Important Coronavirus Update for Renters

If you are a renter, you may have heard that your landlord can skip their home loan repayments.

Unfortunately, this is not accurate.

Anyone with a mortgage, if they are experiencing financial hardship, can only delay their home loan repayments, but they still have to pay them in full.

In fact, when a property owner delays their home loan repayments, they end up paying more. This is because the lender still charges the full interest and fees over the delayed period, then they charge interest on top of this accrued interest.

The equivalent would be a tenant delaying paying their rent for a few months, but then having to catch up all the missed payments plus compounding interest on the delayed amount, plus pay the new rent at the same time.

As much as we would like it to be true, lenders always still charge interest, and the longer a loan is delayed the more it costs.

This misunderstanding is causing some renters to feel they are unfairly paying rent when their landlord is getting some kind of holiday from their home loan, but this is definitely not the case.

Warren Buffett’s Advice on How Investors Should Respond to a Super-Contagious Disease

If there’s one person investors should listen to during a market correction, it’s Warren Buffett. At age 89, Buffett has lived through quite a few downturns. And he’s made out pretty well: His net worth is in the ballpark of $85 billion. 

Through the years, he has given a lot of great advice in his annual letters to his Berkshire Hathaway shareholders. He has even written about a specific approach for how investors should handle a “super-contagious” disease.

Buffett has been interviewed in recent days about his thoughts about what investors should do in response to the global coronavirus outbreak. His take was that it wasn’t a good idea to buy or sell stocks based on daily headlines. But that’s not the advice I’m referring to.

In early 1987, Buffett wrote to Berkshire Hathaway shareholders about what to do in the face of an epidemic. This was, of course, way before the outbreak of the novel coronavirus that’s causing worldwide concerns today. It was even before the avian flu, Ebola, SARS, or MERS made the news. 

But more than 30 years ago, Buffett addressed two “super-contagious diseases.” He told readers that there are “occasional outbreaks” of these diseases and that they will “forever occur.” Buffett admitted, though, that “the timing of these epidemics will be unpredictable,” cautioning to “never try to anticipate the arrival or departure of either disease.”

What were these two diseases? Fear and greed among investors. Buffett stated that his goal to deal with these “epidemics” was “to be fearful when others are greedy and to be greedy only when others are fearful.” 

Time to be greedy

There’s no question that plenty of investors are fearful right now. The so-called fear index — the CBOE Volatility Index (VIX) — has skyrocketed over the past couple of weeks. When the VIX goes up a lot, it’s a clear sign that many investors are scared. If you think that Warren Buffett was right in 1987, though, that means it’s time to be greedy. 

Gordon Gekko, the fictional character in the 1987 movie Wall Street played by actor Michael Douglas, famously stated that “greed is good.” The line has been slammed through the years as being representative of an unhealthy fixation on making money.

But I think that Buffett’s definition of greed is different than Gordon Gekko’s. When Buffett wrote about being greedy when others are fearful, he was referring to buying stocks at an opportunistic time. A time like now.

The reality is that the market correction has left quite a few stocks valued at very attractive levels.

When Buffett wrote to Berkshire shareholders in 1987, the stock market was soaring. Instead of fear, there was euphoria. He somewhat sarcastically noted, “What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves.”

Now, though, the opposite scenario is taking place for stocks. To paraphrase Buffett, the  share price has become gloriously uncoupled from the great performance of the business itself. There are other stocks for which this is true as well. Buy them. Be greedy in the Warren Buffett way.

What Buffett doesn’t know

There’s one other thing Buffett wrote in 1987 that I think is especially relevant right now. He stated, “We have no idea — and never have had — whether the market is going to go up, down, or sideways in the near- or intermediate-term future.” Amen to that.

Keep that in mind as you contemplate whether you should buy now or wait to see if the stock market will fall even more before scooping up shares. Buffett doesn’t know what’s going to happen next with the stock market, and neither do you. 

What we can all know, though, is that there’s a lot of fear right now. And it’s causing stocks with tremendous growth prospects to be priced more attractively than they’ve been in quite a while. Don’t let this “epidemic” be wasted.

By – Keith Speights

Reserve Bank slashes interest rates to new low of 0.5pc to counter coronavirus hit

The Reserve Bank has slashed interest rates to a record low of just 0.5 per cent as it seeks to contain the economic fallout from the escalating coronavirus crisis.

Key points:

  • The Reserve Bank has slashed interest rates from 0.75 per cent to a fresh record low of 0.5 per cent
  • The RBA has now cut interest rates four times within the past year
  • Coronavirus could wipe anywhere from 0.3 to 7.9 per cent from Australian GDP depending on the outbreak’s severity, analysts warn

Interest rates fell three times last year as the RBA tried to kick-start an already sluggish Australian economy that was in the midst of a housing downturn, with residential construction tumbling after a record building boom.

Following a summer of bushfires, which Treasury expects to knock around 0.2 percentage points from Australia’s economic growth, coronavirus threatens to cause even greater economic fallout.

The Organisation for Economic Cooperation and Development (OECD) has predicted that even a “mild and contained” outbreak of coronavirus would wipe 0.5 percentage points from Australia’s economic growth this year.

However, new research from ANU economics professor and former Reserve Bank board member Warwick McKibbin and PhD student Roshen Fernando warned that GDP loss from the most severe outbreak could be as much as 7.9 per cent, with even a less severe global pandemic possibly taking 2 percentage points off Australian growth in 2020.

Should the serious outbreaks be largely limited to China, the ANU economists estimate a 0.3 to 0.7 per cent loss to GDP — although these scenarios look increasingly optimistic, given the recent global spread of the virus.

Given the potential severity of the economic fallout, the Reserve Bank elected not to wait longer to see how the coronavirus would play out, but to cut interest rates by 25 basis points to 0.5 per cent to boost the economy.

Ahead of the rates decision, Prime Minister Scott Morrison urged Australia’s major banks to pass on any cut in full to support the economy.

“There is no doubt that if the bank were to take a decision today on cash rates that the Government would absolutely expect the four big banks to come to the table and to do their bit in supporting Australians as we go through the impact of the coronavirus,” he said.

The Australian dollar sank around 0.4 per cent after Mr Morrison’s comments, although the Reserve Bank’s move to cut interest rates was already widely anticipated by financial markets, which had already priced in a 100 per cent chance of a rate cut.

How to cure the Christmas Debt Hangover

The festive season might be a distant memory but many of us will still be paying for it well into the future. According to the Australian Securities and Investment Commission (ASIC), more than a third of us put our Christmas gifts on plastic.

The Christmas splurge adds to our mounting household debt, already among the world’s highest, with $30 million owed on credit cards.

Our penchant for plastic even has the banks taking steps to help curb our habit. In 2017 the Australian Bankers Association proposed a new code of conduct to ban unsolicited credit card limit increases, make it easier for consumers to cancel cards, and improve transparency on interest-free periods.

The reality, however, is the buck stops with each of us when it comes to personal debt. Here are some tips to get on top of credit card debt before it gets on top of you.

Take stock

The first step to crunching debt is knowing how much you owe. It can be easy to lose track of credit card debt, especially if you have more than one card. Take note of what you owe, and the interest rate, on each card.

Now take a look at the bottom of your latest statement where it spells out how long it will take to pay off your credit card and how much interest you will fork out in that time if you just pay the minimum due each month. Warning – the figures might alarm you.

If you just make the minimum monthly payment on a $5,000 balance at 15 per cent (starting at $102 per month and decreasing over time, with an absolute minimum payment of $20), it will take you almost 24 years to rid yourself of the debt and you will end up paying more than $12,000 with interest! Notch the repayments up to $246 per month until the balance is cleared, and you knock the debt over in two years and save more than $6,000 in interest.

The key take-out here is always repay more than the minimum due.

Demolish your debt

Make a plan to crunch your card debt. You may consider putting all your spare cash onto the card with the highest interest rate and pay it off first but remember to pay the minimum due on your other cards. You could also investigate consolidating all your plastic debt to one card with a low rate. Just make sure you take full advantage of any introductory low-rate window by repaying more than the minimum due each month.

Cancel cards as you transfer balances from them, or once paid off, so you are not tempted to rack up debt on them again.

If your cards are getting the better of you, consider speaking with a financial adviser or visit ASIC’s MoneySmart website for further information.

Track your spending

Run through at least six months of card statements to get a handle on your plastic purchases and look for ways to cut discretionary spending, such as entertainment, clothes and holidays. Create a budget and sink leftover funds into your credit card balance to pay it off sooner.

Purge the plastic

Exchange your credit card for a debit card so you can only spend what you have in your savings account. You will avoid deepening your debt and hopefully develop better shopping habits.

Choose the right card

Think about avoiding cards offering rewards such as frequent flyer points as they usually attract a higher rate and require years of high use to accrue decent rewards. It may make more sense to opt instead for a low-rate card with an interest-free period, and make the most of it by paying off any new debt before you accrue interest charges.

Set aside the Christmas savings

Start saving now for next Christmas. If you put aside $10 a week from April 1 until December 1, you will squirrel away $340, enough to cover a few Secret Santas. Add to your stash by dropping your gold coins into a jar at the end of each work week. You won’t miss them, and your little pot of gold will lighten your wallet.

Any small steps you take to save consistently throughout the year can make a big difference come spending season.

Australian Finance Group

RBA announces first cash rate of 2020

The Reserve Bank of Australia has announced its first cash rate decision of the new year.

The rate has been kept on hold at its current record low of 0.75%, where it has sat since October 2019. 

Following the release of the most recent data which showed a lowered unemployment rate and an uptick in the inflation rate, the outcome of today’s meeting was generally expected.

Buy Now Pay Later – the hidden danger potentially stopping you from owning your own home

The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but leading mortgage brokers are warning that with every sugar-high comes the risk of a corresponding low.

‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.

Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.

But as the sector’s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.

In theory, it makes sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability.

This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.

Utilising this payment method may potentially send the wrong message to a bank. If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.

It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.

RBA keeps interest rates on hold at 1pc

The Reserve Bank has taken a breather from cutting interest rates, leaving its official cash
rate at the historic low of 1 per cent.
Having cut rates at its June and July meetings, the market had largely anticipated the
However, it may just be a pause with expectations of a cut next month hovering around 50
per cent, and full 25 basis point move priced in by November.
RBA governor Philip Lowe again conceded he was disappointed with sluggish economic
growth and rising unemployment, which in turn was feeding into low income growth.
Dr Lowe said the unemployment rate is expected to decline over the next couple of years to
around 5 per cent, marginally down from its current rate of 5.2 per cent but well short the
RBA’s ambitious target of 4.5 per cent for full employment.
The RBA also has cut its GDP growth forecast to 2.5 per cent for this year, but still expects
the economy pick up a bit in 2020.
There was no direct reference to the recent deterioration of relations between the US and
China, apart from repeating the previous observation that the increased uncertainty generated
by the trade and technology disputes is affecting investment.

5 Myths (and 5 Truths) About Selling Your Home

1. I need to redo my kitchen and bathroom before selling

Truth: While kitchens and bathrooms can increase the value of a home, you won’t get a large return on investment if you do a major renovation just before selling.

Minor renovations, on the other hand, may help you sell your home for a higher price. New countertops or new appliances may be just the kind of bait you need to reel in a buyer. Check out comparable listings in your neighbourhood and see what work you need to do to compete in the market.

2. My home’s exterior isn’t as important as the interior

Truth: Home buyers often make snap judgments based simply on a home’s exterior, so curb appeal is very important.

“A lot of buyers search online or drive by properties before they even enlist my services,” says Bic De Caro, a real estate agent at Westgate Realty Group in Falls Church, Virginia. “If the yard is cluttered or the driveway is all broken up, there’s a chance they won’t ever enter the house — they’ll just keep driving.”

The good news is that it doesn’t cost a bundle to improve your home’s exterior. Start by cutting the grass, trimming the hedges and clearing away any clutter. Then, for less than $50, you could put up new house numbers, paint the front door, plant some flowers or install a new, more stylish porch light.

3. If my house is clean, I don’t need to stage it

Truth: Tidy is a good first step, but professional home stagers have raised the bar. Tossing dirty laundry in the closet and sweeping the front steps just aren’t enough anymore.

Stagers make homes appeal to a broad range of tastes. They can skilfully identify ways to highlight your home’s best features and compensate for its shortcomings. For example, they might recommend removing blinds from a window with a great view or replacing a double bed with a twin to make a bedroom look bigger.

Of course, you don’t have to hire a professional stager. But if you don’t, be ready to use some of their tactics to get your home ready for sale — especially if staging is a trend where you live. An un-staged house will pale when compared to others on the market.

4. Granite and stainless-steel appliances are old news

Truth: The majority of home shoppers still want granite counters and stainless-steel appliances. Quartz, marble and concrete counters also have wide appeal.

“Most shoppers just want to steer away from anything that looks dated,” says Dru Bloomfield, a real estate agent with Platinum Living Realty in Scottsdale, Arizona. “When you a design a space, you need to decide if you’re doing it for yourself or for resale potential.”

She suggests that if you’re not planning to move anytime soon, decorate how you’d like. But if you’re planning to put your home on the market within the next couple of years, stick to elements with mass appeal.

“I recently sold a house where the kitchen had been remodelled 12 years ago, and everybody thought it had just been done because the owners had chosen timeless elements: dark maple cabinets, granite counters and stainless-steel appliances.”

5. Home shoppers can ignore paint colours they don’t like

Truth: Moving is a lot of work, and while many home buyers realize they could take on the task of painting walls, they simply don’t want to.

That’s why one of the most important things you can do to update your home is apply a fresh coat of neutral paint. Neutral colours also help a property stand out in online photographs, which is where most potential buyers will get their first impression of your property.

Hiring a professional to paint the interior of a 2,000-square-foot house will cost about $3,000 to $6,000, depending on labour costs in your region. You could buy the paint and do the job yourself for $300 to $500. Either way, if a fresh coat of paint helps your home stand out in a crowded market, it’s probably a worthwhile investment.

  • Mary Boone (Zillow)

RBA keeps interest rates on hold at 1%

The Reserve Bank has taken a breather from cutting interest rates, leaving its official cash rate at the historic low of 1 per cent.

Having cut rates at its June and July meetings, the market had largely anticipated the decision.

However, it may just be a pause with expectations of a cut next month hovering around 50 per cent, and full 25 basis point move priced in by November.

Questions to consider before furnishing your investment property

Any savvy property investor with a strong, thought out strategy for wealth creation will tell you that maximising rental returns is essential to success. After all, you rely on the cash flow from your portfolio as an income stream to help pay your mortgage, maintain your investment or save money for a potential holiday.

One thing that proactive property investors will look at it is anything they can do to improve performance. Although manufacturing higher returns can be challenging, it’s certainly not impossible. 

One of the ways you might achieve additional monthly income is by either partially or fully furnishing your property.

Before you race off on a shopping spree though, you should consider a few essential questions. 

1. Is your property suited to the furnished rental market?

Location is key when it comes to determining if prospective tenants will pay more for furnished rental accommodation.

Fully furnished properties are best suited to certain demographics, namely short-term renters like tertiary students (especially from overseas), young adults flying the family coup and corporate tenants seeking alternatives for extended ‘out of town’ work commitments.

Of course, while your furnished property could attract a premium, depending on market, tenancies can potentially be sporadic and short term.

2. Does this approach suit your investment profile, objectives and plan?

If you acquire an inner suburban family home, with an underlying investment strategy geared toward set and forget long-term financial stability, furnishing it may cause more grief than good.

Providing furnishings and appliances means that you, the owner, assume responsibility for the cost of any repairs and replacements throughout the lease term.

Although there are a certain number of tax benefits that come with furnished rentals, including the capacity to claim additional depreciation.

If your property is in the right location and your investor profile lends itself to shorter term tenancies, then a fully furnished property may work for you.

This may potentially mean restricting your tenant demographic to attract potential greater short-term returns.

3. How will it impact your bottom line?

Initial costs for furnishing your investment could run quite high when you consider the price of appliances alone. High-end tenants expect modern, easy to maintain furnishings. Therefore, if you plan on asking top-tier prices, you may potentially have to provide quality finishes.

If something breaks down or is damaged beyond repair, you’ll most likely be liable for replacement costs.

As a property investor, it can be best for you to account for these costs when calculating cashflow.

4. Is there a happy medium?

While fully furnishing your rental property is a costly proposition, providing some well thought out extras can prove quite profitable.

Storage is always at the top of a tenant’s wish list, so if bedrooms are lacking in wardrobe space consider installing built-ins or providing freestanding robes. Is there enough storage space in kitchens and laundries? Or could you incorporate some shelving?   

Of course, some things are essential, such as ovens, however providing additional appliances in a sleek, contemporary home has become quite common in recent times. 

Tenants can be willing to pay more if they perceive a higher degree of comfort. Therefore, additional appliances like dishwashers, air conditioners and even built in microwaves and refrigerators can mean a little cream on top of your returns. 

Increasingly, a dishwasher and air-conditioning are seen as an expectation by many tenants and not having these amenities could prove to be a significant factor in the desirability and as a result the vacancy of your property.

How to go about it

If you decide to partially or fully furnish your rental property, here are some tips that could minimise any associated risks and maximise returns:

  • Be sensible with your budget and selections. Choose goods (and brands) that can be easily repaired.
  • Keep it neutral and use materials that are easy to clean.
  • If your property is geared toward corporate tenants, make sure your property manager markets accordingly to international clients.

If your property fits the fully furnished bill and the potential upside is higher than the downside of additional vacancies and maintenance costs, then this could be a great option.