gkfinancial | November 2018
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November 2018

Welcome to our November Newsletter

November is an exciting month as the Spring Racing Carnival kicks into high-gear and we begin the countdown to Christmas. (Only 7 weeks until Santa arrives!) It’s an exciting time for property buyers too, as auction clearance rates continue to slide, and sellers struggle to get their price in the Spring property market.

Interest Rate News

At its November Melbourne Cup Day meeting, the RBA kept the official cash rate on hold, yet again, at 1.5%. Forecasters are anticipating the next RBA rate move will be downwards, considering declining property prices, and now expect no rate rises until late 2020.

During October, home loan interest rates remained steady on Variable Rate and Interest-Only home loans. However, many banks lowered rates on Fixed Rate Home Loans, so talk to us if you’ve been considering a switch.

Property Market News

Despite a lot of gloom and doom in the media – particularly in WA – home values hung on tenaciously during October. Value adjustments were marginal across all capital city markets – in Perth they fell by just 0.8%, Melbourne 0.73%, Sydney 0.74%, Canberra 0.02% and Darwin 0.04%. Adelaide experienced a home value gain of 0.18%, Brisbane/Gold Coast 0.01% and Hobart 0.85%.

Auction numbers were quite healthy during October, but clearance rates went on the slide – good news for buyers, but not so good for those selling property. In the last week of October, Victoria held 1830 auctions but only achieved a clearance rate of 49%. NSW had 957 auctions but only cleared 45%. In the ACT there were 101 auctions with a clearance rate of 49%. QLD had 331 auctions but only cleared 24%. SA had 141 auctions with a clearance rate of 57%. WA held 43 auctions and achieved a clearance rate of 36%. In the NT, there were 16 auctions with a clearance rate of 7%. Tasmania only had one auction and the property sold.

Property Market Predictions

The good news for sellers and property investors is that CoreLogic has predicted all capital city home values to return to positive growth territory by mid next year. A recent report by QBE* supports that view and is predicting that 2019 will bring year-on-year (YOY) growth above inflation for house prices in all capital city property markets except Sydney, where they expect to see a marginal decline of 2% YOY. Whilst they are predicting a YOY decline in unit and apartment prices in Sydney, Melbourne and Brisbane during 2019, they are expecting unit and apartment values to remain steady in other markets.

This is particularly good news for the Perth and WA property markets, where both house and unit values have been slowly falling for some time. It may be an indication that market conditions in the west are about to turn, which could be a green light for savvy property investors looking to get in early on a recovery.

It’s a buyer’s market so don’t wait to see us for pre-approval on your home loan. When you know your ceiling price, you’ll be able to negotiate with confidence on a great price for your dream home. If you’re considering a switch to a fixed rate home loan, please get in touch for a chat today.

Sources:
https://www.realestate.com.au/auction-results/
https://www.corelogic.com.au/research/monthly-indices
*The QBE Australian Housing Outlook Update 2018

How to estimate the rental return on an investment property

No matter what investment strategy you use, calculating the potential rental return on an investment property is a key step in the purchasing decision process. The rental yield is an important indicator of how a property is likely to perform and the cash flow it will generate. So, whether you’re using a positive or negative gearing strategy, it’s a calculation that allows you to quickly decide if the numbers will stack up for you, and if you can afford to service a loan on a particular property.

In this article, we explain how to estimate the rental yield – an important first step before deciding whether an investment property is the right one for you. It should be noted that this is a general guide only – you should consult a professional accountant and/or financial planner before proceeding with any investment or tax strategy.

So, what exactly is rental yield?

When buying an investment property, investors typically consider two key factors. Capital growth, or how much a property is likely to increase in value over time, and rental yield.

The rental yield is the rental income of a property, expressed as a percentage of its value. It can be calculated in gross terms (before expenses), or as a net percentage (with expenses factored in).

Gross rental yield = (Annual rental income / Property value) x 100

Example: A property with a market value of $500,000 that returns a weekly rent of $500, or $26,000 a year ($500 x 52), would have a potential gross rental yield of:

($26,000/ $500,000) x 100 = 5.2%.

Sometimes gross rental yields are calculated as a percentage of the original purchase price, rather than the market value. This can affect the outcome. For example, if you used an original purchase price of $400,000 in the example above, the gross rental yield would be 6.5%.

Overall, the gross rental yield offers a simple way to compare properties quickly. It gives you an overview of how the rental income compares to the value of the property and how likely it is to generate a positive or negative cash flow.

However, it does not take expenses into consideration. For that reason, a lot of investors use the net rental yield as a more accurate way of assessing returns.

Net rental yield = [(Annual rental income – Annual expenses) / Total property cost] x 100

The net rental yield offers a clearer indication of whether you can afford an investment property, as it factors in your expenses. To work it out, you’ll need to calculate or estimate your total property costs and total annual expenses.

Total property costs could include:

  • The purchase price/ market value
  • Stamp duty
  • Conveyancing fees
  • Building and pest inspections
  • Loan establishment fees

Total annual expenses may include:

  • Property management fees
  • Rates and water charges
  • Strata levies (if applicable)
  • Insurance
  • Mortgage interest repayments.

Example: A property with a weekly rent of $500 ($26,000 a year), total property costs of $500,000 and annual expenses of $5000 would have a net rental yield of:

= [($26,000 – $5,000)/ $500,000] x 100 = 4.2%.

Calculating the net rental yield can be tricky, given you need to understand the costs of buying and running an investment property. If you’re stuck, please get in touch with a qualified accountant to help you crunch the numbers.

Yields versus capital growth

While strong rental yields are great, it’s important to remember that they’re not necessarily the be all and end all of a property investment. Some investors opt for a lower yield but focus on buying property that is likely to experience capital growth. It all comes down to your investment strategy and goals.

Investing in property opens up opportunities to build long-term wealth, potentially benefit from a positive cash flow and/or reap certain tax benefits. However, you should always consult a qualified financial planner or tax consultant before proceeding.

If you’re considering an investment property purchase, I can assist with arranging the right finance option to suit your investment strategy and goals. That includes everything from calculating your borrowing power to finding you a competitive investment loan for your needs. Please get in touch and let’s make it happen.

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.  Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

How to make a pre-auction offer

With auction clearance rates slipping below 50% in some markets right now, vendors are much more open to a pre-auction offer. You’ll also find more vendors choosing a private sale over an auction because it allows them to hold out for their price and save on auction costs.

That means, if you’re ready to buy a property in the spring market, you’ll also want to be ready to drive a hard bargain. Here’s some tips on how to make a successful pre-auction offer and negotiate your price like a pro.

Offer the right price

Research is always the key to paying the right price for a property. Whether you’re buying at an auction or negotiating directly with the vendor, it pays to know the property’s correct market value before you go in guns blazing.

Research will allow you to make an offer that’s too good for the vendor to pass up, without overpaying. It pays to be realistic – you’ll have a better chance of beating the competition.

Discover the vendor’s motivation

Knowledge is power. Ask the real estate agent why the vendor is selling and use the information to your advantage. For example, if they have already put down their deposit on their next property, the vendor may have time constraints that you could exploit by offering a faster settlement. If they are in a divorce situation, you could offer a larger deposit so that both parties will have more money for their next property deposit. This could help the vendor choose your offer over someone else’s.

Have your finance in place

If you haven’t already done so, ask me to organise pre-approval on your home loan before you put in an offer. That way, you’ll be confident of your finances and have a clear understanding of your upper spending limit. Having pre-approval in place gives you an edge over the competition because the vendor knows the deal will go smoothly.

Play your cards close to your chest

When it comes to liaising with the vendor’s real estate agent, be mindful about giving away too much information. Never tell them your budget in advance, as they could use the information against you. Always indicate that you’re interested in several properties and have other options – if they think you’re too keen on the property they’re selling then they’ll be less flexible during negotiations.

Time your offer well

Timing is crucial when you do make an offer. Some experts suggest that you go in hard and early, well before the auction – as vendors may be more inclined to accept your offer because of the convenience factor. This may also be a good tactic in a softening market.

Others recommend waiting until right before the deadline to make the offer, to eliminate the possibility that the real estate agent will shop your offer around to other prospective buyers.

Another tactic is to stipulate a time limit – for example, tell them it’s only on the table for 48 hours. Whatever your strategy, be prepared to stay firm on your offer – don’t be too quick to budge from your original offer price as it could make you look easy.

Keep your emotions in check

It’s important not to be distracted by your emotions during negotiations. If the price is being pushed up, you may have to walk away if it goes beyond the correct market value you have researched. A common mistake is to be manipulated into paying more than a property is worth because you love the property or don’t want to be the loser in the negotiation process.

Making a winning pre-auction offer comes down to being informed and employing some strategic negotiation tactics. I can help you prepare by organising a pre-approval on your home loan. Give me a call to find out more.

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.  Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

4 tips to avoid overspending this Christmas

According to the Australian Bureau of Statistics, Australians splurged a whopping $47.5 billion during last year’s Christmas shopping period. That probably made for a lot of blistered credit cards and debt hangovers come February!

As your credit advisor, I’d like to recommend a more sensible approach to spending this silly season. Here’s a few tips to help you keep things under control. Remember, Santa should be the only one heading south this Christmas, not your finances!

#1 Set a Christmas budget

It’s easy for things to get out of hand when you don’t have a budget. Before you hit the shopping plaza or blaze through the online shopping sites, put together a Christmas budget. Be sure to include the costs of meals, entertainment, gifts and festive wear for your Christmas party circuit. ASIC’s MoneySmart TrackMySPEND app allows you to set spending limits for different categories of Christmas expenses and track your spending as you go.

If you’re planning to travel or book holiday accommodation, you’ll need to factor those costs into your budget too. If you’re planning a big trip with air fares, consider seeing me about a personal loan rather than plonking it on your credit card. It could make it easier to pay off and potentially save you some money on interest.

#2 Know your triggers

To cut back on needless spending, understand the triggers that lead to impulse buying. Maybe you like to do a little late-night online shopping? If so, turn your phone off at dinnertime and leave it in a drawer until morning (don’t forget the alarm though!)

Perhaps you tend to get embroiled in the Christmas shopping frenzy as the big day approaches? Solution: do your shopping early and avoid the last-minute spending rush.

Another tip is to take cash with you to the shops and to leave your credit card at home. That way you won’t be tempted to tap-and-go willy-nilly and get a nasty shock later.

#3 Embrace sentimental gift-giving

A great way to avoid overspending this Christmas is to opt for sentimental gifts rather than extravagant presents that cost the earth. Need inspiration? You could:

  • Have a family photo taken and give everyone a copy as a gift
  • Get crafty with handmade gifts, cards and wrapping paper
  • Bake yummy treats like gingerbread men or mince pies
  • Shop at markets, op shops and charity sites
  • Re-gift things to a better home if you have something you don’t need
  • Make your own redeemable vouchers for tasks like babysitting and massages.

There are heaps of other things you could do to save, so put your thinking cap on and get creative! For any gifts you need to buy, save where you can by purchasing items on sale and by shopping around for the best price.

#4 Suggest a Secret Santa exchange

When you have a big family, gift-giving costs can really add up. Why not suggest a Secret Santa exchange instead? Here’s how it works.

Each family member draws a name out of a hat and buys a gift for that person anonymously. The benefit is you can set a spending limit and everyone receives a gift. You won’t have to fork out hundreds of dollars on presents for multiple people, nor will you have the stress of finding the right gift for difficult aunt Muriel (unless of course you’re unlucky enough to draw her name in the Secret Santa draw).

We hope you have a wonderful festive season and enjoy some quality time with family and friends. After all, that’s what Christmas is really about – not how much you spend.

Remember, I’m here if you need help with a home loan during the holidays, or a personal loan if you want a better way to finance your spending than a credit card. I can also assist with finance for big-ticket items like a new car, family boat, or an overseas trip for example – and help you get it organised quickly. Happy holidays!

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.  Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.