Moving house. Should you buy or sell first?
So, the time has come to upgrade your house. But should you buy first, or sell your existing place first? It’s a tough choice. Here are the key pros and cons.
Comparing commercial and residential property investment
If you are looking for a sound real estate investment, look beyond the typical two bedroom apartment and consider expanding your portfolio with a commercial property. There are three types of commercial property – office, retail and industrial.
There are some significant differences between investing in commercial and residential real estate, each with a potential positive or negative impact on your investment.
Moving house – some costs to consider
Finding a new home can be exciting and fun, however sometimes moving to a new house is the worst. It is one of the most disruptive, stressful and chaotic of life experiences. It can also be expensive. Here’s a list of some things you will need to consider when planning the move.
Packing
Put simply, you will always need more boxes than you think you will. It’s so much better to over-shoot the mark with this one. You can buy boxes cheaply from Bunnings. Unless you have been hoarding newspapers for the last few months, you will also need bubble wrap or butchers paper.
Cleaning
Moving is dirty. Both the old and new place will need a clean, including many of your items that were cleaned before they left your old house.
Removalists
If you’re looking to save as much money as possible, don’t hire removalists as it is usually the biggest expense in a move. However, they are also much quicker, a lot less stressful and will mean less physical exertion on your behalf.
Food
With everything packed away in boxes, takeaway is the only option for over a week. Add to that the moving-day thank you when you then shout your family and friends who helped you with the move.
Other Random stuff
- Reconnecting the internet (even the same provider)
- Taking an annual leave day.
- Buying all the new nice things
– Domain
Overcapitalising: What it is and how to avoid it
As a home owner or property investor, you may have heard the term ‘overcapitalising’. But what exactly is it and why is it considered bad?
House Flipping for Profit
“Flipping” might be the new word on the block but Australians have long been part of the reno revolution. Some are looking for fast returns (the flip), while others are upgrading after being in a home for several years. Whichever your strategy, chances are the goal remains the same: to renovate for profit. Here are some tips to ramp up your returns.
Start with the end
What’s the micro-market in which you’re selling? Each suburb, and even a neighbourhood, has a price ceiling. Knowing that ceiling, and working within it, will help you avoid over-capitalising. Pay attention to local sales and visit open houses to check the quality of what’s on offer, the type of buyers the market is attracting, and what they’re prepared to pay.
Head over heart
This is a numbers game so renovate rationally, not emotionally. It’s easy to get carried away with the latest trends but adding value means making budgets and sticking to them. Renovators tackling lick-and-flicks often determine budgets based on final sales estimates. One rule of thumb is to spend no more than two to six per cent of the property’s value on refurbing the kitchen and no more than two to three per cent on the bathroom. If you’re aiming to sell for $600,000, then cap your kitchen spend at $12,000 and your bathroom at $9,000.
Add an extra room
You only have to scan real estate markets to see room count still matters. In other words, three-bedroom properties are usually in a price bracket above those with two. Talk to a local agent to find out how much you could fetch if you extended up or out for an extra bedroom or two. If the maths stacks up, see what other spaces you can bundle in – an ensuite or a family room – to maximise your return on investment.
Paint lift
A fresh coat of paint – inside and out – can give you the biggest bang for your buck. Most of us can manage a brush and roller and paint transforms in an instant. Buyers will bring their own décor style so keep colour schemes smart, but safe. Any soft neutral pops against crisp white or cream trim, creating a clean canvas for art and accessories.
Update doors
Doors are another great value-add. Repaint or replace daggy doors, including wardrobes, and replace old handles. Your front door makes or breaks a first impression, so invest in one that makes the right statement. And don’t forget your garage doors. If you have old manual levers or rollers, replace them with new automatic or remote doors.
Super-size your space
Storage sells, especially if renovating for a family market.
- Install floor-to-ceiling closets in bedrooms that have none, and re-organise existing wardrobes with shelves, shoe racks and extra hanging rods.
- Sort your garage with racks and hanging hooks for bikes, camp gear and tools.
- Create a storage nook in your ceiling – don’t forget pull-down stairs for easy access.
- Build a carport – buyers then have the option to use the garage for storage, or as a rumpus or entertainment area.
Let there be light
Natural light wins out over darkness every time, so look for ways to let more in, especially if the living areas are a little dim. Can you knock out a wall to let light through? If privacy is an issue, consider a skylight over stairs or wall-length windows above eye level to brighten things up.
Keep it simple
In our time-poor society, low maintenance sells. Replace dust-collecting light fittings with energy-efficient downlights, minimise lawn areas to reduce mowing, opt for dark tile grout over white, and rip up carpets to reveal timber floors or replace with tile, bamboo or timber-look laminate.
Be entertaining
We love to bring the outdoors in, or is it take the indoors out? Either way, opening your living room onto an outdoor entertaining area with floor-to-ceiling bi-fold doors is a winning renovation. So too, is adding or extending a deck and transforming a tired patio into a more contemporary alfresco zone.
Plant for profit
Trees can lift the look of your home and its value. They create privacy and shade, help attract birds, and create a sense of tranquillity and establishment. Consider fast growers like lilly pilly, photinia robusta and clumping bamboo to screen your backyard.
And don’t forget your streetscape. Planning research1 indicates some focus foliage out front can add thousands to a home’s value. Give your property a leafy lift with a crepe myrtle, Japanese maple, frangipani or an evergreen ash.
-AFG
How to refinance to renovate
Refinancing your assets to renovate a property is a significant decision that will hopefully improve your standard of living or add substantial value to your property.
Refinancing isn’t as straightforward as you might expect. The type of renovation proposed goes a long way to dictating the loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.
Know your budget
Before considering refinancing, you need to have a clear idea of your budget.
If you underestimate your budget, you run the risk of getting knocked back from your lender if there has been a cost blow out.
Be conservative with your projection. If you think you need $100,000, allow for contingencies and apply for an additional 10% -20% just in case, if you can afford it. The key is stick to your budget. What you don’t need can be cancelled once the building works are completed.
Line of credit loan (Home equity loan)
Also known as an equity loan, to be eligible, one must be looking to make upgrades to the cosmetic domain of their property.
Installing a new bathroom or kitchen, painting the interior or exterior of the house and other basic construction falls under a line of credit loan.
These renovations, often, do not supersede the costs of structural changes, so homeowners can call on up to 80 per cent of their Loan-to-Value Ratio (LVR).
A line of credit loan is a “revolving door” of credit that combines your home loan, daily spending and savings into one loan.
If you choose a line of credit home loan, it essentially works as a large credit card. You can use it to purchase cars, cosmetic renovations and other investments. However, the interest-only charge starts when the equity is drawn down.
Keep in mind, line of credit loans provide you with money that can gather interest quickly, so if you are ill disciplined with repayments or money, speak to that matches your unique circumstances.
Construction loans
Construction loans are suitable for structural work in your home, for example, if you’re adding a new room or making changes to the roof.
Construction loans give homeowners the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed.
The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty, but only pay interest on the money you choose to spend. For this reason, the broker may recommend that you apply for just one loan, but leave some leeway in your borrowed kitty.
When applying for a construction loan, council approval and a fixed price-building contract are required.
Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your instalment. When construction is complete, speak to your mortgage broker as you may be able to refinance back to the loan of your choice.
When looking at both these loans, consumers can call on other property they own to boost their overall borrowing amount if they wish.
Broker advice
If you speak to a broker, they will be able to determine which loan will give you the options you seek. This advice is essential, as a poorly planned construction loan could cost you more down the road.
Consumers should ask their broker, ‘What type of loan am I eligible for?’, because if you don’t get your construction loan right, you may be jeopardising your bank security.
Want to help your kids buy property
The real estate market can be tough for young adults, but as a parent you may be able to lend a helping hand. We tell you how.
- Parent-to-child loan
A parent-to-child loan is when a parent lends their child money. This is a formal, legally binding arrangement, administered by an independent third party. At the start of the loan period, both parties agree to terms including repayment amounts, a schedule and a process to manage defaults.
- Benefits: You can set generous terms for your child, but your assets, savings and credit rating are somewhat protected as you are not the borrower.
- Drawbacks: There are legal implications for your child if they have a spouse and the relationship breaks down, in that the spouse could try to claim some of the loan proceeds as an asset of the relationship to which they are entitled. There are also tax considerations for both parties.
- Family guarantee
If your child doesn’t have enough security for a mortgage, you could provide a family guarantee. This is where you use some of the equity in your own home as part of the security. For example, your equity might cover 20% of the security, and your child’s new property would be the other 80%. It’s also known as a guarantor loan.
This can be a temporary arrangement until your child has paid down the loan to an acceptable level.
- Benefits: You have the option of guaranteeing only a portion of the loan.
- Drawbacks: If your child defaults, your assets are at risk.
- Becoming a co-applicant
You can help your child secure a loan if you sign on as a co-applicant. This means you’re equally as responsible as your child for meeting repayments. The lender will consider your assets in its borrower’s assessment.
- Benefits: Your child can obtain a loan with a low income.
- Drawbacks: If your child stops making repayments, you’re responsible for making them. If you can’t make the repayments, it will affect your credit rating.
- Gift
When you give your child money but don’t expect it to be repaid, it’s considered a gift. You may need to sign a statement to say it’s a gift, not a loan.
- Benefits: You can provide financial help, possibly without the legal, tax or financial implications of a formal arrangement.
- Drawbacks: If your child has a spouse and their relationship breaks down, the former partner could make a claim for the property.
- Assistance in kind
If you’re risk averse, consider providing assistance in kind; that is, covering some of the expenses that come along with buying a property. You could pay for services such as a property survey or conveyancing fees, or help with stamp duty.
- Benefits: You can give practical financial assistance.
- Drawbacks: The amount of money you provide may be more than what your child ends up spending. For example, you might want to contribute $20,000 but the services cost $15,000. In this case, the rest of the amount is subject to the terms of a gift or loan.
Make sure you’re well informed about your options when giving or lending money so you can remain in the best position to help your child become a home owner. You can contact your mortgage broker to discuss the right financial arrangement for your family.
– Loan Hub
Mistakes that could spell bad news for landlords
No one likes to spend any more than they have to, but you always get exactly what you pay for. An insurance comparison expert has said that investors looking to cut corners financially could set themselves up for financial ruin in the future.
Abigail Koch, spokesperson at Compare The Market, said that investors need to keep in mind that, while a property is seen as an asset for them, for tenants, it is a home.
“Investors need to provide a rental home that is comfortable, safe and secure — and also complies with state leasing legislation — but at the same time they need to secure a good tenant who pays their rent and looks after the property,” Ms Koch said.
“When property becomes a business, the temptation is to cut corners in order to save on costs, but this could lead to financial losses in years to come.”
Ms Koch outlines her top seven mistakes by landlords that could lead to financial ruin:
- DIY property management
While agent fees are a cost that needs to be paid, Ms Koch believes that the cost is outweighed by bringing on board the level of expertise.
She suggests landlords can handle advertising, the lodgment of lease agreements and bond forms, the screening of tenants, inspection of the property, follow-ups on unpaid rents and organising of repairs through tradespeople.
“Landlords that manage their own properties without expertise and experience in these areas could risk paying more in the end, if they fail to do their due diligence and don’t comply with legislation,” Ms Koch said.
- Not screening tenants properly
Agents who do not thoroughly screen tenants could end up with a bad tenant, costing the landlord their time and money.
“Landlords should know if their property managers are checking that applicants can afford the rent, have a good credit record — including a history of on-time rental payments — are making reference checks and vetting applicants through a tenant database,” Ms Koch said.
- Not responding to tenant repair requests
Good tenants could break out of a lease early if their landlord ignores or refuses requests for urgent repairs, such as burst pipes, gas leak, or electrical faults, which can result in both a now-vacant rental property as well as the landlord being further out of pocket.
Ms Koch warned: “Landlords may also be required to pay compensation for any losses tenants have suffered as a result of the breach, such as a leaking pipe causing water damage to the tenant’s possessions.”
- Having an unsafe property
Landlords can face fines for failing to comply with state safety requirements, as they are responsible for providing a safe environment for tenants.
“Landlords should seek legal advice to make sure they meet all requirements under the law, including the installation of smoke alarms, having secure fencing around pools and spas, and adequate locks on windows and balconies,” Ms Koch said.
- Discriminating against potential tenants
Discriminating against someone is never the right thing to do, and landlords are no exemption. Landlords who are found guilty of rejecting potential tenants on the basis of ethnicity or age, while approving of another tenant, could be hit with hefty fines.
Ms Koch recommended assessing applicants based on credit history, how steady their income is, as well as their previous rental history, and warns not to judge an applicant based on criteria not related to the property at hand, such as “their age, gender, race, religion, marital status [or] disability”.
- Operating without insurance
“For houses, building insurance may cover the cost to repair your property if it is damaged by a storm, but if the damage makes your home uninhabitable, only landlord insurance would cover the loss of rent,” Ms Koch said.
“For apartments, landlords should check what is covered under their building insurance, as this may exclude liability within an apartment.
“Landlord insurance policies also cover additional risks, such as when the bond is inadequate to cover the costs of damage to a property by a tenant.”
Ms Koch recommended comparing insurance policies on insurance comparison websites in order to locate the most appropriate policy for a property.
- Asking for a comparably high rental rate
Landlords want to make as much money as they can, but Ms Koch warned that pricing rent significantly higher than comparable properties could result in fewer or shorter-term tenants, who may be less likely to take care of the property than long-term tenants, and cause higher repair costs.
This would also mean that landlords would be losing money during the tenant-less periods and paying for more advertising.
“As a rule of thumb, landlords should avoid increasing the rent more than once a year or by more than 5 per cent per annum, or they may risk losing their tenant,” Ms Koch said.
“Landlords should consult agents to determine the right market price based on similar properties in the area and also keep up to date with changes in the property market.”
– realestatebusiness.com.au , Sasha Karen
Cash Rate Unchanged
Following its monthly board meeting, the Reserve Bank of Australia has today announced the official cash rate for November.
The RBA has again chosen to keep the cash rate at 1.5 per cent, a move predicted by most industry experts.
None of the surveyed experts predicted a rate change, despite some economic indicators showing signs of a slowdown.
Chief economist at ABC Bullion Jordan Eliseo correctly predicted that these slowdowns would not be enough to influence the RBA to impose a rate cut.
Mr Eliseo said: “Despite concerns about a slowdown in retail sales growth over the last few months, the RBA still appears confident in the outlook for the Australian economy, though [its] rhetoric around tightening policy has changed appropriately.”
What are the costs of buying a home?
Unfortunately, there are a number of fees and costs associated with buying a home. Here is a list of the more usual ones. Not all of them will apply to all situations.
Stamp duty — This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state governments and also depend on the value of the property you buy. In NSW, stamp duty has been abolished for first home owners buying properties up to $650,000 and concessional rates applied to homes up to $800,000.
Legal and conveyancing fees — Generally around $1,000 – $1500, these fees cover all the legal requirements around your property purchase, including title searches.
Building inspection — This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report can cost up to $1,000, depending on the size of the property.
Pest inspection — Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Your Contract of Sale should be subject to the pest inspection, so if any unwanted crawlies are found you may have the option to withdraw from the purchase without any significant financial penalties. Allow up to $500 depending on the size of the property.
Lender costs — Some lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees.
Moving costs — Don’t forget to factor in the cost of a removalist if you plan on using one.
Connection costs – though not huge, the various utility connection fees can give your cashflow a temporary hit.