streets, but Bedford’s proximity to  Mount Lawley, Inglewood, Bayswater, Maylands, Dianella and Morley provides for a host of options, making it popular with couples and families.

While there are no significant developments or improvements planned for the suburb, there is plenty of redevelopment and rejuvenation activity happening all around the suburb, including the nearby Morley Activity Centre. This will, over time, be of benefit to Bedford.

Thank you – we won!

Thanks to all our clients who voted for us at the Business News Rising Stars awards.

Momentum Wealth was voted by the judges as one of the top 10 Rising Star businesses in WA and voted the number 1 Rising Star business by the public!

To be recognised by the judges as one of the top 10 fast-growing businesses in WA was a great honour but to be voted by the public as the number 1 business was thrilling.

Thanks to all our clients who supported us and thanks to our fantastic team at Momentum Wealth who work hard to build your property wealth.

View the full list of winners here

RBA leaves interest rate at 2.5%

The reserve bank has kept the cash rate unchanged, stating dwelling prices have increased significantly over the past year, though there have been some signs of a moderation in the pace of increase recently.

“Monetary policy remains accommodative. Interest rates are very low and for some borrowers have edged lower over recent months. Savers continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, including most recently to businesses”, governor Glenn Stevens said in a statement after the July board meeting.

AMP Capital’s Chief Economist, Shane Oliver, stated one of the reasons that the RBA decided to keep the interest rates the same was due to the most recent budget “that had a negative impact on confidence, and that’s thrown a bit of a spanner in the works, and we’ve got relatively low inflation. So on the one hand the economy hasn’t picked up enough to justify a rate hike, and inflation isn’t a problem either, on the other hand the economy isn’t collapsing – justifying rate cuts – so we’re literally in a holding pattern.”

So what does this mean for you? Another month of lower interest rates for your investment portfolio but keep in mind that this may not be the case the long term.

This newsletter is provided by Momentum Wealth.

Who really cares about your retirement?

One of the hotly-debated initiatives announced in the recent federal budget is the plan to lift the pension age to 70 by 2035. Under this plan, Australians born after 1965 will have to work until they are 70 before they are eligible for the age pension.

Regardless of your specific views on the matter, the discussions should serve as a wake-up call that ultimately you can’t rely on the government to support you in retirement.

Why is this happening?

It is a well-publicised fact that our population is ageing, just as it is in most modern western economies. Currently 13% of Australians are aged over 65, but this figure will grow to 25% by 2047.

By some estimates, one in three of those aged 65 today will live past 90 and half of those could live beyond 100.

With more people on the pension and a declining tax base, it’s easy to see why the government is looking to reduce expenditure in this area. Whether the details are correct is for the politicians to debate.

The reality of retirement

While few people aspire to live on the pension, most retirees don’t have a choice. Almost 80 per cent of Australians over the age of 65 receive some sort of income support and life for many of them can be tough.

The single aged pension, including supplements, is currently only around $827 per fortnight or just over $21,000 per annum.

There is also the fact that many people will simply be unable to work until they are 70 due to the physical nature of their employment.

Even many of those who are lucky enough to have a sizable superannuation nest egg at retirement may struggle to afford their desired lifestyle in the decades following retirement.

Clearly, if you want something other than the norm, you need to take personal responsibility and actively plan for a better retirement future.

Time to get serious about property investment

I believe a growing number of people will look to property investment for the answer, hoping that a combination of capital growth and rental income will provide adequate financial support in retirement.

But casually owning one or two investment properties probably won’t be enough. More than ever you need to take a professional approach to investing. You need to choose the right type of properties, set up the right financial and ownership structures, manage your investment diligently and maximise your tax benefits along the way.

Unless you have the time and knowledge to do it properly, you should turn to the experts. Momentum Wealth was specifically established to guide people through all the stages involved in building wealth through property investment to provide long-term support through to retirement.

You also need to start as early as possible. If you start at the age of 30 and just buy just one property worth $500,000 and it grows at 8% per annum that will be worth around $5m at age 60. If you wait until 40 that same property will be worth around $2.3m at age 60. If you wait until 50 it will only be worth around $1.1m.

If you set realistic goals, employ time-tested strategies, and make informed decisions, you can enjoy the retirement you desire at a time of your choosing.

Having access to money is an advantage in itself

The Perth real estate market has performed well over the past 18 months, with many suburbs recording double-digit growth in values.

From a finance point of view, this creates an interesting opportunity for investors but one that is rarely exploited to its fullest.

The opportunity involves gaining access to – but not necessarily using – your equity until a future date when the market cools and good buying opportunities present themselves.

You basically want to guarantee that you’ll have access to money when the right opportunities come along, ideally when the market favours buyers more than sellers.

Now is a good time to execute this strategy because it’s often easier to gain access to your equity immediately following a period of growth than when the market is weak. This is because lenders are generally more willing to lend and valuers have the sales evidence to justify strong valuations.

There are always stages in the property cycle when finance dries up a bit, making it more difficult to obtain a loan. When this happens, it severely dampens the demand for property and therefore provides those with access to finance a significant advantage.

Equity can be a powerful tool for building wealth but only if you can use it.

How do you go about gaining access to your equity without necessarily using it? There are a number of options.

Through refinancing you might be able to get a ‘top-up’ or ‘cash-out’ on an existing loan and either put the money in an offset account or deposit it directly into the loan account for future redraw.

The beauty is that you only pay interest on whatever portion of the loan you use, so it can sit there waiting for your next investment opportunity.

Access to credit can be a powerful tool for property investors, but it can also be an unhealthy temptation for some. Just like a credit card, you can essentially use the money for anything, so you need to remain disciplined. If you are, then having the funds available may give you the inside edge on your next investment.

Why first-timers are choosing to invest rather than buy

There is always a lot of media coverage devoted to highlighting the struggles of first-home buyers.

But while some aspiring home owners complain about rising property values and dwindling government assistance, others are taking the bull by the horns and turning conventional thinking on its head.

Rather than trying to buy their first home, many young Australians are wisely choosing to become landlords, while either renting with friends or living with their parents. This goes against what we are regularly told is ‘the normal’ way of doing things.

Why this strategy makes a lot of sense

This strategy clearly works on a number of levels. Firstly, it allows the individuals to get a foot in the door of the property market in a much more affordable manner. This is because rental income and tax benefits can go a long way toward paying the mortgage.

It also allows this lifestyle-conscious demographic to live where they want, even when they can’t afford to buy there, while also providing the flexibility to travel on a whim.

In the long term, the goal for these innovative first-timers is to use rising equity to either expand their property portfolio or get into their dream home sooner.

Interestingly, buyers can still later qualify for the first-home owner’s grant, even if they own several investment properties.

A common trap for first-time investors

The biggest mistake made by first-timers is to invest in the same type of property that first-home buyers are typically buying – namely house and land packages on the outskirts of the city.

This type of property often has a low proportion of value in the land and is located in areas with abundant future supply. This result is that these properties just don’t perform in terms of capital growth.

Investors should always choose ‘investment-grade’ properties, which are more likely to be older and in well-established suburbs.

Dealing with a break up: what to do when your tenant decides to leave

So, you’ve just found out that your tenant wants to leave and you’re only a few months into the relationship. Now what?

Firstly, don’t take it personally. There are many reasons why a tenant might need to break their lease and prematurely end the tenancy. Usual reasons include work relocations and changes in family circumstances.

In fact, when the rental market is soft (as it is now) and rents start dropping, some tenants may decide to break their lease simply to move to a better or more affordable property.

Can your tenant just terminate automatically? No, they need your permission first and any agreement to terminate must be in writing, typically in the form of break-lease agreement that details all the costs and responsibilities involved.

Of course, you can agree to let them out of the lease with no cost, but that would usually be unwise.

A residential tenancy agreement is a legal contract and so you are entitled to ensure your financial position is no worse off as a result of the tenant breaking the tenancy agreement.

What costs are involved? The laws differ from state to state but as a general rule the tenant is responsible for a number of costs. For starters, the tenant will typically have to pay rent until a new tenancy agreement commences or the original tenancy expires (whichever comes first).

But it doesn’t stop there. The tenant will also have to compensate you for reasonable costs, including a proportion of the advertising and letting fees, which you will incur as a result of the break lease. Even maintenance costs (e.g. for lawn mowing) may be included.

The tenant has the option of advertising the property themselves to help find a new tenant, but this doesn’t remove their obligation to compensate you for advertising fees.

What’s your role in all this? Well, both you and your property manager will need to take all reasonable steps to re-let the premises as soon as possible. Otherwise, your tenant could make a claim to reduce their costs by arguing that you haven’t mitigated their risk.

Why the WA government wants small developers to succeed

Governments at all levels, but particularly the state government, recognise that WA needs to produce more housing to keep up with our booming population.

This means that when it comes to buying real estate, they want people to build or buy new homes, as this generally adds to the overall stock of housing.

There’s another reason the government wants us to build homes. It’s because construction activity is good for the economy as it creates jobs and demand for a whole variety of goods and services.

In the recent WA state budget, the government decided to reduce the threshold at which first home buyers pay stamp duty from $500,000 to $430,000, which will come into play from 1 July 2014.

This change will clearly make it harder for some first-home buyers to get into the market. But interestingly, the government didn’t change the stamp-duty-free threshold for the purchase of vacant land. Buyers will pay no stamp duty for land up to $300,000 in value, and the exemption phases out at $400,000.

This move will clearly encourage many first-home buyers to build a new home rather than buy an established one.

Last September the government again reoriented the first-home buyer market by slashing the First Home Owner Grant for people wanting to buy established properties to a meagre $3,000, while increasing the grant to $10,000 for new homes.

Put these two recent “tweaks” together and you get a fairly clear picture of the government’s priorities. They want to encourage first-home buyers to buy, or better yet, build a new home, which is good news if you’re a developer targeting first-home buyers.

With local councils urged by the state government to increase infill development throughout Perth’s established suburbs, there are many excellent sites waiting to be developed.

And thanks to government incentives (and disincentives) for first-home buyers, if you hit the right price point you could easily have buyers lining up at the door.

A quiet achiever destined to keep kicking goals

Lathlain is an established, largely residential suburb located 7km south-east of Perth’s CBD and part of the Town of Victoria Park.

It’s the type of suburb that many people would have heard of but is probably difficult to find on a map. Victoria Park sits to the west, Burswood to north, Rivervale to the east, and Carlisle to the south-east.

Lathlain was first developed in the 1890s (when quarter-acre blocks were on sale for £25–30), but significant residential development didn’t occur until the post-war years. In 1959 Lathlain Park, the most prominent natural feature of the suburb, became the home the Perth Football Club, which it remains today.

The suburb has a primary school and a growing number of local shops, but most commercial and other services are provided by nearby Victoria Park and Belmont.

The suburb has great access to the entertainment facilities of Burswood (and the site of the future stadium), and it’s just a quick trip to the airport for the suburb’s many fly-in, fly-out workers.

Lathlain has the convenience of Victoria Park train station on its south-western edge, and is serviced by various bus routes.

The median house price in Lathlain is $710,000, with a median rent of $500 per week. The real estate market has consistently outperformed the Perth average over 1 year, 5 years and 10 years.

Data released at the start of 2014 by RP Data reveal that units in Lathlain had a bigger annual growth in value than anywhere in the city.

The suburb is predominantly zoned R20, making it of lower density than neighbouring suburbs, but there are still lots of post-war houses on big blocks being demolished and the land subdivided.

The future looks bright for Lathlain. The West Coast Eagles and the Town of Victoria Park recently signed a Heads of Agreement which proposes that the club’s new training, administration and community facility be built at Lathlain Park.

Construction on the project is likely to commence in late 2014 or early 2015, with an expected completion date in early 2017.

The development, which will include a museum, café and sports medicine clinic, is part of a wider plan to transform the area around Lathlain Park and ensure the long-term desirability of the suburb.

RBA Update June 2014

The RBA Board has decided to leave the cash rate unchanged at 2.5 per cent again!

This is great news for property investors in Australia as this means that official interest rates have remained on hold at some of the lowest levels for 60 years. Many economic analysts in Australia believe that the federal budget cuts would prompt the RBA to delay a change in the cash rate.

Glenn Stevens, Governor of the RBA stated “In Australia, the economy grew at a below-trend pace in 2013 overall, but growth looks to have been somewhat firmer around the turn of the year. This has resulted partly from very strong increases in resource exports as new capacity has come on stream, but smaller increases in such exports are likely in coming quarters.

Moderate growth has been occurring in consumer demand and a strong expansion in housing construction is now under way. At the same time, resources sector investment spending is set to decline significantly. Signs of improvement in investment intentions in some other sectors are emerging, but these plans remain tentative, as firms wait for more evidence of improved conditions before committing to significant expansion. Public spending is scheduled to be subdued.”

It seems like the RBA are playing it safe at the moment and taking a wait-and-see approach to recent mixed economic data from overseas and are waiting to see how the federal budget is received in the long term.

Why bubble predictions don’t carry any weight

There has been a lot coverage in the media about a so-called ‘property market bubble’, which has caused concern amongst some investors in Perth. They are questioning whether the market is ‘overheated’ and whether values could be set for a major correction.

For me, the ‘property market bubble’ is one of the most overused and misunderstood metaphors in real estate. It’s an idea that is largely perpetuated by misinformed journalists and publicity-hungry economists from near and afar.

There is no clear consensus on what a bubble actually is, but the term generally refers to a condition of unsustainable growth in property values driven by irrational exuberance. The idea is that the bubble could easily ‘pop’ at any moment.

The Perth property market is certainly not characteristic of a bubble, and any suggestion of such is wrong. Here are some of the reasons I believe we’re not in a bubble:

Australia is not just Sydney and Melbourne

Much of the talk about a bubble has related either directly or indirectly to the situation in Sydney and to a lesser extent Melbourne. This is because of the strong growth experienced by these cities in recent times and because many media publications are very east-coast centric by their nature.

Anyone who bothers to read beyond the superficial headlines knows that there isn’t a single ‘property market’ in Australia and that each city, suburb or area can have unique characteristics and drivers.

Housing debt

One sure sign of a bubble, we are told, is when households are heavily indebted and unable to service their loans. But we’re not seeing this at all. Debt servicing ratios (which show the proportion of a family’s income that goes to servicing loans) are at relatively low levels. Plus, many borrowers are ahead in the repayment having built up a buffer in recent years. The rate of non-performing loans (i.e. defaults) is also very low.

Recent growth

The Perth market experienced growth in values over the course of 2013, but beyond that, growth hasn’t exactly been spectacular. Look at the last 5 years when growth has averaged just 4.3% per annum, only slightly above inflation. Hardly bubble territory.

Remarkable resilience  

The Perth market (along with those in the other capital cities) has proven to be remarkably resilient over the course of recent history. Consider the major economic events that each triggered a flurry of ‘crash’ predictions. We’ve had the Global Financial Crisis, the horror of 9/11, the Asian Currency Crisis of 1997, the recession we had to have in the early 1990s, the stock market crash of 1987 and so on. During all of these occurrences, people predicted a crash and they were wrong.

While some property markets have struggled at times (many of which later recovered), on the whole we’ve successfully weathered many storms. This has to speak volumes about the strong fundamentals of the market.

Population growth driving demand

One of the major drivers of the property market is population growth and it’s no secret that Perth is the fastest-growing capital city in Australia. According to the Australian Bureau of Statistics (ABS), the population increased by 3.5% (67,500 people) between 2012 and 2013. Amazingly, 395,000 people moved to Perth between 2006 and 2013.

Supply not keeping up

Although there is some debate as to whether or not Australia is building enough homes, new supply remains very much insufficient in Perth. According to dwelling approval figures analysed by RP Data, we are building around one new home for every 3.45 new residents in Perth. The latest Census data shows the average household contains only 2.6 persons, meaning supply isn’t keeping up.

Furthermore, a proportion of the new dwellings built are simply replacing existing homes that have been demolished and therefore aren’t adding to the housing stock. And the figures also include holiday homes and second homes, further highlighting the deficiency.

Strong economic foundations

The underlying foundations of the Western Australian economy are sound. We have an abundance of natural resources, world-class industries and are strategically positioned to take advantage of the massive growth in Asia. It’s no wonder that our residents have become amongst the wealthiest in the country.

Although mining investment has moderated, it is still pretty impressive. A quarter of a trillion dollars is being invested in the state, mainly on large gas projects, of which more than half are currently underway or committed. This high level of investment will maintain the employment level and puts to bed the idea of the mining sector collapsing.

Plus, let’s not underestimate how lucrative the production stage of the mining industry could be. Back in the 1970s, about one million tonnes of iron ore was being shovelled from the ground each week. Now it’s about 1.5 million tonnes a day. That’s a lot of money coming into the state.

Conclusion

It’s not the first time we’ve heard the Perth market described as a ‘bubble’ and it won’t be the last. While many experts, who are actually involved in the market, have helped to dispel the bubble myth, it still has an impact.

My biggest concern is that the misinformation spreads concern amongst the uninformed and ultimately robs them of the opportunity to invest.

Will property values drop? Perhaps in some areas. But this is all a normal part of the cycle.  The latest data reveals that growth in Perth has already moderated, and the number of properties for sale may be increasing (though it’s still very low in historical terms). But I’m confident we still have growth in the market and the long-term fundamentals are very strong.

Meeting the needs of your future self

Choosing between different loan products can be a challenge at the best of times. The difficulty lies in trying to weigh up different features, fees and interest rates to work out which loan best suits your particular requirements.

Adding to the complexity is the fact that, ideally, you want to pick a loan that meets both your current and future needs.

While it is impossible to consider what will happen over the entire life of the loan, which could be 30 years, you do need to think about how your life could realistically change in the next three years.

What could change in your life? Will your family circumstances be the same? What about your job situation? Is there a promotion on the cards or are you worried about retrenchment?

You should also consider your specific plans for the property in question. Will you be selling the property in the near future or renovating it? Or, perhaps you want to leverage this property to expand your portfolio.

You should even consider things beyond your control, such as whether interest rates are likely to change during that time.

Your responses to these ‘what if’ scenarios will help determine how much flexibility you require in your loan.

For instance, will you need the flexibility to make additional payments or access any additional money you have repaid? What fees will apply in these situations and what are the restrictions?

When it comes to redraw facilities, loans often vary with regard to how many redraws are allowed, what fees are involved, and what the minimum and maximum redraw amounts are.

If you plan to sell the property within a relatively short space of time, you might consider the early repayment fees charged by different loan. Bear in mind, however, that these fees often come under different names, such as a delayed establishment fee.

Generally speaking, the more flexibility offered by a loan, the higher its interest rate will be.  Basic, low-rate loans tend to offer very limited features.

However, having flexibility can save you money in the long term, so it’s important not to focus entirely on the interest rate.

If you find that a loan no longer meets your needs, you can always consider refinancing. But if you enlist the expert help of a finance broker, you can save yourself time and money.

Why investing near public transport is a ticket to success

Buying an investment with good access to public transport has always been considered a good strategy. But what many people in Perth don’t realise is just how important it actually is.

As Perth’s massive population growth brings with it increased road traffic and longer commutes, properties near public transport links will become more and more popular.

You just have to look to the bigger cities in Australia and around the world to understand the value people place on having good access to public transport. Many people in Perth don’t yet fully appreciate this fact, which creates opportunities for forward-thinking investors.

By some estimates, there will be 250,000 more cars on the road in just five years’ time. And as the roads get busier, some parts of Perth, such as the CBD, will become harder to access by car.

At the same time, suburbs with good public transport will become more desirable and lead to higher rates of growth in terms of property values and rent. In fact, research has shown conclusively that suburbs with good public transport, on average, have higher capital growth rates than poorly-serviced suburbs.

It’s not difficult to see why people value living near good public transport links. There is the time factor – people don’t want to spend hours in traffic going to and from work.

However, it’s not just about traffic congestion. The rising cost of petrol and parking is also a major factor in encouraging the use of public transport. There is also the general increase in environmental consciousness amongst the population, which is driving people to use their cars less.

In the world of public transport, rail is generally considered king. Properties within walking distance or a short drive from a train station will increasingly be high on the list for buyers and renters. Major bus routes will also be considered important.

There is another major bonus of investing near public transport nodes. It’s the fact that as local councils push to increase housing density in line with state targets, rezoning efforts will focus on areas with good access to public transport. We’ve already seen this happen and it will continue.

It’s worth noting of course that investors need to keep their wits about them when searching for a property near public transport. A property can sometimes be ‘too close’ to public transport when it brings excessive noise, pollution, traffic and safety concerns.

Supporting passionate riders

Momentum Wealth is proud to be supporting the Hall Masters Cycling Initiative, which is aimed at increasing participation and enjoyment around bicycle racing and training.

The Hall Masters Cycling Initiative prides itself on actively engaging new riders with the cycling sport regardless of age or ability.

Last month Hall Cycling and Momentum Wealth held an individual Time Trial event which saw 30% of participants ride the timed event for the first time as competitors, thus engaging new-comers to bicycle racing.

There is unprecedented growth in cycling as a sport, for fitness and as a social and recreational activity in Western Australia. WA has a higher participation rate than any other Australian state and an estimated 405,000 Western Australians ride a bike in a typical week.

At Momentum Wealth, we believe that cycling offers a great opportunity for self-development, preventative health and social interaction.

Find out more at http://bradhall.com.au/hall-masters-initiative/

Attracting the perfect tenant

It’s something every investor wants – to find the perfect tenant. But few investors know how to achieve this often elusive goal.

How do you increase your chances of finding and securing the perfect tenant for your investment property?

Although the definition of a ‘perfect tenant’ might vary from investor to investor, there would undoubtedly be a number of common characteristics.

For many investors, the perfect tenant would probably be described as one who pays the rent on time every time, actively cares for the property and deals with minor issues themselves rather than contacting the property manager.

The best tenants are those individuals who tend to take pride in where they live. Consequently, when searching for a suitable home, they expect a property to be well presented and everything to be in good working condition.

Each potential tenant will have slightly different needs and wants, but making sure your property is up to standard will go some way to attracting the best applicants.

Given that every landlord wants to secure a great tenant, it’s fair to assume the best applicants won’t be ‘available’ for very long. This means you can’t afford to make a bad first impression, both in terms of your marketing campaign and price. Poor photos or an inflated price can easily scare off potential tenants and therefore limit your pool of applicants.

Attracting the best tenants is one thing, but how do you actually spot them when they arrive? This is not always easy but involves the quality of their application, the strength of their references, and the general impression they make on the property manager at the viewing.

Skilled property managers certainly have an innate ability for spotting the best tenants, so it’s worth listening to their advice before deciding on a tenant.

Of course, if you’re lucky enough to secure a fantastic tenant for your investment property, you’ll want to do everything you can to hold onto them for as long as possible. This means responding quickly to any issues that arise, doing your bit to maintain the property and being reasonable when it comes time to increase the rent.

Is this one of the most underrated suburbs in Perth?

Innaloo is an established suburb located 9km north-west of the Perth CBD and part of the City of Stirling. Its neighbouring suburbs include Gwelup to the north, Doubleview to the west, Woodlands to the south and Osborne Park to the east.

With most of its development happening in the decades leading up to the 1970s, Innaloo consists mainly of older single detached homes. However, it now also features a scattering of modern units.

Residents of Innaloo appreciate its convenient location just a ten-minute drive to the city and a five-minute drive to popular Scarborough Beach.

The suburb also has many high quality schools and parklands and is close to Osborne Park Hospital, a major employer in the area.

Innaloo has its own major shopping centre (despite being close to Karrinyup Shopping Centre) and is home to many large-scale commercial and retail operations, including IKEA. It is also adjacent to Perth’s largest cinema complex.

A key feature of Innaloo is its excellent public transport options. It has direct access to Stirling train station and is well-serviced by a comprehensive bus network.

The median house price in Innaloo currently sits at $610,000 (REIWA) and the median unit price at $558,000. The median advertised rent is typically around $550 per week.

In a survey by Westpac, Realestate.com.au and RP Data, Innaloo was identified as one of Perth’s hidden property gems, offering excellent value for money compared to more expensive neighbours.

The future looks bright for Innaloo. It will benefit from ambitious plans to develop the Stirling City Centre, which includes the Innaloo shopping centre, cinema complex and a residential pocket within the suburb. The vision is to develop an integrated and modern, mixed use, transit-oriented centre around the Stirling train station.

It could also benefit from a planned redevelopment and expansion of the shopping centre by owner Westfield.

With older housing stock and favourable zoning, Innaloo offers numerous development possibilities, making it popular amongst investors and developers. Gradually, homes are being renovated or rebuilt, which is helping to revitalise the suburb.

People often make fun of its name, but Innaloo could be one of the most underrated suburbs in Perth and a potential gold mine for investors and developers.