10 Things NOT to Do to Sell Your Home

It's tempting, when you're thinking of selling your home, to spend money on renovations or fix-ups to really wow potential buyers. But beware! You might want to make some changes that you've dreamed of since you moved in. Your home will so beautiful that you won't want to move out.

Some major renovations will never pay off. See what they are and don't waste your decorating dollars by making these really big mistakes! Save your money for your new home!

1. Put in Expensive New Carpet
If your carpet is dirty and dated, it is a good idea to pull it up. But don't replace it with the best money can buy. Find a modest quality carpet at a modest price and get it put in. Whatever you choose will make the home look cleaner and better cared for and you can save thousands of dollars over pricey carpet. The buyers will probably replace it with what they want anyway.

2. Install Top-of-the-Line Appliances in Your Kitchen
There's no doubt about it! New appliances are a good selling point. But don't buy gourmet top-of-the-line appliances. If your stove and dishwasher are dated, get new ones. Many home buyers want to use their own appliances, especially refrigerators. And the features that are important to you might not be to them. Remember, you're doing only what you have to do to sell the home.

3. Re-tile Your Bathroom with Carrera Marble
The point here is that the bathroom should look clean and fresh. It doesn't have to look like a bathroom in a 5-star hotel if you have a modest home. Maybe you'll get the result you need by simply removing old dirty sealant around the tub and replacing it with fresh silicon. Or do a good cleaning with the proper cleanser to get the tile sparkling.

4. Put in a Swimming Pool
You may have a wonderful back yard that would be the perfect place for a swimming pool--and you've dreamed of having one since you bought the house. But the expense can be prohibitive, installation can take forever, and many buyers just don't want to be bothered with pool maintenance. Instead, spend several hundred dollars with some colorful landscaping. Clean up the weeds and trim the trees. Plant some seedlings in the bare spots. You'll get your money back with a happy buyer.

5. Paint Your Child's Bedroom to Match the Bedspread
Home buyers are looking for their new home, not yours. Keep the walls neutral and buy inexpensive bedding or window treatments to show off the room they'll live in. If your daughter's favourite colours are lavender and pink, do not paint the walls for her. The buyers will just look at them and think of all the work they'll need to do as soon as they move in.

6. Install Expensive Custom Curtains
Fussy, heavy, floral window treatments are out. If you must put something on the windows, choose simple side panels or cut-to-measure blinds on all the windows. The look will be uniform throughout the home and the buyer will see a clean pallet to decorate to their own taste when they move in. Keep it simple and see the offers come in.

7. Paint the Outside a Colour to Make Your House Really Stand Out
It's true, you do want your home to stand out on the block. But it should attract buyers by how well it fits into the neighbourhood, not by how it sticks out like a sore thumb. The exterior might need freshing up and perhaps a good power wash might do the trick. Then consider re-painting the front door, since that's the first thing a buyer will see. If you must paint the house, choose a colour that is in harmony with the neighbours.

8. Cut Down All the Trees So People Can See the House
If your home is set in the middle of a jungle of weeds, bushes, and trees so that no one can see it, by all means, trim everything back. But mature trees on a property are worth their weight in dollars. Professional tree-trimming is costly, but it's better to get it done so that potential buyers can see what they're buying.

By Coral Nafie

http://interiordec.about.com/od/homestagin1/tp/decoratingnonos.htm

How Clean for Settlement?

While most buyers will clean the home to their own standards before moving in, regardless of a sellers' efforts, following is a list of things a seller can do to leave a home reasonably clean and create goodwill:

 

Cleaning Inside the Home Before Moving Out

• Remove all personal property.
• Vacuum the floors.
• Clean kitchen appliances, inside the refrigerator and oven, and wipe down counters.
• Scour sinks and tubs.
• Wipe down interior cabinets and shelves.
• Wash hard flooring.

 

Cleaning the Garage

• Remove personal belongings.
• Throw away trash.
• Properly dispose of toxic chemicals.
• Sweep the floor.
• Stack items pertaining to the home such as paint cans, roofing materials or extra flooring.

In essence, leave the property in the condition that you would like to find your new home. Remember, the new owners might receive some of your mail by mistake. It's a good idea to stay on pleasant terms with them. And it's also the right thing to do.


http://homebuying.about.com/od/sellingahouse/f/3509_cleanhouse.htm

Kylie's Tip of the Day...Alarming!!

If you change your alarm code don't forget to tell your agent!

Buying in Australia (for Overseas Investors)

Foreigners seeking to buy residential real estate in Australia in many cases need to seek prior approval from the Foreign Investment Review Board (FIRB).

However, there are still many opportunities for foreigners to acquire and develop real estate in Australia, both through certain exemptions from needing approval and through situations where approval is usually granted.

Note to overseas investors - API magazine is now available for instant download!

While the Australian Government recognises the strong benefits of foreign investment, particularly direct foreign investment, to Australia, its foreign investment policies are designed to help maintain stability in the Australian property market.

A government briefing paper, Foreign Investment Policy in Australia – A Brief History and Recent Developments, notes:

"The government seeks to ensure that foreign investment in residential real estate increases the supply of residences and is not speculative in nature. The government's foreign investment policy, therefore, seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing (i.e. new developments – house-and-land, home units, townhouses etc.) and brings benefits to the local building industry and their suppliers."

As a result of this approach, new dwellings account for most of the properties foreign buyers purchase in Australia – and many of them are purchased off the plan, meaning buyers sign a contract to purchase the property in advance of the completion of construction.

Rule changes

The Australian Government under Kevin Rudd has recently made widespread changes to the foreign investment rules governing the purchase of residential property in Australia, in a bid to improve flexibility.
The changes, which took effect in March 2009, include:

• Temporary residents are now allowed to buy an established dwelling as their principal place of residence. They can also buy any new dwelling regardless of purpose without needing to notify the government.
• Foreign-owned companies, overseas trust estates and non-residential foreign persons purchasing vacant residential land need to build within two years of the purchase date. Previously, they had only 12 months.
• Foreign companies can now buy existing property for the use of their Australian-based staff, provided they sell or rent the property if it’s vacant for more than six months.
• Developers are no longer limited to selling a maximum of 50 per cent of one development to foreign buyers, so long as they still market their product locally as well as overseas.
• Accommodation facilities such as resorts and hotels are to be treated as commercial real estate rather than residential real estate.

Non-residents of Australia aren't allowed to purchase an established property for straight investment purposes.

However, investors are able to purchase established dwellings for the purposes of a redevelopment that will increase the number of dwellings or make an existing dwelling inhabitable. In this case, buyers must notify the FIRB of their intentions and must commence the redevelopment within 24 months of purchase. They can't rent out the existing dwelling before redevelopment.

Non-residents can purchase newly built dwellings – whether they be units within a complex or standalone houses – so long as the property has never been sold before and has not been occupied for longer than 12 months.

Buyers must notify the FIRB of their intentions and receive approval for purchases of this kind.


http://www.apimagazine.com.au/api-online/property-investment-articles/buying-real-estate-in-australia-for-overseas-investors

Top 5 Reasons Finance is Rejected

Lending criteria has been tougher in the past 12 months due to the global financial crisis, deflating property prices and increasing the unemployment rate, according to MyRate.com.au managing director Kevin Sherman, who recently revealed his top five reasons why borrowers were being rejected.

Topping the rejection list, said Sherman, was that borrowers couldn't demonstrate they'd saved a five per cent deposit.

"These days I’d go so far as to say it’s impossible to get a loan without at least a five per cent deposit," he said.

"This is a significant change, as a few years ago consumers didn't even need a deposit for some loans."

Second on the rejection list was that the borrower had servicing issues, whether they were still on a probationary period in a new job or not on a steady income.

Third on the list was that the borrower couldn't supply enough funds to cover at least a 10 per cent deposit for new purchases, or 15 per cent of the property value for refinance.

Fourth on the list was issues with the chosen property.

"There are certain types of properties that lenders might now consider unsuitable," said Sherman.

"This could be because the apartment you want to buy is in a giant complex of similar flats which makes the lender concerned it will be hard to sell should they need to."

"A property may be a little run down or be valued at a lower price than expected, which may affect the loan amount the lender will agree to."

And fifth on the list involved the issues with the borrower's credit file.

"It could be that you have been shopping around for finance and, as such, your credit file is showing too much activity," said Sherman, "something which is viewed by lenders as a negative as they may think you were denied finance by various providers."

Sherman advised that while lending policies have tightened, the most effective way of ensuring success is to be organised and over prepared.

"You'll come across as a great candidate if you can demonstrate your ability to repay to the best of your ability," he said.


http://www.apimagazine.com.au/api-online/property-investment-articles/top-five-reasons-borrowers-are-rejected

9 Devastating Homebuyer Mistakes

Buying your first home can be a daunting task. It’s by far the largest financial transaction you’ll ever make. Yet many are woefully ill prepared to ensure they make a good purchase decision.

Because the stakes are so high, one bad mistake can be financially and emotionally devastating, ranging from losing all your money to missing the house of your dreams over a simple oversight.

Most experts agree that first homebuyers make mistakes in three general categories. The first is overlooking simple factors, such as a potential rise in interest rates. It may seem obvious to most, but a first homebuyer doesn't have the experience of having hefty interest rates on their mortgage so can easily discount the chance of big rate rises.

The second - but perhaps the biggest - cause of devastating mistakes is listening to people you shouldn't. A first homebuyer is a babe in the woods and can easily fall prey to others, including highly experienced real estate agents and mortgage brokers.

The final category is buying based on too much emotion, rather than sensible well-thought-out criteria. First homebuyers are particularly susceptible to sales pitches and dressed-up properties that lack solid fundamentals.

We spoke to a mortgage broker, property lawyer, real estate agent and property adviser to find out what the biggest mistakes first homebuyers make are.

1. Assuming interest rates will stay low

Kris Court, a director of Court Financial Services, says many first homebuyers are about to get the shock of their lives.

"All these first homeowners are working out mortgage repayments on an unrealistic interest rate," he says. "They're not putting any buffer in."

Interest rates are on the way up as the economy recovers and inflation is seen as a greater threat, with the Reserve Bank of Australia (RBA) raising rates in November to 3.5 per cent.

Court says first homebuyers should be comparing today's mortgage repayments with those in August 2008, when the RBA's official cash rate was 7.25 per cent.

"If you're not prepared for that three to four per cent buffer you’ll really be in trouble," he says. "They've gone down very quickly; they can go up just as quickly."

Court notes that a homeowner with a $300,000 home loan is paying $1656 per month in mortgage repayments, against $2420 at the same time a year earlier. "That's a massive difference on a monthly basis for two people on $40,000 each," he says.

If interest rates rise quickly, a first homebuyer can face financial ruin and loss of their house if they fail to meet repayments.

2. Underestimating the full costs of buying a home

Court says many first homebuyers also fail to budget for the full costs associated with buying a house.

"People never take into account all their costs in terms of mortgage insurance, the correct stamp duties, rates and things they have to pay at settlement, including body corporate fees that haven't been paid," he says, adding buyers may also have to pay for valuation costs and loan application fees which are becoming more common.

The result? "Begging and borrowing to get some extra money from your mums and dads," he says.

One of the biggest areas first homebuyers trip up on is mortgage insurance. Court says in the past you could borrow 95 per cent of a home's value, with mortgage insurance of two per cent. The lender then added that on the loan, so in effect would lend you 97 per cent.

"Now they won't do that," he says. "You have to pay for that mortgage insurance cost out of your own money."

Court says people sign contracts, then realise they have to pay for all the additional costs.

"Some get a personal loan or credit cards, or something stupid like that," he says. "You're then on the back foot financially and probably will be on the back foot for the rest of your life."

3. Short financing periods

Peter Mericka, a legal property expert and director of Lawyers Real Estate, believes listening too much to real estate agents and mortgage brokers leads to the most disastrous first homebuyer mistakes.

"Between them, real estate agents and mortgage brokers are responsible for some of the worst mistakes," he claims.

One classic is when first homebuyers who need finance to buy a house begin asking questions about finance conditions. Mericka says real estate agents - in a bid to get an unconditional contract - convince them to put short 10 to 14-day finance periods in the contract.

"Then they'll say, if you need more time you can get an extension," he says. "But you can't get an extension. The contract says if finance isn't approved you can end the contract."

Mericka says the only way to get an extension is to end the existing contract and renegotiate a new one.
"The risk is you can then get gazumped," he says. "The vendor will accept your cancellation and sell it to someone else."

Mericka says it’s much better to have a longer period to secure financing and recommends at least 21 days.

4. Not paying your deposit

Mericka says first homebuyers also go astray when they try to be tricky with deposits to buy homes. He says some mortgage brokers advise them not to pay their deposit, which is usually required within three days of the sale, until finance has been approved.

That may appear to be a neat way of avoiding risk by the first homebuyer, but "the contract says that if you want to cancel the contract because finance hasn't been approved, you must not be in breach of any other condition of the contract," Mericka says. Failure to pay a deposit has been a clear breach.

"You'll get a letter back saying you're in breach of the contract so you're not entitled to end the contract," he says.

5. Allowing real estate agents to insert a building inspection condition into your contract

Mericka says another mistake is letting real estate agents influence what you insert into contracts. He says a classic first homebuyer mistake he sees is in the area of building inspections.

In Victoria, for example, the Real Estate Institute of Victoria has issued a building inspection clause. He says agents recommend first homebuyers use it. If they then have an inspection and find the house is riddled with asbestos and faulty wiring, for example, they naturally try to cancel the contract and pull out. The first homebuyer "gets a letter back saying 'you can’t cancel because none of those things constitute a major structural defect'," Mericka says.

"They then look at the building inspection clause and it says 'the purchaser may end this contract if the building report discloses a major structural defect'."

Mericka reads a major structural defect as something that "affects the ability of the building to stand up."
"Anything less than that means you can't pull out," he says. The buyer is stuck with the dodgy house.

Mericka recommends changing the building inspection report clause so that it allows you to withdraw from the transaction if the property “is not to the purchaser’s satisfaction."

6. Assuming you've got bank approval

First homebuyers are always thrilled after their first meeting with the bank when they're told how much they can borrow. A bank may say, for example, you earn $50,000 and have a $10,000 deposit, so - in principle - we'll lend you $400,000.

Peter Gordon, a sales agent with real estate agent Cobden & Hayson in the Sydney suburb of Balmain, says many first homebuyers assume they've got all their financing lined up and rush off and bid on a $400,000 house.

Gordon says some buyers simply go onto the bank's internet site and use the calculators to see how much they can borrow, and assume that equates to getting financing.

But Gordon says there's a big difference between what the banks indicate they can lend you and what they actually will.

"Anyone who wants to tender an offer on a place should be in a position to sign a contract," he says.
Gordon warns not having finance lined up exposes first homebuyers to the emotional distress of losing their dream home.

"It's more of an emotional thing," he says. "They make an offer and get their heart set on a property and think their finance is approved. Then it gets knocked back."

7. Freaking out at building inspections

Gordon says one of the biggest mistakes he see first homebuyers making is freaking out over building inspection reports.

Most buyers take the advice of solicitors and organise a building inspection.

"One of the common things we see, particularly in areas like Balmain where houses are 100 to 120 years old, is that all have got some rising damp, some termite activity," he says. "But when you read it on a building inspection report, it sounds terrifying.

"First homebuyers often think 'there's no way we can buy that' and they pull out."

That’s until they realise they're buying an old house.

Gordon has seen some potential buyers get five to six building inspections done at $500 each. But he says it's important to have realistic expectations as to what it means to buy a house.

"Just about every house that’s more than 60 years old will have some historic pest activity,” he says. “It's not necessarily a problem, but there’s a history of it."

He says reports are written in a way to cover the writers who tend to paint problems in their worst possible light.

Gordon suggests having a verbal conversation with the builder who did the inspection to get a non-legal view.

Ask questions including, would you buy it and is the report average?

8. Going beyond your budget

Every potential homebuyer knows the feeling. You're looking around at a $400,000 house which fits your budget, but that $450,000 property just looks that much more appealing.

Scott McGeever, director of Brisbane buyers' agent Property Searchers, says it might appear simple and obvious, but one of the major causes of grief for first homebuyers is the failure to stick to their budget.

"People will always want more than they can afford," he says. "There's always a real estate agent who’ll talk them up into the next level." Suppose a couple have a $400,000 budget on a house. "Almost every time a real estate agent will say 'have you got 450,000?' as if $50,000 is $5," McGeever says.

He says the bank has usually offered to lend $400,000 for a reason based on strict criteria, including, for example, two salaries and a honeymoon interest rate. Going above what you can sensibly afford leaves you extra exposed to financial shocks, including sharp rises in interest rates.

9. Bedazzled by tarted up houses

Why is it so hard to stick to a budget? McGeever says it's closely tied up with another mistake first homebuyers make: "buying with their heart rather than their head."

"First homebuyers obviously buy for a home," McGeever says. "But that doesn't mean they need to buy a home that’s a bad investment."

One of the biggest dangers for first homebuyers is being bedazzled by bells and whistles - in this case slick renovations and fixtures.

"You often see people that go and buy something that’s shiny and new," he says.

"They get completely bedazzled over and above the fact it sits behind the southeast freeway or backs onto a train line. Particularly in this market, you see houses tarted up to within an inch of their lives. First homebuyers really love that."


By Ben Power


http://www.apimagazine.com.au/api-online/property-investment-articles/nine-devastating-mistakes-homebuyers-must-avoid

Kylie's Tip of the Day...Silent Listings

Sometimes properties are sold before they hit the market.
Talk to your agent about being kept in the loop.

Understanding Your Mortgage

Like it or not, you’re destined to be joined at the hip pocket with your mortgage for many years to come. Knowing the capabilities of your home loan will give you more options when you need them, so Australian Property Investor outlines and explains some common home loan features.

There’s more to a home loan than immediately meets the eye. Chances are your loan and lender are more flexible than you think.

Just by knowing what you can and can’t do will help you if you want to reduce the life of your loan, save some money on interest or ease the financial pressure at a key stage of your life.

Offset accounts

Offset accounts put your savings to work and help in reducing the overall interest cost on your home loan.

The way offset accounts work is that savings are placed against the loan amount, which reduce the amount of the loan on which interest is calculated. For instance, on a $100,000 loan with $50,000 in offset, interest would only be calculated on $50,000.

The money in the offset account earns the same interest as the home loan and in effect offsets the interest cost on the home loan. What this means is that by placing funds into an offset account and making the minimum repayment or more on your home loan, you’re going to bite into the principal amount owing sooner and reduce the term of the loan.

Redraw

Redraw works in a similar fashion to an offset account but in this instance you’re actually making repayments against the home loan above the minimum repayment. The extra repayments can then be withdrawn from the loan account at a later date.

For instance, if your minimum repayment was $2000 a month but you pay $2500 a month, at the end of 12 months you’d have $6000 available in redraw but would have reduced the principal amount owing by $6000 and would only be paying interest on the reduced amount.

Top-up facility

Top-up facilities allow you to borrow further funds up to the amount you originally borrowed. It’s different to redraw which works on extra repayments you’ve made. With top-up you take a further advance on the loan.

This is, in general, a more efficient way of obtaining funds for renovations, debt consolidation, holidays etc.

Switching

Sometimes the original loan you took out with your lender no longer suits your needs, even though it did in the early years.

A classic example of this is borrowers who initially take out a basic variable loan but now need a fully featured home loan.

There’s no need to refinance your existing loan to a new lender. A majority of lenders allow existing borrowers to switch between products for a nominal fee. The switching options will depend on the product but, for example, on a variable home loan most institutions will allow you to switch to a discount variable or fixed product.

Portability

Already have a loan that you’re satisfied with but you want to move property? If your answer is yes, there’s no need to pay out your existing loan and apply for a new one because portability can assist you in this circumstance.

Portability allows the loan security to be moved from one asset to another.

For instance, if you were to purchase a new property you’d be able to transfer your existing loan over to a new property without having to obtain a new loan.

Split loans

Split facilities allow borrowers to split their total loan across two or more products. Split facilities are used for differing reasons, the two main ones being: (1) to distribute the loan across various properties when secured by the one loan, and (2) spread interest rate ‘risk’. The most common split is designating certain percentages of the loan as fixed and variable interest rate products.

Repayment holidays

Things come up in life which can be expected or unexpected, such as the impending arrival of a baby. At such time a mortgage repayment relief may be needed.

Most institutions can supply some form of repayment holidays in certain circumstances, or if you’re ahead in your repayments. The best course of action, if needed, would be to contact your lender and ask what options you have available to you.


* by Mitchell Watson of CANSTAR CANNEX

Australian Property Investor

http://discover.realestate.com.au/buying/investing/understanding-your-mortgage

5 Fears That Keep You From Buying

Many people who would like to own homes have fears that prevent them from buying. If you're one of these people, take heart - there are simple steps you can take to overcome your fears and become confident that you will make a sound purchase.

Here are some of the top reasons you may be holding off on purchasing a home and how to overcome these hurdles:

1. A Loss In Property Value

Homes can decline in value, even without a disaster. Neighbourhoods can gradually decline, newly-built homes can make older neighbourhoods less attractive, or an unpleasant development (prison, landfill, highway, etc.) could be built nearby. A poor or mediocre economy can also keep home values down.

Even savvy home buyers can't always predict what will happen to home prices. But you can take precautions, like buying in a low-crime area where the homes are well-kept, primarily owner-occupied and with high-quality schools nearby.

You can buy in an area where there are multiple sources of employment, so if one business shuts down or leaves, the entire town doesn't have to move to find work. And you can contact the city government to ask about future development plans in the area you want to buy.

2. Overwhelming Maintenance Costs

All homes have upkeep costs, and many homes have very large maintenance bills. If you become a homeowner, you won't be able to avoid these costs. However, there are numerous things you can do to mitigate and prepare for them:

• Buy a home that has been well-maintained.
• Buy a home that has recently had major components upgraded or replaced (e.g., new roof, new water heater, new plumbing, new electrical)
• Buy a new home (though new homes sometimes have undiscovered defects).
• Regularly maintain your home to prevent small problems from becoming major repairs.

Go into the purchase with a generous emergency fund set aside for home maintenance and add to that fund every month. To avoid buying a money pit, you should also have a home inspection before you buy.

3. Buyer's Remorse

Are you concerned about buying the wrong house? Maybe it's because you don't know what you want. Fortunately, you can solve that problem.

Make a wish list that includes features your home must have, as well as features that you'd like it to have but aren't necessary. Look at many houses to see what's available in your price range. If you find a home you think you want to buy, sleep on your decision before making an offer.

Don't exceed your budget, as you will quickly regret buying any house that strains your finances. Also, don't be afraid to walk away from a house - new homes are always coming on the market.

4. Being Unable To Afford Your Mortgage Payment

Many people wonder how they will afford their mortgage if they lose their job. They also might see that the mortgage payment required to afford a home in their area exceeds what they currently pay in rent.

To deal with potential job loss, make sure to have a large emergency fund set aside. You can use this money to continue paying the mortgage if you lose your job. Also, though you may experience unpleasant collection activities, your home isn't likely to be taken away from you the first time you miss a mortgage payment.

Before you take on a mortgage, set up a budget so you know what your existing expenses are and how much money you take home every month. Also, think about new expenses that will come with home ownership, like water and trash bills. Pay little attention to what your lender thinks you can afford. You may think that your lender is the financial expert, but in actuality, you know more about your finances than anyone else.

You can also try making fake mortgage payments for a few months and see how it affects your finances. If a mortgage would cost double what you currently pay in rent, make an extra "rent" payment every month into your savings account. Can you still live comfortably with this extra payment?

Also, make sure you have health insurance before you buy. Unexpected medical bills are a common source of financial instability.

5. Tricky Mortgages

If you feel that you are not financially sophisticated enough to manage a mortgage, there are two simple remedies to this problem:

• First, start educating yourself about how mortgages work, and don't buy a home until you understand what you're getting into. There are numerous books, articles and classes available on the subject.
• Second, if you're still uncertain, get a 15 - or 30-year fixed-rate mortgage. These mortgages have withstood the test of time and are the most basic and most foolproof mortgages available.

The Bottom Line

Buying a home will likely be the largest purchase of your life, so you're justified to be hesitant. But millions of people, many of them less intelligent than you, have taken the plunge and are successful homeowners. Do your research, make the necessary preparations, and feel confident in purchasing your first home.


By Amy Fontinelle Investopedia.com

http://au.pfinance.yahoo.com/money-manager/real-estate/article/-/7964071/top-five-signs-of-a-bad-real-estate-agent/

Kylie's Tip of the Day...Shoes Off?

Avoid alienating your buyers. Let them keep their shoes on.

Negative, Neutral and Positive Gearing Explained

Many people have heard terms such as ‘negative gearing’, ‘positive cashflow’ and ‘neutral cashflow’ but are unsure what they mean. Even though this article is about neutral cashflow properties, it is useful to explain a number of these terms.

 

What are they?

In the world of investment, the word ‘gearing’ refers to the fact that money has been borrowed to purchase an income-producing investment. In the case of property, it refers to an investor who buys a rental property and has borrowed money to purchase the property. (When calculating levels of gearing for property investment, it is generally assumed that the investor has borrowed the full amount of the purchase price). To work out whether a property is negatively, neutrally or positively geared, you simply subtract the annual interest paid from the rent received.

With this is mind

• A ‘negatively geared’ property has more money being paid in interest than the rent that is received.
• A ‘neutrally geared’ property has the same amount of money being paid in interest as is received in rent.
• A ‘positively geared’ property has more money being paid in as rent than is being spent on interest.
• I’ll use an example to illustrate the point. Let’s say you paid $250,000 to purchase an original1960’s unit that was returning $260 per week. Let’s also assume that you borrowed $250,000 at an interest rate of 5 per cent. Your annual interest bill is $12,500 and your total rent for the year is $13,520.

In this case, you are positively geared ($1,020 more paid in rent than is being spent on interest). However, if this unit cost $300,000 and you borrowed the full amount, you would be negatively geared. The rent received remains at $13,520 pa but the interest expenses have increased to $15,000 pa.

When we replace the term ‘gearing’ with ‘cashflow’, you need to include all rental expenses in the calculations, not just the interest component. This includes items such as council rates, water, maintenance, repairs, insurance, body corporate fees, etc. On the income side of the equation, you also include the tax benefits of depreciation and capital allowances. Now let’s see how this effects the calculations in our example of the $250,000 unit.

Firstly, the rent stays the same at $13,520 pa but we also add $480 from tax benefits, increasing the income to $14,000. However, when we include all costs that are associated with rental properties, the annual bill is well over $17,000. If we were to account for all the rental expenses, we would have a ‘negative cashflow’ property.

To turn this property into a neutral or positive cashflow property, we either need to increase the income or decrease the expenses.

Why buy neutral cashflow property?

The beauty of owning neutral cashflow property, where the rent coming in is the same as the money going out, is that the property costs you nothing to own! In reality, as time progresses and your rents increase at a greater amount than your expenses, you end up with a property where your tenant pays all your expenses and you have some money left over. This is termed positive cashflow.

If your goal is to own many properties, purchasing neutral (and positive) cashflow properties is the best way to achieve this. To purchase property that has a negative cashflow means that you have to dip into your own pocket to help pay the rental expenses. Your pockets are not bottomless pits so there is a limit on how much money you can put in to supplement the rent. (It is usually the bank that will place these limits).

In theory, you can buy an unlimited amount of neutral cashflow properties as it doesn’t cost you anything. However, borrowing money from the bank is not only about cashflow. They are also looking at your equity position, which is how much you own compared to how much you owe.

Even though the cashflow for neutral cashflow properties looks good on paper, the bank also takes into account vacancies, increasing costs and unexpected expenditure, thus limiting your purchasing power. However, if you have a secure job and income and plenty of equity, you can buy many neutral cashflow properties.

How to buy neutral cashflow properties?

The process to buy neutral cashflow properties is no different to buying any other property. You need to present your case to the bank, emphasising the relatively high rent you are able to achieve. Some banks treat rent very favourably and also take into account the tax benefits. If you are serious about owning multiple properties, you and/or mortgage broker need to seek out these lenders.

Where can you find these neutral cashflow properties?

Neutral cashflow properties were almost non existent over the past few years as interest rates were around 9 per cent and rents were stable. Currently, interest rates have dropped to about 5 per cent and rents are increasing. This makes finding neutral cashflow properties easier.

The basic rule of thumb in today’s market is you need to find property that has a total return of 7 per cent if you wish to have a neutral cashflow property. This should be enough to cover all your expenses. Let me illustrate this point with one final example.

Unit - $250,000 (renovated 1960’s unit)
Rent - $320 per week
Interest rate – 5%
Amount borrowed - $250,000

INCOME (pa)
Rent $16,640
Tax benefits $860
Total Income $17,500

EXPENSES (pa)
Interest $12,500
Advertising $100
Council rates $300
Water $200
Maintenance/Repairs $400
Insurance $400
Body Corporate $1,000
Property Management Fees $1,600
Other expenses $1,000
Total Expenses $17,500

A rental return of approximately 6.7 per cent and a small tax benefit equates to a total return of 7.0 per cent. As illustrated above, this should be enough to cover all expenses. It is very important to note that interest rates will not stay this low forever so you need to have a contingency plan, for example, fix your interest rate.

Neutral cashflow properties can be found in the city and the country. If you are looking in urban areas, it will be units/flats/apartments that you will be targeting as they generally have a slightly higher rental return compared to houses. In country areas, there will be numerous properties that show a total return of 7 per cent.

Summary

Neutral cashflow properties suit investors who are looking to have many properties in their portfolio. They are willing to sacrifice some capital growth in the knowledge that the properties pay for themselves in the initial stages and when the mortgages are paid off, they are able to live off the rental income.

If this sounds like you, you should be looking for property right now. With interest rates at 40-year lows it has presented us with a once in a generation opportunity.


* Article written by Property Professor Peter Koulizos

by news.com.au

http://discover.realestate.com.au/buying/investing/investing-neutral-cashflow-properties-what-why-how-and-where

Kylie's Tip of the Day...Family Pictures

Sometimes better in the cupboard than adorning the walls of your open home.

Top 5 Signs of a Bad Real Estate Agent

If your home is listed for sale and it just won't sell, it may not be your real estate agent's fault. However, there are many ways to gauge if your agent is doing a good job. Here we look at some of the top signs of a bad real estate agent.

1. Lack of Communication

If you haven't heard from your real estate agent in a few weeks, it's time to find a new one. Even if no one has called for a showing of your home, or your agent hasn't found any homes that meet your requirements as a buyer, he or she should be touching base with you regularly to keep you up to date on the work that has been done on your behalf. After all, there's no doubt you're thinking about your home transaction almost daily - as an agent acting on your behalf, shouldn't your real estate agent be keeping you in mind?

2. Lack of Leadership

If your real estate agent agrees with you on every point, this is the sign of someone who's eager to please - not someone who's committed to doing the best possible job at representing your interests in the real estate market. When it comes to pricing a home for sale, insist that your agent produce the research that was used to arrive at that price. An agent who asks you what you think your home is worth and lists it for that price is a sign of trouble.

Your real estate agent is supposed to be an expert, so look for one who can take the lead and provide you with well-reasoned advice. That said, your agent should also be acting on your behalf, and must take your final word in the end.

3. Unused Resources

Many real estate agents will use all of the tools at their disposal to market your home to the public and help you find a new one that meets your needs. Some, however, will do next to nothing and rely on other real estate agents to market your home to their clients.

Expect your real estate agent to take good photos and descriptions of your home if it's for sale, and list it anywhere that may draw more interest to it, including putting the listing onto real estate websites, into local newspapers and even distributing flyers to homes in the area. Sure, your home might sell without this extra effort, but is that really the kind of person to whom you want to pay a commission?

4. Too Much Pressure

While you should seek out a real estate agent who is knowledgeable enough to have an educated opinion and confident enough to (respectfully) voice it, if you feel your agent pushing you in any particular direction, this should send up a red flag. Particularly when you're buying a home, there is no real reason why an agent should want you to buy any particular home over another. If you get the feeling this isn't the case, you could be being steered toward homes listed by your agent or your agent's brokerage, which can produce additional commissions for your agent.

Australian laws force real estate agents to reveal this conflict of interest to buyers, but if you feel your agent isn't being entirely open, beware. Your real estate agent's job is to act in your best interest and ensure that you're happy with the outcome of your real estate transaction. If you think your agent is preoccupied with his or her own interests, it's time to find another one.

5. Lack of Follow-Up

Whether you're buying or selling, many real estate agents think their job ends on the home's possession date. This is the day upon which the transaction is considered complete, and the real estate agent is paid. An agent who calls beyond this date to address any follow-up questions you might have and ensure that you're happy with his or her work is going above and beyond what is required and showing a commitment to customer service. After all, at this point your agent's commission cheque has already been signed, so this level of care is a great sign of an agent who is willing to do what it takes to make you happy and keep your business in the future.

The Bottom Line

As in every line of work, there are great real estate agents and there are terrible ones. However, in a tough real estate market like this one, you might have to gauge their performance on more than just a speedy transaction, which for home sellers, may be all but impossible.

By Tara Struyk of Investopedia.com


http://au.pfinance.yahoo.com/money-manager/real-estate/article/-/7964071/top-five-signs-of-a-bad-real-estate-agent/

Your Responsibilities as a Landlord

At the beginning and during the residential tenancy, as the landlord you have various responsibilities which must be upheld. As a landlord it is important that you understand these as you are obligated to abide by state law.

 

Choosing a Tenant

 

Discrimination

During the application process, you must not discriminate against any of the applicants based on certain characteristics, such as:

• Gender
• Age
• Race
• Religion
• Marital status
• Sexuality
• Having children
• Pregnancy
• Mental illness
• Disabilities

 

Bond and Advance Rent

It is recommended that all landlords acquire a bond from their new tenants. This security measure will be useful in instances where the tenant does not pay rent, damages the property or fails to keep it in a satisfactory condition. If so, you are then eligible to claim some or the entire bond once the tenancy is over.

The landlord may make a claim on the bond for:

• Damage caused by the tenant or their visitors
• Cleaning expenses
• Abandonment of the premises by the tenant
• Landlord being forced to pay tenant’s bills
• Loss of landlord’s goods
• Rent not being paid

At the start of a new lease, you are expected to provide a bond lodgement form to be filled out by both parties and are responsible to ensure that it is lodged with the relevant state authority within the correct time period.

 

During Tenancy

 

Condition Report and Rental Guide

Once the residential tenancy agreement has been established, a condition report must be completed by the estate agent / landlord and tenant. This report will, in detail, state the condition of the premises at the start of the tenancy, and any past damages. Having photographic evidence and the condition report is very important as it may be used as evidence if there is a disagreement regarding the bond claim in the future. The estate agent or landlord must also provide a rental guide relevant to their state, which will include all the tenant’s rights and other information which may be needed during the tenancy.

 

Rent and Bond

As the landlord you have the right to request rent on a weekly, fortnightly or monthly basis. With both the bond and rental payments received, you should provide detailed and signed receipts stating the date, amount received, property address, name of tenant and duration for which it has been paid.

 

Rent Increases

The conditions of rental increases vary from state to state.
For more information contact your relevant state authority.

 

Utilities

As the landlord, you are responsible for ensuring the property has all basic utilities installed. You are also responsible for the payment of rates and taxes, any services which do not have separate metering devices, annual supply charge for water and sewerage, body corporate fees and any other services they have agreed to finance.

 

Maintenance and Repairs

The main living areas must be kept in good condition and all the appliances need to be maintained. The condition expected will be dependent on how old the property is and how much the rent is. You are obliged to take care of anything that may need repairing on the property and must respond to any requests in a timely manner.

 

Urgent Repairs

Urgent repairs should be dealt with without any delay, in order to continue providing the tenant with a secure and liveable environment. Urgent repairs are those which are needed in order to fix a serious problem or fault which may endanger the tenant or damage the property and other belongings, such as:

• Burst water service
• Blocked or broken lavatory system
• Serious roof leak
• Gas leak
• A dangerous electrical fault
• Flooding or serious flood damage
• Serious fire or storm damage
• Failure or breakdown of gas, electricity or water supply to premises
• Any other damage which results in the property being unsafe or not secure

If they are not dealt with, the tenant has the right to organise a qualified professional to complete repairs, up to the amount specified in the tenancy agreement. You will then have to reimburse the tenant for the cost incurred.

 

Non Urgent Repairs

Non urgent repairs need to be resolved within a specified amount of time. This may vary from state to state therefore we recommend you to contact your relevant state authority to understand your obligation.


http://advice.realestateview.com.au/buying-investing/beginner-guide-to-investing/7/

Kylie's Tip of the Day...Fridge Magnets

You'll be surprised how much better your kitchen looks without them.

Kylie's Tip of the Day...Matters of the Art

You might want to hang a nice landscape instead.

Managing Your Investment

Once you have purchased an investment property, you need to consider how you will manage it. Property management is a big responsibility as tasks such as finding tenants, chasing rental payments and coordinating maintenance can be time consuming.

When managing your investment property, there are two options to be considered; self management or hiring a property manager to do it for you. It is important to weigh up the facts and consider the pros and cons of each option before making a decision.

 

The Pros and Cons of Self Management vs. a Property Manager

Table 4: The Pros and Cons of Self Management vs. a Property Manager

	Property Manager	Personal Management
Pros	Time: A property manager will take care of all time consuming tasks involved in managing your investment. Once a property has been leased, there is little more you need to do; they will take care of the rest. Emotional attachment: You will remain emotionally detached from the property when difficult matters need to be dealt with such as damage to your property, difficult tenants, etc. Industry knowledge: A property manager is an expert in all areas of property management. They can advise you on the optimal return for your property based on current market conditions. Tradesmen experience: As they manage a range of properties, they will have access to reputable trades people to perform maintenance on your behalf.	Agent fees: You will save on property management fees. Management: You will manage the property better than anyone else as you will be emotionally attached to the investment you have made. Top priority: As it is your investment, it will be your top priority to ensure it is tenanted, whereas a property manager may have many properties to manage, meaning yours may not be a top priority.
Cons	Agent fees: You will have to pay the agent who is representing you and your property an ongoing commission / fee. Management: A property manager may not manage your property like you would.	Time: Self management of an investment property can be very time consuming and stressful due to ongoing management tasks i.e. chasing rent payments, organising maintenance and inspections, etc. Emotional attachment: You may become too emotionally attached to the property when dealing with problematic tenants. Industry knowledge: You will not have up-to-date, vital information that an agent may have such as information on the current market, a register of available tenants, tenant history, etc. Marketing: You will not have access to all of the tools and websites needed to effectively market your property. Agents have access to websites that are not available to the “Self Management” market. This may impact on the rental return you can gain on your property.

 

Choosing a Property Manager

A property manager can play a vital role in the rental process of an investment property. The property manager will seek to maximise weekly rental income and source high quality tenants who will best take care of your asset. If you have decided to have a property manager represent you and your property, it is crucial to choose wisely.

Once you have shortlisted a few potential property managers, it is important to meet with them individually to discuss the possible rental of your property.

 

Questions To Ask When Interviewing a Property Manager

1. Does your agency have a dedicated property management department?
   Some agencies will view the task of property management as less important than selling and will therefore leave this task up to the front desk staff or receptionists. . Discover if the agency is experienced in the area of property management and has dedicated staff to effectively manage your property.
2. Is a director/owner of the agency overseeing the property management department?
   How focused is the agency on property management? The more important property management is to an agency, the more likely they are to effectively manage your asset.
3. How many years of experience do you have in property management?
   Experienced property managers will be able to attract the best tenants to look after your property and deal with those that become difficult.
4. Can you provide me with a written comparison on rental values in the market?
   An experienced and knowledgeable agent will be able to benchmark comparable rental properties on the market and advise you of the optimal rental return you should receive from your property.
5. What is your process for reviewing potential tenants?
   How do they determine whether the tenant is suitable for a property? Do they conduct police checks, or checks regarding their past rental history, current employment, etc?
6. How many properties are you managing at the moment?
   Are they representing many other people, hence being reputable and successful? Bigger however is not always better, it is also important to establish if you will be a priority and get the service and attention required during the property management process.
7. Will you go to court to represent me if needed?
   In the case that you experience difficult tenants, you may need to go to court to resolve certain issues about the bond or other matters. The property manager you decide on will need to be experienced and willing to support you in these times.
8. Will you advise me of any maintenance and repairs that need to be made to the property?
   In particular when non urgent repairs need to be made, will you seek approval before getting items repaired?
9. What are your fees?
   Enquire about management fees as well as any other costs a property manager may charge. Typical fees you may incur include those related to sourcing tenants, ongoing management of property and monthly statement fees.
10. Can I please see some references or contact details of the landlords using your property management services?
    What level of service was provided to past clients? Did they take care of the landlord and follow through on all which was promised?

Property Management Fees

If you have chosen for your property to be managed via an agent, it is important to understand the fees and costs that are associated with property management. Generally, this monthly fee covers the continual task of property management tasks such as: inspections, rent collection, etc. In some cases, agents may charge additional fees to cover the cost of finding a tenant. Property management fees will vary from state to state.

http://advice.realestateview.com.au/buying-investing/beginner-guide-to-investing/6/

Market Valuation – Estate Agent vs. Valuer

An estate agent, through their market knowledge, can provide you with an appraisal of your property which is a guide of the market value. Given the agent is specialized in a local area of the market, their knowledge and expertise will deliver a strong indication of the likely sale price for your property.

On the other hand, a valuer is legally qualified to provide a formal ‘valuation’ of the property. A valuation report, which is prepared by a valuer, is a professional and legal assessment of the value of your property prepared for many different purposes, including for the sale or pre purchase of a property.

Engaging a valuer will add additional cost to the sales process, however, as an independent and unbiased view of the market it may provide you with peace of mind that the property is being priced at market rate.

 

A Professional Valuation

If you have made the decision to commission a formal valuation for your property it is important to understand the process the valuer will go through to value your property.

 

Types of Valuation

A valuer may use one of several methods to value your property:

Direct Comparison Method

The direct comparison method compares the property with the recent sales of similar properties which have been sold in the area. These sales act as a guide to assist in determining the market value of your property.

Summation Method

The summation method is the process of determining the value of the land (its size, shape, location, surrounding infrastructure and changes), and then adding the value of improvements on the land (age, style, architectural features, number of rooms, renovations, etc).

Capitalisation Method

The capitalisation approach involves applying an investment yield to the property to work out the rental income, which is then discounted to determine the market value. This method tends to be more commonly used with investment properties.

The Valuation Process

 

Before the Inspection

A valuer requires instructions in writing that a valuation is requested, specifying the purpose of the valuation along with an agreement to the valuer’s terms and conditions.

A valuer will then proceed to make an appointment to inspect the property. Before the valuer arrives, ensure the following documents are on hand:

• Contract of Sale
• Certificate of Title
• Plan of Subdivision
• Building Plans (if new)
• List of any work(s) undertaken
• Rates of Notice
• Provide Owner’s Estimate of Market Value (OEMV) but ensure you are realistic
• Local papers and newspaper sales results
• Obtain some evidence from local real estate agents
• Obtain a ‘market appraisal’ from a local real estate agent

 

During the Inspection

A valuer will look through the property both internally and externally and will take notes of key factors which influence the final valuation, such as:

• Accommodation
• Fixtures/fittings
• Features
• Measurements of the dwellings and land

After the Inspection

In addition to inspecting the target property, a valuer will also consider its surroundings; both proximity to key points of interest (schools, public transport, etc) and the neighbourhood in which the property is situated.

On this basis the valuer will then prepare a report which will take all of the information into consideration. This detailed report will include the following information:

• Title Details
• Planning
• Location Description
• Site Description
• Building Description (after an inspection has occurred, this will include detailed description of accommodation, features, living areas, etc.)
• Comparable Sales
• Valuation Figure
• Photographs of the property
• Disclaimers

http://advice.realestateview.com.au/selling/ultimate-selling-guide/2/

Has the Property Market Bottomed Out?

The latest release of the Real Estate Institute of Australia’s ‘Real Estate Market Facts’ Report has shown an increase in the national median house price compared to the previous quarter. For many in the industry, this has sparked the question of whether or not we are seeing the nation’s property market bottom out.


A look at our capital cities

Overall, three of our capital cities recorded increases in the median house prices for the March quarter. These were Sydney, Melbourne and Darwin, with the median house price increasing 1.4%, 0.9% and 6.6% respectively.

Brisbane, Perth and Canberra all remained stable over the quarter, with no change in the median house price. Year on year however all three states recorded decreases in their median house prices, falling 3.4%, 3.3% and 1.5% respectively.

Adelaide and Hobart were the only two states recording decreases in their median house prices over the quarter. Hobart recorded the largest percentage decrease of 3.3%, whilst Adelaide’s median house price fell by 2.6% over the quarter.


Capital City Median Prices







A reason to be optimistic

There is reason to be optimistic, as the economy is stronger than it has been given credit for, and property seekers are realising that perhaps the situation is not all that bad. This could well be the first sign of a return to natural and sustainable growth within the market. Further, as Australia has quite a fragmented market, we will continue to see variable results from different parts of the country. However, I am confident that prices should steadily improve from here.


By Pamela Bennett

July 16, 2012

http://blog.realestateview.com.au/2012/07/has-the-property-market-bottomed-out/#utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ExpertView+%28Expert+View%29

Kylie's Tip of the Day...Get In Early!

Planning on a Spring sale? Beat the pack and get in early!

Buying First vs Selling First - The Pros and Cons

When it comes to selling a property, the age-old issue which you may face is should you sell or buy first? Timing, seasonality and market conditions are strong factors contributing to this decision.In order to determine which strategy may be best suited to your personal circumstances, it is important to weigh up the pros and cons of each option.

	Selling First	Buying First
Pros	There is no need to apply for a bridging loan to finance both properties. You will know the exact amount of money you will have to put towards your next purchase. You will not have any urgency to sell, therefore you can wait until you are happy with the sale price of the property.	You will have the certainty of only moving once. You can spend all the time you need to find your new home.
Cons	You may be forced to rent until you find your next home – thus you will need to move twice. You may feel pressured to find your next home and rush your buying decision.	You may be forced to obtain a bridging loan in order to finance the payments on both properties in the interim. Should your existing home not sell for the desired price, you may need to source additional funds to cover the shortfall. The burden of two mortgages could influence you to accept a lower offer.

http://advice.realestateview.com.au/selling/ultimate-selling-guide/

When is the Best time to Sell?

The timing of selling your home will largely depend on your personal circumstances and needs. However, there are certain factors such as seasonality and market conditions which you should consider when selling your property. Although these factors may influence the sale both positively and negatively, and at times cannot be controlled, it is vital to consider each carefully.

Seasonality

• Spring is considered to be the most popular season with the most sales occurring in the market. In Australia, October and November are the peak sales months.
• The Autumn season also shows strong property sales in the market. However, sales tend to be fewer in comparison to the Spring season.
• Seasonal fluctuations must be considered in conjunction with the market conditions below to determine when is the best time to sell your property.

 

Market Conditions

Market conditions may change due to many factors such as interest rates, employment, rises in living cost, etc. These factors will influence both buyer and seller demand. As a seller it is important to understand what market you are selling in as it may impact the sale price of the property.

 

Seller’s Market

A seller’s market occurs when demand for homes exceeds the amount of homes which are available for sale. This can be city wide but more often on a suburb by suburb basis.


How it may affect you:

• In a seller’s market, you are more likely to sell your property for a higher price. However, it is important not to overprice the property as this may still impact your ability to sell.

 

Buyer’s Market

A buyer’s market occurs when the number of homes available for sale exceeds the number of buyers who are looking to buy.

How it may affect you:

• In a buyer’s market, you need to ensure your price is realistic, appreciate it may take a little longer to sell and ensure you work with your real estate agent to maximise your selling price.

http://advice.realestateview.com.au/selling/ultimate-selling-guide/

Open Inspections - The Basics

Opens give potential buyers an opportunity to look at the property and will usually be for between 30 and 45 minutes once a week or fortnight. Some buyers will not make an appointment to view a property not offering open inspections because it requires a greater investment in time and money. Others prefer not to interact with an agent one-on-one for fear of the hard sell.

Your agent will organise the open inspections for you and should take your preferences into consideration, although this may not always be a possibility. If not their normal practice you can ask them to make it a condition of entry that visitors provide their contact details. This will help to secure your property against theft during the open inspection but is no guarantee, so ensure your contents insurance covers opens. If there are any personal items you don’t want people to see, they should be hidden and valuables should be locked away.

In the current market you can expect 4-8 groups per open if your home has been presented and marketed well and is not overpriced compared to the competition. If you have more, congratulations, it means the marketing is on track but if no one makes an offer within 4 weeks, there's a problem with perceived value. If your first couple of opens have few or no visitors, this is another clear indicator your home is not priced or marketed correctly.

Your agent should be on time and stay for the advertised duration. You can expect them to be well presented as your representative in the sale of your home. They are expected to treat your property and visitors with respect. They should not discuss your private information nor conduct other business in your home. You can expect your agent to turn off lights and lock up your home securely.

Your agent will ideally leave you a report detailing the number of groups through your open inspection, how they came across your property, key feedback and suggestions for next time. You can expect your agent to follow up buyers and provide you with further feedback within a few days and give you plenty of notice for your next open inspection.

Kylie's Tip of the Day...Nasty Surprises

Try not to freak out your buyers!