Mercia | Taxation, Business & Finance Advisers

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.”