Think before Over-Capitalising

Monday, December 21st, 2009

Over-Capitalising can be a risk for both investors and owner-occupiers.

While most investors have a good understanding of what over-capitalising is and how to avoid it, this is not always the case for owner-occupiers.

The definition of over-capitalising is spending money renovating your house that cannot be recouped through the increased value of your property.

This is less of an issue if you never have the intention of putting your property on the real estate market but if you do want to sell at a later date you need to think it through carefully.

It can be a particular issue if you are considering selling soon and are weighing up the value of a new kitchen or bathroom.
As a result when you are planning to renovate it is prudent to consult a real estate agent and architect or building designer.

In the first instance you need to consider how much your property is currently worth and how this compares to the median price in your area.

If you spend too much on your house you may put it out of reach of buyers in that area.

You also need to consider how your renovated property will fit into the area you live in as buyers are often attracted to a particular area because of a style of housing.

For instance larger two storey houses in new estates are not always the style of housing that people are looking for in the inner city.

Finally, if you are looking to sell and move in the shorter term it is important to consider if the cost of the renovations will be recouped by an increased property value. If they won’t be then it is not going to be worth the time, stress and cost of renovating.

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Angst for Borrowers – Interest Rates are rising

Friday, December 11th, 2009

Homeowners are nervously awaiting the major bank’s lending rate decisions after Westpac jacked up its key home loan rate by almost double last Tuesday’s official rate move. Business has backed the Federal Government’s attack on Wespac, blaming a lack of competition in the mortgage market.

The Opposition pointed the finger at the Government’s “reckless” spending for the steady rise in the official rates.
Wespac lifted its standard variable rate by 45 basis points last Tuesday because of increased funding pressures, drawing a stinging attack from the Treasurer.

The Reserve Bank of Australia (RBA) increased its cash rate by 25 basis points to 3.75 per cent at the board meeting.
The decision continued the RBA’s normalisation of monetary policy because the emergency levels set during the economic downturn were now no longer required.

It was the third month in a row that the central bank had lifted the rate, a pace unprecedented since it began announcing its rate decision in 1990.

The other major banks have yet to announce their rate decisions. This rate rise will no doubt hurt all Australians with a mortgage or credit card and all small business owners with an overdraft or small business loan.

While Westpac had limited the increase in its business rates to 25 basis points, many small business owners used their home loan for business purposes.

Westpac’s decision was a further unwelcome development given small businesses did not get all the benefit or the massive reductions when the RBA was actively cutting rates.

The onus is on the bank when then they do this to ensure that those increases do reflect pressures in terms of their underlying funding costs. If the banks in their own right are making upward adjustments, then it reduces pressure on the Reserve Bank in terms of any decision they might make in increasing rates.

Money market pricing pointed to a less than 50 per cent chance of a further move in February when the central bank holds its next board meeting. The major banks were likely to lift rates at a greater pace than the RBA because of funding pressures.

There are a number of challenges facing the market and foremost is the concentration of power with the big four banks.

Posted in Finance, For Investors, Interest Rates | No Comments »

New Home Sales Fall Again – October 2009

Thursday, December 10th, 2009

According the latest survey of Australia’s largest builders, the number of new home sales fell for a second consecutive month in October following a first time buyer surge in August.

New home sales fell by six per cent in October, pushed lower by higher interest rates and softening first home buyer activity.

Sales activity from investors and upgrade owner occupiers has not chimed in to offset weakening first home buyer-related activity. A decent and sustainable new home building recovery needs strong momentum from private sector trade-up buyers and investors and we seem to be falling short on that score as we near the end of 2009.

In deed, given the narrowly based private sector recovery, costly delays in planning approvals, and reports of land shortages beginning to re-emerge, it is looking like 2010 will be a year where the number of new homes built will fall well short of what is required to match Australia’s rapidly growing population.

The majority of the increase in housing starts next year will be driven by the social housing program which is not pulling the private sector along with it.

The number of detached houses fell by 6.9 per cent in October following a decline of 4.3 per cent in September.

The number of apartment sales increased by 2.4 per cent in October, the fourth rise in six months, but the volume remained at a historically very low level.

Detached new home sales in October fell by 12.1 per cent in New South Wales and were down by 4.2 per cent in Victoria, 9.1 per cent in Queensland, 7.2 per cent in South Australia and 3.4 per cent in Western Australia.

The third consecutive monthly increase in the official cash rate last Tuesday would harm the chances of a strong home building recovery. A recovery is essential to moderate existing house prices and rent pressures across Australia.

While a residential construction recovery is under way, there is compelling evidence that the magnitude of the upswing will be insufficient to make a major dent on Australia’s chronic housing shortage. The home building recovery is narrowly based, driven overwhelmingly by a pull forward of first home buyer related activity and the by the Social Housing Initiative. This is the third straight month of of rate rises, at a time when general inflationary pressures are well contained.

Posted in Buying Tips, For Investors, building | No Comments »

New Buyers Like Established Homes

Thursday, December 10th, 2009

The latest data from the State Government confirms first home buyers’ preferences for established homes over newly constructed ones.

Twenty seven per cent of all purchased made with government financial assistance over the last 12 months have been for new homes.

There is no doubt the financial assistance has been welcomed by not only the first home buyers but also vendors and builders.

The State Government has reported that during the last 12 months there have been 44,668 homes sold to first home buyers and that 12,229 of those received the higher levels of assistance for new homes. Of those, 580 or 11 per cent have gone to buyers in regional Victoria in the last month.

Over this time the total number of loans taken out by first home buyers has increased from 21 per cent in September last year to 27 per cent this September, an improvement that is a direct result of government financial assistance and record low interest rates

In October the financial assistance dropped by $3500 for an established home, and by $7000 for a new home. The REIV expects this will be reflected in the Australian Bureau of Statistics in October Housing Finance figures, which are due in December.

Prospective first home buyers need to be aware that the financial assistance will drop again at the end of December. At that time the total assistance available for purchasing an established home will drop from $12,500 to $9000.
For those buying a new home in the Melbourne metropolitan area it drops from $25,000 to $18,000, and for those buying a new home in a regional area it drops from $29,500 to $22,500.

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Suburbs where it’s cheaper to buy than rent

Wednesday, December 9th, 2009

Buying property is becoming cheaper than renting in many suburbs across Australia, new research has found.

According to property pricing specialist RP Data research, which was commissioned by Commonwealth Bank of Australia, there are 94 suburbs across Australia where the monthly cost of rental outstrips the monthly mortgage repayment on both houses and units.

That’s up from 74 suburbs six months ago. Two-thirds of the suburbs are located regional areas with the remaining 34 percent in capital city metropolitan areas.

The biggest gap between the cost of buying and renting was in Western Australia.

Queensland
Brisbane and the Gold Coast are the key locations for buyers in metro areas, while Dysart and Moranbah are where most buyer-friendly regional spots. Click the link to open the map and mouse over the pins to get information about prices in each location.

New South Wales
Darlington in inner Sydney is the key metro location, while Dubbo and Coomba Park are where most buyer-friendly regional spots. Click the link to open the map and mouse over the pins to get information about prices in each location.

Australian Capital Territory
There are just two locations within the ACT where buying an apartment is cheaper than renting. Click the link to open the map and mouse over the pins to get information about prices in each location.

Victoria
Regional Victoria has the biggest gap between buying and renting while three Melbourne suburbs favour buyers.

South Australia
Adelaide has one suburb where buying is cheaper than renting, while the Whyalla area remains a hotbed for buyers looking in regional areas.

Western Australia
Most of WA’s buyer hotspots are clustered around the north west part of the state. Click the link to open the map and mouse over the pins to get information about prices in each location.
Northern Territory
There are two locations where buying is cheaper than renting in the Northern Territory, both in Darwin.

Tasmania
Tasmania is included in the research for the first time with seven locations where it is cheaper to buy than rent.

The biggest savings can be made by buying resource rich areas of Western Australia (in one town it is nearly $4000 per month cheaper to buy a house than to rent it).

Indeed, four of the top five locations in WA offer savings of more than $1000 for buyers.

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Shopping Around Pays For Borrowers

Tuesday, December 8th, 2009

Borrowers who assume there is no competition in the home loan market could be missing out on thousands of dollars in savings. A significant disparity has opened up between lenders on interest rates, fees and credit policies in the last 12 months. There tends to be a widespread view that all banks are the same, offering pretty much the exact same products with the exact same requirements. However when you make comparisons between lenders, it quickly becomes clear they are not all the same. Borrowers can potentially save thousands of dollars by shopping around for a deal that better suits their needs. One of the big differences between lenders was how much of the purchase price of a property borrowers could get access to. There are lenders requesting an LVR (loan-to-value-ratio) of 88 per cent with a deposit of 12 per cent, compared with a lender at the other end of scale that is requesting only a five per cent deposit. If you paid a 12 per cent deposit on your dream home valued at $500,000 for example, the lender would require $60,000 – versus $25,000 if you were required to pay five per cent of the property’s value. Also, once the LVR is more than 80 per cent, the lenders mortgage insurance premium kicks in – and this, too, varies between lenders. Borrowing limits could also differ between lenders, with some offering a $60,000 income earner up to $250,000 in finance, while others would provide up to $300,000.

Tags: mortgage brokers
Posted in Buying Tips, For Investors, Interest Rates | No Comments »

Rental Hotspots Of Australia Part 2

Monday, December 7th, 2009

The highest concentration of renters within Perth applies in West Perth where 62 per cent of local dwellings are rented.

West Perth, of course, abuts the CBD but it also flanks the grounds of the University of Western Australia.

There can be little doubt that the best markets for renters in Australia, outside the “company towns” operated by mining groups, are those places strategically positioned between the university and the CBD.

However the rental hotspot logic that applies so consistently in Sydney, Melbourne,

Brisbane and Perth evaporates in Adelaide and Hobart.

For some quite odd reason the highest concentration of rental properties in Adelaide is in the inner northern suburb of Blair Athol where 62 per cent of local dwellings are rented.

In Hobart the rental hotspot is in suburban Rokeby where barely 43 per cent of dwellings might be described as rental.

What seems to be happening is this: in the largest Australian cities the ability of students to commute from suburbia to university on the CBD fringe is limited due to congestion.

As a consequence students rent in specialised communities such as Carlton and West Perth, whereas in other places there is more of a mixed rental community, namely Waterloo and Fortitude Valley.

In the smaller and commuter-friendly cities of Adelaide and Hobart students and office workers for that matter are just as likely to be interspersed with mums and dads in suburbia. These cities have not become large enough to warrant their own student suburbs which are of course dominated by renters.

The lesson for investors is this: students, yuppies and other professional transients are good for business.

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Rental Hotspots Of Australia Part 1

Monday, December 7th, 2009

At this very moment there are probably about 7.4 million dwellings on the Australian continent.

About one-third of these dwellings are owned outright and about another third are being purchased. The remaining third is comprised of rental dwellings and accommodation in other tenure such as public housing.

The bottom line is that there are just over two million rental properties within Australia and which comprise 29 per cent of all dwellings. If you are in the business of buying residential property with a view to renting it out then the property you are buying falls within this “rental pool”. And in an ideal world there would be hot demand for rental accommodation in the area in which you have just bought an investment property.

Indeed, it may be said that there is heightened demand for rental property in any locality where rental accommodation represents more than 29 per cent of all dwellings.

Did you know there are mining communities in Australia where rental accommodation accounts for no less than 90 per cent of all dwellings? Outside mining communities the places where rental accommodation dominates is the inner city.

In the university suburb of Carlton in Melbourne, some 80 per cent of dwellings are rented. If you are disinclined to invest in rental property for the remote mining community then you might like to consider Carlton. Lots of students provide a steady stream of potential renters in this suburb. But Carlton is also close to the CBD which makes it ideal for city workers. Students, yuppies and even the odd academic make up the renter mix in Carlton.

In the Sydney market the rental hotspot is also a student and city-worker suburb. In the inner-city suburb of Waterloo 76 per cent of dwellings are rented. Waterloo is a former “battler” suburb that is being transformed by new apartment towers and terrace house renovations. Waterloo is also a heady mix of yuppie office workers and students. And in the backstreets there is even an element of authentic grunge and, sadly, some homelessness.

In Brisbane the suburb with the highest proportion or rental properties is 66 per cent in Fortitude Valley. The Valley, as it is known in Brisbane, is quite different to Waterloo and Carlton which are student strongholds (due to the close proximity of large tertiary institutions). Indeed Fortitude Valley is quite unique in that the local community is more office worker than student: this possibly means that local residents have a higher capacity to pay rent than in other suburbs dominated by students.

Tags: hotspots
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Take Action Despite Your Fears Part B

Saturday, December 5th, 2009

The Fear Of Not Being Worthy

Many people fail to take action because they fear they do not deserve wealth. This also stems from the financial “programming” they received in childhood. All those negative things that some well meaning people said early in their lives. Things like “don’t be greedy”, “people like us don’t get rich”, “what makes you think you can do that when others have failed?”

Investors have sabotaged their wealth because they felt undeserving.

The Fear Of Debt

Obviously the fear of debt holds some investors back, however debt should not be feared.

It is the inability to service the debt or repay loans that should be feared. If you understand how to use debt wisely and if you know the difference between good and bad debt, there is nothing to fear about debt.

All rich and successful people have fears, doubts, and worries; they just don’t let those feelings stop them. That is the big difference; unsuccessful people also have fears, doubts and worries but they let those feelings stop them.

It is normal for your brain to bring up these fears. Your mind is protecting you. It is doing its job. And acting in spite of your fears is going to be uncomfortable.

We all like living in our comfort zones because they are comfortable. But if you want to move to a new level you have to break through your comfort zone. Your comfort zone may make you feel warm and fuzzy but it does not allow you to grow. The only time you will grow is when you move outside your comfort zone.

If you think about it, every time you tried something new was probably uncomfortable, but the more you did it the more comfortable it became. If you persevere you expand your comfort zone which means you can do more things comfortably.

What this means is that every time you are feeling uncomfortable instead of retreating back into your comfort zone, pat yourself on the back and say “hey this is great, I’m moving forward and I’m growing”.

If you want to be a successful property investor, and if you truly want to be one of the wealthy, you are going to have to become comfortable with being uncomfortable.

Posted in For Investors, Motivation | No Comments »