Thinking of Renovations

It’s been more than 25 years since Tom Hanks and Shelley Long showed us the calamitous side of renovating gone wrong in the comedy movie, The Money Pit, but the warnings ring loud and clear today.

With a sluggish property market, many homeowners are opting to renovate rather than relocate. Before you hit the hardware store and strap on the tool belt, here are my top tips to renovate your way to reward, instead of ruin.

1. Renovate or rejuvenate?

You don’t have to tear down walls or add a new storey to add value to your home. If you need extra space, you will probably have to renovate.

But there are plenty of ways to add value without making drastic structural changes: paint a new colour scheme inside and out; clean up and replant an overgrown garden; replace floor coverings or sand and revarnish existing timber floors; spruce up old windows with some modern shutters; or create some extra storage with built-in wardrobes.

2. Know what you can and can’t do yourself.

Not the DIY type? Face defeat early and call in experts to tackle the job. It may be difficult to part with money for something you feel you can do yourself, but if you botch the job, you will pay more in the long run. There are some jobs even skilled DIYers should not tackle for safety reasons, including electrical work, asbestos removal, and roofing.

3. Target your market.

If you are buying a property specifically to renovate for profit or tarting up your existing home for sale, consider the likely buyers for the neighbourhood. Remember you’re not renovating for your own lifestyle and tastes, so keep colour palettes neutral and avoid fittings that are overly artistic or unusual.

4. Take a peek at the competition.

Visit some of the fully renovated houses in your area that are up for sale to see what the market is prepared to pay and what buyers are looking for. It will give you a good handle on which features help differentiate one property over another and current values.

5. Don’t overcapitalise.

It remains the golden rule of renovating and is particularly poignant in the current market. Cost every aspect of your project and be realistic about the value it will add, especially if you are planning on staying in the property for only a couple of years or less.

If you plan on living there for more than five years, you have a little more leeway to recoup the value of your renovation at sale time.

However, it’s still wise to keep at least a 20% margin between what you spend and the current value in case you have to sell sooner than expected.

6. Don’t start what you can’t finish.

If you don’t have the money to undertake your project, don’t start. Some renovators kick off their project with an aim to saving up along the way. If your savings fall short you may be left with an unsightly, unfinished project, which will curtail your capacity to sell if needed.

Chances are you will also lose interest in taking on future projects, so make sure you have all the money you need upfront.

Property Valuations and COVID-19

The impacts from COVID-19 are yet to be seen in a property market context as transactions generally follow a due diligence process and are less liquid than the public market of the stock exchange. In terms of valuations, we are seeing valuers starting to utilise disclaimers highlighting ‘valuation uncertainty’. Valuers draw upon previous transactions to form opinions of value and these have now occurred in a different market environment to what we are currently experiencing. 

Whilst the consequences of travel bans, isolation, consumer uncertainty, supply chain disruption, stock disruption and job loss are still evolving, we set out below our considerations on the impact the pandemic may have on the property market and valuations throughout 2020.

 What happens to value?

To appreciate what may happen to value, it is worth remembering the definition of value which contemplates a willing buyer and a willing seller and what they are prepared to transact the property for, at the effective date.

What these parties will consider in their disposal / purchase decisions are the various assumptions that feed into valuation analysis, of importance:

  •  Rental and cashflow
  •  Yields and discount rates
  •  Vacancy and prolonged impacts

What happens to rental income?

The government’s reaction to COVID-19 pandemic has been to enforce strict social distancing policies forcing businesses to close, with some property owners being faced with the inability for tenants to continue to pay rent in some cases. This has further been supported by the government encouraging landlords and tenants to ‘talk to each other’ about rent relief. While rent payment is the tenant’s legal obligation, loss of rent and tenant fall over can be anticipated, noting some retailers have publicly announced they will not be paying rent1 .

We suggest an analysis of tenants can be undertaken to establish a revised cashflow for a property, taking into consideration history of tenant arrears, business models of tenants in terms of whether they provide discretionary or essential services, their trading performance since the impact of COVID-19 and their share price, if listed. In terms of retail, turnover rents are likely to dissipate except for the likes of supermarkets. Analysts may consider factoring in periods of loss of income, abatements, deferred rents, increased incentives, tenant fall over and extended periods of vacancy. Vacancy levels of 10-20% could be witnessed as small businesses and retailers already under pressure prior to the impact of COVID-19 fold.

What will cap rates do?

A question a valuer always gets asked! With the above cashflow implications in mind, and having performed some analysis and discussed with clients, worldwide colleagues and auditors, we consider property will be affected on a case by case basis. Prime assets are likely to remain sought after given their more secure cashflows with stronger tenant covenants to banks, government tenants and large corporates with locked in leases and minimal near term capex requirements.

Secondary grade assets of late have had almost divergent yields to prime stock. However if an asset’s tenancy profile is deemed to present cashflow and / or vacancy risk, a softening of cap rates is likely to occur. Similarly this will occur for retail assets, which had already started to be seen, prior to any influence from COVID-19. This will likely particularly apply to those heavily exposed to tenants aimed at discretionary spending. The reletting and vacancy risk will be certainly priced into an investment decision.

What we can expect to see is a greater disparity of yields between prime and secondary stock. This was evident 5-10 years ago where there was 200-300bp difference in yields. That gap narrowed in 2018/19 and there was almost no difference between asset classes due to high demand and the lack of available stock with investors chasing return.

Tourism and education assets are likely to have already experienced the immediate impacts of travel bans and will face a long recovery period. These assets may initially be viewed by some as having more of a cashflow crisis than a significant change in cap rates, however the uncertainty of the duration of the crisis will likely mean risk is priced in and inevitably a rerating of these assets will occur.

Land and development assets are likely to exhibit the most significant value volatility. Unemployment levels and lack of consumer confidence may see these assets to be the most dramatically discounted, akin to the post GFC environment.

Volatility in commercial property markets tends to be less observed as owners (other than distressed owners) tend to hold and liquidity naturally reduces during recessionary times.

Owners of prime assets, especially those in Australia, have modest gearing and so transactions that do occur will tend to relate to poorer quality assets and this can further skew data available within poor market conditions. It is likely that banks will be more careful about their lending decisions, which means cashed up purchasers are more likely to be present in the market who will demand a higher return on equity.

Time will tell whether there are a number of ‘forced sales’, noting that if this type of transaction regularly occurs, these transactions can tend to become the market expectation for pricing.

What will the long term impacts be?

Following the GFC, a flight to quality was observed in the demand for property assets. The COVID-19 crisis could result in structural changes to how the real estate market evaluates tenants in terms of risk, noting that occupiers providing essential services diversify risk under these circumstances and tenants offering essential services may be considered to offer a robust covenant.

Assets with a diversified income, including government and essential services tenants, and a broader spread of tenant type are likely to be sought after. We may see the change of use of some more secondary assets to a higher and better use.

Other decisions around property may include sale and leaseback arrangements becoming more prevalent as businesses seek to improve cashflow, their balance sheet and reinvest capital in their businesses.

Assets with direct exposure to offshore visitors such as tourism will likely reveal, at least for the medium term, structural repricing. In terms of occupier demand, tenants may not necessarily demand lower rents, but will look to be more efficient with their space requirements. Tenants are likely to realize efficiencies in terms of space requirements following adapting to working from home and similar arrangements. A reduction of floor space may occur as tenants who have evolved to utilize digital technology over this hibernation period, look to reduce nonessential spaces that were previously utilised for group gatherings and functions. We may see renegotiating and restructuring of leases and an emphasis on a healthy and hygienic environment in the office sector.

In the industrial market, occupiers involved in key supply chain activity will be more highly sought after, whereas businesses reliant on offshore demand will be less sought after.

Retail is likely to face a challenging recovery period as confidence needs to rebuild amongst households. Job losses, job security and uncertainty may cause more people to save or pay down debt which will further increase the period of recovery. Some retailers may use the hibernation period as an opportunity to permanently shut down underperforming stores and restructure their operations following having to adapt to an online platform. It will be interesting to see how food and beverage retailers recover from social distancing and the impact their struggle has on retail assets as they have represented a large proportion of lettable area within centres.

Overall a challenging reletting market is likely to occur coupled with expectations of incentives. We may see new clauses drafted by the legal profession to cover similar events providing more flexibility for the tenants in times of significant uncertainty.

How are valuers going to approach COVID-19?

Valuers are required to report at a specific date and reflect market conditions at that time. Events such as COVID-19 create valuation uncertainty, because the only inputs and metrics available for the valuation are likely to relate to the market before the event occurred and the impact of the event on prices will not be known until the market has stabilized.

Currently, there is no way of confirming the movement through transaction data as yet and valuers will need to rely on all information available to them when they complete and submit their market value assessments. Valuers can reflect, for example, historical evidence that suggests how property markets might move under differing economic, monetary and fiscal conditions.

Expect valuers completing valuations during the COVID-19 crisis to:

  • caveat their advice, referencing some of the issues outlined above
  • reference the high valuation uncertainty, and that there is more downside than upside value estimation error
  • reserve the right to reconsider their advice as events unfold and if these events are likely to have a material impact on value. This might extend to valuers recommending that they review their advice prior to the next financial reporting date and as market evidence occurs. More regular valuation reporting will likely be needed to keep advice up to date.

Valuers will have to estimate the appropriate discount and/or capitalisation rate to apply for their analysis. When markets are stressed, valuers will need to consider issues such as the need for liquidity premiums and whether it is appropriate to consider additional risk premiums to account for the greater degree of uncertainty in estimating cash flows. Care will need to be taken in deciding on the appropriate level of additional risk premia and significant judgement will be required. We would recommend that the reasoning for any additional premia is documented within valuation reports to provide transparency.

The Australian Property Institute suggested that its members utilise the following disclaimer:

The outbreak of the Novel Coronavirus (COVID-19) was declared as a ‘Global Pandemic’ by the World Health Organisation on 11 March 2020. We have seen global financial markets and travel restrictions and recommendations being implemented by many countries, including Australia. The real estate market is being impacted by the uncertainty that the COVID-19 outbreak has caused. Market conditions are changing daily at present.

As at the date of valuation we consider that there is a significant market uncertainty. This valuation is current at the date of valuation only. The value assessed herein may change significantly and unexpectedly over a relatively short period of time (including as a result of factors that the Valuer could not reasonably have been aware of as at the date of valuation). We do not accept responsibility or liability for any losses arising from such subsequent changes in value. Given the valuation uncertainty noted, we recommend that the user(s) of this report review this valuation periodically.

Meanwhile, The Royal Institute of Chartered Surveyors (RICS), which provides global guidance to valuers, suggests on their website (as at 29 March 2020) that its members consider advising their clients that they:

“… attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement.”; and

report their valuations “on the basis of ‘material valuation uncertainty’ as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty – and a higher degree of caution – should be attached to [our] valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuation of [this property] under frequent review.”

Notwithstanding the above, valuers will need to advance their thinking on how they structure their valuation reports to ensure they communicate their opinions and assumptions in a way that assists their clients with evaluating the valuation advice and presenting it in a meaningful way to their stakeholders.

In Conclusion

Considering the likely impacts on the major assumptions of value, we suggest a softening of capitalisation rates is likely to occur across most asset classes.

We see ‘value add’ properties climbing higher up the risk curve with an emphasis placed on well leased property to secure tenants with fixed growth, such as prime assets, where capital will continue to seek diverse and secure cashflows. Australia has traditionally been favored for its transparent market and strong governance and will likely continue to attract offshore capital.

A short term effect on cashflow from discretionary type tenants and those businesses which can be called non-essential services may eventuate. Pricing in for risk of vacancy and letting up allowances is likely to occur.

The recovery time for tourism and retail assets will depend on the duration of the crisis. The longer it goes on, the longer the recovery time will likely be, as unemployment and uncertainty perpetuate and households move to saving and paying down debt.

Valuers will include new disclaimers and utilise evidence available to them at the time and should ensure to articulate fully their assumptions and opinions. Valuers should be open to having transparent dialogues with clients and their auditors as this crisis evolves. Their advice may require more regular updating, noting as more transactions occur throughout the crisis these will reveal how the market is responding.

-PWC

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.

Real estate 101 (A cheat sheet)

If buying or selling for the first time, you might be bamboozled by all the real estate jargon bandied about. Here is our A-Z guide to what it all means.

Accrued depreciation

The total depreciation of a property over a period of time. Usually the difference between the replacement value at purchase and its present appraised value.

Appreciation

An increase in a property’s value over time. Property can appreciate in value due to increased demand, inflation and/or interest rate changes.

Authority to sell

The official contract a vendor signs to give an agent permission to sell a property on their behalf. The contract also usually details the agent’s fees and any advertising costs.

Breach of contract

When a seller or buyer dishonours one of more of the conditions in the sale contract, such as a vendor failing to make agreed repairs or a buyer changing their mind after the cooling-off period.

Bridging finance

A short-term loan to help cover costs between selling one property and buying another.

Buyer’s advocate

Also known as a buyer’s agent, this is a licensed professional who negotiates the sale on a buyer’s behalf. Think of it as the opposite of a regular real estate agent, who works on behalf of the seller. A buyer’s advocate can also help source property for you.

Caveat

A legal notice that someone (the caveator) has claimed a unregistered interest in a property.

Certificate of title

The legal document certifying property ownership. If you have a mortgage, your lender will hold the certificate until your loan is repaid.

Conveyancing

The area of law that deals with the transfer of property from one party to another. Your conveyancer represents your interests as a buyer or seller. They will prepare the contract of sale, research the property and its certificate of title, calculate any owed rates and manage settlement with the lender.

Cooling-off period

A period in which a buyer can legally withdraw from a property sale. Different states and territories have different cooling off periods and a termination penalty may still apply if you withdraw. There is usually no cooling-off period when you buy at auction.

Covenant

A condition placed on the use of a property, such as a height restriction or a stipulation about building materials.

Depreciation

The wear and tear on a building or fixtures, which you can claim on your income tax if your property is for investment and built after July 1985. You will need a quantity surveyor to prepare a schedule of depreciation on your property to calculate how much you can claim.

Easement

A section of land registered on a property title that someone is entitled to use even though they are not the owner, e.g. a shared driveway.

Encroachment

When a neighbour violates the rights of an adjoining property owner by building something on their land.

Encumbrance

A restriction or notice placed on land, which is usually listed on the certificate of title. A covenant is an example of an encumbrance, as is an easement (see above). Governments can also register an encumbrance on a property to let buyers know of a prior land use.

Equity

The value built up in a property minus any money owed.

Lenders’ Mortgage Insurance (LMI)

The cost of securing a loan when you need to borrow more than 80 per cent of a property’s value. LMI covers the lender’s risk should the property value fall, even though the insurance is paid by the borrower.

Negative gearing

Borrowing money to buy an investment property and the cost of owning that property (interest repayments, rates, repairs etc.) is more than the income received from rent. In other words, you make a loss, which can be claimed against your income tax.

Off the plan

Buying a dwelling, usually an apartment, before it is built.

Strata title

Ownership of an individual unit in an apartment or townhouse complex, which also has shared areas, such as a driveway, garden or swimming pool. These shared areas are owned and maintained collectively with the other unit owners.

Tenants in common

When two or more people own a property and each person’s ownership interest is specified as a certain percentage.

Title search

A title search researches the historical and current ownership and usage of a property.

Torrens title

When a purchaser owns both the house and the land on which it is built. This is the most traditional form of home ownership in Australia.

Zoning

The usage category applied to a parcel of land by a local council or other government authority. Zoning will determine, for example, if you can build units or operate a business on a property.

-Australian Finance Group

Refinancing: Should you or should you not?

Banks are currently offering attractive rates to entice new customers. Is it time to change lenders?

Refinancing is the process of replacing an existing mortgage with a new loan. Typically, people refinance their mortgage in order to reduce their monthly payments, lower their interest rate, or change their loan program from an adjustable rate mortgage to a fixed-rate mortgage. Additionally, some people need access to cash in order to fund home renovation projects or paying off various debts and will leverage the equity in their house to obtain a cash-out refinance.

Regardless of your goal, the actual process of refinancing works much in the same way as when you applied for your first mortgage: you’ll need to take the time to research your loan options, collect the right financial documents and submit a mortgage refinancing application before you can be approved.

Benefits of a Home Refinance

There are several reasons to refinance your mortgage. Some of the potential advantages include:

Lowering your monthly payment. With a lower monthly payment, you are free to put the savings toward other debts and other expenditures or apply that savings towards your monthly mortgage payment and pay off your loan sooner.

Reducing the length of your loan. For homeowners who took out a mortgage in the early stages of their career, a 30-year mortgage may have made the most financial sense. But for those who want to pay off their mortgage sooner, reducing the loan term can be an attractive option.

Switching from a variable rate mortgage to a fixed-rate loan. When you have a variable-rate mortgage, your payment can move up or down as interest rates change. Switching to a fixed-rate loan with reliable and stable monthly payments can give homeowners the security of knowing that their payment will never change for the term selected.

Using the equity in your home to take out cash. Depending upon the value of your house you may have enough equity to take out cash. This money can be used to finance home improvements, pay off debts or to fund large purchases.

Risks of Loan Refinancing

Depending on your goals and financial situation, refinancing may not always be your best option. While refinancing offers a lot of benefits, you’ll also have to weigh the risks.

For example, refinancing your mortgage usually restarts the amortisation process. So, if you are five years into paying on a 30-year loan and you decide to take out a new 30-year mortgage, you’ll be making mortgage payments for 35 years. For some homeowners this is a good plan, but if you’re already, say, 10 or 20 years into your mortgage then the lifetime interest may not be worth the extra costs. In these instances, homeowners may re-finance into a shorter-term loan that won’t extend the time they will make mortgage payments, such as a 20- or 15-year mortgage.

Generally, refinancing is a good option if the new interest rate is lower than the interest rate on your current mortgage, and the total savings amount outweighs the cost to refinance.

PennymacUSA

Are auction clearance rates likely to fall if more properties come onto the market?

There’s been a lot of conjecture recently about whether auction clearance rates are an accurate indicator of near-term upward momentum in dwelling prices. Some market watchers are hesitant to call a trend, citing “low” auction volumes. The theory goes that as auction volumes increase, clearance rates might dip lower (as supply outstrips demand).

“We think this view is completely misplaced” says Fabo.

“Auction volumes are typically “low” in the winter months but it’s also a factor that volumes only seem low when compared with a period of very strong established housing turn over between 2013 and 2017”.

History shows auction volumes lag clearance rates, suggesting that we will see a pick-up in auction volumes in the coming months.

History also shows that it’s rarely the case that an increase in auction volumes is commensurate with a dip in house prices.

“Rising dwelling prices are likely to encourage more buyers into the market, as they become more confident that they cannot benefit from waiting for prices to fall further. It’s our sense that will be the case this time around”.

  • Source Macquarie Bank

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
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.
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)

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.

The Upside of Being Pre-Approved

If you’re house hunting, chances are you’ve got every new property listing alert set up to reach your inbox the second it’s listed. You’re probably chasing agents and spending your weekends running from opening to opening. It’s an exciting experience but can be daunting. After all, buying a house is one of the largest investments you may ever make.

Keeping a level head and being realistic about what you can afford will certainly help guide the houses you should be inspecting. That’s where finding out how much you can borrow before you step foot into that dream home will ensure you’re on the right path from the start.

As well as managing your own expectations, in the current climate, securing finance for a home loan is much more difficult than it has been in the past. It requires a lot of thought in advance and is not as simple as just filling in an application form.

Pre-approvals don’t lock you into one product, they just give you comfort around your borrowing capacity. https://brickhill.com.au/borrowing-power-calculator/  Lenders now use benchmarks to safeguard against the future, so just because you can afford to make the repayment for a certain loan amount now, that doesn’t mean the bank will lend you that much. The amount you are pre-approved for is likely to be a reasonable amount that is reflective of your current and future income and expenses.

Pre-approvals are typically valid for 90 days, so you have plenty of time to house hunt. Even then at least one extension can be arranged in many circumstances. Armed with your pre-approval, you know what your price range is.

Having a pre-approval in place usually means that you’ll have better negotiating power when looking to purchase. Sellers often take pre-approved buyers a bit more seriously which may give you priority in the buying process. Further, you’ll have some bargaining power as you can offer a shorter settlement knowing your loan approval is already in place.

As a word of caution, if your circumstances have changed or likely to change, such as changing jobs, having children, spending your deposit, you should discuss with your broker or lender whether your pre-approval is still in place before you commit to a purchase. As the unconditional approval will require a valuation of the property, it is also preferable to have this completed before you sign the contract or at least have a “subject to finance” clause included.