Cash Rate Unchanged

/in , /by

Following its monthly board meeting, the Reserve Bank of Australia has today announced the official cash rate for November. 

The RBA has again chosen to keep the cash rate at 1.5 per cent, a move predicted by most industry experts.

None of the surveyed experts predicted a rate change, despite some economic indicators showing signs of a slowdown.

Chief economist at ABC Bullion Jordan Eliseo correctly predicted that these slowdowns would not be enough to influence the RBA to impose a rate cut.

Mr Eliseo said: “Despite concerns about a slowdown in retail sales growth over the last few months, the RBA still appears confident in the outlook for the Australian economy, though [its] rhetoric around tightening policy has changed appropriately.”

What are the costs of buying a home?

/in , /by

Unfortunately, there are a number of fees and costs associated with buying a home. Here is a list of the more usual ones. Not all of them will apply to all situations.

Stamp duty — This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state governments and also depend on the value of the property you buy. In NSW, stamp duty has been abolished for first home owners buying properties up to $650,000 and concessional rates applied to homes up to $800,000.

Legal and conveyancing fees — Generally around $1,000 – $1500, these fees cover all the legal requirements around your property purchase, including title searches.

Building inspection — This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report can cost up to $1,000, depending on the size of the property.

Pest inspection — Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Your Contract of Sale should be subject to the pest inspection, so if any unwanted crawlies are found you may have the option to withdraw from the purchase without any significant financial penalties. Allow up to $500 depending on the size of the property.

Lender costs — Some lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees.

Moving costs — Don’t forget to factor in the cost of a removalist if you plan on using one.

Connection costs – though not huge, the various utility connection fees can give your cashflow a temporary hit.

 

What to consider before renovating

/in , /by

The decision to renovate is a common sticking point for homeowners, who can spend hours weighing up the cost benefits.

Whether your motivation is to add value to your property or to add a touch of your personality to the home, renovations are expensive and debt often follows.

By working with a mortgage broker, you will be able to find solutions that benefit your long-term goal, rather than hindering plans.

While a broker can’t assist you with forecasts on future property values, he or she can help you reassess your current financial position, run through your plans and future payments, and decide if you can afford to take on more debt.

Laying the foundations

With a broker to assist, the next step is to investigate how much you need to borrow. Work out the specifics of your renovation, what the average cost to renovate is in your area and how much you are eligible to borrow. You should aim to spend no more than five per cent of your property’s value on renovation.

If renovations are likely to take over your living quarters you may need to also consider the additional cost of accommodation for the renovation period.

Get bang for your buck

Once you decide to renovate, if you are trying to add value to a house to resell, it is important to look at the rooms and areas that will add the most value. These are average renovation prices; however prices will fluctuate based on the city and suburb.

  • Kitchen

If you are a fan of the show The Block, you will know kitchens sell houses. According to realestate.com.au, the average renovation cost you should be spending on a kitchen is between $12,000 and $16,000.

  • Bathroom

The average bathroom space in Australia is six square metres. Look to spend around $9,000 – $12,000 as the bathroom is a highly trafficked space and needs to appeal to a wide variety of investors.

  • Other areas

An extra bedroom or a deck outside both add appeal and improve the standard of living for the homeowners.

Finishing touches

The final hurdle to look at is the council fee. The council can charge you up to $2,000 for an application fee, although prices can vary. After speaking to a broker and finalising the renovation, make sure you allow an extra 10 per cent in your funds, to cover any unexpected costs.

Deciding on the type of loan

If after the assessment and investigation you decide to renovate, there are three types of loans to consider when funding the cost. and renovate your house: a line of credit loan, a construction loan or increasing your existing home loan.

 

Is a Developer’s Incentive a Good Deal

/in , /by

Developers generally offer incentives because they need to get pre-sales in what could be a slow or oversupplied market, which in turn enables them to get a project up and running. Offering incentives is a marketing tactic.

The problem for buyers is that they could end up overpaying for a property and then having issues with obtaining finance because the valuation does not match the contract price.

The incentive is usually offered in lieu of reducing the purchase price. So, if the developer offers to pay stamp duty or give a $30,000 car, buyers might feel like they’re essentially paying $30,000 less for the property, but they’re paying the price on the contract which could be too much as the incentive is built into the price.

If you buy a property for $500,000 with a $30,000 incentive, you might think you’re paying $470,000, which is probably its true market value, but you’ve still contracted to buy the property for $500,000.

When the valuers acting for the lenders assess whether they will give you finance, they don’t take the incentive off the price – they look at the contracted price and the valuation must come up to par for a buyer to get finance. The problem is that since the property is probably worth less the valuation, it may not be high enough for the bank to lend to you.

Put simply, valuations can fail to stack up because the property is only worth the price minus the incentive, but you’ve contracted to pay the full price.

It should also be remembered that the incentive received is not transferable, so that if the buyer looks to on-sell in the short term, he risks suffering a capital loss until(if) the value increases above the contracted price.

Examining A Home Objectively: What Matters and What Doesn’t

/in /by

Everyone heads out to look at potential homes with a list of the things they want in a house, and a list of the things they definitely do not want.  In addition to that wish list, there are also some other things you will notice about the homes you visit that may strike you as potential problems.

When looking at homes, it is important to know what things are deal breakers and what things are minor issues that you can deal with easily.  Turning down a dream home because of something that is an easy fix seems like a silly thing to do, but it happens surprisingly frequently.

Cosmetic Issues

You walk into a home and it has terrible wallpaper or paint colours you wouldn’t dream of using, and it turns you off immediately.  While the gut reaction is normal, it is important to step back from that instinct and think about it objectively.  Painting is not particularly difficult or expensive, so try to imagine how the home would look with a different colour palette, one that is more your style.

The ability to recognise which issues are merely cosmetic and can be easily fixed is an important key to finding a house you will love.  Be prepared to visualize the home as you could make it with a few cosmetic changes.  It will open you up to the possibilities and might allow you to consider homes that aren’t perfect the way they stand now, but could be just right with a little elbow grease and paint.

Major Repairs

In some cases, the major repairs that a house needs might be obvious.  In other cases, they might only be unearthed during a home inspection.  Either way, you will need to give serious consideration to whether or not you are willing to deal with the problem.

If the home needs expensive repairs, you can either try to get the seller to do the repairs or accept that you will need to do them yourself.  In most cases, the seller will probably not be willing to take on major repair work, but might reduce the price accordingly.  Still, this might be a deal breaker if you are seeking a turnkey home.

Knowing the Difference

A home inspection is the best way to uncover all of the issues, both minor and major, that a house might have.  When you review the inspection, look for things that can be easily fixed as well as those that can’t.  The amount of work you want to do on your home will determine what problems you can personally live with.

Buying A Home That Can Grow with Your Family

/in , /by

If you are a first-time homeowner, or are purchasing a home after a major life change such as marriage or having children, what should you consider to be sure your new home can grow with your changing family?  The time and effort that go into purchasing and decorating a new home, not to mention finding it in the first place, means that you’ll want to ensure that your home will be right for you and your family for years to come.  So, what should you look for in your new home so that it will give you enjoyment and be functional both now and in the future?

Size

Though a cute two-bedroom home may be right for a newlywed couple, this type of space will likely soon be outgrown if there are any children in your future or if you and your spouse like to entertain.  You will also want to consider the number of bathrooms and the facilities in them.  Having only one toilet or shower can certainly put stress on a growing family.

Features

Special features of a home, such as an outdoor room, central air, and a large garden can make your home a more functional and enjoyable space, especially if you have or are considering starting a family in the near future.  You may also want to consider the age of the home you purchase and its features or appliances, as this may lead to future costs that may put stress on your financial situation at a time when one spouse may be at home caring for the children.

Location

Location is also an important consideration when choosing a home that can grow with your family.  Choosing a safe neighbourhood is always an important point when selecting a family home, but you will also want to consider the proximity of good schools, community centres, and shopping.  Also, facilities such as parks and libraries can make a neighbourhood truly a great place for families.  You may also want to consider the demographics of the area in which you are purchasing in order to be sure it is a match with your values.

As the old adage goes, home is where the heart is, and choosing a family home that is right for your family can really make all the difference in having a happy, fulfilling, and safe family life.

Overcapitalisation, Some Common Mistakes

/in , , /by

Simply put, over capitalisation is when the cost of a home improvement is more than the value it adds to your property.

While some renovations can increase the value of your home, there is an upper limit on what properties are worth at any given time. 

1 – Getting Emotionally Involved

Many homeowners undertake a home renovation for emotional reasons. Very often they fall ‘in love’ with the property. This emotional issue applies to both home owners and investors. 

2 – Not Doing Your Homework on Comparable Market Pricing

Unfortunately, it is important to recognise that most suburbs have a median sale price and an upper sale threshold specific to your suburb. Even different streets in your suburb have different price thresholds; that’s because your neighbour’s houses and the general streetscape have considerable influence on the value of homes in your street. Before renovating it is important to consider the housing styles, demographics of your suburb, and sale prices achieved of other homes in the area that have recently sold.

3 – Under-Estimating all of the Costs Involved in Building

This is one of the biggest mistakes that homeowners make when renovating their homes. Homeowners typically under-estimate the costs involved in building. Such as; demolition costs, professional fees, contingencies for variations, foundation changes due to soil conditions, fit-out and landscaping, kitchens and bathrooms, escalation of building costs and delay and acceleration costs to finish the project on time.

4 – Poor Selection of a Builder

Property owners who decide to employ a builder to undertake home extensions also encounter problems because they have not undertaken sufficient research on the experience of the builder, and their past record in undertaking renovations. Especially their “variation claims” history, often Builders locks unsuspecting homeowners into building contracts which cost homeowners thousands in variation costs. Another common mistake is to let the Builder provide the design, and therefore restrict the homeowner from getting competitive quotations upon the Builders design.

5 – Doing it DIY to Save Money

Some people also make the mistake of trying to undertake home renovations themselves. This can prove costly in time and is financially unwise because a poor standard of work will only devalue the property. Character homes in particular require a higher standard of renovation work and you may need to carefully select tradesmen with past experience in this area to ensure that the work is properly completed. Always seek competent, professional advice and trades people before undertaking a major renovation.

6 – Failing to Stick to a Budget

A common problem is that home renovators do not operate within a strict budget and are unable to complete planned renovations because of a lack of money. This mistake results in homeowners financially overextending themselves through a lack of financial planning. The “Catch 22” is that renovators often can’t then sell their ‘half completed’ renovation and end up in severe financial hardship.

7 – Poor Functional Design Layout and Design

A very common problem is that home renovators end up spending too much on a poor functional layout because of the limitations of the existing building. In many cases the homeowner would have been better off, to have demolished the existing house and start all over again. Another common problem is where the style of the renovation is inconsistent with the rest of the house; you’ll often see houses for sale with a modern extension that clash with the rest of the house which is still stuck in the 1970’s. These properties are “lemons” on the market and typically homeowners lose money on these renovations.

8 – Spending Money on the Wrong Things

If you are living in a $100,000 house you will not get a good return on an investment in a $35,000 bathroom. Swimming pools are a good example of additions to a property that often doesn’t add value. Many buyers do not want the work, expense, and potential for accidents that come with a pool. The general rule is that you should not spend more than 25 per cent of the value of your home on home improvement renovations.

9 – Underestimating the Disruption to Your Lifestyle

Undergoing a major renovation and living through it, is often overlooked by most homeowners. The disruption to your lifestyle, the mess, the noise and restrictions is something that should not be discounted. If you are having major renovation (especially if you are a family with young children) consider moving out and renting elsewhere during the construction phase.

Before you make the decision to renovate or buy a new house, carefully ask yourself the following questions.

1. Decide what it is you are looking for in a final result and ask yourself if it will be cheaper to buy a different home or to renovate your old one.

2. What is the average selling price of homes in your area?

3. Will renovations alter the appearance of your home so that it appears out of place in the neighbourhood? Check the styles of other homes in the area. Keep in mind it might be a better idea to match or keep in step with the styles of other homes in the area. A poor design could devalue your home by thousands of dollars.

4. How much will renovations cost compared to what you paid for your home. What is the expected increase in value because of the renovations? 


The decision to buy a new home or to renovate is not one to be taken lightly. It is recommended that you think through every aspect of the project prior to getting started. Seek the advice of a local professional architect/building designer as well as a real estate professional if necessary to determine how the proposed renovations will affect the value of your home.

In general terms, you’ll probably avoid overcapitalising if you keep the cost of your renovations to less than 10% of the value of your home. The less you need to invest in your home to give it that wow factor, the more you can expect to get back when it’s time to sell. And always keep a close eye on the sale price of similar properties in your area.

 

Source: Gary Pemmelaar

Cashflow vs Capital Growth

/in , /by

Most investors appreciate that there are two components to the returns from investing in property: capital growth – where the value of the property increases over time; and cash flow – from rental income. An investor’s age, earning capacity and asset base will determine whether they are more interested in long-term capital growth or cash flow returns.

Younger, high-income earners may choose to invest for long-term capital gain. They are not concerned if their net cash flow is less than the costs associated with holding the property. In fact, they often seek investments with such a shortfall because they can claim this loss against other taxable income. In essence, that’s what ‘negative gearing’ is all about.
Other investors, may tend to choose property that delivers a net positive cash flow. These are ‘income’ investors.

Opinions differ as to which is the best approach – to invest for growth or cash flow? In the end overall returns from property will be a combination of both.

Property is a long-term investment
It’s important to remember that property is a medium to long-term investment. The yields will change (as a percentage) over the life of the investment. A property that is cash flow negative when you buy it may well become positive as rents increase and your loan gets paid off (providing you choose a principal and interest loan – which not all investors do).

Where to look for growth
Most new capital city properties will not return a positive cash flow when you first purchase them. This is because rental yields are quite low in terms of a percentage of the purchase price of your investment. Countering this, depreciation allowances on newer buildings are higher and as we noted earlier investors in a high tax bracket can claim investment losses against other taxable income. Well located, quality real estate in capital cities will usually (all things being equal) attract good tenants and enjoy low vacancy rates, so the cash flows will still be consistent and continuous, while you wait for that capital growth to kick in.

Where to find income
In outer suburban and regional areas, it’s possible to locate lower-priced property with comparatively high rental yields and this is a strategy that many ‘income’ investors choose. Regional areas have not historically enjoyed the same capital growth as capital city properties.  It’s not wise to generalise, as the regions are so vast and their economies and growth drivers are very different. Mining towns are regional and many investors have enjoyed stellar short-term growth and unbelievable rental returns in these areas, but they may be regarded as high risk.

– Philippe Brach

How to buy a home when you’re self-employed

/in , , /by

Self-employed borrowers often come up against the challenge of not being able to present a raft of payslips and tax returns to back up their loan applications. But this need not stop you buying your dream home or an investment property.

Many lenders offer low-doc loans for self-employed borrowers who can’t hand over payslips and employment records. This means that, rather than the usual documentation, you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.
Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan. Getting this right is more than presenting a lender with a few quick sums on the back of a napkin; it takes solid preparation.
Here are some quick tips:

  1. Reduce debt: pay down credit cards and personal loans, and be sure to lower the credit limits as they are
    paid down, as lenders assess the total credit available to you as a potential debt level, not just the
    amount you owe.
  2. Speak to a finance broker about how the structure of your business and your taxable income will impact your ability to borrow.
  3. Do your taxes when you should, and always pay your tax assessments on time.
  4. Save. Saving a deposit is obviously important, and showing your ability to live within your means and save
    is as well. This is key to serviceability – you want to show at least a six-month history of high income
    and low expenses.
  5. Go to a finance broker, rather than a bank. Finance broker have access to specialist lenders that assess
    applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors,
    while many bank lenders do not.

Low-doc loans do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking by lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements.
Most lenders will also insist on an LVR of no more than 80 per cent – meaning that under no circumstances will they lend more than 80 per cent of the property value, as assessed by the lender.

Loans for vacant land

/in , , /by

Whether you are buying land for an immediate build, as an investment or for a ‘one day I will build and live here’ dream, a vacant-land purchase can be financed by a range of mortgages.

If you are planning to build immediately, or at least soon, a construction loan might be the best option. Most lenders demand that building on a construction loan must start within a specified time.

This mortgage type allows you to draw down segments of the loan amount in stages as they are needed – for the land purchase and then for the stages of construction – which saves you paying interest on the entire loan amount when you don’t need to.

If you don’t plan to build immediately, and you want the loan for the land without any time pressures, a vacant land loan may be the best option.

While regular mortgage types can be used for the purchase of vacant land, most lenders also offer vacant land loans. Most will go up to a 30-year loan term and finance up to 90 per cent of the land’s value, and some go as high as 97 per cent loan-to-valuation ratio (LVR). Lenders’ mortgage insurance (LMI) would still most likely be payable on any LVR higher than 80 or 85 per cent, depending on the lender.

The vacant land purchase can be used to increase the equity in your existing home or investment property and, while redraw facilities are usually not available on construction loans, they may be on land loans.

If you have stumbled upon the perfect position for your dream home, future holiday getaway or retirement oasis, but aren’t ready to start building it yet, the next step is to speak to an expert about the different types of loans that can finance the purchase.