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.