Property researchers Terry Ryder and Michael Matusik have both noted growing vacancy rates in innner city Brisbane due to the increasig supply of new units.

Matusik notes “Apartments now dominate the rental market in Brisbane, with a 45% market share. Houses come in second with 38%, followed by townhouses with 11%.”

The average vacancy rate across inner Brisbane is 3.6%, compared to 3.1% in the middle-ring suburbs and 2.4% in the outer suburbs.

“Typically, a rental market is tight (rents rising) if the vacancy rate is under 2%,” the report says. “Between 2% and 3% represents a balanced market and over 3% suggests oversupply.

“An increasing number of locations in Brisbane, typically the inner-city postcodes, already have rental vacancy rates over 3%. And new rental supply, especially new apartments, is snowballing across Brisbane.

And that’s in south east Queensland.

The founder and CEO of McGrath Estate Agents — who has 64 offices all over Australia — also thinks Sydney’s housing boom has almost run its course.

“Right now, you can lock in the cheapest money you have ever been able to borrow. I am telling my clients to buy on the Gold Coast or in Brisbane,” he told News Corp Australia, during AREC, the second biggest real estate conference in the world, being held on the Gold Coast.

“South east Queensland is my top pick of everywhere to buy in Australasia at the moment. “Sydney has experienced 40 per cent growth in the last few years and I hope its almost topped out or else we are all going to have issues.

“For us I see the golden triangle out to Toowoomba, up to the Sunshine Coast and down to the Gold Coast.

“Anywhere in Queensland will do well but I’d be hard pushed to find anywhere better to invest than the south east of Queensland in the next 3-5 years for capital growth.

“People are more confident than ever, the economy is going well even though unemployment is ticking up and higher than we’d like to see but most people see light at the end of the tunnel.”

Reserve Bank deliberations suggest another interest rate cut may be coming in the months ahead.

The last minutes indicate the board had already decided ahead of this month’s meeting that it had to cut rates – the only question was whether to do so in May or June. Board members also discussed several other factors that suggest another rate cut might be coming, including a sluggish local economy.

Compared to earlier forecasts, growth and unemployment statistics are now likely to take longer to improve, according to the minutes.

At the same time, inflation is also expected to be slightly lower than previously forecast, giving the board scope to cut rates.

One argument against a third rate cut in 2015 would be the fear that this might foster imbalances in the housing market.

However, while board members expressed concern about “very strong” price growth in Sydney and “strong” growth in Melbourne, they saw “much more muted” trends in other capital cities.

They also noted the most recent data, which showed that there had been no increase in housing credit in recent months, either for investment or owner-occupancy purposes.

Every investor likes the idea of being able to regularly increase rent but the reality is rental grwoth like price growth does not move up in a straight line. There may be periods where you can incraese rent regularly, periods where you need to keep rent the same and even times where you need to take a hair cut.

To be honest I find many investors often can't see the wood for the trees. They get very focused on the dollar value of the rent without looking at the bigger picture.

There are a range of factors that should be considered at each rent review. 

The inflation rate and cost of living
Inflation has been very low over the past 12 months and borrowing costs are at all-time lows, so the current ecoomic conditions do not necessarily warrant rent increases.   

Vacancies can quickly offset rental increases
If you increase rent on your property by, for example, $20 per week, that will add an extra $1,040 gross to your annual cash flow. However, if the property rents at $500 a week and is vacant for two weeks then you have lost this advantage within a very short vacancy period. If your property is vacant for longer then you are well behind.

The same rule applies in a tougher market. Sometimes you might have to drop the rent to meet the market. Again using our example is you dropped the rent by $20 a week then you would be given up $1,040 per annum but the drop in your cashflow will be stretched over the next 12 months. 

If instead you dug your heals in for $500 and the propery was vacant for 3 weeks you have already lost $1,500 in cash straight up. And if you do finally get a tenant at $500 it is going to take you 75 weeks to recover that loss.

As I keep saying to clients just get a tenant in and get it rented, there will opportunity down the track to increase rents when the cycle turns.

Research the competition
The best advice when considering increasing rent on your investment property is to discuss the current market with your managing agent and also research the competition. Ensure you compare like with like. What are similar properties renting for in the same area?

What is the current vacancy rate for the area. If it is low you will probably have scope for an increase. If it is high you might just have to take what you can get.

The time your property is avilable for rent may also be at the wrong time of year. Each market will generall have peaks and troughs throughout a year in terms of number of people looking to rent. 

The rent you are proposing needs to be in line with the competition. In some cases you may have added extras that tenants will value and can justify a slightly higher rent, for example an air-conditioning unit, a sunny aspect and great view, or an upgraded kitchen or bathroom.

Its' important to take on board your managers advice. Remember the higher your rent the more thay earn as well so they are going to be looking for increases where possible but you are not going to get $50 more than everything else in the street jsut because that's what you want.

Moodys Analytics has found Queensland property is undervalued vy 4.3% based on rents, incomes and mortgage rates. It also believes the recent rate cut will contribute a 0.3% increase in values.

Victoria, ACT and NSW are over-valued by 8%, 6.2% and 2.9% respectively.

I am often surprised hwo many property investors do not take out landlords insurance on their properties. 

A good policy will not just protect you against lost of rent or malicious damage, it will also cover things like tribunal costs, accidental damage, tax audit costs or public liability coverage.

A common misconception about public liability coverage is that an apartment in a strata building is covered by the strata plan/building insurance. Unfortunately this is not usually the case and the building insurance is only there to cover common space areas when it comes to public liability. This means any incident within your investment property would not be covered.

It's important to review your policy to see what is and isn't covered rather than assume.

The cost of insurance is also tax deductible so after tax it can be a very minimal cost. 

With the end of the financial year fast approaching it's important not only to ensure you don't overstate your deductions but equally ensure you are not missing out on legitimate claims. Here's some common mistakes.

Not using an accountant who understands property

Using the right accountant is extremely valuable. Using an accountant that full understand property investment is critical to ensure your complete structure is tax-efficient and you ae optimising your legitimate deductions. 

The reality is, you should actually be talking to your accountant before you invest in the first place, as the incorrect approach and structure can translate into the loss of thousands of dollars that you would have been able to access. 

Seeking advice after you have already purchased a property is really a bit late in the game. A good accountant will be able to identify all the things you did wrong but you are not really going to be able to fix it. At least not without significant expense.  

Paying down tax-deductible debt before non-deductible debt
Most experienced investors will know that it can be tax effective to pay down non-tax deductible debt before tax deductible, such as your home. Most investors will have their investment properties on an interest only arrangement until they have eliminated non-deductible debt.

No depreciation schedule
A depreciation schedule is the schedule of items that can be depreciated at a certain rate allowing you to claim a tax deduction against your taxable income. It is amazing how many people don’t even have one! It is wise to get your accountant to assist you with this as this can save you thousands.

Trying to claim expenses you can’t
There are certain types of property investing expenses that cannot be claimed as part of your tax return. For example property improvements must be claimed over several years as capital works deductions where repairs can be claimed in the same tax year. Also any conveyancing expenses that you incur during the purchase and selling process cannot be deducted. Instead, these costs make up part of the cost based for capital gains tax purposes.

Keeping the right records
Property investors must keep accurate records, regardless if they prepare their tax returns themselves or not. A record must be kept of the following:
• Rental income and deductible expenses  
• All documents relating to the ownership of the property including all purchasing and selling costs

By keeping all of these documents handy, it will be a lot easier to make accurate calculations and enlist the help of a tax professional.

The risks I have discussed previoulsy with regard to off the plan purchases for units have fully emerged this week.

APRA has applied pressure to banks to restrict the growth in investing lending. As a result banks have tightened their policies and increased the pricing on investment lending. 

So if you have signed a contract to purchase off the plan what are the risks?

Firstly off the plan purchases involve unconditional contracts. Unconditional means once you sign the contract you have no outs.

If you can't obtain finance and can not settle on the property you will forfeit your deposit. The vedor could also take legal action against you to enforce the contract and compel you to settle which could be financially devastating. 

Secondly the loan you thought the bank was going to give you to fund the purchase may longer be available. In many cases your bank will now provide a lower loan amount and the interest rate on that loan will be higher.

This means to settle on the property you will need to provide additional cash or equity and your cost of funds will be higher. If the bank valuation on the property comes in lower than the contract (which is likely for many inner city units) this will be a double whammy as you will need to provide further cash or equity. 

Who is at risk? Any purchaser who does not have a written unconditional finance approval from their bank specifying the full details of their loan. Conditional, indicative, or verbal approvals are worthless and offer no protection.

NOTE It is only possible to have an unconditional approval form your bank if you have submitted a full loan application with all supporting documentation verifying your income, expenses, assets and liabilities.

What can you do? You need to get professional advice asap to assess your situation and get an understanding of your options.

Contact us to arrange a review