How important is land when buying apartments?

It is one of the so-called “golden rules of property”; the driver behind the price increase of any property is land value.

Mark Twain famously summed this up when he wrote that land is the best investment because “they are not making any more of it”.

That seems straightforward enough, but does this golden rule work when it comes to investing in apartments?

What is land content value?

According to this theory, the capital growth driver of an apartment is driven by the value of the land embedded in its price.

The mechanics of this approach are simple: if a complex of 20 units sits on land worth $4 million, each apartment has $200,000 worth of land value and if a unit sells for $450,000, its “land content value” is 44%.

Many property advisers will tell you to aim for an apartment with content value of at least 40%.

If you are an owner of a unit in areas like Brisbane’s Southbank or Docklands in Melbourne, this theory may come as a bit of a shock.

It is quite common for these owners to be told via council or bank valuations that their land content value is as low as 5%-15%.

Does that mean these properties will only experience low growth?  Well no, not necessarily.

It’s about market demand …

If high land content theory was an iron law of real estate, then many apartments in New York, Paris or even Sydney’s Potts Point for that matter would have proven to be a terrible investment.

Yet in many of the world’s most expensive cities, high-density units with low notional and values are the norm.

The reason units in some of these areas have had above average growth comes back to that other real estate rule: the mechanics of supply and demand.

If a market in a high-density location, like Monaco or central Sydney, has 4,000 apartments for sale and 6,000 interested buyers, the price of units will rise even if the notional land content value of these units is low.

In these markets, it’s the competition between buyers for “available space” which better explains what is really going on.

… and market supply

What happens when we reverse the equation: more units for sale than interested buyers – will values will stagnate or fall?

The short answer is that they can. We’ve seen some instances of this play out over the past 20 years in cities where there has been a big increase in high rise living. When the numbers of apartments for sale outpaces the numbers of buyers, prices
have stalled or fallen.

The problem here is not the low notional land value of units; it’s usually a case of development running ahead of demand. When you look at some of these precincts years after that over-development phase has ended, in many cases the sale prices of units is growing again.

Where it holds true

In suburbs surrounding most of our capital cities, detached houses are the dominant property type with just with a sprinkling of apartment complexes. In these markets, land content theory is a good guideline.

But in areas increasingly dominated by high and medium-density living, land content theory is not that helpful.

In these areas it is the “competition for available space” which is a much better guide.

  • Paul Thornhill (realestate.com.au)

Too loyal or time-poor for a better rate? Problem solved

Another month, another rate cut. Finance can be so tedious.

That is until you realise it could mean more money in your pocket. But how?

For many, matters of personal finance are so dull and/or difficult, they are immediately filed in the too-hard basket.

And for their trouble, or lack thereof, these people are often slugged with a ‘lazy tax’ – the price paid for staying put.

Loyalty too, or simply being time-poor, can also be offences punishable by debt in the world of finance.

But it doesn’t have to be this way.

A 2018 Australian Competition and Consumer Commission (ACCC) report showed that new borrowers with an average-sized residential mortgage paid up to $850 less a year in interest than existing borrowers with the same lender.

However, despite the apparent benefits, actively ensuring an interest rate remains suitable is a practice that continues to elude many.

Fortunately, there are people out there whose job it is to assist in this process.

Mortgage brokers can play a vital role in assisting borrowers through the process of ensuring their mortgage is competitive.

We at Brickhill Financial Solutions in North Sydney are just a phone call away and are ready to guide you through the task of refinancing your loan.

What’s your home really worth?

Type your address into any number of free ‘what’s your home worth’ websites and an approximation of your home’s market value pops onto the screen in the blink of an eye. Easy.

But no matter whether the figure you see sends your heart soaring – or sinking – take a minute to consider how accurate that value could be. What about the bathroom upgrade?  The new kitchen? The barbecue area? All that money has to account for something.

Unlike other assets like your super, your home doesn’t come with an annual statement that shows what the place is worth at any point in time. But there are times – like when you need to refinance your home loan, that it can be extremely helpful to have a reasonable idea of your property’s market value.

There is a range of valuation options to choose from beyond the freebie websites. Each offers varying degrees of accuracy, and as is often the case, you get what you pay for.

A market appraisal

One cost-free option is to have your home assessed by a local real estate agent. This gives you the benefit of a local expert walking through the property in person. The downside is that a market appraisal is not the same as a formal valuation, and the final figure could be bumped up if the agent thinks a listing could be gained.

Automated valuation models

Further along the scale are ‘automated valuation models’. These are a user-pays service usually provided by property research companies.

For a small fee, you provide your address, and a value for your home is computer generated based on recent sales figures in your neighbourhood.

It’s a budget-friendly option though the figure you end up with is based on a wide number of previous sales – and the homes sold may be nothing like your own.

Electronic valuation

If you’re willing to pay a bit more, a desktop assessment or ‘electronic valuer review’ can crank up the accuracy factor.

An estimate of your home’s value will be provided by a property research firm based on recent local sales data backed by either a current photograph of your home or a phone discussion between you and a valuer.

This type of valuation lets you provide more detail about your home but without a physical inspection of the place the valuation is far from watertight.

Go pro – call a registered valuer

If you’re looking for a rock-solid estimate of your home’s value, the most accurate (and costly) option is to have your home checked inside and out by a registered property valuer.

These guys are experts, and the valuation you receive is based on local sales results combined with an analysis of current market conditions, reviews of any proposed council developments in your area and of course the quality of your home (so it’s worth giving the place a spruce up before the valuer arrives).

The figure you will end up with is an estimate of what a willing buyer would pay for the property on the day of the valuation. Sounds fair.

Do you really need to pay for a valuation at all?

You can expect to pay upwards of several hundred dollars for a formal valuation of your place. But here’s the thing. While it is always interesting to know, or at least have a reasonable idea, of your home’s value, chances are you may not need to pay for a valuation at all.

If you are refinancing or topping up your loan, it’s likely the lender will conduct an independent valuation of their own.

Rental yields – what you need to know

Rental yield – essentially the rate of rental income returned against the costs of an investment property is a great indicator of a property’s investment potential. But you need to keep things in perspective when you factor it into your decision to purchase property.

Calculating rental yield

A good first step in examining rental yield’s impact on the investment potential of a property is to recognise that there are two types of rental yields, gross and net, and they are calculated differently.

In property, gross rental yield is calculated by dividing the annual rental income you receive by the property value, and then multiplying this figure by 100.

For example, if you collect $20,800 rent annually ($400 per week) and your property value is $450,000, it will look like this:

$20,800 (annual rent) / $450,000 (property value) = 0.0462

0.0462 x 100 = 4.622

The gross rental yield is therefore expressed as 4.622%

Presumably, the higher the rental yield percentage, the better, as it suggests a more efficient return on your investment – more bang for your buck.

Knowing a property’s gross rental yield is a quick way to make a rough comparison of how its rental returns fare with others in an area, but it does not give a full picture of the investment potential a property offers.

But the gross rental yield can be misleading.

Net rental yield, on the other hand, offers a more detailed picture of a property’s rental return. To calculate net rental yield, you also factor in the costs and expenses you incur in addition to your property’s value.

The list of costs and expenses is extensive and can include stamp duty, legal costs, building inspections and recurring expenses such as maintenance and repair work, council rates and loan interest repayments.

If you deduct $5,000 for annual costs and expenses from the annual rental income in the gross rental yield scenario in the example above, the net rental yield is 3.5%.

Of course, the credibility of net rental yield is dependent on the accuracy of assumptions you make about the cost of repairs, the property’s market value and the property’s occupancy rate.

A building inspection might reveal dormant issues that will drastically increase future repairs and maintenance expenses. Rental yield might be high for those properties occupied in the neighbourhood, but that doesn’t mean the property you have in mind will be occupied all year-round – vacancies in one street can vary from the next, too.

Rental yield is only one factor to consider

Calculating rental yield should only be part of your assessment of a property’s investment potential. To do due-diligence and ensure you’re making the right investment, it’s also important to consider the resale value, investigate market reports, demographics, sales and rentals history in an area, planning and infrastructure, and the story of the building.

Brickhill Financial Solutions can help you further evaluate the benefits and the issues to consider when purchasing your investment property in Sydney.

Make Working from Home Less Taxing

With no commute and casual Friday turning to casual every day, there’s a lot to love about working from home. But when the cat keeps hijacking your Zoom calls and Friday drinks end up being with said cat, it has its downsides too. Thankfully, the tax man is offering a bit of socially distanced relief for those of us still working from home in our pyjamas.

As you’d expect, more Australians than ever are working from home – 68% of the workforce, by one estimate. The Centre for Future Work, a leading think tank, reckons COVID-19 could spark the end of normal work patterns. (‘Good riddance’, we hear you say.)

The Australian Taxation Office is keeping up with these unprecedented times by offering new tax deductions. So a little of that extra money you’ve been spending on central heating and phone bills could find its way back into your pocket this tax time.

It’s not quite a full stimulus package, but it might help pay for the 72 toilet rolls you stockpiled (if you’re one of those).

The 80 cents method – for when you hate receipts

For anyone who has always maintained a home office, the general rule of thumb has been to keep receipts of relevant costs like household power and internet, then only claim the portion of those expenses that relate to work.

Sound tedious? We agree.

It’s a method that calls for plenty of receipt filing and a few calculations, and it typically applies to people who run a business from home.

The good news is, if you’ve been working from home because of the Coronavirus pandemic, instead of sorting through boxes of receipts you can just claim a flat rate of 80 cents per hour for every hour worked from home. This is designed to cover all your costs from internet access through to stationery.

All you need to do is record the hours worked from home. So be sure to keep time sheets. You don’t even have to have a separate or dedicated area of your home set aside for working, such as a private study.

Under this method, if you worked, say, eight hours a day from home, five days a week, you may be able to claim a tax break of $32 per week. But you can only use the 80 cents per hour rule for the period between 1 March and 30 June.

52Cent – better than wrapping up

Or, you can choose another method – claiming 52 cents per hour worked from home for costs like heating, cooling, lighting, and depreciation of your furniture. Then on top of this, you can also claim a deduction for work-related phone, internet, and stationery plus depreciation in the value of your computer.

This option may give you a bigger deduction if, for example, you’re a big internet user.

But you will have to keep that big box of receipts.

To get the dime, you’ve got to do the time

One pitfall to be aware of is that in order to claim work from home costs, you need to be working. You can’t claim work from home costs if you were on leave or were stood down during the Coronavirus pandemic.

So, no funny business.

If you’ve been stood down for example, just checking the occasional email from the boss or staying in touch with your employer over the phone, doesn’t count as working from home.

If you’re not sure if you’re eligible to claim work from home costs, or to decide which method works for you – leave it to the experts. Talk to your tax agent or accountant or jump onto the tax office website for more details.

This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not tax or financial product advice.

Home renovations underway

Money Matters: 3 Tips in Financing Your Home’s Renovation – Our Guide

Working on a home renovation project can be a tricky matter, especially if you don’t know where to get the money to match the house improvements you’ll need. As a homeowner, it is vital to ensure that your financial choices work towards your benefit and not result in greater debt.

Making the right financial choices

Dealing with house renovations is a matter of understanding your finances and knowing your options in borrowing money from accredited lenders. If you’re planning a new house extension or saving up for some much-needed updates to your amenities, here are three tips to help finance your home improvement project:

1. Work out your current and future budget

A recurring mistake that homeowners make during their renovation project is that they don’t know how much it will cost them. Working out your budget should be the first item on your list so that you can track how near or far you are from your goal.

You should make a quote of all the materials, furniture, and appliances that you’ll need for your renovation project. Then, try to get different quotes on each product to make a lower and upper limit of your material expenses.

If you’re doing a small project that can fit in a room, the figures you’ll end up with will show a close estimate of how much you’ll spend. On the other hand, if you’re doing a large scale installation, you’ll also need to consider the corresponding labour fees in hiring contractors to perform the job. The longer the project is, the more costly your bill will be.

2. Renegotiate your mortgage payments

Once you have an estimated figure of your renovation cost, you can then plot how you’ll reach that target. There are many ways to save up for your house project. Sometimes, banks will allow you to negotiate with a more favourable rate if you have more than 20% equity since this will enable you to switch to another lender easily.

To successfully haggle with your current lender, you should do research on other competitors and note their respective rates. By presenting this information to your lender, you can have more room in demanding lower rates or extended payment dates.

3. Seek out a personal loan

Different lenders in the market offer varying limits and rates for personal loans. Unsecured loans can be more suited to finance your home renovation project if you’ll be borrowing something in between $5,000 and $30,000. Some lenders can also offer this amount for a loan term spanning over seven years.

If you’ll be dealing with a larger project, such as kitchen or bathroom upgrades, an increase in your existing home loan may be your best bet. These  borrowing methods have lower rates compared to unsecured loans but the loan term is longer. 

Conclusion

In planning a renovation project, you should always consider whether the updates will add value to your property. By doing the proper research and securing the right contractors in doing the job, you won’t just end up with a more enjoyable living space, but you’ll also be investing in your home’s resale value in the future.

At Brickhill, we provide the best credit and funding advice to homeowners who are in need of refinancing their home improvement projects. If you’re looking for debt consolidation on the  North Shore, get in touch with us today, and we’ll be happy to answer your questions!

Stamp duty reform, will it happen?

The conversation around stamp duty reform has gained momentum in recent weeks at both the state and federal level, with everyone from RBA Governor Phillip Lowe to Treasurer Josh Frydenberg to state politicians suggesting that land tax reform may have a role to play in Australia’s post-COVID economic recovery.

Reform could significantly aid homebuyers through reducing the amount of money they need to have saved up front, as they’re not able to borrow against stamp duty but instead must pay it in cash.

As reports continue to swirl that an overhaul to land tax may be imminent, Australian Broker unpacks what that change might look like. 

The current situation

While discussion around stamp duty reform swells and ebbs on a fairly regular basis, when it comes down to it, it’s widely viewed as “untouchable”– especially in Victoria where it makes up 40% of the state’s revenue, according to Damien Roylance, managing director of Melbourne-based Entourage.

“We’ve always talked about stamp duty reform, but the thing is the percentage of stamp duty hasn’t changed since the ‘70s when the median house prices were 30-odd thousand. It was never adjusted down as we moved into the 2000s and house prices obviously increased,” Roylance said.

Pre-COVID, it was projected that stamp duty would generate $9.5 billion in revenue for Victoria this year alone. 

However now, with the hope of reform feeling more like an actual possibility in recent weeks, buyer behaviour is being affected.

Roylance explained, “A lot of agents are screaming ‘Just make a decision on it!’ because if people think reform is coming, they’re worried they’re going to hold off buying. With a million dollar purchase, which is not uncommon these days, the stamp duty is $55,000. If people think change is coming, why would they buy now when they could save that much down the line?”

Possible approaches to the reform

Even with his pragmatic acknowledgement that a reduction in tax in one place almost surely equates to an increase in tax elsewhere, Roylance has considered several alternative structures for stamp duty which would take pressure off owner occupiers without depriving the state its revenue.  

“Paying stamp duty over a deferred period, say 10 or 20 years, would be a lot better for a lot of people from a cash flow point of view. Rather than paying $50,000 in one go, a homebuyer might instead pay $2,500 a year for 20 years,” he explained.

Roylance also outlined a credit system which would help address the way in which stamp duty sometimes discourages people from transacting more.

“Say you buy a home for $1m dollars, and you pay your $55,000 stamp duty. Then you upgrade to a home for $2m in the next few years, but you’re given a credit for the first move you already paid for,” he explained.

“The buying and selling of property is so expensive. If you’re able to have a credit system like this, young people moving up the property ladder can pay their stamp duty along the way. So when they buy their big home for $2m or $3m, they’ll have already paid a big chunk of that tax. 

“There’s a lot to flesh out there, obviously, but a credit system could help prevent people from having to pay it all again.”

While Roylance doesn’t necessarily feel stamp duty should be lowered or altered for investors, he does see significant room for improvement especially as it pertains to helping first home buyers into the market.

“The first home buyer stamp duty concession is pretty low, tiering between $600,000 and $750,000 in Victoria, but we have first home buyers buying for over a million. Times have changed; they’re now in their thirties, just got married and they’re not looking to buy a $600,000 apartment anymore,” he said.

What we’re most likely to see

While it’s interesting to model creative solutions which benefit both homebuyers and the government, tax reform is rarely radical.      

“Everyone expects the change to come in the form of a land tax increase,” said Roylance.

However, the managing director has also seriously considered the possibility that, despite the duty dominating the discussion of late, no change will be made at all. 

“Brokers aren’t seeing too many people drop off at the moment. Stock levels have been really down, so houses price haven’t really lowered. We’re seeing properties snatched up in days rather than weeks,” he said.

“If property prices are holding strong and people are still buying, do they need to do this? Obviously, reform is being considered as something to spark the economy and get things going again, but if it shows signs of life, why would they take away such a huge earner for the government?”

-By Madison Utely (AustralianBroker)

blue credit card in hand

Debt Consolidation: What Is It and What Can It Do for You

Living with debt is one of the more difficult things in the modern age. While most people try to actively avoid accumulating it, debt can be inevitable if you want to make a big purchase—a home loan, a car loan, or even a business loan.

No matter how savvy you are with your money management, it’s easy to accrue a lot of debt from numerous sources without meaning to. While you might be able to track the differing payment timetables and handle the numerous payment processes, it’s not ideal to do so for long. With time, you may get confused and miss out on a payment, eventually leading to even more accrued debt.

In the event that this happens, it’s easy to lose hope and simply take it as it goes—but it doesn’t have to be the case. You have numerous options to make your debt easier to manage, and one such way is through debt consolidation.

What Is Debt Consolidation?

Debt consolidation, as the name implies, involves the combining of numerous different consumer debts. These are, more often than not, composed of personal loans, credit cards, and store cards. Sometimes also car loans. Once combined, a different loan is taken out to pay for all of these debts and liabilities, which is usually done in an effort to obtain more favourable terms, both rates and time to repay the debt.

Why Should I Go For Debt Consolidation?

As great as debt consolidation is, it’s definitely not the be-all-end-all solution for your debt problems, but it can certainly help in some measure. To cement that point, here are a few advantages it offers:

Different Repayment Terms

As stated earlier, one of the chief reasons to undergo debt consolidation is to have better repayment terms for your loans. Consolidating your credit card debt and loans into a new loan can have you renegotiate for lower interest rates and may incur fewer fees. While your debt won’t be erased, you can lower the total amount you pay to clear your account off.

Simplify the Payment Process

Multiple sources of loans and debts require you to pay off multiple times in a month through different channels on different dates. Tracking all of your necessary monthly payments can get exhausting very quickly, which is where debt consolidation comes into play. Through consolidation, you will only have to focus on paying off once a month, thus reducing the chances of you forgetting what to pay and when.

The Bottom Line

While debt can be a struggle to deal with, you will always have options on how best to deal with it. The important thing is to make yourself more knowledgeable and taking the opportunities presented by finance brokers to handle your debt.

Are you looking for a debt consolidation service in North Sydney? At Brickhill Financial Solution, we provide a variety of services to help you manage your debts better. Get in touch with us now!

new home

5 Basic Home Loans Every New Homeowner Should Know About

Purchasing your first home can be exciting but will usually require that you take out a mortgage loan. In your lifetime, a mortgage loan can become your largest debt, so understanding the process is critical. 

If you’re looking to finance a home loan in North Sydney, or purchase a home or a investment property in the North Shore or other parts of Sydney here are the basic kinds of loans you’ll want to consider. 

1. Fixed-Rate Loan

What it is: one of the most straightforward home loans on the market, it offers the same interest rate for a fixed period within the timeframe of your proposed loan. For example, you may have a fixed rate of 3.6% over 5 years. After this period, the mortgage will revert to standard variable rate at the discretion of your lender. 

When you should use it: this home loan is best for budgeting, as you can prepare to pay the same amount every month or fortnight. If interest rates rise above your fixed rate, you will not be affected either. However, take note that these loans may not offer additional repayments or a redraw facility. Conversely, if rates were to drop, you would still have the sae fixed rate.

2. Variable-Rate Loan

What it is: as the Reserve Bank of Australia (RBA) alters its official cash rate, your interest rates with this type of loan may rise and fall along with the market. Variable-rate loans come in two types. 

  • Standard: these carry flexible features such as offsets, redraws, additional payments, and a split loan. They are usually come with an annual 
  • Basic: these come with cheaper rates and lower (or no) fees but without the flexibility that the standard variant offers. 

When you should use it: basic variable-rate loans are ideal for first-time buyers who are most interested in lower rates. If you have room for flexibility, you can also consider a standard variable-rate loan. 

3. Low-Doc Loan

What it is: low documentation loans have higher interest rates than normal and policies can vary from lender to lender. They don’t, however, require borrowers to submit any proof of income. If you’re in need of advice from a mortgage broker in North Sydney, don’t hesitate to give us a call.

When you should use it: these loans are ideal for self-employed borrowers who may have trouble proving their income and assets with set documentation in a timely manner. 

4. Honeymoon-Rate Loan

What it is: known as an introductory rate, the honeymoon-rate loan is available to first-time borrowers with a reduction off the standard variable rate for a certain period of time. Honeymoon rates can either be variably discounted or at a fixed discounted rate. 

When you should use it: a honeymoon-rate loan can help secure your financial capabilities during the early stages of homeownership. 

5. Construction Loan

What it is: this is a progressive loan that is drawn in stages. Lenders may give portions of your loan amount progressively. Here’s what you can expect from a construction loan.

  • Stage 1: this will cover the building of the base of your home, which includes the foundation, ground levelling, and plumbing. It may take up 10% of your contract over the span of about 2 weeks. 
  • Stage 2: 15% of your contract will cover the framing of your property and will take up to a month.
  • Stage 3: this is the bulk of your contract at 35% and will be used to build external walls, doors, and insulation. This takes up to a month to complete.
  • Stage 4: this part of the loan goes towards fixtures and fittings such as shelves, cabinets, internal doors, and tiles. This takes up about 20% of your contract and also covers plumbing and electrical finished. 
  • Stage 5: the remaining 15% of your contract, this stage of the loan covers finishing touches such as painting and polishing. 

When you should use it: the construction loan is perfect for homeowners looking to build from the ground-up. 

Conclusion

When paying off your mortgage, it’s important to structure a financing program that works best for you and your family. 

With us at Brick Hill Financial Solutions, arranging to fund your home is our job. For home loans in North Sydney and surrounding suburbs, give us a call!

The Impact of COVID-19 on the Property Market and Lending Environment

Whether you’re a first home buyer, or planning to upsize, downsize or invest, the COVID-19
coronavirus will have caused some uncertainty over your plans.

The Lending Environment

Whilst there has been some change in the way we inspect and purchase properties on-line,
banks have also amended their lending criteria and are focussing on the stability of a
borrower’s income, choosing to shy away from those employed in ‘high-risk’ industries. Some lenders have also dropped the maximum loan-to-value ratio (LVR) they will consider.


In addition to specific industries perceived to have higher risk (hospitality, retail, tourism) the
lenders are reviewing the type of income borrowers are earning and are far less likely to rely
on unstable income such as temporary, casual, overtime, bonuses or season income.


For self-employed borrowers much more detail is being requested and up to date
management accounts and BAS statements are required and the financial results of the 2019
tax year are taking a secondary position.


In some cases, borrowers whose loans were pre-approved before COVID-19 are being
requested to produce more recent payslips to demonstrate that their income has not been
affected.


For investors, rental income may be discounted if a property lacks a paying tenant.

So, what should buyers do?

Whilst there has been some reduction in prices and the number of properties being offered for
sale, there has not as yet been a dramatic change in the property market, due in part to:

  • The RBA cutting the cash rate twice in March 2020
  • Banks coming up with policies that am to assist with loan payment, including
    mortgage relief, – ‘freezing’ repayments for 6 months, offering fixed rate home loans,
    refinancing, and extending the mortgage term without penalty.
  • Investors opting to invest into the property market, which is currently seen as less
    volatile than the share market.
  • Government financial stimulus packages, which is allowing people to access some
    funds to tie them over in the short term.


Given the current low interest rate environment, and provided your income and job remains
stable, now may be a good time for refinancing or to make a purchase. Rates are at all-time
lows (particularly fixed rates).


Basically, if your income is in any way uncertain you should consider putting your property
buying aspirations on hold, or at the very least talk to your employer before investing.
On the other hand, if your income is assured then the next few months are likely to be one of
the best times to buy.