CFS Blog

CFS Blog is a dedicated content rich resource for people wanting to keep up to date on latest trends in the finance industry. We reveal tips and strategies that help you achieve your financial independence.

Property Purchase - Strike while the iron’s not yet hot

- Friday, July 29, 2011

It’s worth remembering that some of the best gains can be made when markets are flat.

With the outlook increasingly suggesting flatter property markets ahead the question many investors will be asking is ‘Should I buy now or should I wait?’.

Few pundits are forecasting any meaningful gains in property prices for the immediate future – at least not on a national basis. Sure, there will always be specific areas that perform well regardless of the broader market but these opportunities look like they will be more limited in the near future.

So with little prospect for capital growth in the short term what incentives are there for investors to make their move in the property market now?

If you’re looking for short term gains, this will be a challenging market cycle for you. For investors where turning a quick profit is a priority the biggest opportunities probably lie in developing or renovation.

While this has been a successful strategy for some, most investors generally look for longer term gains, so what does the current market represent for them?

With less competition in the marketplace for property on sales there is greater scope for the buyer to negotiate on price – and this should not be underestimated.

A slower market also means that properties generally take longer to sell so you have greater scope to take your time and pick your property carefully, rather than feeling rushed in to a purchase when things are running hot.

The other attractive aspect of a slower market for investors is the likelihood of rental growth. While fewer people might be planning to buy, they will still need a roof over their heads and that need pushes up demand for rental property.

With less buying activity, fewer developers are looking to construct apartments because there is lower demand for stock. This only serves to put more upward pressure on rents.

Whether you choose to buy now or to wait and save will depend on your own wealth creation strategy and appetite for risk.

If you decide to wait, the good news is that the market is unlikely to run away from you – you won’t miss the property boat. As prices look to remain flat, you might just want to beef up your savings or maximise your deposit so you can make a move when the market heats up.

Historically, however, investors have secured the greatest long-term gains when the property market is less than favourable. So, for those investors who are motivated and determined to move now, there might just be a significant opportunity.

True, you might not see an immediate return on capital growth but there are a number of other key benefits. Most notably, when the market starts to move everyone will be looking to get on board, so it’s good to get in early and ride the growth from the get go.

If you buy smart, the growth will come.

Investors are in a good spot right now: they have choice, buying power and time. In a market such as Australia

– which is typically short of stock – if you bide your time and wait for markets to pick up you’ll either miss out or pay over the odds.


Broaden Your Investment Property Horizons!

- Saturday, October 16, 2010

Determining where to invest is one of the many key questions an investor grapples with before considering investing in property.


Typically, investors consider investing in their own backyard. That is, the suburb in which they work, live or play in. The underlining basis of such a decision, is investing within one’s comfort zone.


With this premise in mind the questions to be asking are:
Q: How well do you really know the suburb?
Q: Are emotions influencing your decision making process and providing you a false sense of knowing?
Q: Are you basing your decision on facts and figures?

To obtain a clear understanding of how well you actually know the suburb, you may want to ask yourself some of the (but not limited to) following questions:

  • What is the current and historical vacancy rate of the suburb?
  • What is the Median rent?
  • What is the Median value for a new/or old 1 and/or 2 br apartment, townhouse, etc?
  • What does the supply versus demand ratio of stock look like?
  • Is the suburbs population growing or shrinking?
How did you go? Where you able to answer the questions accurately? If you did you may be feeling somewhat more confident about your decision. Nevertheless, if you already own property in the same suburb (that is, your house or principle place of residence) investing in the same area will subject you to concentration risk.

If you already own multiple properties in the one State, the other implication you need to be wary of is Land Tax. Land Tax is a State based tax. The more property you own outside of your principle place of residence, as the land values increase, the more arduous it will become to hold your portfolio.
To mitigate these risks or costs, you should not only be considering another suburb, (but depending upon your investor profile) you should be considering another City or State. Geographic diversity is just one of the many attributes Aviate can assist you with.

Finding the right investment property requires research and due diligence. When properly selected, an investment property can have good potential for capital growth and provide a steady rental return. Industry knowledge and specialised service are keys to finding investment opportunities. This has once again been demonstrated by Aviate and confirmed by an independent panel of experts in this month’s (September) issue of the Australian Property Investor (API) Magazine.

The API used the following points, (which our investment property provider agrees with unless otherwise indicated) in reference to using the Hot 100:

  • View the list as a guide to finding areas worth researching for future investment.

  • Don’t buy a property in a particular location simply because it’s included in the Hot 100. Just because it’s on the list doesn’t mean every property in that area is guaranteed to perform well.

  • Buy for the long term. The Hot 100 is designed to highlight locations that are expected to see price growth in the coming 12 months, but property is best viewed as a long-term investment. The API’s expert panel was asked to choose suburbs that would perform well in the short term, as well as the medium to long term. (Aviate’s view is that some of the suburbs selected are questionable).

  • This list is not your due diligence. You must perform your own, more detailed research into locations you’re going to invest in, as well as the specific property you’re buying. (Aviate extensively documents its research in its Property Investment Reports (PIRs). The PIRs assist investors in making educated decisions on future investments).

To find out how our property investment provider can assist you with geographic diversity and other property investment related matters, feel free to contact us.

By Click on click to call button below and we will call your mobile or land line straight way to discuss your investment opportunities.

You don’t even have to leave your home.




First home saver accounts – the pros and cons

- Friday, October 01, 2010
A first home saver account (FHSA) offers first time buyers government contributions towards their deposit as well as tax advantages. But what exactly do these accounts entail and are the rewards worth it?

A first home saver account is a resource available to would-be home buyers and is offered by many banks, credit unions and non-bank lenders.

While there are many contributions and low tax features associated with the account that will appeal to potential first home buyers, it’s important to look beneath the surface and read the fine print before you fully commit.

What you need to know

To be eligible to apply for a FHSA, you must:

  • Be aged between 18 and 65
  • Have a tax file number to present to the provider
  • Not have previously purchased or built a first home in which to live in
  • Not have or previously had a FHSA
  • Understand that penalties apply if you open an account when you do not meet the eligibility criteria.

The features of a FHS

  •  A government contribution of 17 per cent on the first $5,500 you contribute to the account each year
  •  Additional government contributions to be deposited into your account after you have placed your tax return
  •  The ability for both the account holder and another party, such as an employer, to make contributions into the account
  •  No minimum annual deposit to keep the account active
  •  Contributions not taxed when deposited into the account
  •  Interest or earnings being taxed at 15 per cent as opposed to your marginal tax rate

While you – or your children, if they’re looking to buy their first home – can benefit significantly from opening a FHSA, be aware that, benefits aside, there are also numerous guidelines that come attached.

One of these to keep in mind is that no further savings will be contributed once the account balance reaches $80,000. Another to consider is that government contributions will not be made if you decide to move overseas, even if you are still making your own contributions to the account.

Withdrawing from a FHSA also comes with its own set of stipulations. When opening an account you must be mindful that a minimum contribution of $1,000 over at least four separate financial years is required before you can withdraw funds, for example.

Also be aware that there are conditions attached that limit how you can use these funds when it comes to withdrawing them. If you decide that you are no longer interested in purchasing a property you will find that you are not entitled to regain account contributions. Penalties can apply if you withdraw these funds and do not use them to purchase a property.

Lastly, remember that the property you are withdrawing the funds for must be lived in for at least six months within the first 12 months of buying.



Take a holistic view of possible costs when buying

- Friday, October 01, 2010
There is a raft of costs associated with buying property on top of the purchase price – and preparing for these costs can make for much smoother sailing

Forgetting the extra expenses that go hand-in-hand with buying property is a common mistake made by many property buyers.

From legal costs to removalists, the supplementary fees and charges associated with property buying can end up adding thousands of dollars to the purchase price, sometimes as much as five to 10 per cent.

By having the foresight to factor in these additional costs you can avoid placing added pressure on yourself as well as your budget. Here are the key extra costs you should consider:

Stamp duty
Stamp duty will most likely be the biggest financial outlay home buyers will encounter, but just how big is solely dependent on the purchase price of the property.

Before you start to calculate possible liability, check whether you receive any stamp duty exemptions or concessions. Some first home buyers are able to take advantage of stamp duty breaks if they are purchasing below a predetermined threshold. These concessions vary from state to state, so be sure to do your homework to find out exactly what you may be eligible for.

Lenders mortgage insurance
If you intend on borrowing more than 80 per cent of your property’s purchase price, you’ll most likely have to pay lender’s mortgage insurance (LMI). This fee doesn’t protect you as a borrower but rather the lender in the event you default on your loan.

LMI is a one-off premium, paid upfront or capitalised into your loan. The premium you pay will be based on the purchase price of the property, the size of your deposit and the style of loan you select.


Line of credit mortgages

- Tuesday, April 13, 2010

Whether you’re looking to move quickly to capitalise on property investment opportunities or drive down your home loan, a line of credit can be a powerful tool – but it is not without risk.

How does it work?
A line of credit is an interest-only home loan that can offer borrowers instant access to any repayments made to the principal sum.

Borrowers can choose how much or how little of their loan they repay each month – as long as the monthly interest repayments are met.


Who is it for?
A line of credit is essentially for investors and borrowers who aim for aggressive mortgage reduction.

Investors favour this flexible product because they can quickly redraw money up to the original agreed loan amount without making a new application to the lender.

Used with self-discipline, it is also possible to take years off the life of your loan, but be warned: it can also add years to your repayments if you dip into the loan too regularly.

Borrowers may pay their full salary directly into their loan each month to drive down the principal, using a credit card with an interest free period that is linked to the account to pay for monthly living expenses.

At the end of the month, the required amount can be withdrawn from the loan to pay off the credit card and the cycle begins again. But if you don’t repay more than you would with a principal and interest loan you’ll end up multiplying – not cutting – the amount you end up repaying.

The interest rate on a line of credit is also generally higher than a standard variable rate loan as you’re paying for a lot of features. So make sure that you use the features available, otherwise it’s worth considering a different type of mortgage. Please give us a call to determine whether a line of credit mortgage is right for you.




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Disclaimer
This article does not necessarily reflect the opinion of the author/s, Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services Pty Ltd,'Carruthers Financial Services Pty Ltd's employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd expect for the use for which it was purchased for. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd will take no responsibility for any factors that may change thereafter. The purchaser of this article and all readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.


Managing your investment property

- Tuesday, April 13, 2010

Should you trust the management of your investment property to an agent or do it yourself?

Seldom has the property market looked so ripe for investment returns. Soaring rental values, rock bottom interest rates and a shortage of supply have created a prime market for investors.

But locating and buying the perfect rental property is only half of the equation – the next challenge is to find and manage your tenants.

The good news is that landlords have the option of taking the job on themselves or outsourcing to professionals, and there are certainly pros and cons with both.

Professional property management services come at a premium, which can range from around five to 10 per cent of the gross rental. While this will certainly put a dent into your rental income there are some distinct benefits to using an agent.

For starters you won’t be called on day and night to fix leaking taps and broken fences. The agent will take care of managing all maintenance issues associated with the property, which can be a big advantage – especially if you don’t live near to your property.

There’s also the advantage of tapping into a broader network of prospective tenants should your property become vacant; what’s more the agency will help assess and select the best tenants as well as organising the collection of rent.

The main downside of using an agency is the reduction in income, which may mean all the difference between a cash positive or negative investment.

Self-managing your property essentially gives you more control over your investment. You can pick and choose your own tenants, and as long as you’re handy with a hammer you’ll be able to reduce the cost of maintenance by taking care of small jobs yourself.

At the end of the day you need to consider how hands-on you’re prepared to be with your investment before making a call on whether to bring in an agent or not. If the property is out of your local area, and you’re not much of a handyman, it may be best left to an expert.


Disclaimer
This article does not necessarily reflect the opinion of the author/s, Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services Pty Ltd,'Carruthers Financial Services Pty Ltd's employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd expect for the use for which it was purchased for. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd will take no responsibility for any factors that may change thereafter. The purchaser of this article and all readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.







Give your children a financial education

- Tuesday, April 13, 2010

Money is one of life’s most valuable commodities, so it is important to develop good saving skills from a young age. Try these simple tips to help educate your kids about money.

Almost one third of all personal insolvencies in Australia last financial year occurred among people aged 35 and under. More obviously needs to be done to educate young people about money management and debt, and the best place to start is at home.

Here are a few helpful tips to get your kids thinking about investing in their future:

  • Have an allowance scheme:
Rather than buying your children items on demand, give them a small sum (say $10 to $15) each week to manage. This will get them working to a budget (and you won’t always feel like their personal ATM).
  • Create a savings account:
Open a savings account for your children with a passbook rather than a card, as this will make it more difficult for them to withdraw money once it has been deposited.
  • Talk to their school:
Find out from your children’s school whether it has a money education program and see how you can help your child put these initiatives into practice at home. For example, the Commonwealth Bank offers a program called ‘StartSmart’ for primary and secondary school children to educate them on the importance of saving.
  • Encourage your child to get an after school job:
If your children are at an eligible age, encourage them to get an after school job with minimal working hours. Not only will this give them a sense of freedom and independence, it will also help them to understand how money is earned – which may help change their perception on unnecessary spending. It will also help boost their CV when it comes to securing a full time role.
  • Talk about money:
Most importantly, be a sounding board for your children’s questions and concerns regarding money. If they know they can come to you if they experience money problems at an early stage, it will be easier to help guide them back on track.

Disclaimer
This article does not necessarily reflect the opinion of the author/s, Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services Pty Ltd,'Carruthers Financial Services Pty Ltd's employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd expect for the use for which it was purchased for. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd will take no responsibility for any factors that may change thereafter. The purchaser of this article and all readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.




The Benefits of Lenders Mortgage Insurance ( LMI)

- Tuesday, March 09, 2010

Raising a 20 per cent deposit can be a challenge but with Lenders Mortgage Insurance (LMI) you may be able to side step this obstacle.

Before LMI was available, lenders would usually lend up to 80 per cent of the value of a property, leaving the buyer to chip in the rest.

When lenders agree to lend you money there is a small risk that they won't get the money back should you default on your repayments. An 80 per cent loan is therefore recognised as the 'safe' risk level by most lenders – should they have to repossess the property.

LMI was introduced some time ago to enable lenders to offer higher percentage loans. The insurance essentially protects the lender for the amount above the 80 per cent level should the borrower default and ultimately end up with their property being repossessed.

Open opportunities with LMI

With the backing of LMI, lenders are willing to lend as much as 95 per cent of the property value as they are protected – and this can make a significant impact on the amount buyers need to put in themselves as a deposit.

As the borrower you pay the premium, but while it may seem like you are paying insurance cover to benefit somebody else, LMI makes owning a home easier and more affordable.

It could also mean getting into your own home or securing, an investment property, years earlier than imaginable if a 20 per cent deposit was the only option.

Imagine how long it could take some would-be buyers to stump up a 20 per cent deposit on the average $600,000 Sydney home? That's a sum of $120,000 on top of all the other expenses associated with buying a house.

By reducing the deposit required, many borrowers are able to purchase a home much earlier, or buy a better property than they would otherwise have been able to afford.

Alternatively for property investors, lenders mortgage insurance allows borrowers to have higher borrowing ratios, giving them the opportunity to maximise negative gearing benefits.

LMI premiums are calculated on the amount that you borrow – and as you'd imagine, the higher percentage loan the higher the premium. But the good news is that the LMI premium can often be capitalised into the overall loan, thereby reducing upfront costs.

It's important to bear in mind that the higher the loan amount you take out, the bigger the repayments. It's essential that you think carefully about what your monthly budget can accommodate to ensure that you don't over stretch yourself.

If you have any questions or would like further details please don’t hesitate to give me a call.

<Disclaimer>

This article does not necessarily reflect the opinion of the author/s, Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services officers, employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd  will take no responsibility for any factors that may change thereafter. All readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.




The Facts About Negative Gearing

- Sunday, December 06, 2009

Negative gearing is a popular technique with Australian property investors because of its tax advantages, but it is not without risk.

There’s no doubt negative gearing has been one of property’s biggest buzz words in recent years. And there’s good reason why: with the right approach it can provide great tax advantages and cash flow benefits favoured by many landlords.So what exactly is negative gearing and how does it work? Gearing essentially refers to the act of borrowing to invest. A property becomes negatively geared when the costs of owning it exceed the income it produces – i.e. you are making a loss.

Why would you choose this approach for Negative Gearing?

For investors there is one key reason – to maximise the return on their initial investment, or in other words, minimise the amount of money that they put down on the property from their own pocket.

For a simplified example, an investor buys a $500,000 property, puts down $100,000 (or 20 per cent of the value) of their own money, and takes out a $400,000 interest only loan.

Over a 12 year period let’s say the property doubles in value, so it is now worth $1 million. When the investor sells the property, and repays their $400,000 interest only loan, they will recoup a gross figure of around $600,000.

That represents a gross return of $500,000 on their initial $100,000 investment. But remember that out of this figure there will be selling costs, any rental shortfall over the period and of course capital gains tax.

Nonetheless this opportunity to significantly magnify a small investment by gearing (or borrowing) remains popular as an investment strategy.

There are also associated tax benefits for negatively geared properties as there may be an opportunity for the landlord to offset any loss against their taxable income.

Take care however: negative gearing is a game that requires caution.

Be very wary of developers’ promises about the potential for future returns on an investment, and do as much research as possible to ensure you are making a sound investment.

It is also essential that you seek professional advice on the tax issues associated with negative gearing and never borrow beyond your means. If you have some concerns, or would like some more information, please feel free to get in touch.

Important Points for getting Negative Gearing Right

  • Avoid over-inflated markets and choose your investment carefully
  • Make sure you have a reliable, strong income flow
  • Borrow conservatively to minimise risk

Interested in finding out more about investing in property, then why not make an appointment for a FREE Initial consultation.


Disclaimer
This article does not necessarily reflect the opinion of the author/s, Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services Pty Ltd,'Carruthers Financial Services Pty Ltd's employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd expect for the use for which it was purchased for. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd will take no responsibility for any factors that may change thereafter. The purchaser of this article and all readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.




Deposit Bonds - The Cash Alternative

- Sunday, December 06, 2009

If you’ve got cash but it’s all tied up, a deposit bond could be the solution you need to secure that new property.

Whether you already own property, managed funds or collectables you may find that when the perfect opportunity arises, the cash you’d like to put down as a deposit on property is locked away elsewhere.

In the worst case scenario, liquidating assets at short notice may mean making a loss – or at the least not maximising potential returns. In such instances a deposit bond may be the perfect solution to raising a deposit to secure a property.

What is a deposit bond?

Put simply, a deposit bond is an alternative to a cash deposit. It is in fact an insurance policy whereby an insurer guarantees the vendor that it will pay the deposit at settlement without any cash actually changing hands.

Deposit bonds are particularly useful for property investors who may be rich in terms of assets but cash poor.

Deposit bonds can be well suited to long settlement terms or if you’re purchasing property off-the-plan. This can allow you to liquidate other investments once they have matured, or are at their peak rather than when the situation dictates.

Another advantage of a deposit bond is that the associated costs are generally low, especially when compared to other finance solutions such as bridging finance or personal loans, where interest rates can be high.

What to consider in a Deposit Bond.

Like any financial product you need to exercise caution and consideration when using a deposit bond.

While they may sound like a perfect way around your cash problem, they aren’t a guaranteed green light; moreover, some vendors, developers or real estate agents may not accept them.

To avoid any misunderstandings and contract disagreements discuss the use of a deposit bond with the vendor and / or agent to ensure they are willing to accept it before you progress too far into your negotiations.

There is also the unlikely but possible scenario that you default on your deposit bond. While the insurer will only provide the bond if they are reasonably satisfied you can support it, these things do happen.

In this case the insurer will provide the funds to the vendor and then seek the recovery of the deposit from you.

If you’d like more info on deposit bonds please give us a call and we’ll run through your options.

Disclaimer
This article does not necessarily reflect the opinion of the author/s, Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services Pty Ltd,'Carruthers Financial Services Pty Ltd's employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd expect for the use for which it was purchased for. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd will take no responsibility for any factors that may change thereafter. The purchaser of this article and all readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.






 
David Carruthers is a credit representative (Credit Representative Number [400226]) of BLSSA Pty Ltd (Australian Credit Licence No. 391237).