Four rules for outperforming the market

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

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

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

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

Rule #1 – Put greater emphasis on supply

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

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

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

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

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

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

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

Rule #2 – Think about the value-add potential

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

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

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

Rule #3 – Pay close attention to local planning

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

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

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

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

Rule #4 – Follow the infrastructure trail

Infrastructure is always a major driver for price growth because it increases the attractiveness and amenities of particular areas. The benefits of infrastructure, however, are generally only recognised after the new infrastructure is in place, which means buying before this happens can generate excellent returns.

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

Conclusion

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

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

Five ways a mortgage broker can save you money

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

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

#1 – Finding a better interest rate

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

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

#2 – Avoiding those nasty surprises

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

#3 – Leveraging their inside knowledge

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

#4 – More negotiating power

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

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

#5 – Promoting healthy competition

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

An investor’s take on the renting versus buying discussion

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

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

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

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

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

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

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

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

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

7 nightmares you can avoid by hiring a professional property manager

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

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

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

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

“I can’t find a tenant!”

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

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

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

“I’ve broken the law!”

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

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

“I’m drowning in a sea of paper!”

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

“My property is falling to pieces!”

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

“I’ve been scammed!”

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

“I’m bleeding money!”

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

“My tenant is a lunatic!”

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

Is it worth being green when developing property?

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

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

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

Some things just have to be done

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

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

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

What else can be done?

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

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

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

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

Will it pay off?

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

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

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

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

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

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

Conclusion

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

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

Caution required when investing in this booming suburb

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

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

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

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

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

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

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

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

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

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

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