Property Investor

I want to share my story in an effort to help property buyers out there. I am a first home buyer in my mid-twenties. I have been waiting to buy my first home for the last five years in Brisbane. So, for the last five years I have watched and waited to find ‘that property’. Realestate.com.au was my best friend. Domain.com.au too. I looked at all the suburbs I was interested in. I checked properties both within and outside of my price range. I considered what I could afford. Put together imaginary household budgets. I saved my money.

Why didn’t I buy in the last five years? Well, a few times I considered putting down an offer, but the price was never right. The timing didn’t fit. The boxes weren’t all checked for me. I knew that the property market had been growing since about 2000 and the growth cycle was bound to end sooner or later. It went on for quite a long while, thanks to odd market conditions such as Australia’s mining boom, poor loan standards by the banks (120% no deposit loans? Really? I’m pretty sure some of you running the banks have economics degrees. I’d ask you what you were thinking, but that’s a whole other article), poor budgeting by home buyers (the buck stops with whoever signs the cheque – the banks may have approved the loan but at the end of the day who is ultimately responsible for the individual’s financial decisions?) the FHOG, World economic boom in the mid 2000’s, etc. All the ducks were in a row for a nice long period of inflation, or in laymen’s terms – overpricing on everything that we buy.

My main source of information during this time was Realestate.com.au. I watched house sale asking prices. I saw them rise over the five years. Then, over 2011, I saw $500,000 houses wipe up to $100,000 off their asking price. I saw $450,000 units being sold for $380,000. Asking prices literally dropped, and the number of days a property was on the market increased from weeks to months. The number of auctions skyrocketed. This information is all freely available online. All I did was watch and wait.

Officially, the newspaper articles have reported in the last few months a 1% up to 5% average price drop. I happen to know the house price sale data is about 6 months old. Why? Because it takes a little while for the paperwork to be officially sent to RP Data to be published as an official ‘government notified’ sale. Six months from now, I expect to see articles stating that average house prices have dropped by 10% over 2011. This is just an average. Depending on where you buy, the drop could be from as little as 1%, to as much as 25%. That’s what I have been seeing. Let’s recall the huge drops in asking prices over 2011 – $100,000 dropped from a $500,000 price tag is 20%.

All these things were an indicator to me that the market had turned. I don’t think that the market is going to turn. It has turned. It turned over the 2011 calendar year. It was a strong possibility last year. This year, it’s certain. The market turned in 2011. We just happened to get the proof in 2012.

Am I going to buy in 2012? I already have. Having watched property asking prices drop, I began looking in earnest at properties. Not just watching, but going out to home inspections. Getting my finances in order. Preapproval is a must for any home buyer. This was the second time in five years I considered getting preapproval. The first time I went to a meeting with the bank but never went through with it. The second time was at the end of last year, and I got preapproval as soon as I could. The timing was right. That box was ticked for me.

So here I am with my financing. Will I buy in 2012? Well, I already have. I signed a contract on a lovely two bedroom place in the inner Brisbane area. I managed to get a pretty large discount off the normal sale price because it has had structural issues in the past. This may be an issue in the future, but I have budgeted to manage the potential cost and know that I still paid well below market value. If it never becomes an issue, well then I just got a smashing bargain.

In my moments of buyer’s remorse (what if?!), I feel that perhaps I maybe jumped the gun. I expect 2012 to be a good year to buy property. I’ve gotten in right at the start of the year when I could have waited to perhaps get a better deal on a house that hasn’t any issues. I could have really haggled some poor seller down to the last cent. At the same time, I’ve been looking for the last five years and the time, price, place and property I’m buying meets all the criteria. The boxes are all ticked. I’m good to go.

So, after five years of watching and waiting, I finally have my humble first home in a really nice area. It needs a bit of a paint and I’m going to need to watch those cracks, but I got it for a good price. I was well on budget too. Truthfully I would love to own a beautiful wooden Queenslander, with decks all round and a huge back yard. I could try to afford it, but that would mean no more take out and giving up my holidays. Things like that I don’t want to do. I want to have a life beyond paying off my mortgage. I had my budget and I stuck to it. It’s my opinion that a few (a lot of) people in the last few years have made poor decisions to get a loan for more than they could really afford. And while I think that the banks shouldn’t have approved some of those loans, at the end of the day you’re the one signing the cheque. The buck stops with you.

Ultimately, dear reader, what I’d like you to take away from my experience is this:

1. Watch the market and be proactive. Do your research. Know the area(s) you want to buy in. What price ranges are the houses selling in? What have they sold for in the past? What’s the outlook for the future? Are the houses renovated or need renovation? You need to know the area better than the agents who work there do.

I bought my house without any outside assistance. I did all my own research on the area on the internet. The agent who sold the place I bought was impressed that I knew more than they did about the property. I even did my own search on the body corporate documents after signing the contract. I went into their office and went through stacks of paper dating back 10 years. It was worth it. I found out a lot. I feel I found out more than any solicitor could have told me, assuming they would have bothered to look in as much detail as I did. Remember – its going to be your house and the buck stops with you. I happen to know of a place that sold for $20,000 more than it should have because the owners didn’t do their research. A review of the documents on the property would have revealed several problems that would have affected their offer. The owner should have told them – but they did the wrong thing and stayed quiet. This doesn’t have to happen to you. Take responsibility and be proactive. If you can’t personally make the time to get the documents on the property, badger your solicitor to do their job. It only costs about $150 to do the searches. That’s about an hour of your paralegal’s time. If something does come up, then you are only out $150. It’s not too much to pay for peace of mind.

2. Save & don’t scrape in a 5% deposit. Save as if you were paying off a house already. Practice is the healthy habit of successful people. If you practice putting aside your money, it won’t be an issue when you’re ready to take on a mortgage.

3. Have a budget & stick to it. I know its common sense. But if common sense were so common, why is it that the USA and Europe are in crisis over people being unable to repay their debt? Is it perhaps because they didn’t stick to an affordable budget and when times got tough they couldn’t afford the repayments? Prepare for the worst. My partner and I could pay off the property we bought on just one of our wages if it came down to economic Armageddon. You don’t need a half million dollar house. Be smart. Try to remember this – any property you buy with a mortgage to pay it off actually costs you double what you pay for it; probably more. The reason being the interest repayments. You literally not only pay back the sale price of the property, but also the interest which is about the same amount. Put simply: if you offer $450,000 for a house, be prepared to pay back $1 MILLION to the bank over the next 30 years.

4. Be prepared. This means be prepared for everything. Be prepared for the market to drop. Be prepared for it to rise. Be prepared to put an offer down if you find ‘that property’. I put down my offer two days after walking through the property. Between the walk through and making the offer, I researched the structural issues with the property and decided that if I could get it for the right price, I could afford to pay for any future issues. I have never had this actually happen to me, but others have lost good properties because they weren’t prepared. So make sure you get preapproval. On the other hand, be prepared to walk away from a house if the price isn’t right, no matter how cute it looks. Remind yourself that what you can’t have only seems better because you can’t have it. Think about what you really want. An affordable mortgage for a house that checks all the boxes, or a pretty house that you hate because you can no longer afford it?

5. Look on onthehouse.com.au for old sales prices. If the house sold for $400,000 back in 2009, and they’re asking $410,000; odds are they aren’t going to be willing to lower their price any further. If they bought the property back in 2000 for $150,000 and they’re asking $400,000 now, they are much more likely to have room to move. Look on refindhouseprices.com for how much and how long the property has been listed for. If its new, the owners are unlikely to lower the price right now. If its been on the market for a while…

6. What to offer? In general, I’d take 10% off the asking price and see how that goes. Unless I did my research and thought what they were asking was laughably high, an offer 10% below the asking price is generally expected in real estate from what I understand. Especially in a buyers market. Be cheeky if you want and offer even less if you want to buy it at 10% below the sale price. I know of a place that sold for about $30,000 less than what it could have been sold for (what I might have considered paying for it) because the owners wanted out. You never know what the owners are thinking. The only way to know is to get their reaction to your asking price.

7. Realise that while now seems to be a really good time to buy, that there is actually no good or bad time to buy. There is only hindsight. Therefore if you do all these things and in particular smart on your budget, then you know that you got the best deal you could. Even if the market goes into a severe downturn, you still did well. You can’t predict the future. On the other hand, buyer’s remorse is for those who didn’t do their research, weren’t smart, and weren’t prepared. So be smart. Do your research. Be proactive. Save. Consider your budget. Be prepared. Do these things, and you can’t go wrong.

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

I have been asked over the years by people if it is possible to buy property with another person. Usually this question comes from a first home buyer who doesn’t qualify for a loan on their own.Although it is sometimes an advantage to do this, there can also be a number of pitfalls involved. The most common occurrence for joint ownership is between siblings, friends or family members. If you are considering buying a home with someone else here are some of the things you need to consider.

Siblings

Susan and Sally decide to buy a home together because they can’t afford to on their own. They put their savings together, combine their incomes and apply for the First Home Owner Grant.
They move into their new home and have a ball for the first few years. One day, Sally becomes engaged to Steve and they want to buy a home together.

Steve has saved a small deposit, but needs a little bit more. His income also falls a little short for serviceability so he explains that in order to buy the home they like she needs to contribute some funds, and her income is required.

Her equity is tied up in the house already owned by her and Susan and as she is jointly and severally responsible for this loan (in other words, if Susan can’t meet her payment this month, Sally has to make it for her), her income doesn’t stretch over two loans. She will also be responsible for the entire debt with her Steve.

This would limit their borrowing options, however Bank of Melbourne have a “common debt reducer” policy whereby, provide Susan can service her half of the loan, Sally only needs to service the other half.

This may overcome the issue of serviceability, but raising a deposit is the other problem. They may be forced to sell the home, which means Susan will need to buy another home on her own. This may not be possible due to her income and she is not happy about having to pay stamp duty again.

Alternatively, they may need to increase their borrowings in order to raise a deposit, but once again, Susan is not happy about being responsible for a loan which assists Sally and Steve, but for which she receives no benefit.

Needless to say, Steve was pretty upset when he realised he was not eligible for the First Home Owner Grant because Sally had already received it. He was counting on this money, and now is that little bit further away from buying his home with Sally.

Friends

Friends buying a home together usually do so for the same reason as siblings. That is to say, they can’t afford to buy on their own so they join forces.

Unfortunately, the same circumstances may, and usually do arise as the case with Susan and Sally, but not being related to each other can make things worse and may even end up in court. Needless to say, it is a good way to ruin a good friendship.

The decision to buy a house together should be thought through thoroughly and legal advice sought.

Family Members

Families, for example two or three married couples (and their children) may think it is a good idea to buy a holiday house together. On the surface it sounds like agreat idea. They can split the costs and suddenly theyhave a coastal escape!

However, what happens when there is an argument over who gets to use the house over Christmas or Easter? Each party may wish to invite friends with them down to the house and may have to settle on heading down every third Christmas, Easter of school holidays.

This may cause friction and one or more parties may decide they don’t want the house anymore and wishto sell their share to the remaining parties. If the other parties can’t afford to buy the other share out, the house may need to be sold. No one is happy if this happens.

Even if all parties can compromise on the use of the house, what happens if one party has a change in financial circumstances and can no longer pay their share of the mortgage repayments? Until they can, the other parties will need to make up the difference. What if one party decided to buy into a business or wants to upgrade their home and want their money back? Once again, this will apply pressure to the remaining parties.

Syndicates

Syndicates may be formed between, friends, family or business associates to buy an investment property. This may be a larger purchase of either residential or commercial property and as such the structure of such a purchase is critical.

A unit trust is usually the best way to do this. A trustee company is established and then units are sold to each unit holder (investor). For example, if the trust wishes to buy a property for $1,000,000, it may establish 20 units of $50,000 each. If for example, there are five investors, each may buy four units with the equivalent value of $200,000 each.

Depending on the position of the investors, some may wish to buy more units, so you may have a case where one investor has ten units (valued at $500,000), one buys four units at $200,000 and the other three buy two units for $100,000 each. They would then have to split the income and costs of the property in the same proportion.

Units can be sold independently, within or outside of the syndicate. For example, one investor may need to sell two of his units and other members of the syndicate may be happy to buy these from him. Alternatively, one member may wish to sell his units to a family member without affecting the remaining syndicate members.

Adopting a unit trust avoids any issues within the syndicate and if a member has different requirements in the future units can be bought and sold easily.

This whole process is best achieved if each unit holder pays cash for each unit, by sourcing their own funds. This can come from cash holdings, borrowings or even superannuation. This way the investment property is unencumbered and there are no joint borrowings within the unit holders. This prevents the problems that may arise in the previous scenarios.

The trust and structure should be established with the advice of each member’s accountant and solicitor.

As you can see, buying a property together can be fraughtwith issues and problems and should be considered carefully and after legal and financial advice has been taken. There can be benefits in buying property together, but I feel it needs to be structured in a way that will not affect any parties if circumstances (financial or personal) change for another party. By structuring the purchase correctly (as with the example of the unit trust), and changes do not affect other parties.

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

LMI is a one-off expense payable by the borrower that protects the lender if a borrower is unable to meet their mortgage repayments and the property has to be sold.Unlike traditional insurance products, LMI is a once only premium, payable at loan settlement, which provides the lender with cover for the full term of the loan.

It offers no protection to the borrower and should not be mistaken for Mortgage Protection Insurance which is a form of life cover offering death, trauma, disability, sickness or unemployment cover.

LMI can either be paid upfront by the borrower, or in most instances, capitalised (added onto) the loan. LMI premiums vary depending upon individual borrower profiles.

Traditionally, lenders required borrowers to have at least a 20% deposit. This buffer between the amount funded by the lender (80%) and the amount contributed by the borrower (20% plus statutory costs) satisfied a lender’s risk profile.

Depending on your lender’s requirements, LMI allows you to borrow up to 95% of the purchase price of a property, with a lower deposit than would otherwise be required. By insuring their loans through LMI to support a borrower’s property purchase, lenders are able to offer loans that cover a higher percentage of the properties value.

If the proceeds from the sale of the property are insufficient to cover the outstanding loan balance and other costs incurred by your lender, the lender is able to claim any shortfall from their LMI insurer.

Who Provides LMI?

Australia has two main mortgage insurers that dominate the local LMI market. Most lenders work with one of both of these insurers or have their own insurer that is backed up behind the scenes by one of these companies.
Genworth Financial: Genworth operates in over 25 countries, has 15 million customers and in Australia deals with over 100 different lenders. Since 1965, Genworth has insured over $300 billion worth of home loans in Australia alone.

QBE LMI/PMI: The QBE Group is a top 25 company in the global insurance market and has insured loans in Australia, New Zealand as well as throughout Asia. QBE LMI was previously known as PMI which was part of an American owned mortgage insurer.

There are several other smaller LMI providers, some of which are owned by the lenders they insure. Note that some lenders charge a fee instead of an LMI Premium. This is known as a Risk Fee, Loan Extension Fee (LEF), Low Deposit Premium (LDP) or Reduced Equity Fee (REF) however it is a form of LMI.

• CBA LDP
• St George Insurance (SGI)
• St George LEF
• ANZ LMI
• Westpac LMI (WLMI)
• MRM Pty Ltd / Widebay Australia LMI
• Rams Risk Fee
• ING Reduced Equity Fee

Factors Affecting LMI Premiums

LMI companies have significantly different premiums depending on attributes of the borrower, the property and the loan size. These attributes include:

• First Home Buyers
• Evidence of ‘genuine savings’
• Employment stability
• Credit history
• Loan to Valuation Ratios (LVRs)
• Availability of verified financials
• Size of loan
• Security location
• Security type

Lenders Mortgage insurers place various conditions on applications and among these are length of employment, income tests and deposit conditions. For example if your deposit is from the sale of a house, you will be expected to show evidence of this. If it is from savings, you will be expected to establish that you have saved a specified amount (3% or 5% of loan amount depending on insurer) over a minimum three months.

Insurers also restrict maximum lending (LVR) in various locations due to their perceived resale market for the property. For example, for LMI of properties in metropolitan and larger regional centres, loans are typically insurable up to 90 – 95% of the properties valuation, while smaller regional centres may only be insurable up to 85%, and inner city up to 65%.

It is important to keep the LMI policy in mind, as mortgage insurers actually ‘run the show’, not the more visible lenders, and what the insurers require, will almost always over-ride an individual lender’s policy.

A Typical LMI Premium

Let’s take a loan of $297,500 on a Victorian property valued at $350,000. The LVR is 85.0%. For a standard purchase this would attract an LMI premium from Genworth of $2190.01 plus stamp duty of $235.03 = $2,425.04. For a first home buyer eligible for the First Home Owners Grant this is reduced to $2,363.64. If this loan was with a lender that satisfied their strict self-insurance guidelines this could be reduced to $1,963.50.

If a customer with slightly less favourable circumstances was approved for a 95% LVR loan of $332,500 on the same property valued at $350,000, mortgage insurance premium could be up to $14,615!!

As you can see, there is no substitute for making a substantial contribution to the purchase of a property or, in the case of investors, offering collateral security that can lessen a lender’s risk and your LMI premiums.

How Do I Obtain LMI?

Your lender will advise you if your loan requires LMI and will prepare all the necessary documentation. To qualify for LMI your lender will check that you are able to meet regular mortgage repayments, and meet relevant policy. Your lender is your sole point of contact if you have any questions regarding the LMI cover provided in respect of your loan.

LMI is payable upfront by the borrower at settlement or is ‘capitalised’ on to your loan. A 2009 survey of mortgage trends indicated that 58% of respondents capitalised their mortgage insurance thus increasing their monthly mortgage repayments but avoiding a large one off cost.

The advantages of consulting a good broker:

If you approach a lender directly, they will only offer the premium from the mortgage insurers that they deal with and will not refer you to another lender that may offer a discounted premium.

Brokers are aware of the various mortgage insurance options available from most lenders and can in some instances direct borrowers to lenders who self-insure or offer discounted premiums for clients who satisfy strict lending criteria. This can in some instances save customer’s thousands of dollars or be the difference between obtaining a loan and not obtaining a loan.

A good broker is also aware that by appropriately structuring the debt on your property portfolio, mortgage insurance can sometimes be avoided completely.

LMI Premiums

GST is payable on all LMI premiums, and stamp duty may be payable subject to State Government regulations. These amounts will be included in the total premium quoted by your lender.

Is the premium refundable if the loan is repaid early?

Your lender can advise whether a partial refund of the insurance premium is applicable in your case. A partial refund is available in the first one to two years depending on your lender and the LMI provider.

What if I can’t make my mortgage repayments?

If you are experiencing financial difficulties, you should contact your lender immediately.
It is in the interests of your lender and the insurer to work with you to determine a workable solution to meet the repayments on your loan.

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

As property investors, we’re all told by our peers or advisers that we should not cross collateralise our investment properties. In this article I will tell you why this is so by pointing out some of the pitfalls involved with this strategy.Firstly, what is Cross Collateralization? It is when more than one property is used as security to support a loan. For example (see diagram below) let’s say your home is worth $400K with a mortgage of $200K and you wish to purchase an investment property valued at $400K (requiring new lending of $420K to cover the purchase costs).

Most banks would prefer the structure on the left (Co-Secured) to that on the right (Stand Alone). Obviously a lender would not give you a loan of $420K against a property worth $400K as this would be an LVR (Loan to Value Ratio) of 105%! The highest any lender will go these days is 95% with LMI (Lenders Mortgage Insurance) or 80% without LMI. Co-securing the new property together with the home gives an overall LVR of 77.5%; this is quite acceptable for any lender.

The Stand Alone version on the right gives the same result in terms of loan amounts by adding an extra loan against the home to supplement the new investment loan. The LVR on the home ends up at 75% and for the investment property, 80%… again acceptable to any lender. You still end up with tax deductible lending of $420K as the loans are all separate.

So why does a lender want to tie all your assets together when the outcome in a Stand Alone structure is the same? Believe it or not, some bankers (and even mortgage brokers!) do it out of laziness, as it is a little less work to co-secure rather than stand alone. The main reason though is that in the event that anything went wrong, they would have the power to control all your assets to redeem the debt owed, but more on that later.

The second reason is that when they co secure all your assets, you are going to remain a customer of theirs for the long term (probably a lifetime). Most people don’t want to incur switching costs and so remain with the same lender forever. The real problems occur further down the track when your portfolio is gaining momentum and the bank loses confidence or the market changes. With your portfolio moving beyond four properties or so, expect this to be an area of concern if your lender doesn’t support your next purchase.

You’ll find it an expensive and time consuming exercise to unravel their claws and move to another lender that’s more supportive. If you like, imagine that the red lines in the images above are arteries carrying blood. You can’t simply sever an artery and go on your way; it would most likely require some form of surgery!

The Pitfalls of Co-Securing Properties

LMI will cost more…

Let’s assume you wish to maximize your gearing by lending over 80% LVR and thus incur LMI costs. As illustrated below, the scenario on the left is a Co-Secured approach with an LVR of 84% (total borrowing $670K / total security $800K), so the LMI is calculated on the total borrowings ($7,300). In the Stand Alone scenario on the right, we have kept the LVR against the home at 80% (no LMI) and borrowed 88% against the investment property resulting in the LMI premium costing only $4,300. This is a considerable saving with the same objectives being met.

Loan Top Ups…

Down the track, as part of a sound investment strategy, you may wish to access capital growth equity gained in your property to use as a deposit to purchase your next investment property. The issue with co-secured properties is that they are all inter-dependant on one another. What this means is that when the bank values one property to confirm the equity to release, they must value all of the properties that are linked.

What does this mean in real terms? Firstly it means extra fees due to more than one valuation being required. More importantly though, any non-performing properties in your portfolio will drag down your overall capital growth. Using the above example, let’s say that the investment property was now worth $500K (an increase of $100K) yet the value of your home decreased by $50K, resulting in a net value increase of only $50K.

Instead of being able to borrow 80% against the $100K increase ($80K), the bank will only lend against the net increase of $50K, i.e. $40K. Even if your portfolio was performing well in all areas, can you imagine the ramifications with a large portfolio being co-secured? Think of the time delays (getting valuations done on tenanted properties are not always easy or fast) and costs of having 5 properties valued to tap into one property’s equity.

Borrowing Capacity…

When properties are co-secured it means they are also with the one lender. This can decrease your borrowing capacity significantly, as a lender will ‘sensitise’ the interest rate used to calculate your borrowing capacity. What does this mean? Let’s say the current interest rate is 7%. The bank may use an assessment rate of 8.5% when calculating how much they will lend (the amount added to the rate as a buffer varies between lenders).

That’s all well and good but if all of your lending is with the one bank they will sensitise all of your existing loans including the new one being applied for. This can have a massive effect on your capacity especially if you have a number of mortgaged properties. A new lender, by comparison, will use the actual repayments you have in place with the other financial institutions and not sensitise them.

Control of Funds…

The final pitfall I want to point out is that when properties are co-secured, the bank can and generally will control the funding should you choose to sell one of your properties. The best way to explain this is by sharing two stories that actually happened to people who have since become clients of mine. The first couple owned three properties, all co-secured with the bank. They decided to sell one to invest into a business and chose a property that had $100K in equity; in other words netted $400K from the sale and owed $300K on their mortgage. Settlement time came and the bank informed them that they would not be releasing the $100K to the clients as they (the bank) wanted to use the funds to lower the remaining loans and thereby reduce their overall exposure. Instead, we refinanced their remaining properties to stand alone and successfully negotiated with the bank to release their $100K to finance their business venture.

The second couple were building two houses: one to sell as a spec home and the other to hold and rent out long term. They borrowed 95% LVR and specifically asked that the properties were not co-secured and done as two separate facilities. The time came to sell one of the properties which they did successfully, planning to use the remaining proceeds from the sale toward another project. They were instead informed by the bank that they would be withholding the money to reduce their other loan. This couple was obviously furious, as the LMI paid at the start in order to borrow 95% was paid in vain, given the LVR would have been significantly reduced with the injection of funds. Fortunately I was able to intervene on their behalf and ensure the funds from the sale were released to the clients, leaving the remaining loan to stand in its original state.

In Summary…

It is absolutely essential that you consult with an adviser who is experienced with structuring investor finance so that you not only grow and maximise your portfolio, but also remain protected from the various pitfalls that exist.

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

Buying a home to live in, whether it’s your first home or an upgrade can be an exciting transition. However, during this exciting process, try not to overlook your 5 or 10 year plan.So many times the property you are purchasing to live in, later becomes an investment property when you opt to upgrade to a larger home to accommodate a growing family. If you feel that this is even a remote possibility, there is a key loan feature that you should be activating, that could save you tens of thousands of dollars in tax.

The feature I’m talking about is your “100% offset account”, which is where any additional payments over and above the minimum should be directed. The alternative option that many use, is to pay the extra repayments directly into your home loan, where they become available on a redraw account, this is the option I want you to avoid. If the loan is variable (or at least, the part of the loan the offset account is linked to) the interest savings is exactly the same, so there is no drawback to using the offset account. Let me explain the massive hidden advantage however…

What Is An Offset Account?

Firstly let’s make sure the basic premise of offset account is understood. An offset account is a separate account to your home loan, which is linked in the banks computer systems, so that the balance held in the offset account, is daily, offset against the interest accruing on your home loan. For example, if you set $10,000 into your home loan offset account for a month, on a loan of 6.90% interest, you would save around $57 interest for that month. The effect of placing this amount directly into the redraw account of the loan is exactly the same (for a variable loan) interest savings.

So Why Use An Offset As Opposed To Redraw?

The benefit I’m referring to here is a tax advantage should the property become an investment. To best illustrate let’s use an example.

Stephen buys his first home for $350,000, with a $300,000 mortgage. The mortgage is fully variable with an offset account linked. Stephen has indicated to me that in around 3 years he will move out and rent this property. Therefore I have instructed Stephen that if he is going to make extra repayments, then to fund them into the offset account. After three years Stephen has put $40,000 into his offset account as extra repayments. He is buying a new property to move into and will keep the home as an investment.

He plans to use the $40,000 to go towards the deposit on his new home, so will withdraw this from his offset account. For arguments sake, let’s say the home loan is still $300,000 large, with $40,000 in an offset account. Stephen is accruing interest on $260,000 daily. When he withdraws the $40,000 from the offset account, he will have $300,000 balance, with $300,000 accruing interest again. In this scenario, the whole $300,000 is tax deductible now that the property is an investment.

In the second scenario, Stephen pays the $40,000 over three years directly into the home loan. When he moves to the new house, the home loan balance is $260,000 and he is accruing interest on the $260,000. However, when he pulls the $40,000 out of redraw for the new property, the home loan balance reverts back to $300,000, but only $260,000 remains as tax deductible debt. This is essentially because Stephen has re-borrowed $40,000, and the purpose of that $40,000 is for his own home, which is a non-tax deductible expense.

Therefore Stephen has forever apportioned this home loan to be 86% tax deductible and 14% non tax deductible. There is no way to clean this mess up as the damage is done! Stephen will never be able to claim that $40,000 as tax deductible. That is a $2,720 tax offset per annum for as long as he holds that investment.

If Stephens top marginal tax rate is 30c in the dollar, then that tax offset is a savings of $816 per annum. Let’s say he holds that property for 10 years. That’s a savings of $8,160, net. See how this small oversight could be costing you thousands?

Be Aware

100% offset accounts typically only work when linked to variable rate home loans, so please keep this in mind and check with your lender. All lender offset accounts can differ, for example, the CBA’s offset account, named a MISA (Mortgage Interest Saver Account) has a minimum $500 transfer in or out of the account, whereas ANZ’s offset, the ANZ ONE is a fully transactional account where you can direct your paymaster to. Check your loan’s offset account features and methods of operation with your lender or broker in full to ensure you have a good handle on how to set things up.

In Closing, Offset, Not Redraw.

Just last week I refinanced a loan for a client who had paid $300k extra off into his investment home loan directly, rather than the offset. He’s now redrawing that cash for personal purposes. What a shame, that had he used an offset account, all that debt would be a tax deduction again. He stands to lose a lot more, as he’s in a higher marginal tax rate, and will be holding this property for a lot longer.

Even if you’re unsure about how you’re going to use the property later, it doesn’t cost extra to use your offset account instead, so take this small precaution, and reap the benefits later.

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

Despite rising living costs and dampened house price growth, 21% of Australian mortgage holders have saved money over the past year to purchase another property, according to a recent survey by Australia’s largest independently-owned mortgage broker, Mortgage Choice*.

Before making the move it is worth considering some important financial aspects associated with purchasing an investment property.

Understand your Financial Situation and Needs

When you embark on your property investment search, be realistic about your rental income and capital gain expectations. Factor this into your purchase price and loan amount to obtain a good idea of what cashflow you can expect from the investment.

Research your purchase finance options early on and consider obtaining a loan pre-approval, so you know how much you have to play the property game with. A reputable mortgage broker can help you compare loans from a wide range of lenders. To help find a solution that is suited to your investment needs be sure to choose a broker who has a panel of at least 20 lenders.

Getting your finance plan right from the beginning will pay off over the long term.

It tends to be an ‘old school’ belief that repaying a home loan in full is essential before purchasing more property. Today, it is common for people to have paid off only part of their home loan before borrowing against their equity to finance an investment property purchase.

This strategy does require you to take on a certain amount of financial risk. For this reason it is a good idea to consult a financial and tax adviser about whether you can comfortably afford to make repayments on multiple properties.

How much you can borrow is up to lenders’ serviceability criteria as well as your deposit and/or the amount of available equity that will work as security for the investment loan. Having a larger deposit or more equity to contribute means you borrow less and are more likely to be approved for a loan.

If you intend to borrow more than 80% of the total property value, ie. the combined value of your current property plus the new investment property, you may be required to pay lenders’ mortgage insurance, which can be anywhere from a few hundred to many thousands of dollars.

Three common types of equity finance are a loan top-up, a line of credit that allows a borrower to withdraw funds in addition to their home loan amount (up to a limit set by their lender) or refinancing to a different lender and/or loan product to increase your borrowings.

In any case it is important to shop around as lenders offer different borrowing capacities and each loan product may have different fees, interest rates, features, flexibility and accessibility.

The Australian mortgage market is especially competitive at the moment as many lenders are competing for market share by offering incentives such as discounted interest rates and fees.

Tips for Home Loan Approval

Reducing your other debt commitments will not only increase your chances of having your home loan application approved, it will probably increase the amount you can borrow. For example, someone with credit card limits totalling $50k can borrow less than someone with a $10k limit, regardless of how much debt the credit card/s actually hold.

Understand small blemishes in your credit history can reduce the likelihood of loan approval. A default on home loan, a car loan, credit card or even a mobile phone bill can hinder your chances. Similarly, each time you apply for credit, it may be recorded on your credit file, so it is important to investigate your credit history before you apply for a loan. Keep in mind applications for a loan pre-approval – which many people take out before property hunting – may also appear on your credit record.

Be sure to have a steady employment record and don’t expect overtime to be included if it is non-essential work.

Keep in mind there may be restrictions you are unaware of depending on your deposit size or amount of available equity, eg. some lenders won’t allow you to buy an apartment in a high rise if you have a smaller deposit, while others have floor size restrictions.

Pick a Loan Tailored to your Investment Strategy

Setting yourself up for home loan approval is only part of the challenge, another is choosing a loan tailored to your investment needs on top of weighing up interest rates, fees, features, accessibility and lender service.

One decision is deciding between a principal and interest or an interest only home loan.

When choosing a principle and interest loan, each repayment covers all the interest plus some of the principle (the loan amount). Usually at the start of the loan the repayments comprise mainly of interest, but as the outstanding principle is reduced, the interest component decreases and the principle component increases.

Interest only home loans are not structured to reduce the loan amount. Instead, they result in smaller monthly repayments and allow you to make greater contributions to your owner occupied property or to invest in another asset, all the while allowing the investment property to grow in value through capital gains. The repayments consist of only interest and the principal doesn’t get paid until the interest only term has expired.

Fixed or Variable?

Fixed rate home loans tend to be less flexible with features, and borrowers can incur large exit fees upon breaking the fixed term. On the other hand, these loans offer borrowers peace of mind of the repayments required throughout the entire term.

Variable rate home loans are usually more flexible with the features available and offer borrowers a chance at lowering their minimum required repayment if interest rates fall.

If pondering the fixed vs. variable rate question ask yourself if you need the security of steady repayments and are happy with a more restrictive loan or whether you need a more flexible loan and can handle possible rate rises.

Also think about how you will feel if you lock in but then watch interest rates fall (always a possibility) and consider potential break costs for switching again during the fixed term.

Of course, there is always the option of hedging your bets by fixing part of the loan while leaving the remainder on a variable rate.

There are risks and benefits with different loan types, which is why self-education is so important, as is taking ownership over your mortgage situation.

Consider all the Costs

It is crucial to set in place a detailed budget listing your exact outgoings and earnings before committing to an investment property loan otherwise you may find yourself caught out by overly optimistic expectations.

Property investment often incurs unexpected expenses over time. Also, keep in mind you are relying on other people for income, ie. your tenant and probably a property manager, and interest rates are never stable throughout a lengthy loan term so it is best to be conservative in your calculations.

You can prepare yourself for unexpected situations by depositing your leftover funds into a redraw, offset or savings account (remembering the interest on savings attracts tax). If you have extra money in a redraw account or offset facility, every dollar will help offset the interest owed on your loan.

Investing in property is often a rewarding long term growth strategy if you do your research, understand the pros and cons and make wise decisions early on in the process.

*The national 2011 Saving & Spending Insights Survey ran from late August until just before the September cash rate announcement. An independent online survey, it was commissioned by Mortgage Choice and undertaken by Nine Rewards, questioning 1,009 Australians about their financial attitude and habits. Note: NT and TAS respondents were not included in comparisons between states due to low respondent numbers. 

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

I went to a cocktail party at a friend’s home last weekend, and met a friend of hers for the first time. And you know how it goes… “What line of work are you in?”“Property” I replied. Well the first question she threw at me was “Should I renovate my existing house or buy land and build a new house?” Well it’s not the first time I have been asked that question and in fact I told her I had just been called to someone’s house in her area to give advice on this specific question.

The way I see it, you have to weigh up your options. Firstly, if you can add value to your existing property and not over capitalize in your specific area and you can achieve the outcome you desire, then renovating is an option. What’s important is that after the renovation you should be able to get your money back. The value of your house should increase by the amount you spend. This works if you are able to get your existing house to meet your current needs.

When considering a renovation it is important to also be aware of what your neighbours in the street/area are doing. There is no point of renovating your house to a point where it becomes the best house on the street but also the least affordable in your suburb. You also have to take into account that perhaps there is a price ceiling in the area.

Unrelated but worth a mention here is ‘location’, and this is a very important part when buying real estate. My rule is when buying property, buy in the best location you can afford i.e. Location Location Location! You will make more money this way. It is better to own the worst house on the best street then the best house on the worst street. You can always change what a property looks like but you can’t change the location! So if you are in a great location already, there is definitely a strong swing towards renovating.

Remember, the cost of the stamp duty you paid when you purchased the house is a sunk cost. Also, if you consider the stamp duty you would have to pay on a new house or land you purchase, this lump sum of money which will again become a sunk cost could be used to renovate and add value to your existing home. It may not be enough, but it’s a start. By using this option it may give you the outcome you desire and require, spending the least amount of money. Hold this thought for a moment.

On the other hand, let’s look at buying land. If you buy a block of land rather than an existing house, you pay a stamp duty on the land component only, not on the house you are building. So there is a stamp duty saving, however, you have to factor in other costs: holding costs of the land whilst building, the cost of renting whilst you are building and perhaps other fees such as architects etc.

Generally, how it works is that houses depreciate and land appreciates. For the past 10 years property prices have gone up. Therefore if you bought property you have made money. If you build a new home on a block of land, at the point of completion your house is worth the cost of it plus the land. As the years go on though and the finishes in the house become dated, the house does not have the same value as a new home.

However, 10 years down the line your land component would have steadily increased. And that is why after 20 years the next person might knock down the house because it’s almost cheaper to start again unless the house has fabulous bones. Often, solid brick homes are great to renovate like the old 60s and 70s. They are so out that they are now in fashion.

My rule of thumb when buying land is: the amount you spend on your house should be roughly the same value as the cost of the land you purchased. For example, if you buy land for $700,000 you should spend about $700,000 building your new home. This way, you are ensuring your house will appeal to buyers in the suburb when you are ready to sell. It’s a simple rule but ensures you don’t over capitalise or potentially build something that the next owner will want to tear down.

There are no hard and fast rules and at the end of the day you have to make the decision, but the young wide eyed lady I was chatting to had called in a QS to price up the renovation vs. the rebuild. And guess what he came up with… to renovate cost $1.1 million and to rebuild a new home on her existing land cost $1.2 million. So there you have it. Not much in it unless you value the old beauty of your existing home.

It is a good idea to call in a few so called experts to get an idea of what your options are. A real estate agent can give you an idea of what the current market price is and maybe what it will be worth after the renovation. An architect will give you some idea of what you can build and what a new home will cost. You do need to have the facts to be able to make a decision that you are comfortable with. Clearly there is no right or wrong but it’s worth being 100% comfortable with the decision once you have made it. Do your homework!

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

Should You Consider US Property Investing?I love property! Property investing is a fabulous vehicle for creating wealth, whether you are talking about the US or Australia. The reality is that better information, easier communication and internet among other tools is making it increasingly easier for Australians to consider not just the local Australian real estate market, but also the international property market.

Most Australian investors would agree that investing in the Australian market brings a sense of certainty, perhaps even a sense of safety. We know where the properties are, the laws that will govern them and the general standard of property management we can expect. But does this guarantee you of a good outcome? Sadly, no.

The US has been one of the primary international markets that has received a lot of attention over the last few years. With a huge burst in the real estate bubble, the US has seen properties flood into the foreclosure market at discounted prices. Foreign investors have been salivating at the sight of such low prices and correspondingly high yields.

The real question is, should you be considering US real estate? This is a complex question, so I’ll answer this is by raising a few key points.

There are so many property experts internationally that are describing the opportunity presented in the US right now as the ‘perfect storm’ with regard to market conditions:

Discounted Property

Property prices have been hammered by the Global Financial Crisis, making it possible to access properties at prices that were only available over 30 years ago. In many cases this means you can buy properties at below current market value and the replacement cost on these properties would be many times more than what you are paying.

Strong Rental Demand

Many former home owners have been pushed into the rental pool, making the demand for good housing stronger than ever. In some cities rental rates have hardly dipped at all in contrast to the fall in housing prices, meaning the yields that investors can achieve are far in excess if what’s available outside of the US.

Hungry Sellers

An excess supply of foreclosed properties has created a buyers market. In many cases home owners and lenders are being forced to accept offers that sit well below market rates.

What is exciting for many Australians right now is the idea of acquiring real estate in full, with no further debt or bank involvement for a fraction of what a comparable Australian property would cost.

Aside from this, I believe there are specific reasons an Australian investors might want to consider investing in the US market:

Cash Flow

Most Australian property offer great negative gearing benefits. Essentially this means that if you fall into the (small) category of Australians who are worried about earning ‘too much income’, then Australian real estate offers you an opportunity to grow your wealth, while at the same time reducing your taxes. Unfortunately, for the rest of us, any decision to invest in real estate is often a decision to divert income away from our ‘lifestyle’.

In contrast, the attractive US property assets, cost no money to hold, and in fact creates an income stream for the investor. Even after expenses, the main attraction of investing in the US is that it is creating a passive income stream.

Maximising Self Managed Super Funds

It is all the rage right now for many Australians to have a Self Managed Superannuation Fund (SMSF). Unfortunately unless these funds hold substantial assets, it can be hard for them to borrow money. One of the exciting things about US property is that it offers those Australians with smaller Self Managed Super Funds an opportunity to acquire properties at heavy discounts in a simple way and continue to build their retirement wealth.

Saving Struggles

The cost of living is high in Australia and many Australians are finding it tough to save for big ticket items like real estate. With the increasing levels of uncertainty in the local and international economies, lenders in Australia are continuing to require evidence that an investor can cope with debt and contribute a decent portion of equity when buying real estate.

The reality is that there are many Australian investors who want to buy, or continue to buy Australia real estate, but do not have the capacity to save a sufficient deposit. Once again, the lower entry point for the US property market makes it a more accessible investment.

Borrowing Ceilings

Many Australian property investors have reached the limit of their borrowing capacity with the local banks, making it difficult to continue to build wealth through property here in Australia. In some instances these individuals may be good savers, but they are rejected by lenders because of a perceived debt serviceability issue.

Many of these types of investors are normally forced to wait until their wealth base increases before being able to continue investing. The US market offers a strong alternative to continue building wealth without waiting.

Complementary Strategy

The US market is a complementary investment strategy for Australians who are already investing in Australia. In many cases, investors can use the income stream generated by the US investment to support the cash flow demands of Australian investments, lifestyle commitments and other debt.

My opinion is that whether you are looking at real estate in Australia or the US, the bottom line is the same. You must know your market, you must understand the numbers, you must understand whether the investment is going to meet your investment goals and you must be prepared to take the time to do good research.

If you are working with people you can trust and you are interested in understanding the subtleties of the US property market, then it can be highly rewarding. Having said all of that, I would not hesitate to say that investing in the US is not for everyone. It offers a certain kind of investment outcome and will meet certain investment goals. If, for example you are investing in the US for immediate high capital growth, then you could be ‘barking up the wrong tree’.

So to answer the original question, ‘should you consider investing in US real estate’, I would respond with a resounding…..YES!

In the coming investment articles, I’ll be covering the finer details of how to become a successful investor in the US property market.

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.  

Property Investor recently chatted with Zoe Lamont and Arienne Gorlach from 10thousandgirl.

PI: To start with, could you give us a basic overview of what 10thousandgirl is about, and what your main aims are?

10thousandgirl: The 10thousandgirl Campaign is a not for profit organisation that aims to make managing your personal finances practical for 10,000 young women around Australia whilst setting into motion a ripple effect to help women globally through the use of microfinance.

It is really about becoming more conscious about what we want to do with our lives – to create a life plan with action steps around our goals – and to understand how we can become more efficient with our finances in order to 1) set us up for the long term and 2) increase our capacity to help others. The campaign helps to provide the time, space and tools to create a plan for your future and assists in connecting and facilitating leading people in the financial sector to support women in their local community.

PI: Why did you start 10thousandgirl?

10thousandgirl: The 10thousandgirl campaign is started and run by a network of volunteers, initiated by two women (Anneli Knight and Zoe Lamont) who personally and professionally were seeing something needing to be done with regard to increasing women’s confidence and engagement when it comes to managing our personal finances.

There is lot of financial information out there, but often not presented in a fun or engaging way. 10thousandgirl aims to help demystify this and present the planning process in a positive light – after all, planning is a skill everyone needs to know!

Why women? Generally, 1) women earn less than men; 2) are more likely to have interrupted careers because of child raising and caring responsibilities; and 3) live longer so need to save more for retirement. Women in Australia can expect to earn $1m less than men in their working lives. Globally, 1% of the world’s women own land (Australian Financial Literacy Foundation, National Centre for Social and Economic Modeling (NATSEM), International Center for Research on Women (ICRW)).

PI: What sorts of things can people attending one of your workshops expect, and what are the main outcomes you strive for with these workshops?

10thousandgirl: The objective for each young woman (generally 18-40 years – though we say if you feel like a girl you’re welcome!) who goes through a Life Planning workshop or joins a GIG (Girl Investment Group) is that they:

• Review or create clear inspiring life goals (a plan for the future)
• Have a minimum 3-6 months wages saved up as an emergency fund (savings)
• Have sufficient and relevant insurance in place (insurance)
• Ensure you’re happily challenged in your career (personal growth)
• Be learning to plan, save and invest toward a self-funded future (financial security)
• Share with a like-minded peer group (inspiration)
• Meet local financial service professionals (professional support network)
• Be contributing to our broader economic prosperity and wellbeing (sense of community)

PI: Having completed a workshop, do your members generally have continued involvement with 10thousandgirl, and are there available resources for them to further expand their financial literacy within the organisation?

10thousandgirl: The aim of the program is to be a catalyst for activity so we are continually building and plan to build ongoing support structures and work more and more closely with aligned partnerships and networks to support the young women in the program along their journey. You can receive the campaign’s monthly newsletter ‘The Ripple’, join the banter on www.facebook.com/10thousandgirl and www.twitter.com/10thousandgirl and find links and helpful downloads on www.10thousandgirl.com/tools-tips/tool-tips.

The program we’re most excited about are the 10thousandgirl GIGs (Girl Investment Groups), a 12 month book-club like program where you learn the basics around how the economy works, explore compound interest, what to do at tax time and look at investing in shares, property and ethical funds. It’s a good way to understand and lay your financial foundations and by the end of it girls have set up their budget, reviewed their super and insurance and laid an investment plan for the future. It’s the most valuable, hands on (and fun!) personal finance program available.

PI: The topic of finance is such a broad area, and covers such a lot of terrain. On the one hand a holistic and basic understanding of many topics can be very useful, but on the other hand a less holistic and more concentrated and in-depth understanding of a more limited range of topics can be equally valuable. Towards which does 10thousandgirl lean in terms of its own objectives in educating its members on financial literacy, and why?

10thousandgirl: We believe that it is central to understand the big picture of personal finance, even to the extent of including microfinance and ethical investing and the impact our actions and investing can have on long term sustainability and the global economy. To have a basic grasp of the financial cornerstones and see the how the different components work together, we believe you are then in a much more educated position to choose and manage whatever personal investment options you decide on.

We believe having a foundational understanding of finance builds your confidence to then be able to head off and explore other options, resources and data in a more concentrated and in-depth capacity. We believe the most important thing is to be first clear on your personal goals and values and see time and time again that it is easy then for people to choose wealth management strategies that appeal and suit them.

PI: 10thousandgirl has seemingly grown very fast since it started in 2010. As with any successful organisation, this has to be the result of a combination of several factors: a demand in the community which was previously not being met, delivering something great that people really want and appreciate, and smart marketing. In terms of marketing, what sorts of things have you found have been most successful in getting your message out there and getting more people interested and coming onboard?

10thousandgirl: To be truthful, to date marketing is probably our poorest area. I think the 10thousandgirl campaign has emerged and grown because it’s timely and meeting a growing and unmet need in the market. We have grown organically through word of mouth growth from the beginning which has then attracted regular media attention, building our credibility to attract and work with established partners and networks.

By far the fastest way the 10thousandgirl messages are spread are through the national, regional and local women’s and community groups who send out newsletters and memos to their members. We are inundated with emails after a big network includes us in their e-news. It’s exciting to see and experience women helping women, of all ages and from all walks of life. Everyone seems to get this. We all need a plan, we all need to learn how to best navigate and simplify the often complex world of finance. From chatter among networks, we are often asked to speak at events which also assists us in spreading the word. I think people listen and share and join the campaign because everyone involved is full of passion. Basically, we just really really care.

PI: The vast majority of microfinance is aimed at women throughout the world. One of the reasons why microfinance has done so well and has been able to sustain itself and grow, is due to loan defaults being so low, with such institutions as Grameen Bank reporting default rates of less than 2%. Even in developed countries around the world, women are statistically a much better credit risk than men, having (as a group) a significantly lower rate of loan default. How would you account for this discrepancy?

10thousandgirl: In developing countries, more women are involved in the informal labour sector. Men are more likely to be employed in contract work as labourers or overseas workers. Women are often left to support their families or supplement their husband’s income by using any skills they possess. With limited resources to start or expand a small business, microfinance is attractive to women who are prepared to work hard to give their children a brighter future.

Microfinance generally targets poor women because they have proven to be reliable credit risks and when they have the financial means, they invest that money back into their families, resulting in better health and education and stronger local economies.

In over 40 years of operation, our microfinance partners Opportunity International have proven that the poor are credit-worthy. Our clients maintain an average repayment rate of 97%. Defaulting on a loan is an unusual occurrence, with every client part of a larger program which monitors and assists them in repaying the loan. Loan officers walk alongside clients throughout the loan term, helping them deal with problems they may be facing in their businesses and offering support in order to overcome it.

A major incentive for clients to repay loans is their ability to secure subsequent, larger loans once initial loans are repaid. This enables entrepreneurs to grow their businesses more and more with each subsequent loan – increasing their productivity, income and living standards of their family.

Opportunity’s high repayment rate means that 97% of money is returned (usually within six to 12 months) and loaned out to the next poor entrepreneur who, in turn, repays the loan, creating a system of truly sustainable development.

Thank you to our microfinance partners, Opportunity International www.opportunity.org.au

PI: Your website states “Women’s lower levels of financial literacy has been compounded because sections of print and broadcast media with a high female audience are less likely to contain financial or investment information than sections with a predominantly male audience”.

Would you consider this largely the result of certain sections of the media being out of touch with modern women’s interests, or do you think it genuinely reflects a lower level of interest in finance amongst women – not necessarily because women ‘would’ not be as interested, but rather that women have not had as many opportunities and have not been encouraged to delve into financial matters until very recently, and as a result ‘are’ on the whole somewhat less interested in financial matters?

10thousandgirl: Historically, it has not been the traditional role of women to manage the finances. We are excited to see this changing rapidly however and are often asked by publications like Cleo and Marie Claire to contribute financial commentary, tools and tips – yes, showing that women are now asking for this information.

PI: Any exciting new plans for 10thousandgirl in 2012?

10thousandgirl: The plans for 2012 are very exciting. We’re just in the final stages of setting dates for Life Planning Workshops in over 40 regional and metropolitan communities across Australia – it’s exciting to take these programs to communities often overlooked from Bendigo to Walgett to Wagga Wagga to Alice Springs to Katherine to Charleville to Perth… Regular events are also continuing to be held in Sydney, Brisbane, Melbourne and Canberra.

We’ll also be scaling up the GIGs (Girl Investment Groups). With our focus groups on their final module of the 12 month program, we’re all very excited about this. What some girls have done over a year is truly inspirational.

We’re planning to work with a number of key partners to expand the reach and affordability of the programs. One of these partners is economicSecurity4Women, a group funded by the Australian Government Office for Women. They are providing bursaries supporting women in remote areas or recovering from domestic violence and financial hardship.

And of course internally, we’re building our team, structure and systems to build our capability to deliver efficiently and effectively whilst having a lot of fun!

Property Investor would like to extend a very big thank you to 10thousandgirl for chatting with us!

Property is still regarded as one of the best investment tools because of its many benefits.As well as being the most favoured collateral by banks, investing in residential property can be useful for tax deductions involving negative gearing, and the property increases in value over time. Property is always in demand, and those who enter the industry intend to make money and they do it well through calculated risk management and analysis of trends.

There are plenty of wealth creation strategies that are associated with property investments, but none more sensible than the NRAS (National Rental Affordability Scheme) implemented by the Australian government in 2008. Over four years, the Australian government has pledged $1 billion to the Scheme to help encourage the construction of up to 50,000 houses and apartments for eligible individuals, families and couples.

The Commonwealth initiative works with State and Territory governments, property investors and not-for-profit housing suppliers to provide additional new houses for the rental market that will offer affordable rent for the Australian average wage earner. Additionally, this scheme generates higher-than-usual returns for property investors, encouraging stakeholders to develop additional houses to help the shortage of affordable rental housing.

The NRAS solely provides Australian low and moderate income earners with private rental properties, attempting to substitute housing commissions or social housing. The cash flow benefits and security of an NRAS property is a great incentive for any investor looking to capitalise on property.

Financial Incentives for NRAS Property Investors

2011 saw the beginning and steady rise of NRAS properties coming onto the Australian market and by 2014, the Australian government aims to encourage institutional and private investors, developers and not-for-profit groups to deliver up to 50,000 more affordable residential rental dwellings. Investors wishing to take advantage of this Scheme need to apply for NRAS Incentives and agree to rent at least 20% below market rates.

Investing in an NRAS property is a great step towards building a property portfolio. The NRAS offers tax free financial incentives to property investors who build and then rent these properties to low and moderate income households at 20% below the market rates. The Scheme provides generous financial incentives of a minimum of $9524 per lodging to property investors from the Australian Government and State or Territory contribution. This helps the community by seeking to address the shortage of affordable rental housing, and at the same time, provides benefits for the property investor. There has never been a better time to buy investment property Melbourne wide.

Property investors can take advantage of all the normal negative gearing benefits as well as receiving a tax free incentive from the Australian government and State and Territory governments for the next 10 years, meaning any property investor will receive more than $90,000 of tax free incentives spread over a decade. Not only is an NRAS property a great long-term investment, but property investors will be helping many people in their community to have affordable housing.

Eligibility: Property Investors and Tenants

To be eligible to be a property investor under NRAS, there are a few guidelines in which to adhere. First, the house must not have been lived in previously. It may be bought and built brand new or can be converted from a non-residential dwelling such as a motel, hotel, storefront or warehouse, to a residential address.

In the instance where it has already been built and made fit for occupancy but has not had any dwellings yet, the property is also NRAS-approved. What does not constitute a rental dwelling under the NRAS is moveable accommodation such as house boats or caravans, allocated rooms within a single dwelling, emergency crisis accommodation or any dwelling that does not comply with the landlord, tenancy, building, health and safety laws of the State or Territory and local government.

The income levels for eligible tenants are specified in the NRAS regulations NRAS Victoria locals is determined by the applicant’s income, and the most eligible tenants are working members of emergency and community services such as teachers, nurses, police and ambulance officers. Retirees, aged tenants and students are also eligible.

The rules for an NRAS property, NRAS landlords and NRAS tenants are the same as standard State and Territory residential tenancy and eviction laws. Furthermore, investors no longer wanting to participate in NRAS Victoria or any other state or territory, can withdraw from the scheme at any time. This can be achieved by renting the property at full market rent or exiting the tenant and moving in as owner occupier.The investor is also responsible for ensuring that tenants meet the income criteria and that they are reviewed against the criteria every two years to ensure objectivity and fairness.

Where to Buy Investment Property

The NRAS Scheme has strict rules when it comes to where to buy investment property. Building an NRAS property must be close to transport, schools, shops and other facilities so that they are desirable for tenants. The properties must also contain private facilities such as bathroom and kitchen, a bedroom and living space and a separate lockable entrance.

Building a Property Portfolio with the NRAS

The NRAS will end for new investments on 30 June 2012, so property investors should look to buy before it is too late, however owners of NRAS properties will still continue to get the tax incentives for 10 years from purchasing their property. Buying an investment property in Melbourne under the NRAS of Victoria regarding residential property laws is a great wealth creation strategy that will reward property investors over the long run.

Property Investor and their contributing authors have made every effort to ensure that the information is free from error, neither Property Investor nor its contributing authors make any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.