What does the RBA rate cut mean for property investors?

The Reserve Bank of Australia (RBA) surprised many last month when it cut rates following its first meeting of 2015, but what does this mean for property investors?

The reduction in the official cash rate to 2.25% came in February after the RBA had left rates on hold at 2.5% since August 2013.

The move on rates caught many experts off guard with the majority of analysts predicting that the central bank would again leave rates on hold.

However, delivering its decision the RBA said it made the cut because growth was continuing below-trend pace and that it expected the move to add some support to demand and help to foster growth.

So what does this mean for property investors?

Most importantly investors with a variable-rate loan should review their loans with their mortgage broker to ensure they are receiving a competitive rate and a product that suits their needs.

A property investor with a loan of $500,000 will save just over $100 per month if their rate is reduced by .25%, so it’s important to speak with your broker about your current situation.

The savings may be enough for a property investors to make their next acquisition to further build their property portfolio.

Alternatively, any savings could be used to complete minor renovations on existing properties to demand higher rents.

Furthermore, with historically-low interest rates it might be worthwhile for property investors with variable home loans to fix their rates.

Again, the decision to fix rates should be discussed with your mortgage broker who will be able to recommend the best course of action to take.

However, fixing rates can provide surety over the repayment amounts and can help you save further.

While the February rate cut is beneficial for property investors, there could be further good news on the way.

Many analysts have tipped that the RBA will again cut rates later this year by a further .25%, taking the official cash rate to just 2%.

Whether this occurs remains to be seen, however to ensure you’re receiving a competitive rate, it’s important to regularly review your situation with your mortgage broker.

Does an apartment make a good investment?

With lower price points and stronger rental yields apartments can be an enticing proposition for many investors, however are they a smart investment option?

The short answer is yes, they can be.

However, when it comes to property investing, the general rule is that land appreciates in value, while dwellings depreciate.

This is why houses or villas generally make a better investment option – because they often have a large land component, unlike some apartments.

Another major downside of buying an apartment as an investment property is that you have significantly less control.

In an apartment complex you are just one of many property owners and therefore represent just one of many votes in the strata complex.

If you own a house, you don’t have the inconvenience of having to consult other owners if you want to make changes.

However, if you are set on buying an apartment there are a number of points to consider to ensure you make the best acquisition.

Firstly, high-rise apartment buildings, especially in the CBD of major cities, should generally be avoided by property investors.

This is because additional supply of high-rise buildings, often with hundreds of extra apartments, can be constantly built in the immediate area and weigh down capital growth of existing dwellings.

Alternatively, investors should seek low-rise, or boutique, apartment complexes in areas where planning rules cap the number of apartment buildings. This will limit the capacity for new supply to be added in the area and will help to support capital growth.

Furthermore, low-rise apartment buildings have a higher land-to-value ratio than high-rise complexes, and therefore are better placed to increase in value.

It’s also important to buy an apartment in a complex with a high ratio of owner-occupiers, as they tend to maintain the property to a higher standard, are less likely to sell and are easily contactable for maintenance issues.

Another key consideration is the additional amenities an apartment complex offers. Pools, gyms, saunas and other luxury facilities might be appealing initially, however these frills often result in higher strata fees for the owner and can reduce net rental returns.

While apartments generally aren’t viewed as a great investment option for all, they can suit some investors depending on their individual circumstances.

As usual though, it’s best to speak with a professional buyer’s agent to ensure an apartment suits your investment plans.

Suburb set to benefit from surrounding development

Cockburn_stn2This overlooked suburb is ideally located to leverage off a number of ongoing development and revitalisation initiatives in its surrounding areas.

Bibra Lake is conveniently located being just several kilometres from a number of major shopping, entertainment and employment precincts, including Fremantle and the North Coogee Marina to the west, Cockburn Gateway Shopping City to the south and the Murdoch Activity Centre to the north.

Furthermore, the Kwinana Freeway lies across the suburb’s eastern border, which makes Perth CBD, and many other parts of the metropolitan area, easily accessible.

Bibra Lake is mostly low-density residential structures with more than 90% of dwellings listed as houses.

Located within the City of Cockburn and 15 kilometres south of the Perth CBD, the suburb has a population of about 6,000 residents with a median age of 39 years.

Bibra Lake’s value lies in the development occurring in its surrounding suburbs including major residential and commercial land development in Coogee, continued redevelopment of the Cockburn Gateway Shopping City and the recent completion and ongoing commissioning of the Fiona Stanley Hospital and the Murdoch Activity Centre (MAC).

Neighbouring suburbs include North Lake, Coolbellup, Spearwood, Yangebup and South Lake.

As well as low-density residential housing, Bibra Lake also contains an extensive light industrial area, a portion of the Beeliar Regional Park and a large part of the Bibra Lake Reserve.

The light industrial area is located on the south-western side of the suburb and takes up a large portion of the suburb, while the Western Power substation is in the south-east pocket.

Containing the light industrial area and in close proximity to the MAC there are a variety of job opportunities in the immediate area.

School facilities include Bibra Lake Primary School, Perth Waldorf School and good access to Murdoch University.

As well as Cockburn Gateway Shopping City, there is also Phoenix Shopping Centre in Spearwood and the Lakes Shopping Centre on the border with South Lake.

Bibra Lake boasts good accessibility bordering the Kwinana Freeway and Stock Road and is split by North Lake Road, which connects to South Street and Beeliar Drive.

4 features to look for in an exceptional property manager

Finding a property manager that will help you to maximise value from your investment property portfolio can be an extremely tough exercise.

With so many different property management companies in the market the degree of service you will receive can vary dramatically.

Too often do property managers promise the world before disappointing and becoming just another ‘transaction filler’.

Here are four features to look for in a property manager to help you find a professional advice-driven service, which will help you make the most of your investment property.

1. Communication

Open and clear communication should be maintained by the property manager at all times. Check to see if the property manager has a customer service charter that outlines their commitments to you. A good property manager will ensure they return phone calls or emails within one working day or contact land lords within one working day after becoming aware of required repairs or maintenance. They should also provide regular (monthly) updates on the performance of your property and if rent is being paid on time.

2. Negotiation

Property managers are constantly in negotiations, whether this be about the rental price, lease contracts or gathering quotes for maintenance services. An outstanding property manager should hold good negotiation skills to ensure you, as the landlord, receive the best outcome.

3. Knowledge and passion

While the number of years a property manager has worked in the industry can be an important factor, it’s not the be-all and end-all. What’s more important is their enthusiasm for the industry – do they read industry publications to expand their knowledge, for example? Do they have a comprehensive understanding of the Residential Tenancies Act? Do they attend regular industry training courses and seminars? An outstanding property manager will have a passion for the industry to ensure they stay abreast of the latest trends and information.

4. Professionalism

Professional property managers will be active participants in the broader industry. Is the property manager a member of any credible industry organisations? Has the property manager, or their company, won any industry awards for their excellence in property management and customer service? Furthermore, ask if the property manager has a cap on the number of properties they can manage as some individuals will handle hundreds of properties, which will mean a poorer service for you.

The importance of completing a pre-acquisition feasibility study

Property development can be a fine line between huge windfalls and financial disaster; however a pre-acquisition feasibility study can go a long way to mitigate the risks.

If you’re searching for a property to develop it’s important to complete a feasibility study prior to purchase to ensure the site meets your expectations.

This can be done before final settlement by including adequate clauses in the sales contract that will provide a sufficient due diligence period on the site and allow you to cancel the acquisition if you’re not satisfied for any reason.

To complete a thorough feasibility study during the due diligence period it pays to hire a professional company that is qualified and has experience with the construction and approvals processes.

A feasibility study should outline how much the site is worth, the number and type of dwellings you can build on it and a forecast of the size of the profit, or loss, you would make.

It will also provide finer details including a brief of the building and subdivision costs, a working timeframe of the project, soil analysis and engineering and drainage requirements, location of service and utilities (such as sewer lines), any covenants or easements on the land title and political or community opposition to the development.

By completing adequate due diligence at the feasibility stage you will be able to maximise your profit margin, or potentially avoid a disastrous financial loss if the project isn’t viable.

It’s also important to remain emotionally detached from the project, particularly if you may have spent substantial time and money searching for a development site and it fails to pass a feasibility study.

In this case you need to forget the site and continue your search – it will pay to be patient until the right development property arises.

3 easy tips to increase your borrowing capacity

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

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

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

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

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

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

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

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

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

1. Close unnecessary credit cards and review credit card limits

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

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

2. Reduce personal debt

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

3. Maximise incomes from existing investment properties

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

5 basic features your next investment suburb must have

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

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

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

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

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

1. Good public transport links

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

2. A vibrant retail and café strip

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

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

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

5. Within close proximity to the employment centres

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

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

5 tips to maximise returns from your investment property

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

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

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

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

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

1. Update or renovate where required

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

2. Install additional appliances

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

3. Be pet-friendly

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

4. Price the property right

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

5. Property development

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

Boost rental yields with a dual-income strategy

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

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

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

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

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

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

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

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

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

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

Boost rental yields with a dual-income strategy

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

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

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

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

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

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

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

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

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

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

1960s suburb receives new life

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4 benefits of buying a property in a downturn

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

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

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

This herd mentality simply comes down to human nature.

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

Four reasons to buy in a soft property market.

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

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

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

Como: ideal location with comprehensive amenities

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

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

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

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

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

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

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

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

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

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

Buying a tenanted property – help or hindrance?

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

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

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

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

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

Pros

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

Cons

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

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

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

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

Red tape to be slashed for property developments

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

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

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

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

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

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

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

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

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

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

Momentum Wealth named as finalist at Better Business Awards

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

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

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

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

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

Information in the Property Newsletter kindly provided by Momentum Wealth.

What happens when your interest-only period expires?

Property investors love interest-only loans, but most never stop to think about what happens when the interest-only period comes to end.

As you probably know, with an interest-only loan your repayments are lower than with an equivalent principal and interest loan, as you only pay the interest component and the fees.

In other words, while you’re only paying interest, you aren’t paying off any portion of the loan.

That’s why these loans are popular with property investors, as it allows them to put more cash into paying down non-deductible debt or into other assets.

Critically, interest-only loans generally allow you to ‘pay the minimum’ for a period of between five and 10 years. When this period expires, the loans automatically switch to a principal and interest loan with a corresponding increase in repayments.

The jump in repayments can catch many investors off-guard, particularly as repayments are calculated based on the remaining term of the loan.

For instance, if you took out a 30-year loan and paid only interest for the first 10 years, the repayments (once the loan switched) would be based on paying back the loan in just 20 years.

It’s worth noting that the adjusted repayments would be higher than if you had started paying principal and interest at the start of the loan.

What are your options when your lender notifies you that your interest-only period is expiring?

Firstly, you can do nothing and simply start paying off the loan. But if you don’t want to do this, you could ask your lender to extend the period. Some lenders will do this quickly and easily, others will require some sort of credit assessment or loan switching, and some just won’t do it at all.

When the market is competitive and lenders are hungry for business, you’ll find that most will try to keep their customers happy.

Another option is to refinance the loan with another lender, which, as well as providing a new interest-only period, could save you money.

As always it’s best to talk with your trusted broker before doing anything. They will be able to advise you accordingly.

Should property investors be worried about potential changes to lending rules?

The strength of the property market in our country’s two largest cities is giving the Reserve Bank of Australia (RBA) a bit of a headache.

Prices have risen strongly over the past year in Sydney and Melbourne, encouraged by low interest rates, and the central bank is concerned the housing market may be becoming overheated.

Specifically, the RBA is concerned about the unbalance in the market from a disproportionately high number of loans being approved to investors.

Property investors have been busy snapping up residential property in droves and the RBA believes that if commercial banks are participating in risky lending, then that could make the market vulnerable to a downturn.

The RBA clearly doesn’t want to lift interest rates because of the negative impact it will have on the country’s transitioning economy.

So instead, it is working with the Australian Prudential Regulation Authority (APRA) to consider various macroprudential policies that could potentially curb property investor mortgages.

The goal is to stop banks making ‘high-risk’ property investment loans that could fuel a housing market bubble and cause a subsequent crash.

We are expecting an announcement from the RBA by the end of the year.

What type of measures could be introduced?

There are a few likely candidates and some more ‘left-of-field’ options.

There could be a cap placed on loan-to-value (LVR) rations or debt-to-income ratios, though this seems unlikely.

The New Zealand model, where lenders can only provide a certain proportion of low LVR loans, also seems unlikely from comments made by the RBA.

Another option is to make lenders perform a strict ‘stress test’ to measure new investment borrowers’ capacity to absorb a significant increase in interest rates. Most lenders already perform this sort of test but regulation could set the bar higher.

Many people believe the likely option is that banks will be made to hold more capital for interest-only loans, essentially incentivising them to promote principal and interest loans. This would make interest-only loans more expensive and therefore less appealing in the market.

How could these measures (whatever they turn out to be) affect the everyday property investor?

Any restrictions to lending could obviously make it harder to get an investment loan or reduce a person’s borrowing capacity. It could also restrict some investors from expanding their portfolio beyond a certain point.

More broadly, lending restrictions could weigh on the property market and potentially trigger a downturn, but this is unlikely.

There are also potentially positive effects from such changes. These measures could do what they are supposed to do and take out the heat of any speculative markets, therefore helping to avoid a potential downturn.

Perhaps a less obvious benefit of new macroprudential policies is that interest rates could remain low for longer and may even drop further, especially if unemployment and the dollar remain stubbornly high.

When the Sydney and Melbourne markets slow down, housing will probably take a back seat as the RBA tries to facilitate the rebalancing of the economy away from mining investment, and I wouldn’t be surprised if this meant a cut to the cash rate.

Conclusion

My belief is that new macroprudential policies would only target a small portion of the market and focus on short-term measures, which shouldn’t disrupt the market overall. The RBA won’t want to severely damage the investor market, just correct the imbalances. And the measures probably won’t be as strict as some people are suggesting.

There is also the remote possibility that all the RBA’s talk about macroprudential policies could simply be ‘jawboning’ to help talk down the market without having to regulate.

While some investors may panic and try to load up on debt while they can, that probably wouldn’t be wise. If and when measures are introduced, clever finance brokers should still be able to find solutions for investors who genuinely have the capacity to carry a loan.

Is the Brisbane market ready to take off?

Sydney and Melbourne have clearly been the stand-out cities in terms of capital growth over the past year.

For investors around the country and overseas, attention has now turned to finding the next Australian city ready to boom, and there’s more than one expert tipping Brisbane to take the mantle.

Although the Brisbane property market has been in the doldrums for some time, following the Global Financial Crisis and vast flooding in 2010 and 2011, the key indicators are certainly pointing to an emerging growth phase.

Auction volumes are increasing, more sales occurring, the average time on market is shortening, vacancy rates are relatively low and there appears to be growing interest from interstate investors.

Research house, BIS Shrapnel, forecasts growth of 17% over the next three years and there are already signs of growth with the median house price on an upward trend.

What’s driving the growth? Low-interest rates are one factor but given that rates have been low for some time it’s probably more a case that confidence is now re-emerging.

With expectations of growth, many more buyers are deciding to upgrade while there is still value in the market.

Local buyers are being joined by those from interstate, who either made money in Sydney or Melbourne or missed out on the recent upswing and are searching for higher yields and growth potential.

Historically, Brisbane has always lagged behind Sydney by about 12 to 18 months.

Brisbane continues to record rapid population growth and the city has its own supply-constraint issues, which are fundamentally driving the market.

The economy has always been strong and there is currently considerable infrastructure spending underway, adding more fuel to the fire.

All of this is adding up to a positive outlook for the property market over the short-term. There is, however, plenty of development activity happening in the city, especially with regard to apartments, so there is the potential for an oversupply and poor performance in some areas.

Investors looking to get into the Brisbane market – especially those from interstate – should certainly tread carefully and seek expert help from a professional they trust.

Momentum Wealth named in Fast 100

Momentum Wealth is delighted to have been recognised as one of Australia’s fastest-growing companies in 2014.

Momentum Wealth was named in BRW’s Fast 100 list, which recognises Australia’s top growth companies, both public and private, for the year.

The achievement caps off a great year for Momentum Wealth after winning a swag of industry awards for outstanding customer service and excellence in business.

These include REIWA’s 2014 Best Large Residential Agency of the Year award, the 2014 Business News Rising Stars award & People’s Choice award and the award for Best Independent Office of the Year at the 2014 Better Business Awards.

Following on from these successes, we’d like to thank our clients for their ongoing support and helping us to win these highly-regarded awards.

9 simple things you can do to get tenants to pay more

When the rental market stagnates, investors have to turn to innovative solutions to secure higher rents.

Rather than just sitting and waiting for the market gods to shine, why not make simple improvements to your properties that will have tenants happily throwing extra money in your direction.

The right sort of improvements can easily pay for themselves in a couple of years through depreciation, increased rent and fewer vacancies.

Here are nine relatively simple things you can do to your property that tenants will love and happily pay a bit extra for.

Install air-conditioning This is always high on the list for tenants in Perth and other sunny places, especially when summer is approaching.

Add a dishwasher Nobody likes doing the dishes, so tenants will often pay a bit more for the convenience of a dishwasher.

Give the car a home Most people greatly value their cars, so providing a simple shade sail or carport structure can make your property more valuable in the eyes of potential tenants.

Provide a bit of extra security Every rental property must have certain security features like door and window locks, but providing extra things like sensor lighting and security screens can help increase the rent you can charge.

Allow pets Given how many people own, or want to own, a pet, opening your rental property to pet owners can help increase your returns by widening your pool of potential tenants.

Do a quick paint job While not as easy as some of the other items on this list, a new paint job can do wonders for the appeal of a property and even increase its value.

Tart up the outdoors Tenants tend to value useable and attractive outdoor space, so if you can create some without too much trouble it can pay off financially.

Install new carpets There’s something about new carpets that tenants just love. Maybe it’s the smell of virgin ground. Whatever the reason, tenants will often pay for the privilege.

Offer a long-term lease This is something you may not have thought about, but some tenants would gladly pay a bit extra for the security of a long-term lease. It can be very costly to have to move every couple of years.

Speak with your property manager who can provide the best advice about how to maximise your rental returns in the current market conditions.

Proposed changes to R-Codes could spell disaster for some investors

A few months back, the Western Australian Planning Commission (WAPC) put forward a series of amendments to the residential planning codes (R-Codes) that, in effect, will significantly reduce the development potential of many properties in areas zoned R30 and R35.

The proposed changes will reduce the number of multiple dwellings currently allowed in R30 and R35 zoned areas throughout the state.

If approved by the State Government, the proposed amendment, which will affect thousands of property owners, will undermine progressive changes that cater for WA’s rapidly growing population.

Changes implemented in 2010 created the potential to build seven to 10 units on 1,000 square metre blocks, which are zoned R30. However, if proposed WAPC R-Code changes are approved, blocks of this size in R30-zoned areas will only be able to accommodate three units.

The downgrade, which will ultimately lead to a reduction in property values, will affect properties in inner city locations, as well as properties zoned R30 and R35 in many areas which are more than 15 kilometres out of the city, and regional locations.

Increasing density to cater for a growing and ageing population is a sensitive issue that needs to be well thought-out and carefully managed. No one is suggesting that medium or high density should be in every street and every suburb.

Encouraging quality designs and appropriate location choices are essential components of planning for our future housing needs. For example, a quality design can deliver a seven or 10-unit development that is smaller in terms of building size than an equivalent three-townhouse development.

However, if Perth is going to accommodate a rapidly growing population, which increasingly wants to live near work and amenities, and we want to reduce congestion on our roads, we simply can’t afford the urban sprawl to continue indefinitely.

All property owners are encouraged to express their opposition to the amendments. Submissions or comments on the amendment may be emailed to rcodesreview@planning.wa.gov.au. Submissions close 5pm, Friday 14 November 2014.

Popular suburb that is minutes to anywhere

Despite its central location, 11km from the Perth CBD and 5km from Fremantle, Melville is a relatively quiet residential suburb, with good access to major hubs, the river and the beach.

Its neighbours are the riverside suburbs of Bicton and Attadale to the north, Alfred Cove and Myaree to the east and Willagee to the south.

Residents of Melville have plenty of retail options with Melville Plaza, a good-sized local shopping centre, located on the suburb’s border. The popular Garden City is also just five minutes away. The same can be said for cafes and restaurants with popular strips nearby in Ardross and Fremantle.

There are a number of parks and open spaces in Melville, including Kadidjiny Park, which cost nearly $10 million to develop, and opened to the public in late 2010 offering a playground, barbecues and large amphitheatre.

The suburb has a primary school and an independent public high school, though many children from the area attend one of the nearby private schools.

Melville has numerous bus routes linking residents to key employment and lifestyle centres, as well as to train stations on the Mandurah line. It also has good access to Canning and Leach Highways, which bound the suburb to the north and south respectively.

Most development occurred in the 1950s, so houses in Melville typically sit on large blocks. However, many original homes have been knocked down and replaced with modern ones. There are very few units and villas in the area.

The median sales price for houses in Melville currently sits at around $815,000, and the suburb can sometimes be found on the list of fastest-selling or most-searched-for suburbs in Perth.

RBA leaves rates unchanged

The Reserve Bank of Australia (RBA) has kept interest rates on hold at 2.5% following its November meeting.

Announcing that rates would not be changed, RBA governor Glenn Stevens said that most data in Australia was consistent with moderate growth in the economy.

“Overall, the bank still expects growth to be a little below trend for the next several quarters,” Mr Stevens said.

The decision to leave rates on hold was widely expected from most economists.

Mr Stevens said that credit growth was moderate overall, but there had been a further pick up in lending to property investors, and that dwelling prices had continued to rise.

Furthermore, he noted that interest rates were very low and had continued to edge lower over the past year as competition to lend had increased.

Mr Stevens said some forward indicators had showed that employment had been firming throughout the year, however the labour market had a “degree of spare capacity” and that it would probably be some time yet before unemployment declines consistently.

He reiterated that resource sector spending was declining as some areas of private demand were expanding, albeit at varying rates, and public spending would remain subdued.

“On present indications, the most prudent course is likely to be a period of stability in interest rates,” Mr Stevens said, noting that inflation was running between 2% to 3%, as expected.

When the honeymoon is over

You’ve probably seen the television commercials or maybe the full-page newspaper advertisements. The headline is always the same, a home loan interest rate so low that it’s difficult to ignore.

In a bid to acquire market share from their competitors, lenders are aggressively advertising home loans with very low introductory or ‘honeymoon’ interest rates. But are these attractive loans worth all the hype?

The idea behind these types of loans is simple. They essentially offer a discounted interest rate for a short period of time, normally the first 12 months of the loan.

The catch is that once the honeymoon period is over, the interest rate reverts to a much higher rate, such as the lender’s standard variable rate. These loans may also have excessive fees, making them surprisingly expensive.

Overall, they can cost a borrower hundreds of dollars more each month, or tens of thousands of dollars over the course of the loan.

Savvy borrowers treat introductory-rate home loans with caution as the short-term reprieve rarely makes up for the long-term financial strain.

Introductory-rate home loans can be of value to certain borrowers, such as those who plan to pay off their mortgage during or shortly after the honeymoon period, or those who plan to later switch to a better deal.

But it’s important to be aware of any fees or penalties that may be triggered on such an event.

Your broker is the best person to talk to about whether an introductory-rate home loan is suitable for your specific needs.

Confession: What buyers’ agents really think about auctions

The popularity of auctions seems to be increasing in the Perth market, despite the wariness of some locals.

And while the vast majority of properties are still sold via private treaty, there is a feeling that over time auctions will take an increasing share of the market.

But what do local buyers’ agents, who buy property for a living on behalf of their clients, really think about auctions? Do auctions provide good opportunities to snap up a bargain or do they stack the cards in the seller’s favour?

We can’t speak for all buyers’ agents in Perth, but given Momentum Wealth has the biggest team around, we can certainly shed some light on the pros and cons of buying at auction.

Overall, it’s fair to say that the auction process is designed to be in favour of sellers. The aim is essentially to flesh out as many potential buyers as possible (by not quoting a price) and then put these buyers in a competitive environment to hopefully trigger a bidding war. And there are many ploys used by selling agents and auctioneers to encourage the process.

There is often considerable pressure and emotion involved with auctions, which is why they can be a buyer’s worst nightmare. And it’s because of this pressure that buyers’ agents are often employed to represent buyers at auction.

Given the choice, most local buyers’ agents would probably prefer to buy via private treaty over auction. This is because they have better control over the negotiation process and can ultimately achieve a better result for their client, the buyer.

Critically, with private treaty, a buyer’s agent can include conditions in the contract that protect the interests of the buyer, whether in regard to finance or inspections. Under auction conditions, offers are generally cash and unconditional.

That said, with the right bidding strategy, auctions can provide excellent buying opportunities. However, you need to do your research and prepare for the unpredictability of the process.

Perhaps the best scenario for a buyer is when a property is passed in at the auction and the seller, becoming increasingly desperate to sell, happily entertains a lower offer.

It is worth remembering, however, that smart property investment is about acquiring the right type of assets, not necessarily getting a great deal upfront. So the focus should also be on the property and not the method of sale.

Momentum Wealth makes history to win REIWA awards

Momentum Wealth is honoured to have received two awards at the Real Estate Institute of Western Australia’s (REIWA) 2014 Awards for Excellence.

Momentum Wealth was presented with the Best Large Residential Agency of the Year award, which recognises excellence in customer service, property management and agency achievements.

It is the first time a buyer’s agent has received the award breaking a long history of selling agents winning the accolade.

Furthermore, Momentum Wealth property wealth consultant Kent Cliffe won the Buyer’s Agent of the Year award, which acknowledges excellence in leadership, contribution and innovation to the property industry and the ability to overcome business challenges.

The awards ceremony was held at Crown Perth on September 18 and was attended by more than 300 delegates, including WA attorney general and commerce minister Michael Mischin and REIWA president David Airey.

Following on from the state awards, Momentum Wealth and Kent will represent WA at the national finals, to be held in March next year in Perth.

At Momentum Wealth, we’d like to thank our clients for their on-going support and helping us to win these highly-esteemed awards.

Five things you need to know about a damaged fence

Dividing fences can often be an area of contention for adjoining property owners, especially when they are damaged and in need of expensive repairs. Here are five things you should know about it.

#1 – Who is responsible?

Generally speaking, when a shared fence is in need of repair, owners on each side of the fence are both responsible, whether the owners are investors or owner-occupiers.

According to the Dividing Fences Act 1961 (the Act), owners must contribute in equal proportions to the repair of the fence, and a ‘repair’ in this sense includes situations where the fence simply needs realignment or re-erection.

#2 – Disagreements

Consider a situation where the owner on one side of the fence wants to replace a damaged fence, but the other owner doesn’t believe the fence is in need of replacement. What happens?

In cases like this, if an agreement can’t be reached, the owner wanting to replace the fence can refer the matter to the Magistrates Court to seek an order. But the Magistrate will first need to be convinced that the need for replacement exists.

#3 – Emergency repairs

If a shared fence is suddenly damaged or destroyed by an event, such as a flood, fire, storm or accident, one owner can immediately repair the fence without giving notice to the neighbour.

The owner who repaired the fence can then recover half of the expenses from the other owner, either by mutual agreement or, if necessary, through the Magistrates Court.

However, because there is the potential for disagreements, it is always advisable that neighbours speak to one another before performing any repair work.

#4 – Neighbour at fault

What happens if the fence is damaged due to the fault of your neighbour? Should the neighbour pay for the entire cost of repair?

The Act only recognises a limited set of circumstances where one owner may be forced to repair or replace a shared fence at their sole cost. These are where the damage is caused by fire, or by the falling of a tree or branch. However, there must be evidence of neglect on the part of the owner deemed to be responsible for the damage.

#5 – Should your tenant contribute?

Tenants are not responsible for the cost of repairing a shared fence, except when the term of the lease is for a period of five years or more.

According to the Act, if the term of the lease is between five and seven years, the landlord must pay three quarters of the cost and the tenant one quarter.

The importance of a perfect finance application

It goes without saying that obtaining finance is a critical and often challenging step for any development project. It’s a very different prospect to a typical home loan application.

If you don’t have a strong track-record as a developer, securing finance approval may hinge on the quality and professionalism of your finance application.

The application matters greatly because lenders need to fully understand their potential risks, and the application will help them assess this risk and convince them of your credentials.

What to include?

What should a development finance application include? This, of course, depends on the size and type of the development. While this list is certainly not exhaustive, here are some of the main components that can form part of a professional loan application.

• Summary of the project highlighting the key points • Detailed feasibility showing the profit potential (lenders will want you to use conservative figures and show plenty of breathing room if things don’t go to plan) • Full set of costings • Information about the site and its zoning • Your credentials as a developer • Your financial contribution • Experience and expertise of your team • Project timelines • Exit strategy • Evidence of pre-sales (if required) • Signed builder’s contract • Necessary documents (such as the DA consent and council stamped plans)

Getting help to save time and ensure success

Given the importance of, and the level of detail required for, a development finance application, it certainly pays to have an experienced broker on your side. Your broker needs to understand exactly what lenders look for when lending to a development project.

By keeping the lender’s criteria and expectations front-of-mind when compiling an application, you’ll have a better chance of the processes running smoothly. And this will help you avoid unnecessary delays and hopefully complete your project as quickly and efficiently as possible, which is what every developer wants.

Suburb snapshot: Kallaroo

Relatively unknown compared to its more prominent neighbours, Kallaroo is a small, established beachside suburb that sits in between Hillarys and Mullaloo, with Craigie to its east.

Located 22km from the Perth CBD, Kallaroo was predominantly developed during the 1970s and 1980s, and it is often considered by locals to be a suburb of two distinct halves.

On the ocean side of Dampier Avenue, which bisects the suburb, you will find many multi-million dollar homes on large blocks, especially close to the ocean. This is the part of the suburb locally known as ‘Northshore’, in reference to an earlier estate name.

If you cross to the eastern side of Dampier Avenue, towards Marmion Avenue, you’ll find smaller, less expensive homes, as well as a higher proportion of homes being rented. Many people mistakenly think of this area as an entirely different suburb.

The median house price in Kallaroo currently sits at around $700,000, however, this figure can bounce around dramatically from quarter to quarter due to the diversity of housing in the suburb. It’s not unusual for the suburb to appear either on a list of top-performing suburbs or worst-performing suburbs depending on the composition of sales.

Kallaroo residents have direct access to Marmion Avenue, a major north-south arterial road, and have proximity to the Mitchell Freeway and train network (via Whitfords station).

Some of Kallaroo’s features include Whitfords Beach, substantial parklands along the coast and a small country club. On the suburb’s border with Hillarys sits Whitford City, one of Perth’s major shopping centres.

Developers have taken an interest in Kallaroo in recent years as the south-east corner of the suburb is subject to planned rezoning under the City of Joondalup’s Local Housing Strategy.

Last year, Australian shopping centre group, Westfield, submitted plans for a $190 million expansion of Whitford City, which could provide a boost to Kallaroo. However, the plan was rejected by the City of Joondalup and a development assessment panel but the decision is currently being appealed through the State Administrative Tribunal.