API Blog :: Have your say!

There’s no doubting the benefits of bricks and mortar as an investment option, not least of which is the property market’s resilience during a recession compared to other investment options. But new research that shows demand for residential rental properties is cooling may cause some landlords to question their investment strategy.

BY DAMIAN SMITH

The findings I’m referring to come from property research firm SQM, and show that national vacancy rates rose to 1.8 per cent in April, up from 1.6 per cent the previous month. The rise may seem insignificant, but in real terms there are now 48,000 properties sitting vacant around the country – 10,000 more than this time last year.

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For many investors still hurting from rollercoaster share market fluctuations, bricks and mortar has become a more appealing investment option. And no matter the size of your investment portfolio, an investment property may be in your reach.

BY DAMIAN SMITH

There are a number of ways to draw on additional funds to secure an investment opportunity and one common option is to unlock the equity in your existing home to use as collateral for your investment property.

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With interest rates on the rise, many property investors would have felt their wallets tighten in order to meet increased mortgage repayments.

BY DAMIAN SMITH

For instance, RateCity found that the benchmark standard variable rate (the average of the major four banks) increased by 152 basis points since December 1, 2009 to 7.79 per cent. For a mortgage valued at $300,000 that’s equivalent to an extra $290 per month in repayments. That is a big difference, especially at this time of year.

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The most common reason people make any investment is to set up a comfortable nest egg for when they retire – and property is no exception. The last thing anyone wants to happen to their retirement fund is to watch it go up in flames and have to start from scratch.

BY DAMIAN SMITH

And while the right choice in property can often seem lower risk than stocks, remember you can’t wrap a rental property up in cotton wool or watch it 24 hours, seven days a week. But if something happens you want to know you and your investment are protected.

Luckily there’s a range of insurance options for property investors that will cover both the property and the hand paying off the mortgage. I can’t stress enough the importance of insurance when it comes to your investment property. It’s something you should consider as soon as you are ready to make the purchase. The big three that you should consider are: landlord protection insurance, income protection and life insurance. You should also consider home and possibly home and contents insurance if you have furnished the property as well. Read more →

The business of rate forecasting is littered with the graves of those who got it wrong, but it’s safe to assume that, even after the controversy caused by the Commonwealth Bank’s decision to increase variable rates by 45 basis points, this is not the last we will see of rate rises in the next 12 months. There’s an emerging consensus that the RBA will lift rates by around 50 basis points over the next 12 months, but a possibility of as much as 100 basis points.

BY DAMIAN SMITH

What does all of this uncertainty mean for investors out there who are interested in purchasing an investment property? Fixed loans are usually popular with investors because of the consistency to help manage cash flow.

But with fixed rates starting to rise, it’s worthwhile considering hedging your bets and splitting your loan.

Just as you’d want your investment portfolio to be balanced with different kinds of assets and risks, so too can split loans provide a good hedge, especially when the path and pace of rate changes are uncertain. They can also help reduce the impact of interest rate fluctuations while also keeping the features and benefits you need. Read more →

Like most business owners, in order to make money, property investors often need to spend money. But while renovations and enhancements in theory should increase the value of your investment property, if you don’t do them the right way then it could just represent cash out the door.

BY DAMIAN SMITH

If you plan to renovate your investment property to resell for a profit there are some common mistakes that property investors make and here are ways avoid them:

• Over-capitalisation. A general rule is to limit your spending to 10 per cent of the property value. Some people spend too much money on the wrong things and don’t reap the rewards. For instance, if you borrowed $290,000 on a property valued at $300,000 and you have been quoted $100,000 on renovations then perhaps you need to rethink your strategy to make sure it’s worthwhile. Determine your return on your investment before you get to work. Read more →

Before you sign the contract for your first investment property, make sure you’re going in with your eyes open.

BY DAMIAN SMITH

I recently read a report by Datamonitor which found that out of a large survey sample, eight per cent are intending to purchase an investment property in the next 12 months. While this sounds low, it’s actually an increase on the prior 12 months. According to the same source, there were only five per cent who intended to invest in property last year.

The fifth consecutive month of no change to the Reserve Bank’s official cash rate (at 4.5 per cent) certainly explains some of the likely growth, by easing concerns of a dramatic rise to interest rates. We’ve actually seen a fall in fixed rate home loans – for example the benchmark three-year fixed rate, which is the average of the major four banks, has dropped by 33 basis points since May to the current rate of 7.45 per cent. Read more →

For those property investors who are interested in taking full advantage of their tax deductions and also want a strategy that makes it easier to budget in advance, here’s some food for thought.

BY DAMIAN SMITH

‘Interest in advance’ mortgages allow borrowers to pay interest as a lump sum in advance, usually for 12 months, with the benefit of being able to claim this as a tax deduction. The biggest benefit for investors is that you can claim for the current financial year and not have to wait a full 12 months before claiming the deduction. This type of loan is aimed at property investors who want to maximise their tax benefits. It’s also particularly advantageous should you happen to earn less one financial year compared to others. Read more →

Dreaming about retirement? Short of winning the lottery, a common

approach is to use an investment property to benefit you in retirement. Let’s look at a few issues that can help you decide whether this will work for you.

By DAMIAN SMITH

Share the load
If your investment property is generating a good rental income then you may be better off hanging onto it as opposed to selling now. But you may need to weigh up the effect of owning an asset like an investment property on your eligibility for a pension – make sure you talk to your accountant about this. One option that some retirees explore is to sell a portion of the property to your children as you may be able to release some of the equity in order to generate income elsewhere. It may also reduce your capital gains tax (CGT) exposure in the long run and enable you to diversify any other investments.

Increase your super
Another way that could possibly lessen the impact of CGT is by depositing some of the proceeds of the sale of your investment property to top up your super. Make sure you’re aware of the limits that apply to deposits by age, as there are some potentially big tax consequences here. Check out the Australian Taxation Office (ATO) website, and ask your accountant for more information.

Sell the property
If your investment property isn’t producing a high enough income, or if you’re concerned of its impact on your eligibility for the pension, you can always consider selling the property. You can then either use the proceeds to purchase other income-producing retirement investments. However, be aware that you could incur CGT upon selling the investment property. Again, there are CGT calculation tools at the ATO website.

Damian Smith is CEO at financial comparison website RateCity (www.ratecity.com.au). He’s one of Australia’s most experienced internet and technology executives, with leadership roles in Australia, the US, Japan and the UK for over 13 years. Damian holds a Masters Degree in Public Policy from Harvard University.

Stable interest rates are proving just the ticket for investors, as new research from the Australian Bureau of Statistics (ABS) shows that money spent on housing for investment purposes has risen in the past 12 months.

By DAMIAN SMITH

According to the ABS report, the total amount spent on the construction and purchase of investment properties for rent and resale in June increased by 11 per cent compared to June 2009, to $7.3 billion (based on seasonally adjusted figures). A relatively benign interest rate climate, plus the ongoing shortage of housing supply in many parts of Australia, all point to the attractiveness of property investment for many Australians.

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