Featured Articles « Smart Property Investment

10 ways to increase your rental income

Monday, 13 February 2012

By: Phillip Tarrant

Looking to bolster your rental income? Or perhaps you want to make your rental property stand out a little more from the rest? It may be time to give your investment property a bit of attention.

There is a direct correlation between a property’s appearance and the rental income it is able to produce. Moreover, there is a distinct correlation between a property’s presentation and the tenants it attracts.

With the right improvements, landlords can significantly increase the rental amount they can charge on their property. For example, a fresh coat of paint could add $30 a week to your rent – or $1,560 per year.

A well-presented property can also appeal to a greater base of potential tenants as well as a higher calibre of tenant, helping you steer clear of any tenant-related problems.

Of course, there is a fine line between improvements which can increase rental income and those which simply leave you over-capitalised, so you’ll need to think carefully before embarking on any extravagant purchases or extensive renovations. For example, base model blinds can be a great addition but lavish velvet curtains are simply excessive.

Several simple but effective improvements which can make a big difference to your rental income include:

1.   Replacement of all worn out and tired-looking items such as kitchen and bathroom handles, doors, door handles and blinds
2.   New floor coverings
3.   A fresh lick of paint – white will always create space
4.   New light fittings and extra fittings can really modernise a property and give it a ‘lift’
5.   Modern stainless steel appliances – popular with tenants and they create a modern feel
6.   Install air conditioning (or even ceiling fans) and dishwasher
7.   A yard tidy-up – a well maintained garden and lawn and clean paths can make a big difference to a property’s appeal
8.   The addition of an internal laundry, perhaps within a linen press if space is limited, or even laundry taps in the bathroom. A property with laundry facilities can secure much better rent than one without
9.   Security features such as screen doors or secure front gates
10.   Clean! Get out the pressure hose, scrubbing brushers and JIF and erase dust, grime and mould – a good clean can make a world of difference to a property’s feel

Debt or deposit?

Sunday, 12 February 2012

By: Phillip Tarrant

It’s a common dilemma facing many aspiring home buyers. You’re trying to put as much money as you can towards a deposit for that much revered first purchase, but what about those bothersome debts that just won’t seem to go away?

Perhaps you took out a loan to buy a car. Or maybe you’re still paying off that trip through Eastern Europe you took last year. Whatever it is, it bears the question, is that where you should be allocating of all your hard-earned cash? Or should you be putting all of your money towards your deposit for a house?

Ultimately, this is a personal decision and will depend on your own personal circumstances. But when it comes to the fundamentals of good money management, one key rule of thumb to always remember is that debts should be paid down as quickly as possible, because of the interest costs they accrue.

Moreover, the interest costs of personal debts such as credit cards, car loans and personal loans tend to be quite high and can easily offset any interest you might earn in a savings account.

For example, a personal loan might attract an interest rate of 14 per cent, while a savings account might earn you just six per cent in interest – if you’re lucky.

Just doing the interest calculations on a personal loan paints a useful picture. On a $15,000 personal loan at 14 per cent interest on a five year loan term you’d be looking at total interest expenses of $5,941.43 (based on minimum repayments) – that’s a big chunk of cash which could certainly go a long way towards your savings goals.

Paying off those expensive debts first will help you avoid such interest charges and enable you to work on saving your deposit sooner.

By reducing and eliminating other debts, you’ll also increase the amount you’re eligible to borrow, with lenders’ serviceability assessments influenced largely by borrowers’ existing debt obligations – as well as the propensity to take on further debt. In other words, even if your credit card is paid in full, a $30,000 limit for instance is going to hit your loan eligibility, because you could, in theory, rack up another $30,000 in debt very easily.

While it may seem frustrating to put your savings goals on hold, in the end you’ll be in a much sounder financial position if you address your debts first.

The key is to work on paying your debts down as quickly as possible. And do your absolute best to avoid missing payments. One or two defaults on your credit history can really make it that much more difficult to secure a home loan.

Renovation riches – It’s all in the budget

Saturday, 11 February 2012

By: Phillip Tarrant

With shows like The Block and The Renovators inspiring the inner-renovator inside a growing number of Australians, we are fast becoming a renovation nation.

And it’s no surprise. A smart renovation can deliver astounding results – both in improving a property’s condition and its value.

But a renovation, carried out with little planning or smarts, can easily turn into a money pit.

So how can you make a renovation work? There are certainly a lot of secrets to getting a renovation right, but without a doubt, doing the math is of utmost importance.

That’s right, budgeting is king and all too often renovators neglect to accurately scope out – and stick to – a budget.

The first thing you need to do when it comes to budgeting a renovation project is a financial feasibility statement, which is, essentially, a financial assessment of what a project is going to cost.

Of course renovation expenses are often hard to predict. The best way to estimate renovation costs is to do your homework and get as many quotes as possible. This will help you to build up a comprehensive database of prices, so that when you start looking at properties you can make a quick estimate of what it might cost, for example, to re-tile a bathroom.

While determining the initial costs of a renovation can be straight forward, the real nitty gritty can be much more complex to figure out, particularly for large-scale renovations. For this reason some rookie renovators may prefer to approach a quantity surveyor who can price up the whole project for you. Although it may cost you an extra thousand dollars or so a professional hand can really help inexperienced renovators go into a project more confident and assured.

When budgeting for a renovation it’s crucial to build a buffer of at least 10 to 20 per cent into your budget as renovations rarely run according to plan. It’s also important to allow for price differentials as well, as prices can go up within a short space of time.

The key to successful budgeting is to keep an eye on your finances and track and update your expenses regularly throughout the course of your renovation. This will help you keep on top of exactly how you’re tracking. If you’re coming in over budget, you can start to look at ways of cutting costs in other ways – rather than coming to the end of the project and realising you’re thousands of dollars over.

Constantly review your budget so that you can tweak it and make changes that keep you on track – and on the road to profit.

Renovation can be an exciting investment strategy but it’s not without its risks. While there are numerous renovation success stories, there are just as many disastrous ones. So go in with your eyes wide open, understand the potential challenges and, most importantly, work to a budget!

Getting to know non-banks

Friday, 10 February 2012

By: Phillip Tarrant

They offer you home loans just like a bank and yet they are not a bank. Well, exactly what are they?

Let’s start at the beginning. Non-bank lenders first appeared on the home loan scene in the early 1990s with pioneers such as Wizard Home Loans, Aussie Home Loans and RAMS Home Loans.

Their chief point of difference to banks is quite simple; they are not authorised deposit taking institutions (ADIs). In other words, they can more than happily lend you money, but you cannot deposit your money with them.

Non-banks source their home loan funding from wholesale banks and capital markets – which big banks also use as part of their funding mix, alongside customer deposits.

Initially, non-bank lenders looked predominantly to beat the big banks on price, successfully undercutting the banks’ interest rates by two per cent or more.

During the depths of the Global Financial Crisis (GFC) however, non-bank lenders fell out of favour with borrowers as the global shortage of funds squeezed the sector’s customer proposition within an inch of its life. Wholesale funding costs soared, making it virtually impossible for them to sustain their price advantage.

But today it is a different story. Non-bank lenders have since reinvented themselves and are again on the front foot. While capital market conditions are still challenging, they are improving. Moreover, many non-banks now source their wholesale funds from banks themselves.

For anybody thinking about making a property purchase, non-bank lenders are certainly worth consideration. While they may no longer have their sharp price advantage, they still offer competitive pricing as well as an attractive customer proposition.

Many non-bank lenders look to deliver where many bigger banks traditionally fall short. From personalised customer service to fast approval times, non-banks are working hard to provide a real bank alternative.

In particular, many non-banks are more willing to lend to borrowers with more complex situations or blemished credit records, which makes them an appealing option for many. Their product ranges are also quite broad or more specialist than the major banks’.

As with any financial commitment, borrowers considering going with a non-bank lender should do the relevant due diligence to ensure they are happy with their decision and confident the lender and the relevant product will meet their individual needs.

House & land considerations

Friday, 10 February 2012

By: Phillip Tarrant

If you’re in the market for a new home, a house and land package can offer a relatively straight forward option.

Without a doubt, building a property from scratch can be an intimidating task. A house and land package offers a popular solution for home buyers who would like all of the benefits of a new home – without the hassles.

At heart, a house and land package is basically an off-the-shelf home, but there will be varied degrees of scope with which to tweak the design and inclusions, according to your personal taste and needs.

Certainly, the biggest appeal of a house and land package is the convenience it offers.

Unlike doing it yourself, there will be no need to deal with architects, builders and tradies. Instead, the developer will take care of everything for you.

That said, you’ll still have a degree of choice with regards to colour schemes, bench tops, floor coverings and so on, depending on the developer, the package and of course, your budget.

Another advantage of a house and land package is that it will usually come with a ‘fixed’ price, which can reduce the danger of a budget blowout, all too common among owner-builders.

Furthermore, most developers offer a guaranteed build time, so it’s easier to time your living arrangements.

While there are certainly advantages of choosing a package, you’ll still need to proceed with caution and make the relevant considerations.

For example, while a ‘fixed’ price can make budgeting easier, you need to carefully assess exactly what is included in that price. Different builders will offer different inclusions so you’ll need to know what you’re getting in order to avoid any nasty surprise expenses.

Also be sure to do your due diligence to ensure you make an informed selection. Conduct thorough research of what’s on the market so you know what types of options are available, what your price guidelines are, what should be included for what price and where packages are available. Conduct your research online initially but be sure to hit the pavement and visit a range of villages and sites. The more research you do, the better versed you’ll be to make a smart decision.

Once you’ve narrowed your search it’s also important to know what terms and conditions will apply to any purchase, and where there are any warranties or structural guarantees in place.

And don’t forget, it’s imperative you do your due diligence on the property developer, to ensure who you’re dealing with is trustworthy and reputable.

Property versus shares

Thursday, 9 February 2012

By: Phillip Tarrant

There is a great divide between investors who favour property and those who favour shares.

In reality, however, there are pros and cons to both asset classes.

Both certainly have a good track record in terms of returns, with shares and property beating more conservative asset classes such as cash or fixed income for the past 10, 20 and 25 year periods, according to research by global financial services firm Russell Investments.

Russell Investments’ research highlights that in the longer term, shares and property deliver similar returns and chosen well, both can provide very lucrative returns at that.

That said, fundamental differences between the two asset classes can have a major impact on their overall investment potential.

One major difference to keep in mind is the opportunity for leverage.

Generally, loan to valuation ratios (LVRs) for property are much higher than those for shares. For property, you can borrow as much as 100 per cent of the property’s purchase price while for shares it is much harder to borrow at a high LVR.

For some blue chip shares, investors can borrow up to 75 per cent LVR, but for many shares the opportunities for leverage will be significantly lower or non-existent.

In other words, the power of leverage is much greater with property, which means you can maximise your dollar further.

For example, with $30,000 and a 95 per cent LVR loan, you could potentially purchase a property worth $600,000. Without the opportunity for leverage your purchase potential for shares could be limited to just $30,000.

Another significant difference is the high transaction costs associated with property, which makes it a much less flexible asset than shares. A share transaction can cost less than $20 a pop and can be executed in a matter of minutes.

Shares might therefore be a better choice for investors who want or need access to their cash at a moment’s notice.

But while property may have limitations due to its transactional requirements, it does offer greater freedom and control in terms of being able to add value.

The value of a share is at the mercy of a company’s performance and the market’s response, but savvy investors can use renovation to add value to an investment property.

Moreover, property’s high transaction costs make it less subject to volatility. In just one day, a share portfolio can shrink dramatically. Because shares are so easy to buy and sell, investors are often quick to offload them during times of uncertainty.

At the end of the day, your own individual goals and timeframes should influence your asset selection, as will your comfort and familiarity with each asset class and your motivation and ability to learn more about both.

Irrespective of your preference, you’ve got to select well. This means due diligence to ensure you get the best possible return, taking into account your risk profile, financial position, timeframe and personal goals.

Getting a loan across the line

Tuesday, 10 January 2012

By: Phillip Tarrant

There is a myriad of factors that lenders consider when assessing a would-be borrower’s eligibility for a loan. (more…)

Renovation riches – It’s all in the budget

Monday, 9 January 2012