A surprise interest rate cut in Canada and the prospect of a similar move next week in New Zealand have stoked speculation the Reserve Bank of Australia will follow suit later this year.

While the Reserve Bank remains reluctant to cut rates again, the direction taken by two of governor Glenn Stevens' closest global peers helped send the Australian dollar to a six-year low of US73.54¢ on Thursday.

The Bank of Canada's cut its benchmark interest rate to 0.5 per cent on Wednesday. The RBA is expected to sit on its hands for a few more months yet, but it is also hard to see how the underlying terms of trade dynamics and mining capex unwind result in anything but persistent sub-trend growth, stagnant wages, and ultimately a lower cash rate.

Buying an older property can be like buying an older car. Sure you might get it at a cheaper price but that doesn't't mean you will get a better return over the long term. There's a number of factors that could turn your bargain buy into an expensive lesson.

Repairs
Generally when you are starting out as a property investor your budget can be a little bit tighter. Which means you don't really want to be putting your hand in your pocket in the initial stages of holding a property. But like an older car things are going to wear out over time and need replacing and if the property is 10 years plus then there is a good chance a lot of things will require repair. None of them necessarily major but a few visits from a sparky and a plumber over a year can add up. Although add to that a hot water system and an air-con and we are staring to get up there.

Yes you can claim a deduction but you don't get all of that outlay back. If your income is $80,000 only 32.5% so you still have to front up with rest.

Structural issues
Of course with an older property your issues could stretch beyond just minor repairs. Unless you have really done your homework your investment could be hiding some substantial structural issues. Even a building inspection has limitations - they don't pull out walls to check the frame work, or rip up floor to look at plumbing. They can only check what they see.

With a new property it is certified at various critical stages to ensure it meets current building codes and standards. PLus new properties come with a 6 year structural warranty.

Depreciation
Depreciation is one of the big cashflow drivers that many investors and even accountants miss. The higher the level of depreciation the more cash coming back into your pocket courtesy of the tax man. But buying older properties means you will generally get little or no depreciation benefit.

Tenants and rent
Unless we are talking uninterrupted views on Sydney Harbour an older property with comparable features and location is generally going to rent for less that a new one. A new clean home with modern fixtures and fitting is going to appeal to quality tenants as they know they are not going to be renting a property that is going to be hassle free.

So cheap does not equate to good. And a cheaper price does not mean the house will be cheaper to run.

Contact us to discuss your property investment strategy.

According to onthehouse.com.au Queensland comes out on top for high-yielding and still growing suburbs. Of 56 suburbs across Australia where the average rental yield surpasses five per cent and the capital growth predictions are at least three per cent for the next eight years Queensland suburbs make up 41 per cent of the list with 23 suburbs appearing. 

Affordability is a main contributor to high rental yield rates, with 75 per cent of the suburbs on the list having median values below the national median of $491,000 for houses and $452,500 for units.

The median house value in Brisbane sits just below the national median at $484,500, while in Sydney the median house value is almost double that at $961,000.

Recent data is showing that vacancy rates are rising and as we have discussed previously there is a building over-supply of units in inner city Brisbane 

This means you need to ensure the rental property you purchase attracts good quality tenants and does not remain vacant for long. This means putting aside property features that may appeal to you as an owner-occupier and buying with a tenant in mind.

Check your emotions at the door
What appeals to you personally and what will make a good performing investment are not necessarily the same thing. Basing your decision on beliefs rather than facts and research can result in an under performing investment.

Buying new
Tenants are attracted to neat, well-kept properties that look easy to maintain with modern fixtures and fittings. Kitchens with stone benchtops and modern appliances, lock up garages, functional indoor and outdoor living spaces are appealing. Neutral colours and window furnishings are best. This will mean whatever type of furniture your tenants bring with them will not be out of place. Tenants also don't want massive yards with lots of gardens. A simple low maintenance garden with a bit of room for the kids is ample

Easy access to employment hubs, schools, sports and leisure facilities
It's important to remember that not everyone works in the CBD in fact most work outside it. In fact being in outer lying areas where renting can be more affordable can make a lot of sense. In other words "Fish where the Fishes are". Being in locations that provide easy access to public transport and/or major arterials that link to employment hubs is a plus. If the property is a family home, then being within easy distance to schools will be attractive to tenants and, of course, an area with a good quality sporting and leisure facilities will also be a plus. 

Vacancy history and trends
While history is not a guarantee of the future getting an understanding of how the rental market has behaved over the longer term can identify locations that are readily rentable.

The right property manager
Having a knowledgeable pro-active property manager is critical. They'll do their best to get your property rented and keep it rented. It's also important to listen to your manager and their guidance in relation to what rent is realistically achievable. Being greedy or ignorant can be a costly exercise. Your number one objective is to get the property rented to a good quality tenant. The rental market like all markets will have its peaks and troughs - sometimes you will be able to increase your rent, sometimes you will have to sit on your hands, and sometimes you might have to drop a few dollars.   

Brisbane is the only capital city tipped to buck the national trend of easing median house prices in real terms over the next three years, according to housing forecasters, BIS Shrapnel.

But its housing market outlook has warned of a looming oversupply of inner city Brisbane apartments.

The BIS Shrapnel Residential Property Prospects 2015 to 2018 puts Brisbane's estimated median house price in this year at $520,000, which researcher Angie Zigomanis said that was still below Brisbane's June 2010 peak in real terms. Coupled with low interest rates, Brisbane's affordability was at levels seen in the early 2000s.

A total rise of 13 per cent in the Brisbane median house price is forecast over the three years to 2018, while the median unit price is forecast to rise by a total six per cent. Its new dwelling supply overall, without any significant rebound expected in population inflows, was set to move the Brisbane apartment sector nto ioversupply, "with some impact across the broader market."

But significantly, Brisbane is tipped to be the only capital city that will not experience a decline in median house prices in real terms in the next three years.

Nationally low interest rates will support further price growth in undersupplied residential markets in 2015/16, but the spectre of tightening interest rates and deterioration of affordability will create conditions for price declines in a number of cities from 2017, according to the forecaster.

"But doomsday predictions for the residential market are likely to be overblown.

"Although Australia’s residential property markets are forecast to steadily weaken from 2016/17, as a combination of rising supply and the prospect of a tightening in interest rate policy impacts on prices, any downturn will be similar in magnitude to that seen over 2011-2012."

According to the company’s Residential Property Prospects, 2015 to 2018 report, Sydney and (to a lesser extent) Melbourne have broken away from the other capital cities, with both estimated to have recorded double-digit percentage rises in their median house prices in 2014/15.

Solid population growth, reasonably positive economic conditions and an underlying dwelling deficiency have underpinned this rise, and affordability is increasingly becoming a concern. In contrast, weaker recent price growth in the other capital cities means that affordability is not as strained, and it is subdued local economic conditions and/or an underlying excess dwelling stock that have impacted the market.

“Most capital cities are building apartments at record rates, driven by investor demand,” said Zigomanis. “As these projects are progressively completed, strong tenant demand will be required to support rents and consequently values upon completion.

He noted the detached house market is less reliant on tenant demand and more exposed to owner occupiers. Together with the stimulatory effect of variable interest rates at more than 40-year lows, this is expected to support median house prices in most capital cities over 2015/16.

The strongest conditions over 2015/16 are forecast for New South Wales, Queensland and Victoria, where BIS Shrapnel estimates the markets are in overall deficiency at June 2015. 

Investing should be viewed like a business. At the end of the day it's all about the numbers. But I often meet with people who are wanting their investment to act as a solution for personal issues. When you start doing this you end up with an underperforming investment.

The one I often hear is people wanting to buy an investment property that someone they know can live in. Often it's parents wanting to buy something for the kids. Or it can be for a family member or friend.

There are a range of issues with this. The most significant is you are using a long term investment vehicle to solve a short term problem or issue. You are picking an area based on where the kids want to live or near where they work without actually researching to see whether the area is a good place to invest - what are the growth prospects like? what is the employment outlook? what are the supply side risks? what's happening with vacancies? what is rental growth like? what point of the price cycle is it at?

So what happens? A year or so down the track the kids change jobs, meet someone, move interstate or oversees, or just decide they want to live somewhere else. And you're left with a property that is meant to perform for you over the next 20 or 30 years. And if boughta based on emotion and personal reasons there's a good chance you've bought something that is an underperformer.

Investing and personal purposes should be keep strictly seperate. Let the kids sort it out for themselves the same way you did. They'll whinge about how expensive property is - just like you did. And whether you believe it or not they will still find a way to buy their own home the same way you did. 

If you want to help your kids encourage them save and budget and give them the skills.

Some recent feedback from another client.

How satisfied were you with my services?
Excellent

On a scale of 1 to 5 (1 being very poor, 5 being exceptional), how would you rank your overall experience with me?
5

What elements of the service I provided most impressed you?
Getting ANZ bank loans set up and a good interest rate.

Comments
Happy to have been recommend Greg's services to get closer to a better future for retirement . Conor

 

For most clients we are working with we are developing a long term plan to build income and wealth in retirement. Clients often ask "so when I hit retirement do I sell all my investment properties"?

I ask "Why?". If that property has doubled in value since you purchased it isn't there a good chance that it's going to continue to do that into the future. And if it is increasing in value then haven't the rents also gone up over time? So won't they keep doing that as well?

Once you sell then you are converting a growth asset to a non-growth asset - CASH. Cash may be safe but only in the short term. Cash does not grow in value. $100,000 in bank is still $100,000 in the bank in 10 years time. But the actual purchasing power of that $100K has gone backwards each year by the rate of inflation. On average 3% per annum.

So as soon as you sell, you come to a stand still, and as many retirees have found, when rates are low your yields are pretty ordinary.

I have the same thoughts about flipping properties. The costs to get in and out of a property are substantial. 

• Stamp duty
• Bank fees
• Legal fees
• Agent commissions
• Marketing costs
• Capital outlays
• Holding costs
• Capital Gains Tax
• And the one that is not often accounted for the dollar value on your time to be involved

The reality is in most cases to make money you will need a rising market. Why would someone pay above what you have put into a property in a flat or falling market?

And importantly you can make money in a rising market by just holding a property without all the effort. 

But let's say after all that you do make a profit and have some cash in the bank. What then? What is going to fund your retirement?

The Australian Taxation Office is to increase its scrutiny of the 1.8 million investment property owners this year.

The ATO is focused on people who are rorting the system and over claiming deductions. As part of this campaign, the ATO has recently stated it will write to investors with properties in popular holiday areas to remind them to claim only the deductions to which they are entitled.

Rental property owners should only claim for the periods the property is rented out or is genuinely available for rent. Periods of personal use can’t be claimed. This is particularly important for holiday homes, where the ATO regularly finds evidence of home owners claiming deductions for their holiday property on the grounds that it is being rented out, when in reality the only people using it are the owners or their family and friends, often rent-free.

Another area of focus is where investors claim renovations or improvements as repairs and mainatenance. Putting in a new kithcen or a bathroom and claiming a deduction for the costs is a complete no no. At best you will only be able to claim a very small portion as depreciation over several years.

With the End of Financial Year quickly approaching, it’s a great time to think about income protection. If you became sick or injured would you be able to cover your ongoing mortgage repayments plus ongoing bills and other expenses?

Income protection can pay up to 85% of your pre-tax income up to $10,000 a month if you suffer sickness or injury that keeps you away from work. So you can keep paying your mortgage and other bills until you are back on your feet. 

There is even an option to cover yu for involuntary unemployment of you are made redundant. 

• Income Protection premiums are generally 100% tax deductible
• Pay annually and receive One Month’s FREE Cover!  12 months of cover for the price of 11 months

To arrange for a consultant to call you and sicus your options simply contact us and advise your mobile phone number