Interested in increasing your rental returns by up to 30%?

Interested in increasing your rental returns by up to 30%?

What would you say if we told you that you could potentially increase your rental returns by up to 30% simply by ticking a box? You’d probably call us ‘barking mad’.

But according to new research by Domain Group data, median asking rents for pet-friendly properties are higher than for homes that don’t allow pets in almost every capital city.

Take Melbourne’s inner city, for example, where just 1% of apartments allow pets.

The median rent for pet-friendly apartments is $550, whereas the median rent for apartments that don’t allow pets is $422.50. That’s a $127.5 difference, or 30%. Think about how much quicker that could help you pay off your home loan.

It’s a similar trend around the nation, too.

In many Sydney suburbs the median rent difference ranges from 12-26%, Brisbane’s southern suburbs have a difference of 13%, and so too do Perth’s western suburbs.

Houses are no different

When it comes to the difference in house rental prices, Brisbane’s inner city leads the nation where houses allowing pets fetch 21% higher rent. Meanwhile, the Canberra suburb of Gungahlin (13%) slips into the nation’s top five among a number of Sydney suburbs.

The recurring theme seems to be that the lower the proportion of properties advertised as pet-friendly, the higher the difference in median rental prices.

“We definitely see an increase in rents when properties are pet-friendly,” one Sydney real estate agent told Domain. “Hands down it’s the biggest inquiry we get for any property.”

Here’s what a Brisbane real estate agent added: “I love to give out a property which is pet-friendly because I know I’ll have a bigger pool of people coming through and the take-up is much faster.”

Factors to consider

Ok, so not every property is suitable for a pet. Not to mention that some strata bylaws don’t allow pets.

But if it’s something you’re interested in looking into, here are some important factors to keep in mind.

– Put in place a pet agreement: Have your tenant sign an agreement that outlines how many pets are allowed, what breeds, and what rooms they cannot enter (ie carpeted rooms). It can also stipulate that the pet should not annoy neighbours, not damage the property and that the tenant should take pest control precautions to keep the property free of fleas.

– Ask for a pet reference: There’s a good chance that the people moving into the apartment have rented another property before. Therefore be sure to ask their previous property manager how the pet behaved at that premises.

– Insurance and tax implications: While the tenant will be liable for most property damage (except general wear and tear), it’s worth double checking your landlord insurance policy to see what you’ll be covered for. And when it comes to footing the bill for general wear and tear, the good news is that it can be deducted from your rental income come tax time.

Final word

As you can see, there are some pros and cons to weigh up.

Sure, advertising your property as pet-friendly when seeking a new tenant can increase your rental return, but you’ll want to ensure you’re welcoming a pet into your investment that won’t be destructive or keep the neighbours up at night.

If you’d like to find out any other tips about potentially increasing rental returns on your property, then don’t paws for thought – give us a call right meow!

Farewell negative gearing and CGT discount?

Farewell negative gearing and CGT discount?

You’ve probably seen ‘negative gearing’ and ‘capital gains tax’ in the news recently. That’s because they’re set to become hot topics ahead of the next federal election. Today we’ll take a look at both.

If you’re an aspiring first home buyer, negative gearing and capital gains tax (CGT) are things that you may have heard a lot about, without paying a whole lot of attention.

That’s because, well, if you don’t have an investment property yourself, who really cares?

However, Labor is proposing to reform both negative gearing and the CGT if it wins the next election.

Reforms may have a flow-on effect for the entire property market – whether you’re an aspiring first home buyer, or a budding property baron.

But before we (cautiously) tread our way into the political hoo-ha, let’s take a look at what negative gearing and CGT actually are.

What exactly is negative gearing?

Ok, rest assured it’s all much simpler than it sounds.

Gearing is when you borrow money to invest.

Negative gearing is when the rental income from your investment is less than your interest repayments and expenses.

Why on earth would you want to make a loss?

Well, negative gearing is a common technique used by property investors, who are often prepared to accept a loss to reduce their taxable personal income.

In turn, this minimises the amount of overall tax they need to pay.

For example, if you’re earning $90,000 a year, and you’re losing $10,000 on your investment property, your taxable income drops to $80,000.

Capital gains tax discount

Still with us? Great.

Ok, so we’ve established that negative gearing can help minimise your personal tax each year.

But you’re still going to need to pay tax on the profit that you make once you sell the investment property – this is called capital gains tax (CGT).

However, if the property is held for more than a year, investors may be entitled to a 50% discount on their CGT.

Who is negative gearing mainly used by?

Well, property investors first and foremost. Australia has more than one million landlords using a negative gearing strategy, according to the ABC.

The Liberal party says negative gearing benefits middle-income earners such as nurses, teachers and policemen.

However Labor disputes this, saying it’s mainly used to benefit high-income earners.

They point to Grattan Institute data which shows it’s used most by surgeons, anaesthetists and lawyers.

That all said, the option is open to all. It’s just whether or not it’s in your own best interests – and that varies according to your personal situation.

The flow-on effect

Now, earlier we mentioned that Labor was looking at reforming negative gearing and CGT, remember?

Labor wants to limit negative gearing to newly built properties and halve the CGT discount from 50% to 25%. Labor says this will help first-home buyers get a foothold in the property market.

The Liberal party, on the other hand, says these policies will crash the property market.

Now, that’s about as much as we can say about the situation without wandering too far down the political path.

Suffice to say many economists say the reforms have the potential to lower property prices. That’s good for first home buyers, not so good for (current) property investors.

Want to know more?

The above outline is only scraping the surface of negative gearing and CGT.

It’s also important to reiterate that everybody’s situation is different.

How much you earn, where your property is located, your age, and many other factors will all have a significant bearing on whether or not negative gearing would be a good fit for you.

There’s also plenty of pros and cons, not to mention risks vs reward, to weigh up. All of which, once again, will depend on your individual circumstances.

So if you’d like to find out more, get in touch. We’d love to discuss your options further with you.

Choosing the right investment ownership model

Choosing the right investment ownership model

We all know that choosing the perfect investment and getting the timing right are both critical. What people often overlook, however, is selecting the right investment ownership model.

How you own your investment – and with whom – is a decision you’ll want to nail from the outset.

That’s because the asset ownership structure you select can dictate the tax you pay, access to finance, estate planning, control of your investment, costs associated with maintaining it, and the risks you face.

Today we’re going to take a quick look at your options when it comes to asset and investment ownership.

Personal ownership – sole or joint

Sole ownership is the complete ownership of an asset by one individual. This is perhaps the simplest and least costly form of asset ownership.

You’re entirely responsible for the asset, which means you carry full liability for all debts, finances and taxes.

Joint ownership involves two or more individuals owning a share of the asset.

Depending on your situation there may be tax benefits or tax discounts associated with joint ownership. For example, joint ownership of a property by a husband and wife may qualify for a tax benefit. You may also receive a 50% discount on Capital Gains Tax (CGT).

One of the main disadvantages of personal asset ownership is that it offers little protection for your investment if you become bankrupt or are sued.

Trust ownership

A trust is an investment structure that obliges a person, or group of people (trustees) to hold assets for the benefit of others.

Trust ownership can offer additional asset protection, allow for profit sharing and tax benefits, including a 50% discount on CGT. It can also help with estate planning and reduce the costs associated with transferring asset ownership.

Trusts, however, can be costly and complicated to establish and are also associated with more reporting and administrative responsibilities than personal ownership. Depending on the trust structure you select, it can also be more complicated to secure an investment loan.

Company ownership

A company can own a stake, or the entirety, of an asset.

Again, company ownership can help protect assets from personal losses and liabilities. It can also deliver tax benefits because any income and capital gains is taxed at the company tax rate of 30% (which may be significantly less than your personal marginal tax rate).

On the other hand, companies miss out on the 50% discount on CGT that is possible through personal or trust ownership.

Your control over the asset – including when you buy and sell – may also be diluted via a company structure.

Superannuation ownership

Investing through a superannuation structure can deliver significant tax benefits as any income earned via super can be taxed at as little as 15%. CGT from investments via super may be discounted by a third.

Investing through your super is also an estate planning strategy that many people consider.

That said, there are complex rules around super contribution caps, tax treatment and borrowing arrangements when investing via super. The location, type and liquidity of your investment may also be restricted.

Get in touch

Understanding which ownership option is the best fit for you and your asset can be complex. As you can see, it’s not straightforward – there’s a lot of considerations and no two situations will be the same.

So if you want to get it right from day dot, get in touch.

We can take into account all relevant information to help you decide what option to choose so your asset is owned in the most beneficial way.

5 common reasons home loan applications are rejected

5 common reasons home loan applications are rejected

Whether it’s unrequited love, or an unsuccessful home loan application, getting your heart broken is never easy. Here are five common reasons home loan applications are rejected.

 

Due to the banking royal commission, lenders are cracking down on home loan applications.

Applications that would have been approved in a just few days last year are now being put under the microscope for much longer periods.

To help you in your quest to secure an approval, here are five common reasons a lender may reject your loan application.

1. No proof of genuine savings

Lenders use the term ‘genuine savings’ to describe funds you’ve saved over a period of time.

Basically, if you can’t prove to them that you can knuckle down and save for a home loan, they’re going to baulk when it comes to believing that you can pay one off.

Here are seven ways to prove ‘genuine savings’.

– Regular deposits into a savings account over 6 months.

– Term deposit savings accounts held for at least 3 months.

– Shares or managed funds held for at least 3 months.

– Rental history for the past 6 months.

– Salary sacrificing through the First Home Super Saver scheme.

– Additional repayments into a car loan or personal loan.

– Deposit paid to a real estate agent, builder or developer that was originally in your savings account prior to being paid (ie. not borrowed from somewhere else).

2. You spend like a drunken sailor

Lenders not only want to see you save money. They also want you to demonstrate that you can exercise discipline when it comes to your spending habits.

Therefore lenders will trawl through your spending accounts hunting for any big-ticket items that are out of the ordinary.

This might include a $400 ATM withdrawal at a casino, or a $100 purchase at a baby store if your application says you don’t have children.

3. Your credit history ain’t so hot

Since Comprehensive Credit Reporting was introduced in July, lenders have been sharing a lot more of your credit history.

You can get a free credit report once a year from one of three national credit reporting bodies, which are listed on this government website.

If you find errors in your report, you can get them corrected. You can also take steps to improve a ‘poor’ rating by clocking up a period of consistency and reliability.

4. You don’t have a big enough deposit

Lenders like to see that you’ve saved a deposit of at least 10% to 20% before applying for a home loan.

But all too often people forget to factor in additional funds for other expenses such as stamp duty, lender’s mortgage insurance and removalist costs.

That means, for example, if you have saved $70,000 for a $700,000 loan, you might want to keep saving for a little while longer before you apply for a loan to factor in those other expenses.

5. Your employment situation

Even if you tick all of the boxes above, lenders may also reject your loan application if you haven’t been in your job long enough. And if you’re unemployed, they can’t approve it full stop.

Those who are self-employed are also running into headwinds. Lenders are becoming increasingly hesitant to approve loans unless a steady and reliable income stream can be proven. That said, there are lenders who are more flexible when it comes to self-employed workers, and we can help guide you towards them.

How we can help

We help people who are seeking a home loan overcome all of the above hurdles on a daily basis.

So if you or someone you know has recently had a home loan rejected, or you simply want to nail it the first time, get in touch.

We’d love to help you navigate the tighter lending standards to make your dream of home ownership a reality.

Don’t get outfoxed: a quick guide to property valuation

Don’t get outfoxed: a quick guide to property valuation

Information is power. Knowing the property valuation can help you secure a great price during negotiations.

Whether you’re a buyer or a seller, having an accurate property valuation conducted can give you the confidence you need to close the deal in your favour.

And it doesn’t matter if you’ve had one conducted recently. The housing market is constantly shifting.

A house worth $600,000 a year ago could be worth much more – or even less – today.

So it’s vital to always obtain reliable, up-to-date advice on the value of a home when buying or selling.

Who conducts a property valuation?

Property sellers can approach either real estate agents or private valuers for a valuation.

While private valuers are not used by banks when lending decisions are made, they are useful for a guide to the estimated market value.

In fact, “bank valuations” are altogether another thing. They’re conducted by a lender to determine their risks when you apply for a home loan. And they’ll usually be more conservative than the market valuation.

What exactly is meant by “market value”?

The market value of a property reflects the price that a willing buyer and willing seller negotiate before a transaction takes place.

It is not the current listing price of the property or the amount of money that was last offered for the property.

How property is valued

A property valuer takes a number of different things into account before coming up with a figure.

Typically, they look at the number and type of rooms, the size of the property, location, and areas for improvement.

They may also look into whether the building has a sound structure, the quality of the property’s interior design and fittings, ease of access, and planning restrictions.

Outside the property, they will look into any local council issues and compare recent sales figures in the area to understand how in-demand the property may be.

Factors that influence value

Many of the factors that decrease a property’s value are beyond the control of homeowners.

The popularity of a property’s location and surrounds will have a huge impact on its price. For example, a new whizz bang unit block may go up next door making yours look outdated, or a new high rise could block your ocean view.

Government legislation – such as changes to foreign ownership or Labor’s proposed changes to negative gearing and capital gains tax – can also impact the market.

There are, however, ways that sellers can increase the value of their home outside fluctuations in the market. We’ll take a look at a few below.

Kitchen and bathroom: These areas attract the most interest from potential home buyers. Consider allocating a chunk of your budget towards new sinks, countertops and cabinets.

Fresh paint job: Painting can make a property feel new. Neutral creams and whites suit most people’s preferences. Lighter shades also give the impression of spacious rooms.

Get trimming: If your property looks gloomy, try trimming overgrown bushes, mowing the yard, and growing flowers.

Improve energy efficiency: Buyers may dig deeper into their pockets for a home that helps them save on energy costs. Install appliances with positive energy conservation ratings. Also, replace old windows with ones that have a durable sealing.

And a quick warning to the buyers out there. Make sure you don’t allow yourself to get “wowed” by cosmetic upgrades. Remember that there are other important factors you’ll want to consider when you evaluate a property too.

Want to conduct a property valuation?

If you’d like help finding out exactly how much a property is worth, then give us a call.

We’d be more than happy to put you in touch with a reliable, independent valuer who will help give you an insight into the market value of the property you’re looking to buy or sell.

What is debt recycling?

What is debt recycling?

We all know that recycling is great for the environment. But debt recycling? Well, if done right, that could be great for your own little patch of planet earth.

There are three things that many Aussie property owners wish they could do: make their debt tax deductible, pay off their mortgage sooner, and invest in other asset classes to build towards future wealth.

Well, with debt recycling it’s possible to achieve all three. But it’s a somewhat complicated strategy that’s not without risks.

But first, what exactly is debt recycling?

The idea behind debt recycling is to take the non-deductible debt from your home and recycle it into tax-deductible debt.

That is, to replace your mortgage debt with investment debt.

The earnings accrued from your investments can then be used to pay off your home loan.

If done effectively, not only can you pay off your home loan much faster, you can also generate higher levels of wealth as your home and investments grow in value over the long term.

Who might it suit?

Debt recycling is a higher-level financial strategy that is more suitable for certain individuals including those who:

– Are happy to invest for the long-term (5 years plus), as opposed to seeking immediate returns.

– Have a high marginal tax rate (greater benefits from tax-deductibility).

– Have a good appetite for risk.

– Have a secure income source that is not affected by investments.

The benefits

When executed properly, debt recycling offers a number of significant benefits, such as:

– Allowing you to start investing almost immediately, even if you have no existing source of finance with which to get started.

– You don’t require years of investment practice to begin debt recycling (although it is highly advisable to work alongside an experienced financial planner).

– It can help you to cover the gap between your superannuation savings and your retirement targets.

– It can help you to pay off your mortgage earlier and relieve your debt burden.

The risks

Though it is true that you can reduce risks by gaining a firm understanding of debt recycling and other investment strategies, you will never be risk-free.

The two major risks you face are:

  1. In the same way that you benefit from compounding gains over time, a market downturn can compound losses, meaning that the amount you eventually owe could be more than the value of the portfolio.
  2. You could also be at risk of losing your home if you use the existing equity in your home as security for the investment loan.

Is debt recycling right for you?

It’s fair to say that debt recycling isn’t for everyone. Like most things in life, it will depend on your personal circumstances.

So if you’d like to find out more, get in touch. We’d be more than happy to run through your options with you.