Time is money for development finance

While developers are always mindful of construction costs, it’s just as important to be aware of the costs associated with development finance, particularly when building delays occur.

Many first-time developers often forget that for every day their development is delayed, interest on their loan is still accumulating.

For example, let’s say a developer has a project which is being funded by a $2 million loan and the project hits significant delays at the halfway point.

This delay is likely to cost the developer in the vicinity of $13,000 each month in compounding capitalised interest, which means they pay interest on the interest.

While developments don’t usually experience month-long delays like this, it’s not unusual for delays of a day or two to occur at each step of construction.

The plumber, the tiler, the landscaper not starting early enough or the builder getting in their way.

It’s easy to see how a few days here and there can quickly amount to a month’s worth of downtime.

The cost of delays will vary from each project as it will depend on a number of factors, such as the interest rate, loan amount and drawn funds.

However, the interest on a fully drawn $2 million loan with a typical interest rate is about $13,000 per month capitalised and compounding.

Add to this other holding costs, such as rates, and development finance could end up costing a developer many thousands of dollars extra.

Many investors who want to develop but don’t have the time to manage the project often appoint a development manager who will manage the entire project and keep the builder to their time frames. Momentum Wealth is managing over $170 million in projects for our clients. If you’d like to speak to one of our development specialists please give us a call on 9221 6399 to see how we can help you with your project.

Tax implications for expat property investors

Despite living overseas, many Australian expatriates still regard property investment in their homeland as an attractive option. But what tax implications does this pose?

The tax implications of property investment can differ between Australian expatriates and those residents living in Australia.

Whether an individual is a tax resident under Australian law is dependent on a variety of factors and is unique to each case.

Subsequently, Australian expatriates, or expats as they are more commonly referred to, should seek the professional opinion of an accountant or lawyer who specialises in this area.

However, all income earned in Australia, including property rental income, is subject to tax in Australia.

In the instance where an individual is not an Australian tax resident, but they receive a rental income from an Australian-based property, they are required to prepare and lodge an Australian income tax return.

The non-resident tax rate stands at 33% for all income up to $80,000. This increases to 37% for income between $80,001 and $180,000 and 47% for income over $180,000.

Those individuals considered residents greatly benefit because they enjoy a much lower tax rate for the lower tax brackets.

For residents, tax rates start at 0% for income up to $19,400. This increases to 19% for income earned between $19,401 and $37,000 and 33% for income between $37,001 and $80,000. The rate of taxation after this is the same as a non-resident.

What’s important to note is that residents and non-residents can claim a tax loss if their tax deductible expenses are greater than their Australian taxable income. Residents can claim the loss against their other income. If you are a non-resident for tax purposes you can carry the loss forward to offset against future income.

A wise strategy for an Australian who is moving overseas to work is to accumulate tax losses on Australian property, which can then be offset from their income when they return to work in Australia. This can include any capital gains that are made when the property is sold.

This can be highly beneficial in instances where non-cash tax deductions, including depreciation, are a part of the tax loss.

If you are living abroad and are interested in purchasing an investment property in Australia, keep an eye out for our upcoming property investment eBook for expats.      

Property selection critical for success

Affordability and proximity to the Perth CBD are this suburb’s two main strengths, however investors need to focus on certain pockets to make the best capital gains.

Girrawheen is located within the City of Wanneroo and comprises a population of about 8,300 residents with a relatively young median age of 33 years.

The suburb is 12 kilometres from the Perth CBD, which is accessible via Wanneroo Road, and is comparatively affordable with an average house price of $430,000.

Currently, about 80% of dwellings within the suburb are houses, which is reflective of its zoning – low-density residential (R30 or lower).

However, slated changes to Girrawheen’s housing strategy have recommended an increase in housing density to R20/40 and R20/60 in strategic locations, such as around the suburb’s shopping centres.

Given this, as well as some high concentration of state housing in the suburb, investors need to be particular about the specific pockets to buy in.

Girrawheen’s two major shopping centres are the Summerfield and Newpark precincts, while Warwick Shopping Centre is a short drive away but larger.

About 70% of the properties within the suburb are either fully owned or being purchased with 30% being rented – about the Perth average.

Girraween boasts many parks and ovals including the Warwick Reserve and Leisure Centre on its western boundary.

There are also multiple primary schools within the suburb as well as Girrawheen Senior High School.

Residents can also take advantage of the Joondalup train line with Warwick station only several kilometres from the suburb.

Leasing tips in a tenants’ market

Like many industries, property markets run in cycles according to supply and demand. So what can be done to lease your property in a tenants’ market?

When supply catches up to demand, it’s natural for the rental market to shift in favour of tenants.

While it’s inevitable that at some stage, under the supply and demand model, the momentum will swing back to the advantage of landlords, what can be done in the meantime?

One of the biggest mistakes made by landlords in a tenants market is to refuse to meet market demand.

By failing to adjust rents or contract terms, landlords expose themselves to significant financial losses.

This might mean having to drop the rent or to offer more flexible contracts that will suit tenants, such as a 6-month contract or pet-friendly contract.

A $10 or $20 loss in weekly rent is negligible compared to a property that remains empty for several weeks because it’s overpriced.

Landlords should also present their properties to the highest standards, ensuring they are clean, enjoy plenty of natural light and the gardens are well maintained.

When in-between tenants, it’s a great opportunity to complete renovations or odd jobs that will help attract prospective tenants.

A fresh coat of paint, new carpet, installing modern fixtures and fittings or other cosmetic upgrades will make a property more appealing.

In the event of an expiring lease, negotiations for a new contract should be undertaken well in advance.

Landlords should engage tenants up to 75 days before the lease is due to expire to determine their tenants’ intentions.

From there, landlords can start to negotiate the terms of a new lease, or start planning the search for a new tenant.

How to build your way to wealth – part 1

Property development is regarded by many investors as the Holy Grail because of the huge profits on offer. So what does it take to be a doyen of development?

When done right, property development can deliver handsome rewards for investors.

However, the pitfalls and challenges are great and varied, which means first-time developers need to be extremely cautious about their investment decisions.

In the first part of this three-part series, we outline 10 tips to help property developers mitigate the risks and maximise profits.

1. Know the ins and outs of the industry

Before you even start thinking about development sites or plans, you need to gain a comprehensive understanding of property development. If you’ve decided to oversee the development yourself, there are dozens of people you’ll need to coordinate with throughout the process. It’s wise to know who these people are and the roles that they play

Some of the various specialists include:

• Building inspectors
• Engineers/geotechnicians
• Solicitors
• Surveyors
• Building companies
• Designers/architects
• Town planners
• Local councils

Generally, it’s not advised that individuals oversee their own developments, particularly first-time developers. This can be one of the biggest mistakes to make as many underestimate the requirements and demands of property development and soon find themselves facing massive budget blowouts. Rather than overseeing the development yourself, you can engage the skills of a development manager, who will complete all the leg work for you. Alternatively, you can also participate in a joint venture or a property syndicate, which allow you to gain exposure to a development project with less risk.

2. Understand the market

Equally important as knowing the development industry is understanding the state of the property development market. To do so, you’ll need to consider a range of factors such as the price points of respective suburbs; the demand of particular dwelling types; the stage of the property cycle; and economic drivers of the area, among others.

To gain a comprehensive understanding of the market, research is essential. Look at recent data and statistics about demand and supply and talk to property professionals to obtain first-hand insights. Your knowledge of the market can mean the difference between buying a development site with high-upside growth potential or one that turns out to be a financial flop.

3. Search for a development site

Finding the right development site is the most important step to becoming a successful property developer. The development potential of your site will be dependent upon its size, zoning and location, as well as other factors such as if the site contains easements. When you’ve found a site, you need to consider a number of issues. These include:

• The zoning regulations and subdivision rules. You should obtain a written statement from the relevant council as these can often be misquoted in advertisements.
• If the site is heritage listed. If this is the case it’s usually better to continue your search for a different development site.
• Any structure plans, planning policies, area plans or proposed rezoning for the area that might affect the site.

The second part of this three-part series will be published in the September edition of Property Wealth News, and explain how a feasibility study will you help to avoid investing in a dud development and how to purchase your site like a professional.

Essential tax tips for property investors

With tax time upon us, here are some handy tips to help minimise your taxable income and potentially save you thousands of dollars.

It’s important for all property investors to know what they can claim as a tax deduction to ensure their income, and subsequently personal wealth, are maximised. Knowing what you’re entitled to claim could save you hundreds or even thousands of dollars.

Here are some basic property investment tax tips to help maximise your returns this financial year.

Property investors can claim “plant and equipment” items on investment properties as depreciable articles – these are treated separate to the dwelling.

Items are considered “plant and equipment” depending on a number of factors, such as how permanently the item is attached to the land or building.

A list of items considered “plant and equipment”, as well as their depreciation rates, is available from the Australian Tax Office

Items that you can typically depreciate in your investment property include:

• Carpets
• Air-conditioning units
• Appliances, such as ovens and hot plates
• Security systems
• Blinds
• Ceiling fans

If you have purchased an investment property, any of these existing items considered “plant and equipment” can be claimed depreciable. However, you first have to determine the purchase cost of these individual items.

There are three ways you can do so.

• You can specify it in the purchase price of your investment property
• You can make your own reasonable estimate of the value of the asset included in the purchase price
• You can obtain a value through an independent valuer, or depreciation expert

Momentum Wealth recommends in most cases that clients obtain an independent valuation from a depreciation expert.

Aside from “plant and equipment”, property investors can claim some items associated with the dwelling in certain circumstances.

The dwelling on an investment property is not normally considered to be a depreciable item because it‘s not “plant and equipment”. However, some provisions have made the cost of constructing buildings, and other capital items incurred in rental properties, to be depreciable in certain circumstances.

For example, “construction expenditure” on an investment property that produces an income can be written off at 2.5% per annum. For residential property, this applies if the construction commencement date was after 15th September 1987 .

The term “construction expenditure” is related to expenditure on the dwelling and includes preliminary expenses, such as architect and engineering fees, among other items. This does not include demolition costs, clearing of land or landscaping, though.

Property investors can also claim travel expenses in some instances.

Transportation, meals and accommodation can be deductible for numerous reasons, including preparing the property for rent, rent collection or for inspections and maintenance.

This is even the case with investment properties located interstate. Property investors can claim the cost of flights and accommodation as a tax deduction in some instances. Be careful though – if you take a holiday at the same time, the ATO may argue the dominant purpose was to have a holiday and the trip may not be deductible.

7 steps to a multi-million dollar property portfolio

The large majority of Australian property investors own only one investment property – so how can you stand out from the pack and build a multi-million dollar portfolio?

Many first-time investors have grand plans of building a large property portfolio, in many instances as many as 6, 8 or 10 properties, or even more.

While such goals are realistic and obtainable for many, the large majority of investors (72% according to statistics from the Australian Taxation Office) only own one investment property.

The key to building a multi-million dollar property portfolio is to follow 7 key steps.

The first step to building a massive property portfolio is to create a long-term plan. This will clearly state your property investment goals and outline how these can be achieved.

Your property investment plan should include your risk profile, current life/professional situation and financial capacity.  You can then develop a long-term plan identifying the types of properties suited to your portfolio (villas, development or commercial, for example), the estimated time frames you can achieve those goals and what steps you need to take to achieve them.

The second step is to adequately organise your finances.

Most banks and brokers aren’t aware of the proper finance structure needed to build a large portfolio so it’s important that you deal with a broker who specialises in investment properties. This is particularly pertinent for cross collateralisation.

The third step is one of the most crucial – the acquisition of your investment property. The performance of the property you choose will have a significant impact on the timeframe you can purchase your next property, so choose wisely.

Choosing an investment property requires a huge amount of time and research, including detailed analysis of suburbs and the individual property. You need to identify areas that exhibit strong capital-growth drivers, such as economic activity, transforming demographics or infrastructure projects, and focus on these.

Once you’ve purchased your property, the forth step is to consider add-value opportunities that will help you increase its value. This can be done through renovation or development.

The fifth step is to effectively manage your property to achieve maximum returns. It’s wise to utilise the services of a professional property management business.

More often than not, the level of service you receive will be reflected in the price you pay. A good property manager will keep you up to date with market rent reviews and provide advice to optimise your assets.

The sixth step is to continually grow your knowledge of the property market. Stay informed by attending relevant seminars, reading industry-specific publications and stay in touch with like-minded property enthusiasts.

The seventh, and final, step is to regularly review your property portfolio. This will help to you stay focused on your property investment plan, keep your assets optimised and, ultimately, achieve your goals.

Once you’ve reached the final step you can start the 7-step process again to purchase successive investment properties until you’ve reached your long-term goals.

Education and employment hubs aplenty

St James – This suburb is close to a major education hub as well as the Perth CBD and would greatly benefit from a slated light-rail system.

St James is located within the City of Canning and has a population of about 4,500.

Being located next door to Curtin University’s Bentley campus – the western border of St James is less than 500 metres to the campus – the suburb has a high concentration of younger residents with a median age of 30 years.

Subsequently, about 47% of properties in St James are leased, often to university students.

As well as being in close proximity to the university, St James is also just 7 kilometres from Perth’s CBD and is connected by Albany Highway, which runs through the suburb to East Perth.

The Welshpool and Cannington industrial zones are also other significant employment hubs that are nearby.

The suburb’s major retail hubs are the Bentley Shopping Centre and the Cannington retail area, however the larger Carousel Shopping Centre is just a few kilometres down Albany Highway.

Zoned mostly low-density residential (R30 and under), St James has more than 75% of dwellings listed as houses.

The suburb is well serviced by high-frequency public bus transport, primarily because of its proximity to Curtin University.

A light rail project slated for the area, which would service the university and Perth CBD, has been deferred but remains part of the long-term development plan.

There are also some pockets of state housing, which investors must be aware of.

In addition to the university, St James also has multiple primary schools nearby.

Spend a little now to save a lot later

Its news that everyone dreads – your property manager calls saying something needs repairing and it will be expensive. However, there are ways to mitigate this scenario.

Owning a large property portfolio can deliver huge financial windfalls, but just like a business, there are many associated costs that investors need to be aware of, including general maintenance.

Maintenance costs should be considered even before purchasing a property because if you can’t afford the maintenance you can’t afford the property.

Some property investors will ignore maintenance issues simply because they don’t want to spend the money.

However, more often than not, tending to minor maintenance issues now will prevent much larger problems in the future, and could potentially save you thousands of dollars.

This is why property investors need to create a maintenance plan and factor in ongoing maintenance costs to their budgets.

Specific areas that are prone to wear and tear or natural deterioration should be identified and a program of maintenance should be implemented.

For example, if you don’t want to do it yourself, budget for an annual gutter clean before winter.

By failing to do so, investors run the risk of their gutters becoming clogged with debris and may face rusting gutters, which will inevitably need replacing – an expensive exercise in any case.

Similarly, investors should also budget for regular tree lopping, replacement of carpets and fresh painting, among other items.

The amount of preventative maintenance needed will vary from property to property.

However, creating a simple maintenance plan and factoring these costs into your budget will help to avoid major unexpected costs in the future.

Massive profits through development syndicates

Property investors are cashing in on development opportunities following changes to Western Australia’s town planning laws.

The revised regulations, which have been driven at both the state and local government level, have led to a significant increase in property development opportunities in the Perth metropolitan area.

For example, many sites previously only suitable for villa and townhouse style developments can now be developed into small boutique apartments complexes.

Typically, these types of developments can contain 6 to 40 units across 2 or 3 storeys.

This higher lot yield has significantly increased the profitability of these specific sites.

In the past, these types of developments have usually been out of reach of the average property investor because of the huge upfront capital requirement.

However, with the advent of development syndicates, in which a group of investors pool their funds, more people can gain exposure to the huge profits that these types of projects offer.

Momentum Wealth’s development syndicate in Carine, just 12 kilometres north of the Perth CBD, is a great example of this.

This development was launched after Momentum Wealth clients invested $4 million into the acquisition of three development sites.

The result was a development of 16 apartments and three townhouses with a price range of between low $500,000’s to $1 million plus.

Most investors would not have the financial capacity, or know-how, to complete a project of this scale on their own.

However, the syndicate allowed them to pool their capital to access a high-return development opportunity. Furthermore, with Momentum Wealth project managing the entire development, the clients haven’t had to lift a finger.

Demand for these types of boutique apartment complexes in Perth is expected to increase in the coming years as many retirees want to downsize but remain in their local area, rather than move to an apartment in the Perth CBD.

The Carine development syndicate, for example, has been designed to a very high specification to cater for the ‘empty nester’ market. The project is also located in a highly desirable area close to the beach, bushlands and vibrant activity centres with café strips and retail precincts nearby.

Massive profits through development syndicates

Property investors are cashing in on development opportunities following changes to Western Australia’s town planning laws.

The revised regulations, which have been driven at both the state and local government level, have led to a significant increase in property development opportunities in the Perth metropolitan area.

For example, many sites previously only suitable for villa and townhouse style developments can now be developed into small boutique apartments complexes.

Typically, these types of developments can contain 6 to 40 units across 2 or 3 storeys.

This higher lot yield has significantly increased the profitability of these specific sites.

In the past, these types of developments have usually been out of reach of the average property investor because of the huge upfront capital requirement.

However, with the advent of development syndicates, in which a group of investors pool their funds, more people can gain exposure to the huge profits that these types of projects offer.

Momentum Wealth’s development syndicate in Carine, just 12 kilometres north of the Perth CBD, is a great example of this.

This development was launched after Momentum Wealth clients invested $4 million into the acquisition of three development sites.

The result was a development of 16 apartments and three townhouses with a price range of between low $500,000’s to $1 million plus.

Most investors would not have the financial capacity, or know-how, to complete a project of this scale on their own.

However, the syndicate allowed them to pool their capital to access a high-return development opportunity. Furthermore, with Momentum Wealth project managing the entire development, the clients haven’t had to lift a finger.

Demand for these types of boutique apartment complexes in Perth is expected to increase in the coming years as many retirees want to downsize but remain in their local area, rather than move to an apartment in the Perth CBD.

The Carine development syndicate, for example, has been designed to a very high specification to cater for the ‘empty nester’ market. The project is also located in a highly desirable area close to the beach, bushlands and vibrant activity centres with café strips and retail precincts nearby.

Lenders clamp down on investor loans

Property investors across Australia are facing tougher lending tests as the nation’s banking regulator moves to moves to rein in the booming Sydney market.

The Sydney property market had a strong start to 2015 as annualised house-price growth rebounded in the March quarter.

While extremely high, Sydney’s annualised growth rate of 12.4% in late 2014 had actually been slowing before increasing again to 13.9% at the end of the recent March quarter.

The rebound in annualised growth rates in Sydney can partly be attributed to the Reserve Bank of Australia’s (RBA) decision to cut the official cash rate to 2.25% in February.

Another cut, which was announced in May and reduced rates to just 2%, is likely to continue to spur property investor appetite, particularly in Sydney where there has been a large amount of investor activity.

Conscious of reining in an overheated property market, the finance lending regulator, the Australian Prudential Regulation Authority, has required that lenders apply tougher lending standards, specifically for investors.

This will apply across the board for all Australian property investors. Even if you’re a property investor living in Perth and wanting to purchase an investment property in Perth, you’ll still have to meet these stricter lending standards.

So what do these stricter standards include?

Most lenders have begun utilising more conservative figures when evaluating loan and refinancing applications, which in turn have reduced the borrowing capacity of some investors.

Lenders are also increasing their buffers, which test how applicants would cope with repayments when interest rates rise.

Some lenders have increased these buffers from about 180 basis points (1.8%) to 200 basis points (2%) or more.

For example, an investor applying for a loan with an interest rate of 5% would now have to prove they could make repayments if interest rates increase to 7%, rather than 6.8%.

Finally, lenders have also withdrawn discount offers and incentives for investor loans and are applying much more stringent loan-to-value ratios (LVR).

Bankwest, for example, has changed its LVR for investor loans from as much as 98% to just 80%, which means investors will require far bigger cash deposits or equity interests in their existing properties.

Because of these tougher lending standards, it’s important for property investors to engage mortgage brokers who specialise in investment finance to ensure finance and investment options are optimised.

5 reasons to buy an investment property in Perth in 2015

The current conditions in the Perth property market represent an opportune time for investors to start or build their portfolios.

Although Perth house prices are widely tipped to remain steady for the next 12 months, investors should take stock and capitalise on the softer market conditions.

Here are four reasons why it’s a good time to buy an investment property in Perth.

• Record-low interest rates mean investors can access extremely cheap finance to purchase property.

• Stock levels have risen by one-third over the past year to about 13,600 at the end of March, which provides buyers with a much wider range of choice.

• Those who decide to buy property in the softer conditions will encounter less competition as many investors will choose to delay purchases until market conditions improve.

• More ‘bang-for-buck’ as less competition means buyers can ‘upgrade’ and purchase larger properties or secure properties for less. The average vendor discount for houses has increased to more than 6% as of March.

• More control over contract negotiations as less competition allows buyers to weigh contract clauses in their favour.

Investors who take advantage of these favourable conditions and invest wisely in the next 12 months will be best placed to reap the rewards for the next upswing in the property market.

Established suburb with youthful population undertakes transformation

This well-established suburb with a young population is transforming into an active social hub.

Queens Park, sitting within the City of Cannington and just 11 kilometres from Perth CBD, has a population at 5,380 with a median age of 30 years.

The area encompasses Maniana Park and has well-established infrastructure including Queens Park Recreation Centre, sports grounds, Queens Village and schooling options.

Its neighbouring suburbs include Cannington and Welshpool.

The suburb has good accessibility to Welshpool Road, Seven Oaks Street, Railways Parade and Roe Highway, as well as buses down urban corridors and easy access to two main train stations – Cannington and Queens Park.

With 73.5% of dwellings listed as houses, the suburb is mostly low/medium density.

Queens Park is currently in a transformation stage as many of the medium-density lots are being developed into grouped dwellings.

Assisting this development is the recently drafted structure plan, which will help guide future developments within the area and improve streetscapes.

The structure plan for Carousel Shopping Centre, and the surrounding residential area, has outlined plans to develop additional amenities and increase housing densities to create a new Cannington City Centre, which will ultimately be a vibrant mixed-use hub.

School facilities include St Norbet College, Queens Park Primary School, St Joseph’s School and Gibbs Street Primary School.

Responsibilities beyond the walls

While the division of responsibilities between landlord and tenant for all ‘dwelling-related matters’ are commonly known, what about those of the land?

Gardens typically aren’t at the top of a tenant’s priority list when searching for a rental property.

Subsequently, if a tenant leases a house with a high-maintenance garden, the ongoing upkeep and care may fall by the wayside.

Given this, it’s important that all parties hold a comprehensive understanding of their responsibilities regarding garden maintenance – any good property manager will ensure this is the case.

Generally, unless the tenancy agreement states differently, tenants are responsible for the maintenance of lawn including mowing, edging, watering, weeding, and fertilising.

This is also the case for garden beds and bushes and shrubs, which are to be pruned by the tenant.

These tasks fall under the ‘general maintenance’ responsibilities, which usually require the tenant to ensure the garden is maintained to a standard set at the start of the tenancy.

On the other hand, landlords are generally responsible for providing some equipment, such as hoses and sprinklers.

In some tenancy agreements, though, it’s the responsibility of the tenant to replace broken sprinkler heads.

Landlords also typically need to maintain reticulation systems, clean gutters and lop overgrown trees.

While landlords are generally responsible for keeping gutters clean, it’s the tenant’s responsibility to advise the property manager of any potential blockages or water leaks.

If the tenant doesn’t report an obvious issue, they may be liable for any damages.

Given the divide of responsibilities, it can be easy for confusion or misunderstandings to occur, which is why landlords and tenants need to be aware of their garden-maintenance duties from the beginning.

Renovating to add equity to your investment property

Renovating can be a great way to increase equity in your investment properties – it can even help you achieve your next property purchase sooner.

Property investors primarily choose to renovate for two main reasons.

Firstly, so they can demand higher rent from tenants, or remain competitive within the market.

Secondly, to increase the value of their property – from which point they can use the added equity to purchase their next investment property sooner.

Utilising the right renovation strategies and techniques can help investors achieve great success.

Even in flat real estate markets when capital growth is sluggish, renovations can be a fast and cost-effective way to increase the value of your investment properties.

However, the wrong strategy can lead to budget blowouts or poor returns, which can be highly costly.

When renovating, investors must ensure any changes they make to a property are appropriate and fit the surrounding neighbourhood.

For example, there’s no point installing granite benchtops and premium kitchen appliances in a house that’s located in a low socio-economic area. Spending $50,000-plus on a new kitchen in a house that’s located in a ‘working-class’ suburb won’t necessarily be reflected in the value of your property.

Furthermore, the rent returns needed to recover the cost of such a renovation would likely be far higher than what you’re likely to receive.

So it’s important to avoid overspending and knowing the target market you’re renovating for.

Likewise, when renovating to increase equity in your property you must focus on the areas that will generate the best capital growth.

For example, completing major renovations on the backyard, such as adding a dining-alfresco area, isn’t likely to be the best option if the dwelling has an aging interior.

Typically, it’s best to focus on aging kitchens and bathrooms to reflect a more modern appearance.

If the budget allows, extensions can also be a great way to add equity to your property, particularly if you can add an extra bathroom, bedroom or living space.

When completing major renovations, it’s also important to remember the minor aspects as well.

A fresh coat of paint, new carpet and replacing dated blinds or light fixtures can go a long way to creating a complete transformation to your property.

Taking these factors into consideration can help save you thousands of dollars and may mean the difference between your project achieving major success or ending up a costly exercise.

Kick-start your property portfolio

If done right, property investment is a great way for anyone to build huge personal wealth.

However, given there is so much conflicting information, newcomers to property investment can easily become overwhelmed and discouraged.

To assist those considering purchasing their first investment property, Momentum Wealth is holding an informative seminar for beginner investors, ‘Introduction to Property Investing (Property Stripped Bare)’.

The seminar uses simple, jargon-free language to explain the essentials of property investment and how these can help anyone to significantly build their personal wealth.

The seminar will explain the fundamentals of property investment, how to identify the best investment locations, why property prices rise in some suburbs but not others and the key considerations for successful property investment, among other important issues.

Momentum Wealth managing director Damian Collins will present the seminar in Perth on Wednesday, June 17, and anyone considering property investment is encouraged to attend.

For more information or to book your ticket, click here.

The seminar will prove to be a highly-informative evening and a launching pad for beginner investors to build large property portfolios.

An opportune time to review your mortgage

Even if your circumstances haven’t changed, now is a great time to review your mortgage to ensure you’re receiving the best deal – what do you have to lose?

Reviewing your mortgage could save you thousands of dollars and help you to reach your goals sooner, but many property investors simply don’t reassess their loans as often as they should.

Too many investors treat their mortgages as ‘set and forget’ and only consider a review if their circumstances are about to change, such as refinancing for another property purchase, for instance.

Reviewing your mortgage will ensure your loan products are still the best on the market that are most suited to your circumstances.

Changes to your personal circumstances, such as a new job, a promotion or the arrival of new children, can affect your financial position, and may mean your existing loan structure is no longer the best suited for you.

Even if your circumstances haven’t changed, there may be new products that could save you thousands of dollars.

With record-low interest rates and healthy competition among lenders, now is an opportune time review your mortgage.

It is a simple process that can deliver huge financial gains, unlock equity in your existing portfolio and help to purchase your next investment property.

If you’re interested in reviewing your loans, please contact a Momentum Wealth mortgage broking specialist today on 08 9221 6399.

2 common pitfalls of property investment

Property investment is a great way to significantly grow your wealth, however there are many common mistakes that investors continually make.

While property investors generally focus on the features and requirements needed to become successful, many often forget to consider the aspects and strategies that should be avoided.

Here are two common pitfalls of property investment that investors should generally avoid.

• Taking advice from the wrong people

Selling agents and property spruikers are usually working in the best interests of the seller or developer, not working in your interest as a property investor.  No matter how helpful these people may seem, they don’t work for you. Selling agents work for the seller and are legally obliged to act in the best interests of their client. Developers, on the other hand, are interested in selling their stock and making profits – they aren’t usually motivated to sell you a great investment property that will experience strong capital growth. Similarly, property spruikers generally make their money by receiving commissions from developers or selling agents. Some property spruikers also just want to make a quick buck and provide ill-informed advice or sell you sub-standard investment properties.

• Following the herd

Property investors all too often follow the herd. When the property market is hot, many investors will make irrational decisions fearing that they will miss out on capital growth. On the other hand, when the market slows, many investors will defer investment decisions until the next upcycle. To build your wealth through property investment, you need to remain focused on your goals. You shouldn’t purchase your next property simply because the market is hot. You need to consider how this fits in with your broader investment plan. Similarly, you shouldn’t shy away from a cool market. Generally, there are many benefits of buying in a soft market including increased housing stock, less competition, more bang for your buck and more power in contract negotiations. Buying in a soft market helps ensure you don’t miss the next upcycle.

Location and large blocks provide appeal

This established riverside suburb is just a stone’s throw from Perth city and still offers large residential blocks at reasonable prices.

Bayswater has a population of 13,500 residents with a median age of 38 years. The suburb covers 10 square kilometres and essentially comprises three areas – east of Tonkin Highway, western riverside and the western inland side.

The suburb is located just 6 kilometres from the Perth central business district and has access to three strain stations – Bayswater, Meltham and Ashfield.

The area is also serviced by buses down the urban corridor including Guildford Road, which connects to East Perth.

Bayswater is also split by Tonkin Highway, providing further access to the north and south, including the airport, Great Eastern Highway and Roe Highway.

There is little state housing in Bayswater and one of the suburb’s biggest drawcards is its river frontage, which totals about 3 kilometres.

Infrastructure in Bayswater is also well established, which provides excellent access to a number of valued services and employment centres including Morley Galleria, Bayswater industrial zone and Perth CBD.

With more than 78% of dwellings in Bayswater listed as houses, the suburb provides good investment opportunities for larger, low density blocks. These will be particularly sought after as Perth’s population continues to grow and its surrounding suburbs increase in density.

Some high density dwellings already exist in the suburb, primarily around Bayswater local centre and Bayswater Train Station.

About 30% of the dwellings in the suburb are leased, as well, which is about average for suburbs in Perth’s metropolitan area.

With an average median dwelling price of just over $600,000, Bayswater sits slightly above the broader Perth median price.

School facilities for Bayswater include Durham Senior High School and Bayswater Primary School.

Should I lease my property as a share house?

The thought of a share house immediately invokes images of neglectful and problematic tenants, so is it ever a good idea to pursue?

Share houses are usually the domain of university students or young professionals that might not be ready, financially or otherwise, to purchase their own home, and are prepared to rent out a property on a room by room basis.

There can be specific suburbs or locations that may be suitable for share houses.

In the case of university students, for example, properties located near a university campus and in an affordable area are typically sought after.

Young professionals, on the other hand, might be willing to pay a little bit extra and therefore demand a more modern property that is in a better area but close to transport links.

The benefit of leasing your property as a share house is that you can receive higher rental returns as tenants in share houses may be willing to pay slightly higher rents.

Higher rents are not guaranteed, though, and leasing your property as a share house usually presents more disadvantages than benefits.

A share house, for example, is inclined to experience more wear and tear because there is generally higher foot traffic.

This means you may have to replace carpets, window treatments and fixtures and fittings more often.

When leasing to university students, you may also face a higher turnover of tenants and longer vacancy period. This is because students may only want to lease a property during the university semester, which could leave you without a tenant over the summer holidays.

Share houses may also attract neglectful tenants that don’t maintain or care for the property as well as older tenants or a young family. If it’s the first time they have lived out of the family home, university students and young professionals may not be aware of the level of upkeep required to maintain the property to an acceptable standard.

Also, if you are renting the property out on a room-by-room basis, there may be disputes as to who is responsible for any damages to common areas, such as kitchens and bathrooms.

Generally, while the extra cash flow looks appealing on the surface, for the vast majority of investment properties it makes more sense to rent the whole premises to a family or group who are all on the lease and responsible for the whole property.

DAP threshold changes take effect

Proposed changes that allow more property developers to bypass local councils and apply to an independent panel for building approvals have taken effect this month.

The reforms have widened the threshold in which developers can choose to bypass Local Government Authorities (LGAs) and submit buildings applications to Western Australia’s Development Assessment Panel (DAP).

Property developers can now choose to have their building applications, valued between $2 million and $10 million, determined by the DAP. The previous range was for projects valued between $3 million and $7 million.

The revised regulations, which took effect on May 1, apply to all property developments in Western Australia, excluding the City of Perth local council where the upper limit is $20 million.

The DAP is responsible for assessing all projects that are valued above the upper thresholds.

The reforms were flagged in the January edition of Momentum Wealth’s Property Wealth News after the WA state government revealed it was seeking to make the changes sometime in 2015.

The DAP was established in 2011 and was formed to provide better decision-making outcomes for development applications.

The changes to thresholds are expected to create a more flexible system for property developers and allow them to choose whether their applications are determined by the DAP or relevant LGA.

Success Story: Investor reaps higher yields with distinct strategy

How does a rental yield of more than 10% sound? This Momentum Wealth client said he was “shocked” following such strong demand for his Perth property.

Last year Momentum Wealth client Adam Bishop decided to take advantage of what’s known as a dual-income strategy, and the decision has paid off.

At the time, the fly-in fly-out worker wanted to purchase another investment property to grow his portfolio but didn’t have enough borrowing capacity.

Instead, he decided to build an ancillary dwelling on the back of his existing investment property, which would cost a fraction of the price.

Recent changes to planning and development legislation in Western Australia mean ancillary dwellings, more affectionately known as granny flats, can now be leased separate to the main residence.

By building an ancillary dwelling, you’ll receive two rental incomes from one investment property, hence the name dual-income strategy.

After engaging Momentum Wealth’s planning and developments division, a two bedroom, one bathroom ancillary dwelling was designed that would fit in with the existing investment property, located in Forrestfield.

Following the recent completion of the ancillary dwelling, Momentum Wealth’s planning and developments division officially handed the keys to Adam.

The completed turnkey solutions come ready for tenants to move in and include a premium-brand air conditioner, stainless-steel dishwasher, fully painted internally and externally and 2.7 metre (31 course) high and raked ceilings.

When it came time to leasing the ancillary dwelling, Momentum Wealth’s property management team received very strong demand.

In the first and only viewing, fifteen groups attended the home open and seven applications were received.

“I was shocked that it had such a big turnout and the applicants were quite diverse, so I had a lot to choose from,” Adam said.

After thorough consideration, the ancillary dwelling was leased to a single male for $300 per week, which represents a rental yield of 10.75% on the cost of the ancillary accommodation.

Including the main residence, which is rented for $400 per week, the property’s total rental yield stands at 6.3%.

“It’s definitely a good return,” Adam said. “If I could find the right property I would definitely do it again.”

Cross collateralisation – what is it and why is it bad?

Cross collateralisation is one of the most common mistakes made by property investors. But what is it and why should it be avoided?

Cross collateralisation is when an investor uses more than one property as security for a loan.

For example, let’s say Jane Doe wants to purchase a $400,000 investment property.

Jane currently has:

• A house worth $600,000
• $200,000 remaining on her mortgage with Lender A
• No deposit or cash

Given the amount of equity in Jane’s house, she can approach her lender (Lender A) and secure the entire $400,000 needed to buy an investment property.

Following the transaction and acquisition, Jane will have $1 million worth of property and $600,000 worth of debt.

What’s more, with an 80% loan-to-value ratio, Jane will also have at least another $200,000 of equity in her properties.

If Jane wants to utilise this equity to purchase another investment property, she can approach Lender A for another loan. However, depending on her circumstances and the lender’s policies at the time, they may reject another loan application from her.

No big deal, right? Jane can always approach another lender?

Actually, it’s not that simple.

In reality, it’s unlikely that Jane would secure a loan from another lender (Lender B) because her original lender (Lender A) would have taken first mortgage security against both her home and her investment property.

Generally, lenders won’t issue second mortgages because they aren’t in control and can’t hold existing property titles as security. Given this, it’s likely Lender B would reject a loan to Jane unless all properties were refinanced to Lender B.

If an investor has purchased several properties using cross collateralisation, their ability to borrow from their lender becomes increasingly harder.

Savvy investors know that it is beneficial to spread their borrowings among different lenders.

In the above example there is a better way to secure all the finance needed for the $400,000 investment property.

What Jane should have done is approached Lender A for a home equity loan of $280,000 – if she has good credit, and she can service the loan, there is no reason why she shouldn’t have this approved.

Using $80,000 of the home equity loan as a deposit, Jane can approach Lender B to loan the remaining $320,000 needed to buy the investment property.

Jane now has $1 million worth of property and two lenders who both only control one of her properties.

She also has $200,000 remaining of her home equity loan, with which she can use to purchase more properties, if desired.

Another major downfall of cross collateralisation occurs if you want to sell one, or more, of your properties.

This is because you are essentially changing the terms of your contract with your lender.

By selling one property you are taking it away from your lender as security and changing your loan-to-value ratio.

Subsequently, your lender may require you to reapply for your loans in order to release the property you want to sell. They can also ask you for revaluations on your remaining properties, which are completed at your cost.

The lender can even take proceeds from the sale of your property, or deem that you no longer meet their lending requirements and force you to sell more properties than you intended.

By choosing not to cross collateralise, you will only ever be required to repay the loan that the property is secured against.

Furthermore, having separate lenders for separate properties will give you more options should you choose to refinance.

Although the idea of cross collateralisation can sound confusing, it’s important to remember to only offer the property you are purchasing as security.

6 reasons why good properties are sold below value

The notion of undervalued property might seem inconceivable – why would anyone sell their most expensive asset for less than its worth? However there are many reasons why people sell property for below market value.

Acquiring a good property for below market value can deliver huge financial windfalls and even help investors buy their next property sooner.

Owner-occupiers and investors, alike, sell property for less than it’s worth for a number of reasons.

Before listing these, though, it is worth noting.

While undervalued properties can be found from time-to-time, in the large majority of cases if the price of a property seems too good to be true, there is generally a reason.

Subsequently, it pays to complete adequate research because the price may have been lowered for a number of reasons, such as delinquent neighbours, structural issues with the house or noise factors, among others.

However, here are six reasons why good properties can be sold for below market value.

1. Downsizing: If older owner-occupiers want to downsize, or move into a retirement home, in many cases price won’t be a priority. The owner may prefer a quick sale and therefore advertise the property at a lower price.
2. Presentation: In soft markets, when housing stock is high, buyers can be more selective and will generally prefer renovated properties. Savvy investors can purchase older homes that will demand higher prices after minor and cost effective upgrades are completed.
3. Divorce: Similar to the downsizing situation, when a couple is separating, the price of the property may not be a priority. Rather the owners may require a quick sale.
4. Uninformed selling agents: If an agent isn’t familiar with the suburb they may under-price the property. Additionally, the agent may not be familiar with the particular zoning of the property. For example, a selling agent may advertise the property as a potential duplex development, however planning rules may allow a triplex, or bigger.
5. Financial distress: The owners of the property may be under financial pressure. They may have had a bad tenant that hasn’t paid rent or amassed too much personal debt to meet mortgage repayments.
6. Difficult tenants: Existing tenants may be difficult and only provide limited access to the property for home opens. This can discourage potential buyers, which means less competition and the chance of a lower price.

It’s certainly more important to buy a property with the best long term growth prospects rather than focussing on the best “deal”, as that initial saving can soon disappear if the property performs poorly. You should always focus on the better long term investment. However in a softer market there are opportunities to get great properties and get a little more off the price.

Shopping centre redevelopment to complete leafy suburb

A $600 million redevelopment of a major shopping centre is set to complete the picture for this family-friendly suburb.

Carine is located about 13 kilometres north west of Perth city and features predominately low-density residential housing, which comprises 90% of dwellings in the suburb.

Carine encompasses about 5 square kilometres in which there are 17 parks that cover nearly a quarter (24%) of its area.

Another major drawcard for Carine is its proximity to the beach, which is positioned less than 1 kilometre from its eastern border.

Its boundary runs along major roads, which makes accessibility easy, including Mitchell Freeway to the east, Beach Road to the north, Marmion Avenue to the west and North Beach Road to the south.

This provides good public transport links with buses down the urban corridors and access to Warwick Train Station.

Carine’s main shopping complex is the Carine Glades Shopping Centre and features an IGA, speciality stores, fast food, butchers and tavern.

The suburb is set to benefit from a proposed expansion of the Karrinyup Shopping Centre, though, which is a short 5 minute drive away.

The shopping centre’s owner has lodged plans for a $600 million expansion after more than a year of negotiations with the City of Stirling.

The redevelopment would include 150 apartments and aim to draw Australian and international retailers and restaurants.

If approved, construction is tipped to start in late 2016 and take 3 years to complete.

The centre would be the third largest shopping complex in the state and bigger than the recently opened Lakeside Joondalup Shopping Centre.

Carine identifies as an upper-class area due to its high median household weekly income ($2,135), high level of ownership (88%) and large number of professional workers in the area (32%).

School facilities include Carine Senior High School, which is highly rated in the state at 90/100 in the 2014 Better Education Guide, and Carine Primary School.

Are furnished properties a good option for landlords?

Offering a furnished property to tenants can demand higher rental yields, but is it worth the extra effort?

In Australia, there are generally five ways a landlord can make their property available for lease.

1. Unfurnished – the landlord doesn’t provide any furniture
2. White goods – some or all white goods are supplied
3. Partly furnished – some lounges or tables and chairs are provided
4. Fully furnished – the landlord provides all furniture
5. Fully furnished and equipped – all household items are included, from cutlery and kitchen utensils to beds and desks.

The majority of landlords lease properties as unfurnished, or with some white goods included.

This is because if any white goods, furnishings or other included equipment break during the tenancy it is the responsibility of the landlord to replace the item, in most cases.

This can prove to be highly costly, particularly when larger pieces of furniture break, such as washing machines or lounges.

Additionally, landlords are generally required to replace smaller items, such as cutlery and kitchen utensils, in the event that they are broken. For landlords, this can become an ongoing hassle that they have to deal with.

The upside to providing furnishings is that, in most cases, landlords can claim depreciation on the items they have supplied.

Although landlords can demand higher rent with furnished options, this can be offset by tenant turnover, which may lead to longer vacancy periods.

Furnished houses usually attract more transient tenants who need accommodation for short periods (6-12 months), such as students or business people.

Given this, if you are fully furnishing, it’s best that the properties are located close to employment hubs, such as city CBDs or universities.

Equally, the quality of the furniture a landlord provides will also determine the quality of the tenant.

Students might be content with worn couches or furniture from IKEA, but it’s less likely to suit a corporate businessperson.

While providing a furnished option might sound like too much effort, there are instances when it can be beneficial.

For example, take an international business person that needs a fully furnished apartment in the city. Wear and tear on the furnishings is likely to be minimal if the tenant only stays at the apartment every other week when they are in town for business. Furthermore, a tenant such as this is likely to spend more of their time in their office rather than the apartment.

In any event, it’s always best to consult with your property manager when considering a furnished option for your investment property.

Is a development the best option during a building boom?

Residential building approvals in Western Australia hit record highs over the past year, but is it a good time to start your own development?

The number of residential buildings approved for construction in WA reached an average of 2,680 dwellings per month in 2014, according to the Australian Bureau of Statistics.

That is more than 30% higher than the state’s decade average, which stands at 2,043 per month.

There are a numerous factors that have driven the high number of building approvals in WA including record-low interest rates and high population growth.

Another major factor has been the increase in the number of large apartment projects being approved for construction in the Perth central business district (CBD).

However, with such a high amount of activity in the residential construction sector, is it a good time to undertake your own development?

The short answer is yes it is – in the right locations.

There remains opportunities in the Perth market to make a large profit from property development.

However, as is the case in any other economic environment, research is the key to help ensure you mitigate the risks and maximise the profits.

Before you start a development you need to gain a firm understanding of the industry and its intricacies, including how it works and who specialises in what services.

You also need to understand the state of the market – what stage of the growth cycle is the city and selected suburb in? Will the type of development be in demand in that suburb and what price can you receive?

It’s important to spend time researching sites until you have found a project that fits your specifications. Following this, it’s essential to complete a feasibility study to make sure it meets all your requirements and whether you can make an adequate profit.

Once you’ve chosen your site, you’ll have to tactfully acquire it, properly structure your finances and deal with designers and builders.

However, success in property development all starts with comprehensive research and securing the right location.

For example, choosing a development site in Perth’s CBD for a small apartment complex is unlikely to be profitable given the high number of large apartment towers currently planned or under construction.

However, a small, multi-residential development several kilometres from the CBD, but close to a train line, parks and a vibrant activity centre, would typically pose a better investment.

Therefore, undertaking adequate research, completing due diligence and utilising professional services firms where necessary will help to reduce risks and maximise profits for any development project.