ResidentialPropertyInvestorsClub.com

Latest figures show that Australian house prices are again on their way up, if this trend continues the average house price has only fallen by 3 per cent compared to 30 per cent in the US. How can Australian residential property prices hold up so well in this massive global downturn? It all comes back to the most significant property price driver, which is the law of supply and demand. Put simply, America has more dwellings than needed and Australia has not built enough.

Well located properties are currently being snapped up by first home buyers who have suddenly found that owning a home is now often  cheaper than renting. First home buyers are the ones to watch as they affect the market more than any other group. In a typical property cycle upswing first home buyers will hit desirable suburbs by purchasing the affordable properties within these areas. Investors will then follow, then once that area becomes seemingly less affordable due to competition the first home buyers turn to the next affordable surburb,  and on it goes.  The cycle always starts close to capital cities and then ripples out.

So if we are  now at the bottom of the next upswing, it makes sense to start buying property in well located areas before the herd arrive. Once they do, move to the next well located suburb you can find, always staying ahead of the first home buyers.  I do believe that we will see double digit growth again by the end of this year. If you wait until property becomes the flavor of the month again  you will most likely miss the boat as many did in 2003. Stick to the basics by purchasing the best possible located properties you can at the right price and watch your asset grow.

My school friend Kelly Cameron-Tull has created a multi-million dollar property portfolio and runs the Brisbane based mortgage broker company “Get Real Finance”. Kelly is an inspiration and in this interview shares some valuable insight into how she has created the sort of wealth that most of us dream of.
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With interest rates falling to the lowest levels that many of us have ever seen, we are now presented with the opportunity to buy well located  capital growth investment properties that will cost you next to nothing to hold. Some will even put weekly cash-flow in your pocket from day one.

To find cash-flow positive investment properties in last six years, you would have to go a fair way inland to areas of low population, no jobs and little infrastructure. Not the best mix of attributes to base a secure property portfolio on. But in recent month the tables have started to turn. Lack of supply in sort after areas with great fundamentals, such as schools, employment and transport has increased rents significantly.

I have just fixed a few of my property loans with one of the big four banks  at 4.99% for 3 years, and in coming months we may see other lenders offering similar rates or even lower. I am finding properties on the market now in areas with  great fundamentals between Brisbane and the Gold Coast for sale that achieve 6%+ rental yields. With figures like these the rent achieved could cover the mortgage, rates, and outgoings, leaving you with a property that takes care of itself.

  Throw in the mix some creative strategies, like a quick cosmetic renovation to boost the rent and property value even more and then just count the dollars coming in week after week. Ah, isn’t residual income sweet.

Beach side of the Gold Coast Highway 1970’s built unit blocks are in plentiful supply in some of the more sought after areas such as Broadbeach, Surfers Paradise and Main Beach. These well built, but often tired looking buildings have a lot more going for them than just being an affordable option to live walking distance to the beach. Quick profits can be made by buying one unit or a whole block, when undertaking a cost effective cosmetic renovation and then either renting or on selling the finished product. Unrenovated two bedroom properties in the these suburbs are currently selling in the low $300k’s, and the right sort of renovation you can add up to $5 value for every dollar spent.

Body corporate fees are much lower than modern high rise apartments, often below $20 per week whereas with modern high rise apartments you can pay many $100’s per week. Land value is huge in these underdeveloped blocks, on some beach side 600 square meter blocks you will find only 4 or 5 units, but the land may be zoned for between 7 and 30 stories.  This is where I see huge future profits, in the development potential. After all, beach side land is in finite supply, and Aussies will always gravitate towards the surf and sand.

Words of wisdom from the greatest millionaire maker, Napoleon Hill. Author of the ultimate book on achievement and success “Think and Grow Rich”.

Rental yield is a properties yearly rental income divided by the purchase costs, and multiplied by 100. The total is expressed as a percentage, for example: If you receive $300 per week rent, which equates to $15,600 per year, and the total purchase price of the property was $350,000, the rental yield would be determined as follows: 15,600 / 350,000 x 100 = 4.45% rental yield. With interest rates at their current low levels many properties are leaning towards positive cash flow and achieving more in rent than what is spent on outgoings (interest payments, rates, repairs etc.).  As property prices rise in value over time your rental yields will also increase on your portfolio.

Capital growth is the improved value of a property minus all costs, including purchase price, purchase costs, selling costs and renovations or improvements. In Australia capital gains is taxed on this amount after the sale of an investment property, but not on your principle place of residence (ppor). Currently if you own an investment property for more than a year and then sell you are eligible for a 50% discount on CGT.  

Equity is the current value of a property minus what you owe to your lender. It can be used instead of a deposit as security to a lender to leverage you into another property purchase. Equity can also be used as security to borrow funds for just for renovations or to fund shortfalls in living expenses. Over the past few years leveraging property equity has enabled myself and many other property investors to live well off a property portfolio without the need to sell. Currently lenders are tightening their policies on low documentation borrowing and this strategy is not currently looked upon very favourably with lenders mortgage insurers during the current financial climate. But who is to say whether this strategy may once again be viable when the financial markets correct themselves.

 With housing affordability at its current levels people are finding that the old way of saving a deposit to enter the market will no longer work for them. By the time you have saved that large deposit, house prices can again move up and out of your reach. The longer that you are out of the market, the longer it will be til you get rich. Joint Ventures, commonly referred to as JV’s are a great way to enter the market sooner, and purchase better quality properties than you might otherwise have been able to afford. A JV involves two or more people teaming up to purchase a property usually with the purpose of using a value adding strategy like renovating or developing it and then on selling the said property for profit. The best JV’s involve members who can bring different skills or strengths to the table, such as a cash rich, time poor person partnering up with a time rich, highly skilled person. JV’s are also an excellent way for parents to help their kids enter the market by using the end profits to enable them to purchase their very own property down the track. A vital key to achieving a successful joint venture is attitude, focus on abundance not lack, as the name of the game is to make enough profit to happily share around. After all, would you rather have half of something or none of nothing?

Once the secret document wielded by big time developers, the option contract is suddenly the new black. Featured currently in high priced seminars across Australia that claim you can make millions in a couple of weeks. What is an option contract and how exactly can it make me millions? 

An option contract is a legal document drawn up to grant the holder control of a property for a predetermined amount of time. The person who controls the option has the right to on sell the contract to another party, namely a developer. The option holder also has the right not to exercise the option, for example they apply for a development application which is denied by council, the holder can cut his losses and walk away from the contract without any repercussions. At no time whilst the contract is valid can the owner of the property sell it to anyone else. Options work best with properties which are not listed publicly on the market, and when you approach a property owner directly. 

The people who make the big bucks from this strategy are able to identify properties that are zoned for development that the public are not aware of. By finding properties that can be developed the contract holder can often offer the owner an above “unimproved market price” for the option of the property, conduct a development application, and then on sell it to a developer for a tasty profit. The developer pays the owner the price negotiated in the option contract and the holder keeps the icing on top. 

Not bad for a little bit of research, negotiation and paperwork.

The Reserve Bank is finally cutting interest rates again, and fast. The cash rate in Australia has not been this low since 2003 and has dropped 2 per cent in three consecutive meetings. But how low can they go? All signs point to another large cut of anywhere up to one full per cent when the RBA meets again in December which could bring the cash rate down to the lows of December 2001 when it sat at 4.25%. Borrowing this cheap was major fuel fror the ”Great Boom” of 02/03. Although we would all like the banks to pass on more of the cuts to borrowers, this could still see home loan interest rates sitting in the low 6 per cent range. 

So variable or fixed? There are many pros and cons with both and it also depends largely on what type of investor you are. The more aggressive, fast portfolio builder generaly will go variable whereas the more conservative or risk adverse investor will lean towards fixed interest. What most people don’t know is that there are certain features of variable loans that benefit real estate investors, namely flexibility. Low interest rates are great, but having fixed low and then needing to refinance with heavy break fees will cancel out that benefit. Often investors will outgrow the bank they are with and need to refinance in order to continue building their portfolios and this is where most fixed products are designed to hold you to that lender or incur a penalty. Having said that many people would prefer the comfort of knowing exactly what their loan repayments are for the next few years. 

If you are still going to fix you may want to consider waiting at least until December or you could miss out on another reduction of around 0.5 per cent on your repayments which is  a saving of $1,500 per year on a $300,000 loan. Do not hold off property purchases however, for the hope of more rates cuts as many did in 2002. They missed the boat because of “well meaning advice” from ill informed friends, family and financial advisers.