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Did you know that your skill and experience in managing a tight budget could make you a better property investor than some big spending high income earners? We often meet people who are hooked on the good life: living in expensive suburbs, fancy cars, frequent dining out and overseas holidays. You'd be surprised however, at how many don't have adequate savings for retirement or redundancy, let alone a solid investment plan. For more details, click here to read my "You may already have what it takes to be a good property investor" article.
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Competition among lenders for home loans remains steep but borrowers may still be missing out on great deals and important information that could save them thousands of dollars. 1. YOU CAN SET UP A LINE OF CREDIT TO HELP FUND YOUR INVESTMENT PROPERTY If you are negative gearing an investment property, you will have a shortfall between your costs and rental earnings. You can fund this gap with a line of credit (LOC) product using equity in your home or another property. Say you have a gap of about $500 each month for your investment property, including interest and other costs, such as repairs and rates. You could set up a LOC for $20,000 to fund these expenses for a period of time, which may give you a little more financial breathing room. How long the LOC holds up will depend on interest rate fluctuations and your rental costs. Like interest on your primary investment loan, the interest on this LOC is tax deductible, providing its sole use is to cover your investment expenses. One caveat: this strategy works providing there is capital growth in your investment property over the same period, otherwise you are eating into your capital gain. You also need to have some fiscal discipline and not dip into the LOC for non-investment related expenses, such as holidays. While lenders will be able to set this structure up quite easily, they are not likely to offer it up front as part of your investment loan. Talk to your broker and financial advisor about whether this strategy is a smart option for you. 2. PEOPLE WITH POOR CREDIT RATINGS CAN STILL GET HOME LOANS While it's true a poor financial record will probably make it harder for you to land a loan, the doors may not be closed. Lending criteria has tightened in the wake of the global financial crisis but there are still plenty of loans up for grabs for those with a blemished track record or little financial backing. Be prepared, however, to pay a higher interest rate than the standard offering. A Mortgage Broker will be able to help you find loans with less stringent criteria, often labelled non-conforming loans, and will help negotiate with the lender on your behalf. You should also do a budget to ensure you are able to make any repayments, lest you end up adding to your woes. 3. THERE ARE WAYS TO AVOID LENDER'S MORTGAGE INSURANCE IF YOU DON'T HAVE A 20 PER CENT DEPOSIT Lender's Mortgage Insurance (LMI) is a one-off payment by the borrower when a loan exceeds 80 per cent of the property's value. It covers the lender's risk if the borrower defaults, but does not cover any loss by the borrower. LMI can be a painful hit to the hip pocket, often running to several thousands of dollars, especially after a home buyer has scraped together the minimum deposit. One alternative to paying LMI if you have less than a 20 per cent deposit is to secure a guarantor to cover the extra stretch. A guarantor is usually a family member who is willing to put forward their property as security. One of the common myths that can scare family off is that the guarantor is then responsible for the entire loan. Not true. They only need to guarantee any amount beyond the 80 per cent loan-to-value ratio (LVR). Although it's a good idea for a guarantor to seek both financial and legal advice before committing. The advantage of securing additional funding through a guarantor is that it simply gets tacked onto your loan so you can repay it over time, rather than forking out up front for LMI. The key before you make any big decisions about home finance is to have all the facts at your fingertips. Your broker will be able to compare the products and options that are out there and size up which arrangement will work for you and your circumstances. 4. YOU HAVE FREEDOM OF CHOICE Most lenders will pitch one or two loan products to customers. But that's a tiny fraction of the number of loans available in Australia. If you want to get a grasp of the wide variety of products out there, consider a mortgage broker. A mortgage broker works for you, not the lender, and can help you tap this vast vein and find the loan that is best suited to your needs. Talk to your broker about your financial circumstances and goals so they have as much information as possible to determine the best product solution for you.
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Is your loan protected? As a borrower, taking out a loan of any kind can be an overwhelming and complex process. This isn't helped by all the different financial product naming conventions and acronyms that you will undoubtedly encounter. An area that often causes confusion is the difference between lender's mortgage insurance and mortgage protection insurance... So, who is protecting who? To avoid a nasty suprise, please read our single page factsheet - Loan Insurance.
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Here are the questions I get asked most often by Home Buyers: How much money can I borrow? We're all unique when it comes to our finances and borrowing needs. And different lenders lend very different amounts. Even if your own bank won't lend you the amount you want, do not assume other's won't. Contact me anytime, I can help with calculations based on your circumstances, all over the phone. How do I choose the loan that's right for me? Our guides to loan types and features will help you learn about the main options available. There are hundreds of different home loans available. How much do I need for a deposit? Usually between 5% - 10% of the value of a property, which you pay when signing a Contract of Sale. Speak with us to discuss your options for a deposit. You may be able to borrow against the equity in your existing home or an investment property. How much will regular repayments be? Go to the Repayment Calculator on our website for an estimate. Because there so many different loan products, some with lower introductory rates. How often do I make home loan repayments - weekly, fortnightly or monthly? Most lenders offer flexible repayment options to suit your pay cycle. Aim for weekly or fortnightly repayments, instead of monthly, as you will make more payments in a year, which will shave dollars and time off your loan. What fees/costs should I budget for? There are a number of fees involved when buying a property. To avoid any surprises, the list below sets out all of the usual costs: - Stamp Duty - This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state and territory governments and also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself. To find out your total Stamp Duty charge, visit our Stamp Duty Calculator. - Legal/conveyancing fees - Generally around $1,000 - $1500, these fees cover all the legal rigor around your property purchase, including title searches. - Building inspection - This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report can cost up to $1,000, depending on the size of the property. Your conveyancer will usually arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees). - Pest inspection - Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Your Contract of Sale should be subject to the pest inspection, so if any unwanted crawlies are found you may have the option to withdraw from the purchase without any significant financial penalties. Allow up to $500 depending on the size of the property. Your real estate agent or conveyancer may arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees). - Lender costs - Most lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees. I will let you know what your lender charges but allow about $600 to $800. - Moving costs - Don't forget to factor in the cost of a removalist if you plan on using one. - Mortgage Insurance costs - If you borrow more than 80% of the purchase price of the property, you'll also need to pay Lender Mortgage Insurance. You may also choose to take out Mortgage Protection Insurance. If you buy a strata title, regular strata fees are payable. - Ongoing costs - You will need to include council and water rates along with regular loan repayments. It is important to also take out building insurance and contents insurance. Your lender will probably require a minimum sum insured for the building to cover the loan, but make sure you actually take out enough building insurance to cover what it would cost if you had to rebuild. Likewise, make sure you have enough contents cover should you need to replace everything if the worst happens.
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When buying a home doing things in a certain order can make it a lot less stressful. I hope my one-page Step by Step Guide to Buying a Home has some tips that may help when buying your next home.
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What you need to know about the most important part of your home loan: Are you an expert on all lending related topics? That's okay - most people aren't. If you're still trying to understand the truth about interest rates, you're not alone. Here are a few answers to the questions you were too embarrassed to ask. How are interest rates determined? The Reserve Bank of Australia (RBA) sets the official interest rate or 'cash rate' which takes into account a whole list of factors about how the economy is performing at that point in time. The RBA meets once a month to review the inflation rate, unemployment figures, CPI, PPI and retail sales, and from that information they decide whether to increase, decrease or leave on hold the official cash rate. The cash rate is the interest rate that the banks and lenders will pay to the reserve bank. If this increases, your lender will usually pass the cost onto you - the borrower. If the cash rate decreases - the reserve bank intends that the savings should also be passed on by your lender - but this isn't always the case. By moving the interest rates up and down, the RBA tries to keep the Australian economy in check, by either slowing things down to keep the cost of living under control, or speeding up spending to help boost growth in certain areas. What are the different types of interest rates? The two main types of interest rates are Variable and Fixed. Variable rates are usually a bit lower, and you pay the best going rate at the time. If the cash rate increases, your lender will increase your variable interest rate. But if the cash rate decreases, your repayments will usually go down. Fixed interest rates are locked in for a period of time -usually just a couple of years - so that you know exactly how much you will need to budget for. This can be helpful for borrowers on a strict budget who can't afford a lot of interest rate rises in the short term. However you will usually pay a higher interest rate overall if you choose this option. Which interest rate is best for me? The decision of whether to choose a variable or fixed interest rate should be made after carefully considering your own personal needs and commitments. A mortgage broker should be able to help you weigh up the pros and cons to work out the best option.
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How to buy a property with a friend (and remain friends)! How would you like to double your deposit and double your income to buy your first property? Sounds pretty good doesn't it? That's the reason why many young homebuyers are now working together with a partner, friend or relative to break into the property market. Although there are some excellent benefits to entering a property partnership, there are some pretty nasty horror stories out there too - so you need to make sure you protect yourself against the worst. Make sure you have similar goals for you property purchase. Do you both agree on how long you would like to keep the property for? Do you want to rent it out, or will you be living there together? Make sure everyone is on the same page before you enter into any contracts. Buy with someone who is at a similar stage in life. If you buy with a family member who has a baby on the way, you might be asking for trouble. Likewise, buying with a sibling who is too young to appreciate the importance of keeping up financial commitments could be just as much of a recipe for disaster. Take a moment to check your financial compatibility. You will be responsible for the loan if the other party becomes unable to pay, so take the time to have some open discussions about money, and make sure you are both equally committed to paying things on time and keeping track of the bills. Decide if you want to be housemates. If you plan to live together in the home, make sure you both agree about things that could cause arguments such as having pets in the house, allowing partners to sleep over, housework and other potentially touchy subjects. Get Legal Advice. Find out about your options legally if something was to go wrong, and decide whether you want to be Joint Tenants, or Tenants in Common. This might depend on whether you will pay an equal share of the deposit and loan repayments. Create a formal agreement. Get a formal agreement drawn up that covers as many issues as you can think of. Hopefully you won't have any problems, but it might be helpful if you already agree on the solution ahead of time. Property partnerships can turn into nasty legal battles when parties don't agree on important issues, such as whether or not to sell the property. If you can thrash out some of these issues now you will save yourself a lot of worry in the future. Keep records of spending. Make sure you keep it even, and try to keep records of who paid for what, just in case you have problems down the track. Hopefully your property partnership will be a very positive experience, and if you follow these steps you should be well on your way to being a great team.
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How to buy a property overseas without losing the lot: Every year, more and more Australians make the decision to invest in overseas real estate. Some are your 'perma-vacationers' -those people who enjoy their holiday so much that they never want to go home. Others have managed to enjoy lucrative investments by choosing the right property in a great location. But there are many risks involved in deciding to purchase a property overseas, and it's essential that you do a lot of leg-work to make sure that you don't end up becoming a cautionary tale for others. Research is everything. Just as you would research your home purchase here in Australia, it's vital that you do a lot of research before deciding to purchase an overseas property. The difference is, you're probably starting with little to no knowledge about the local real estate market, so it could take a bit longer before you know enough to act with confidence. Of course, you need to take into account all the same factors you would when buying a property at home such as its location, proximity to transport and shops, condition of the home, and features. But depending on what country you choose, don't forget to also consider seasonal weather patterns and the possibility of flooding during the wet season. Some tourist areas are seasonal and shops will close during the off-season, so this is another important factor to keep in mind. Hire an expert You might need to engage a buyer's agent to help you look for and negotiate on the property. Someone who is very experienced in dealing with the locals and knows the local property market inside out. There is no substitute for actually seeing the property yourself, but a Buyer's Agent might be able to help you narrow down the search. It's also helpful to use an international solicitor if you want to rent the property out, so that you can ensure you comply with local rules. Speak to your accountant It's important to understand the tax implications of investing in overseas real estate. Your accountant should be able to help you through your decision, but you might need to do some investigating of your own when it comes to the tax laws of other countries. You don't want to get caught out with enormous property sales taxes or land tax that you didn't know about. Investigate your loan options There might be a home loan for you here in Australia, or you might need to use an overseas lender. Most major banks have delegates in other countries which can be helpful for overseas investors. Make sure you ask about foreign exchange rates impacting your purchase, otherwise you might end up paying a lot of money to facilitate the transaction. Find out about the buying cost associated with the purchase Depending on the country you choose, there might be very different stamp duties, property taxes and registration fees to what we have here in Australia. Don't forget to investigate and factor these into your budget. Try finding a solicitor who understands the local laws and tax system.
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Can you live as One Big Happy Family? More Australian families are moving in with parents or in-laws in a bid to stake their claim in the property market and save everyone a bundle along the way. Multi-generational housing has risen by more than 60 per cent over the past three decades, according to a 2013 report by the University of NSW City Futures Research Centre. With property prices escalating and new land at a premium in most major capital cities, more families are deciding to pool their resources and take up digs together. While not for every family, there are clear benefits to kids, parents and grandparents bunking in, not least of them being big savings. Already more young adults are living at home longer to stave off the increasingly high costs of independent living, save for travel or squirrel away a deposit to buy their own place. And while that arrangement probably suits the adult child more than mum and dad, the concept of multi-generational living tends to have more mutual perks. The oldest generation, for example, might be looking to down-size and make their superannuation go further without compromising their lifestyle, while their children might want to step up to a bigger property in a better location. Together, they are able to meet their financial and lifestyle goals. Advantages: Savings for all One of the most obvious benefits of families sharing a property is greater buying power. Naturally the property needs to be big enough to cater to a large number of people (and they can be difficult to come by) but once economies of scale kick in, families who combine their funds can usually pick up a higher calibre of property than if they were on their own. Sharing families who can�t find the home they need may choose to build their own or renovate an existing one. Some are opting for a duplex-style arrangement where a wall splits the home in two to create entirely separate living areas with separate entrances. Designed properly, the property can maintain its Residential A zoning without attracting all of the red tape and costs associated with developing a proper duplex. Check with your local council what rules apply for your property. Whether you build or buy, the savings can stack up in terms of loan repayments and rates and utilities, providing there are sound agreements in place for splitting expenses (see tips). Extra care Another advantage of multigenerational living is built-in childcare, providing it is mutually agreeable. Grandparents are often willing to help out with children, which can help tally up further savings or create greater flexibility for busy working parents. Even if children don�t require fulltime day care, having a grandparent on hand for school pick-ups or extra-curricular activities can help ease stress on the family dynamic. And it may not be just children who require the care. Some families choose to live together to provide emotional or physical support to an aging parent who may be struggling to maintain their independence. Fringe benefits Although probably not top-of-mind for co-located families, there are plenty of incidental benefits when generations reside together: There is someone on hand to care for plants and pets when one family goes away. Senior residents can attract discounts on home insurance and improve security if home most of the time. Old and new skills can be passed between generations � for example, grandkids can teach grandparents about technology, while grandparents might teach grandkids how to cook an old- fashioned favourite. Many families report increased respect and understanding between generations. Tips for multi-generational living Although there are many advantages to multiple generations living under one roof, the arrangement is not without its challenges. Prior planning and plenty of ongoing, respectful discussion are often required to help things run smoothly. Here are some tips on what to consider to help ensure the situation doesn�t get too close for comfort. Discuss what each party expects to get out of the situation so there�s agreement from the outset. Get legal and financial advice and ensure there are agreements in place to avoid any grey areas over who pays for what when establishing the home � buying or building � and for all ongoing expenses, such as groceries and household bills. Be clear about responsibilities so each family member understands what jobs are expected of them. Establish a routine for meals � who cooks, when the family eats and whether everyone eats together. Set up rules for privacy to instil boundaries if needed � grandkids, for example, might be asked to give a grandparent some time out after dinner. Consider whether holidays and outings involve all family members or just some, and try to make plans well in advance so there are no surprises, clashes or confusion. Grandparents should be clear from the get-go about how much they wish to be involved in caring for grandchildren. Make time to discuss how the situation is tracking for everyone involved so any grievances can be aired productively.
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Did you know that approximately 80% of Australians end up on some form of government assistance in retirement? Did you also know that ONLY 20% of Australians invest in property? Coincidence you think? I'd say not. You could probably afford an investment property for less than the repayments on a small car. So rather than upgrading your car as soon as it is paid off, consider building wealth for your future. Have a look at this short article for more details - Are You Driving Your Investment Property.pdf
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Yay for reaching 100 likes. Thank you everyone!
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For many Australians retirement is an opportunity to down-size their homes and simplify their lives. For more than 138,000 retirees*, that means opting for life in a retirement village. Village living offers an appealing lifestyle, especially for those looking for a sense of community and to spend their new-found free time on recreation rather than maintaining a property. But the process of taking up a spot in a retirement complex is very different to buying your own home. Haven takes a look at some of the pros and cons of shifting to a retirement village. Not an investment decision Retirees need to consider a retirement complex to be a lifestyle choice, not an investment decision. Rather than buying a physical appreciating asset, you are entering a contract to occupy a place in the village for an entry fee. There are usually three types of contracts: Strata title: You pay an agreed amount to a former resident or the operator, and then own the unit. You also usually need to enter into a service agreement with the operator. Loan and licence: May be offered by not-for-profit organisations, such as churches. You usually pay a contribution in the form of an interest-free loan. Leasehold: The lease is usually registered on the title deed, which protects you if the village is sold. You pay a lump sum for the leasehold. Entry, ongoing and exit fees usually apply to all three contract types. Rather than a sale price, you pay an entry fee, which varies greatly depending on the location of the complex and the amenities and services offered. On average, the entry fee for a two-bedroom unit is about 90 per cent of the median property price for the location. You will also be charged ongoing service fees to cover the upkeep of amenities in the village, such as swimming pools, gardens, recreation areas and communal transport. Don't enter into any agreement without the advice of a specialist retirement lawyer. They can help you understand the fine print and guide you through the system based on your state laws. Age pension Your retirement advisor will also help you navigate your age pension eligibility. The amount you pay as an entry fee to a retirement village can affect whether you are classified as a homeowner for pension purposes or a non-homeowner. It depends whether the entry contribution is higher than the extra allowable amount (EAA), as determined by Centrelink. The EAA is the difference between the non-homeowner and homeowner assets test threshold for the age pension at the time the entry contribution is paid. The extra allowable amount is currently $146,500. Whether you are considered a homeowner affects the amount of assets you can own without impacting your pension entitlement. If you are not considered a homeowner, your entry contribution is included as an asset, but it is not classed as a financial investment and won't be considered as a source of income. You may also be eligible for rental assistance. Shop around Just like when you buy a property, you should do your homework before settling on a retirement village. Take a tour and talk to residents about what they like and dislike about the place. Think about what you want out of your retirement and whether the complex caters to those needs. - If you want to entertain, do you have space in your unit or is there a communal area you can use? - Is there a gym or swimming pool where you can exercise? - Can you have guests stay over and, if so, for how long? This can be a key consideration for grandparents who may take care of grandchildren. You should also ask about transport help. Many complexes provide a private bus service to shops and clubs for residents who don't wish to drive. Generally, the more comprehensive the services the more you pay in body corporate fees, so make sure you understand the fee structure and what's included before signing on the dotted line. Community spirit One of the biggest attractions of retirement living is the instant community. Many villages provide social opportunities ranging from outings to quiz nights, dinners and interest clubs. Participation is entirely optional but there is usually no shortage of opportunities to get to know and socialise with your neighbours. Aged care included Many retirees plan ahead and scout out a village with an on-site aged care facility to avoid another relocation in their latter years. Just be mindful the level of care someone needs is determined by an Aged Care Assessment Team and that not all facilities offer high care should you or your partner require it. A place in aged care may also require separate payments, or entry fee, and many facilities will have waiting lists. It's also common for one partner to have greater needs than another, so couples with health or mobility issues need to ensure the complex they settle on caters to their needs. When you leave When a resident moves out, it is generally because they have passed away or relocated to an aged care facility. Financially, it is usually the beneficiaries of the resident's estate who are most impacted. When a resident sells up they, or their estate, are generally charged an exit fee, or a deferred management fee, which is usually charged annually at 2.5 to 3.5% of the original sale price, capped at 10 years. Some complexes may also require a percentage of any capital gains made. Make sure you read the fine print of the original sale contract and seek advice from a specialist retirement lawyer. *Retirement Villages Association Retirement Living Survey 2011
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