Author: casey

Today we are going to discuss ways to help you set your portfolio up in the most effective way to assist you in achieving your property investment goals. This might be the accumulation phase or even the debt reduction phase, however these tips will be instrumental to help you be successful and get the most out of your portfolio.

Security Structure

When building a property portfolio and you have multiple securities, the banks typically attempt to have you cross secure your properties. What this means is that you will have one mortgage secured by two or more of your properties. What this means is that you will have your owner-occupied debt and your investment debt secured by the owner occupied property and your investment property.

It’s important to note this may not be the most effective option depending on your plans. If you wish to borrow further funds in the future and your properties are cross securitized, you now need to obtain a valuation on each secured property, and this can incur an additional fee as the banks will generally only cover one valuation fee.

Alternatively, you may wish to purchase another property in the future using equity. Now, let’s just say that you have two properties, one property has performed well, and the other property has sat flat, as you may have purchased in a small regional town with no fundamentals for performance. The first property you purchased with a 5% deposit plus costs has now grown 15%, sitting at a loan to valuation ratio (LVR) of 80%. The second property you purchased with a 5% deposit plus costs which hasn’t grown at all, sitting at 95% LVR. This means across the two properties, you would be sitting at 90% LVR, where it’s going to be difficult to leverage equity to purchase another property. At Taylored Property Wealth, we help you mitigate this risk by helping you secure properties primed for growth, balanced with cashflow, so that we don’t have under performing properties within our clients’ portfolios.

Now if you have these properties individually securitized, you can be selective with which property you would like to extract equity from. You could choose to extract equity from the property that has performed well and take it back up to 90%. Yes, you would likely pay lender’s mortgage insurance, however this is the opportunity cost to leverage a larger asset base. Not to mention that it can also be a tax deduction over the first 5 years on an investment property – Always speak with your accountant regarding tax deductions.

Interest Only Repayments

Borrowing money from the banks with interest only repayments can help you to significantly improve your cashflow position. Interest only repayments mean only having to pay the interest applicable on the loan balance, opposed to principal and interest repayments where you must pay the interest applicable on the balance plus a portion on the principal.

Interest only repayments can be powerful in the accumulation phase or the debt reduction phase. When you are accumulating properties at the beginning of your journey, this allows you to reduce your repayments which ultimately increases your cashflow position. If you take advantage of this opportunity, you can increase your savings buffer which you can ultimately put towards your next purchase. This may result in you being able to use a cash deposit or a combination of equity and cash for your next purchase. This can be powerful if you leverage the first purchase at a high LVR position, and you may not have to wait for enough equity on the first purchase to leverage the second.

If you are in the debt reduction phase, interest only repayments can still be effective. This means that your minimum repayments each month are reduced, however you can keep your cash buffer within the offset account, offsetting the mortgage. This cash buffer will increase faster due to the repayments covering just the interest; however, the funds will still be offsetting the balance of the mortgage in the same way as if you were making principal and interest repayments. This provides you with greater flexibility, as you can then access the funds in your offset account at any time. It is important that you discuss any tax implications with your accountant.

An important consideration is that you can only have interest only periods for a maximum of 5 years. After the 5 years your lender will allow you to reapply for another 5-year period, keeping in mind this would be a full assessment. Once you have come to the end of your 5-year period, you could refinance to another lender and obtain another 5-year interest only period with a new lender. This is one way of mitigating the 5-year period. This will always be a full assessment of your income and expenses, if you know that your income or expenses will change in the future, you be proactive and refinancing before your circumstances change.

Offset Account

An offset is an account that is linked directly to your mortgage account, this could be linked to your owner-occupied property or your investment property. Effectively, the balance held in your offset account would offset the balance on your mortgage. For example, if you had a mortgage of $500,000 and you had $100,000 in your offset account, you would only pay interest on the difference being $400,000. This being the full loan balance ($500,000) minus the offset account balance ($100,000) to obtain the amount of $400,000.

Which account should I link my offset account to?

A mortgage on your own home, also known as your owner-occupied property, is not a tax-deductible expense. Given this, it would make sense to link your offset account to the owner-occupied mortgage in the first instance. This will help you reduce your interest paid on your owner-occupied property and will mean that you pay your mortgage off sooner.

If you don’t have an owner-occupied mortgage and you are an investor, you want to link you offset account to your investment property mortgage. If you have one investment property mortgage it will be obvious which loan you want to offset however if you have multiple investment property mortgages you need to ensure that you link it to the correct mortgage.

If you have two mortgages and one is sitting at 3.00% and one is sitting at 3.50% you want to link your offset account to the mortgage with the higher interest rate. Why? Because this is going to mean you are effectively offsetting the balance and saving interest on 3.50% and not the lower 3.00%. This will mean you save more interest and pay the debt down or increase your cash buffer sooner.

Account structure

Once you have determined which mortgage loan is most applicable to be linked to your offset account, you want to set your offset account up in a way that all your income and expenses come and go from this account. This will include your wages/self employed income, rental income etc as well as your daily living expenses and associated property expenses that you would pay. For example, your landlord insurance. This account can be used as your savings account, you just need to ensure you can manage your money effectively. What this will then mean is that you will enable this account each day to be at the highest point possible to effectively offset the mortgage, saving you interest, paying down debt and increasing your cash buffer. This is because mortgages are calculated daily, and interest charged at the end of the month.

You want to ensure that you automate all bills relevant to the investment properties for your Property Manager to pay. This means that you don’t need to think about paying these each quarter, once you build an extensive portfolio this can become a very time-consuming task. Remember property is a vehicle to create more time in your life.

Each billing cycle you’ll receive your weekly rent, and the expenses will be deducted from this amount. Your property manager will then credit your offset account the difference and provide you with a rental income statement.

When investing we must remember that how we structure our finances are just as important as sticking to the fundamentals and selecting an asset that is primed for growth while maintaining a strong cashflow position. This can mean that you will get to your next property sooner or help you to pay down debt more effectively. Remember to treat your portfolio like a business, whether you have one property or ten, your processes and structure will help you to manage your portfolio with ease and save you time which is one of the main reasons we like to invest.

I hope that you have found value in the blog today, if you have any questions, please reach out to us at info@tayloredpropertywealth.com.au. Keep an eye out for next week’s blog where we discuss Debt Recycling and how it can be a powerful tool when building your portfolio.

Disclaimer:  Contents within this email are of general nature only and should not be relied upon solely when making an investment decision. Taylored Property Wealth nor any of its directors, associates, staff, or associated companies bear any liability from any actions derived from the contents of this email. One should always seek third party investment information from relevant parties such as legal, finance, and accountancy enquiries.

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When looking to become a successful property investor and either purchasing one property or building a portfolio it is always important to remember that you must run this like a business. Why? Because it is a business, it’s not about how many pretty properties you have but about the numbers and what those numbers mean to you. I don’t mean how many properties you hold either, everyone’s goals are different but what are the numbers you need to replace your income. Ultimately building your wealth and creating passive income for the long term, allowing you to spend more time doing the things you want to and not being a slave to a full-time job 40 hours a week for 40 years.

This is where it’s extremely important to build a great team of specialist around you, this allows you to leverage a high level of knowledge in a certain area and gives you more time in your life allowing these specialists to help you on your journey.

Today we are talking Property Managers and why they are an important specialist within your A Team. They are crucial to you running your property investment portfolio with success!

Today we are talking about what good Property Managers do for you as a landlord. Remember that there are good and bad Property Managers and it’s always wise to ensure you have a good Property Manager because when things go pear shaped this is when they will really prove their worth!

How would you deal with a tenant if they stopped paying rent? Have you ever marketed your property for rent to achieve the highest rent possible? Do you have in depth knowledge of the legislation of where your property is located? Have you refined your processes and procedures to make managing a property as smooth as possible?

I’m sure many of us haven’t had this experience and therefore we hire a Property Manager. They have in depth knowledge of the legislation applicable to where your property is located. They will have set policies and procedures in place to make everything as seamless as possible, this impacts you having a positive experience as well as your tenant who ultimately you need to see as a customer.

Rental Appraisal

Property Manager’s are experts in their local area and because of this once you have secured a property and it is ready for marketing your Property Manager will complete a rental appraisal. This is to identify the weekly rent that you’ll be able to achieve. This is important as they will have local area knowledge of the areas and allow you to achieve the highest rent possible. They can also give you tips and tricks on small changes you can make that will allow you to increase the weekly rent – meaning more money in your pocket!

Marketing

Property Managers are experts in the marketing of your property once it is available. This is crucial because marketing ensures that you reach as many potential tenants as possible. The more applications you have the higher your chance of quality applications and higher demand means you have further options for the weekly rent.

At our Buyer’s Agency Taylored Property Wealth we incorporate into our special conditions on the contract of sale and negotiate to hold two inspections for tenants to view the property prior to our clients owning the property. Marketing the property and holding inspections before settlement reduces vacancy rates and allows you to have a tenant in place sooner. This can mean finding a tenant before you even own the property. It’s important that you have a good Property Manager in place to work with you to implement this.

Assessment of Applicants

Property Manager’s as part of the application process will complete a check on potential tenants using TICA (Tenancy Information Centre Australia). This is a data base that has information on over 7 million tenant records. This search mitigates you risk in terms of selecting a bad tenant and ensures you select a high-quality tenant.  This allows Property Manager’s to verify if a potential tenant has a bad record and can avoid offering these tenants the property.

Area Knowledge

When looking to purchase an investment property a Property Manager is a key element to selecting a high-quality investment property. They can inspect the Property on your behalf, providing feedback on what would be required to get the property to an acceptable level to rent the property. They can also provide local area knowledge and provide information whether it’s in a quality area, what the properties rental income will achieve also. Rental income as part of your property selection is important when completing your Cashflow Analysis of the property. Knowing what the property will achieve in terms of rental yield and how much this will cost you each week or put in your pocket each week.

Automation of Bills

Every property that you own will have rates, maintenance and repairs that will need to be paid. A high-quality Property Manager will complete this for you. You can automate the rates to be directed to your Property Manager, they will pay these and will be deducted from the income payable to you within your Rental Income Statement. Your Property Manager will also organize quotes for any maintenance or repairs and have these completed and then pay these for you also. Again, these will then be deducted from your rental income payable and will be shown within your Rental Income Statement. Now this is very powerful when you build a large portfolio! Remember we are investing for more time in our life!

Inspections

High quality Property Managers will conduct inspections on your property. They will complete the ingoing and outgoing report of the property, and this is to mitigate your risk of damage caused by tenants and identify if the tenant requires anything to be repaired once leaving the property.

When completing the routine inspections, they will provide you with a report with comments/notes on the property giving you a good understanding of the property. Has the tenant damaged the property? Are there any repairs that need fixing?

These are the main benefits that your Property Manager will provide you. Property Manager’s are worth their weight in gold! Remember that the fee that they charge is part of your investment properties expenses and is a tax deduction. Remember that this expense is an investment in itself!

If you have any questions in relation to any of the information, or if you want to be put in touch with a high-quality Property Manager please email us at info@tayloredpropertywealth.com.au

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In this blog I discuss the various factors that are contributing to the current nationwide property boom. The media and some economists are advocating the view that this boom is heavily reliant on the low interest rate environment. Sure, low interest rates are a factor; however, they are one of many factors contributing to the property boom.

What are we hearing in the media?

Firstly, I’d like to discuss what we are currently hearing from the media around property prices. The media is promoting predictions from economists that are instilling fear in the public around the property market. It’s important to remember that we must always be mindful of where we get our information, and the media are mostly concerned with obtaining clicks and views.

“A rise in interest rates will push residential property prices down 10% in 2023” – Gareth Aird, CBA Head of Economics. This is a recent statement from the Head of Economics at CBA.

Let’s travel back in time to March 2020, where Gareth Aird then stated, “Residential property prices will drop 10% over six months and 20% in the next year led by steep falls in Sydney and Melbourne’’. The following results are what transpired over the 12 months following this statement.

• Nationwide prices increased 7.5%
• Regional Australia increased by an average of 13%
• Sydney increased 8%

In February 2021, Gareth Aird then retracted his above prediction from March 2020, and instead predicted “House prices will rise 9% in 2021 and unit prices will rise 5%”. Within the first 10 months of 2021, house prices had risen 21.3% and unit prices had risen 12.7%.

Remember to be mindful of who you listen to and who you allow to influence your judgement.

Let’s now focus in on the various factors that are contributing to the nationwide property boom currently.

Build up of savings during the pandemic

During the Covid pandemic, many Australians who would normally travel overseas or domestically have not been able to travel and because of this they have saved more money than they usually would.

This increase in savings has allowed Australians to purchase property they may not have been otherwise able to purchase. This has also resulted in more Australians completing renovations on existing properties which are adding value and increasing their equity.

 

Low vacancy rates

Vacancy rates is a metric used to determine how many properties are currently vacant without a tenant, compared to the total number of properties for rent, in a suburb or area.

When vacancy rates are low and trending lower, this puts pressure on demand for rentals and what follows is an increase to rental yields, which makes it less affordable for renters. Once rentals become less affordable, more people decide to purchase property which creates larger sales activity/volume, and this creates a higher demand and increases property prices.

At Taylored Property Wealth, the vacancy rates in all suburbs across Brisbane that we invest in are currently below 1%. This means for every 100 properties in a suburb there is less than one property vacant. The current average for Brisbane in November 2021 as per SQM research is 1.3%, compared to Sydney sitting at 2.6% and Melbourne sitting at 3.2%.

When looking at vacancy rates it’s important to remember low vacancy rates lead to increased rental yields due to high demand. This causes rentals to become less affordable, renters then become purchasers and generate increased sales activity/volume and this is a forward indicator for capital growth.

Return of ex-pat Australians in large numbers

Expats are individuals who live overseas outside their country of birth. Due to the Covid pandemic a lot of expats have moved back home to Australia from where they have been residing overseas. Due to this migration back to Australia this has put increased pressure on vacancy rates as well as sales volumes.

Safety of bricks and mortar in times of uncertainty

Property is one of the less volatile asset classes unlike that of stocks/shares/crypto. This is because unlike stocks/shares/crypto they can’t be sold off extremely quickly to get rid of them. If the confidence in the economy or property market goes backwards all property owners can’t rush out and sell their property straight away. You must reach out and contact a selling agent, they must appraise the property, put a plan in place for the marketing of the property, list the property and hold open houses to sell the property. This process typically takes a couple of months. Due to this it helps the property asset class as it becomes less volatile and solidifies that it is less volatile.

Exodus to affordable lifestyle trend

Many Australians both during the Covid pandemic and before the pandemic have been making the decision to move to areas that are more affordable in terms of price point. Due to this decision, the areas that are more affordable are experiencing increased demand, and with increased demand comes increased pressure on prices.

As per the ABS, as at 31^st of March 2021, Queensland saw an increase in population growth of 43,900, whilst Victoria saw a decrease of 42,900 and NSW saw an increase of 11,700.

Increased spending on major new infrastructure

Infrastructure spending is an important consideration as this creates more jobs and it increases the desirability of an area. People want to live close to these areas and take advantage of the new infrastructure and facilities. It can also increase population growth and interstate migration as more people move to these areas due to the new jobs being created.

These are just 6 important factors discussed in detail that are contributing to the current national property boom. Some of the other factors that we won’t get into today are a stronger than expected economy, lower than predicted unemployment, elevated consumer confidence, State and Federal Stimulus measures, pent up demand leading to rising sales activity and low listing levels relative to demand.

If you enjoyed the information contained in this blog, you may want to check out my blog on ‘Why should I invest in the Brisbane Property Market’. https://tayloredpropertywealth.com.au/why-should-i-invest-in-the-brisbane-property-market/ This will provide you with some knowledge on the Brisbane property market and why we as a Buyer’s Agency currently invest in Brisbane for our clients.

If you have any questions regarding any of the information within this blog, please reach out at info@tayloredpropertywealth.com.au.

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At certain points in time throughout your investment journey you may find that you’re at your borrowing capacity limit, meaning that you may not be able to purchase any more properties as the banks assess that you have reached your borrowing capacity limit.

If this is the case, it may be an appropriate time for you to assess your existing portfolio and explore options to increase your income. This could mean transforming your portfolio from a negatively geared to positively geared position, or it could mean building on your positively geared portfolio and creating a larger positive cashflow position.

We will discuss some of the ways to increase your cashflow within your existing portfolio.

Cosmetic Renovation

Cosmetic renovations are a great way to increase the income on your property. This can be as simple as painting the inside of the property and giving it a freshen up. This alone can help you attract a higher rental income for the property.

Updating some of the fixtures and lighting within a property can add more of a modern feel to the property. This modern feel, in combination with improved lighting, can also assist in attracting a higher rental income.

For example, if you were to spend around $10,000 on a small-scale cosmetic renovation, then able to increase the rental income of the property by around $30 per week, this would be a 15.6% yield! Not a bad return on your money if you ask me!

These cosmetic renovations can also create equity within the property, improving your loan to valuation ratio and ultimately increasing your wealth.

Granny Flat/Auxiliary Unit/Secondary Dwelling

Granny flats, also known as secondary dwellings or auxiliary units, are also a great cashflow play that can increase your rental income. Secondary dwellings/auxiliary units have come a long way since the old granny flats that you may be thinking of.

Secondary dwellings/auxiliary units are virtually a tiny home and can be built brand new on an existing property, in line with local council guidelines. It is important to note that not all local councils allow secondary dwellings/auxiliary units, and you should always complete your due diligence first if you are purchasing a property with the intent to build one of these structures on the property.

The secondary dwelling/auxiliary unit can be established and built separately to the existing dwelling. Typically, a fence will be installed to ensure privacy and separate the space for the two dwellings, which can then be rented out to two separate families. This strategy provides you with a higher rental yield on the overall property. Again, various local councils have different legislation around leasing these types of dwellings and it is important to confirm this prior to commencing this strategy.

Depending on the area, size and quality, you would expect to spend approximately $120,000 to $180,000 to construct a secondary dwelling/auxiliary unit. Due to the construction costs, you may need to obtain finance via a construction loan if you don’t have the cash at hand. There are a variety of details you need to get right to complete a construction loan, however that is a topic for a different day.

The potential rental yield achieved on a granny flat can be far higher than what you’re able to achieve on a house. For example, if you spent $180,000 to construct a granny flat and leased the dwelling for $320 per week, you would generate a yield of 9.2% per annum – not a bad return at all, right!

Yearly Rental Valuation

It’s extremely important that you have a high-quality Property Manager that will review your rental income each year and be able to complete a rental valuation in line with the market. You always want to ensure that you are increasing the rental income in line with market conditions. This ensures that each year your property is competitive within the market.

It’s important to note that if you have a great tenant that you don’t avoid rental increases to ‘look after them’. This means one you aren’t receiving the full rental income that you could be and two it puts the tenant at a disadvantage. If you do this over several years suddenly if they need to move etc they may be in a position where they haven’t adapted their budget to the market and may not be able to afford the area/suburb they live in. Whereas if you increase the rent in line with the market they would have adapted to this.

There are other ways to help out your tenant without reducing rent, you could send them a personal card at Christmas thanking them for looking after the property or you make sure that any repair request that are reasonable are completed in a timely fashion.

Creating Dual Occupancy in an Existing Property

There is a huge opportunity within certain markets and properties to create a dual occupancy property. For example, a Queenslander style home with two levels and external stairs to access the top floor and no internal stairs from the ground floor.

It is common for the bottom level of a Queenslander home to add or have a bathroom, a space for a living room, a utility room (bedroom) and a bathroom to create a livable space. It is common for the bottom level of a Queenslander to only have a height of 2.2 metres. The legal height for this to be deemed a habitable space as per the National Construction Code, is 2.4 metres. This means the space used as a bedroom can only be advertised as a utility room and not that of a bedroom – The use of this space is the same however.

This may mean that you can then rent the top level which might be a 3 bedroom, 1 bathroom space to a family and then rent the bottom level utility room, living space and bathroom to a separate family; Ultimately achieving two rental incomes and generating a higher yield for the property.

These are just some of the ways to increase your rental income on your current properties. If you are aware of what you can and can’t do with each of your properties and take advantage of some of these opportunities, you might find you can increase your cashflow and create a better position for your property portfolio.

I hope that you have found value in the blog today, please take a look at the other blog posts on our website as you will gain more knowledge around property investing. If you have any questions or want to discuss this further, please reach out to us at info@tayloredpropertywealth.com.au.

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There is a lot of discussion currently about the property market with both mainstream media and economists predicting negative sentiment! It is important that you don’t always listen to the mainstream media in relation to property, rather looking to the facts and market indicators. The media like to instill fear in people to create more ‘clicks’ and viewers. This can cause you to live in a constant state of fear and never make the decision to purchase and reap the rewards property has to offer.

If I listened to the media in March of 2020, I wouldn’t have bought a property in the middle of the Covid-19 Pandemic in March 2020, and wouldn’t have made a 30% return on that purchase to date. As a Buyers Agent, I like to study past performance of the property market, and whilst this doesn’t allow us to predict the future, it arms us with the knowledge of the past to make more educated decisions about what we may experience in the future.

Today, I want to discuss 3 key reasons why the property market in certain areas around the country will not be affected if we see interest rates rise. Whilst we may not see the same level of growth achieved in 2021, even if we could achieve growth of 10% for the year, this would still be an exceptional result which I’m sure you would like to achieve on your investment.

Reserve Bank of Australia Statement on interest rates

The Reserve Bank of Australia has repeatedly stated they will not make any changes to the official interest rate until 2024. This is still 2 years away. Below we will discuss the banks cash buffer included as part of their assessments and why this mitigates the risk if an interest rate rise was to occur.

Historical evidence that growth isn’t led by low interest rates

In the late 1980’s there was a massive price boom across Australia, similar to the Australia wide property boom we are currently experiencing. During this time, interest rates were at historic highs with rates increasing to around 17% whilst a property price boom was occurring. Those 17% rates were significantly higher than the current rates and yet these high interest rates did not negatively impact the housing price boom.

The last national property boom we experienced in Australia was between 2001-2004. These were times of high interest rates also, with interest rates on home loans sitting around 7%-7.5%. The Reserve Bank of Australia had multiple interest rate rises during this time, however the property boom continued trending upwards.

What does history tell us? We can learn from past property booms that a couple of interest rate rises typically don’t significantly impact property prices and for these interest rate rises to impact the property market and cause a decrease in prices, we would typically need to see in excess of 5 interest rate rises.

Mortgage stress and property prices to fall

Some believe that an increase in interest rates will see many Australians unable to afford their mortgage repayments, causing them to default on their loans.

It’s important to keep in mind that the banks currently assess borrowers with a cash buffer in place, mitigating the risk for both the borrower as well as the banks. For example, if a borrower was obtaining a rate of 2.50% on their loan, with a buffer of 3.00%, the actual assessment would be based off their ability to service an interest rate of 5.50%. This buffer has recently increased in October 2021 from 2.50% to 3.00%.

Therefore, the Reserve Bank of Australia would need to increase the official cash rate higher than the buffer amount the individual borrowers were assessed on (currently 3.00% as at December 2021) to see these defaults start to occur.

These are just several reasons why we, as well as many experts in the industry, believe that rate rises will not cause a property price correction in the short term. If you have any questions or want to discuss this further, please reach out to us at info@tayloredpropertywealth.com.au.

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Have you been struggling to purchase your next property, feeling like it’s a never ending search? Do you keep getting outbid on the properties you like? Are you sick and tired of dealing with agents?

Today we discuss 5 important tips to ensure you are successful in purchasing your next property! This will save you valuable time and energy and help you feel more confident in the property decisions you make.

Strategy

It is important to have a clear strategy when you’re looking to purchase a property. Having a clear strategy helps you cull out properties that don’t meet your criteria, needs and price range and helps you create a shortlist of properties that do. This will help save you time and energy and ultimately feel less overwhelmed and better equipped to make a sound investment decision.

A clear strategy will also help you understand the town or city you want to purchase in, narrow down on the suburbs and develop the exact criteria you want to target within those areas. For example, targeting a property in Newcastle looking specifically at the suburbs of Adamstown and Kotara, 3 bedroom, 1 bathroom on a 600m2 block and must generate a yield of 4%.

Relationships With Agents

Fostering strong relationships with agents is especially beneficial in the current market conditions. This increases your chances of coming across off-market properties, which means you may have the option to purchase a property before it goes to market, sometimes even at a lower price than if it did go to market.

Existing relationships with agents also provide an understanding of how they work and operate. Understanding how agents operate means you can accommodate this to make it a more seamless experience for them and they will prefer to work with you over others.

These relationships can also allow you to gain more detailed information on the property, the reason the vendor is selling and what may be important to the vendor when selling. This can be extremely useful in the negotiation phase since, surprisingly, price is not always the single determining factor.

Property Specific Negotiation Skills

You need to have strong negotiation skills specific to the property you are targeting. This means asking quality questions to understand what is important to the vendor and what their motivations are for selling. A highly skilled negotiator will employ various questioning techniques to piece together the required information.

Pest and building reports, particularly on older properties, often come back with various issues and knowing how to negotiate through this process can help reduce the final purchase price.

Being a highly effective property negotiator can be the difference between securing a property or not and reducing the final price you pay for the property.

System to Identify Market Value of the Property

Having a system to identify what the market value of a property is, can ensure you don’t pay more than what the property is really worth. It can also help to identify when a really good deal presents itself, that is, purchasing a property under market value and seeing a capital gain on the way into the deal.

It’s important to pay attention to the finer details and compare comparable properties sold in the area recently to determine the current property value. A great question you can ask an agent is ‘what comparable properties have you used to identify market value and the advertised price?’. This can be a great way to reset the vendor/agent’s expectation if they have overpriced a property.

Having a great system in place allows you to enter negotiations with the highest price you are willing to pay. If the price exceeds what you believe it is worth you simply move on, knowing that another property will become available.

In a hot market it’s okay to pay slightly over market value as some suburbs can be moving $20,000 to $30,000 at a time and that extra $10,000 will soon be under value to the price of the property.

Area Knowledge

Having a high level of knowledge of an area is key! This allows you to understand the good and bad pockets of a suburb and why. This are knowledge is another way to identify the value of a property in an area.

There are also many data points that you can look at to understand an area – this is more important when you are looking to purchase property as an investment. This includes looking at vacancy rates, last 12 months, 5 years or 10 years of growth, vendor discount rate, median price and median rental yield just to name a few.

There are also due diligence measures to analyze before purchasing, such as flood reports and amount of public housing in the area. All of this requires high level knowledge to understand the areas and to ensure you select a quality property that meets your goals.

As a Buyer’s Agency we have these tools dialed in to ensure that we successfully secure high quality properties in great areas of the suburbs we invest without paying over what we deem market value. If you think that we might be able to help you with your property goals please reach out to us at info@tayloredpropertywealth.com.au and we can have a further discussion on how we could help you with your goals moving forward.

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Rentvesting is purchasing an investment property that may be in another state or city to allow you to enter the market while you rent where you want to and where you can afford.

Pros

Enter the Market Sooner

If you live in an area that has seen a huge amount of growth in recent years, you may find you are priced out of purchasing where you currently reside. Rent vesting gives you the flexibility to look at markets nationwide. Therefore, you can select an area that may be in your budget now and not have to continue saving where the market could continue to increase, continuously pricing you out of the market.

Tax Benefits

Due to purchasing an investment property, opposed to an owner-occupied property, you should be able to claim your associated costs that you wouldn’t have been able to claim if you purchased an owner-occupied property. You should be able to claim things such as your maintenance costs, interest on the investment loan and gain depreciation benefits from having your quantity surveyor complete a depreciation schedule.

Increase Your Chances of Selecting an Area Primed for Growth

This creates more opportunity and gives you the option of not being restricted to a small number of suburbs that may not have long term capital growth potential or an area that has already gone through a large growth cycle. This gives you the flexibility to invest nationwide where you can select an area that is primed for growth, while balancing a strong yield. This way you can build wealth without burning a massive hole in your wallet.

Flexibility

This gives you freedom to pack up easily and move interstate, move to a town you have always wanted to live in or even move overseas without having to worry about what to do with your current owner-occupied property. Importantly, investing in property gives you the freedom and choices to make these decisions!

Cons

Capital Gains If You Sell

If you need to sell the property you should consider the capital gains you may need to pay on the investment property. If you purchased an owner-occupied property, capital gains shouldn’t be applicable. We should always invest with the mindset that we will hold an investment property long term however there can be unforeseen personal situations that could result in having to sell a property sooner than expected.

No Access to the First Home Buyers Grants

When purchasing an investment property, you forfeit the first homeowners grant that you could be eligible for if you purchased an owner-occupied property. This could potentially be a substantial amount of around $15,000 to $20,000 or more. Purchasing in areas primed for growth that will outperform over the long term can outweigh this short-term benefit approach.

 

Dealing With a Landlord and Making the House Your Own

When the property isn’t your own, you don’t have as much flexibility to do what you want with it. You must ask permission to get a pet or to hang a picture on the wall which can be frustrating for some people!

Landlord Decides to Sell

Your landlord could decide to sell the property you are renting, and this would mean having to find a new place unexpectedly. Suddenly, you would have to spend time finding a place to move, then moving itself and incurring the costs of moving, particularly if you hire equipment or removalists.

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Reducing your expenses can be challenging to do, however, if you value your time and don’t want to complete those extra hours each week and grind it out then this is a great alternative to increase your cash surplus. Reducing your expenses will require a different sort of focus, discipline, and consistency. Reducing your expenses isn’t pretty and sure as hell isn’t fun, but if you can delay gratification and sacrifice a little now the benefits you will receive in the future will be tenfold.

When we are looking to reduce our expenses the big scary word that comes up is BUDGET. Budget has the stigma as does the word DIET. The stigma is around it being a restriction and not being fun which I don’t disagree with. However, it is necessary to get us towards our goals. Do you want to sacrifice a little now, or do you want to work 40 plus years to the age of 67? I certainly know what I would rather. Reviewing your spending habits should be completed every 3 months, this keeps you accountable and up to date.

If you sit down and look at your spending habits over the last 3-6 months you can get a really good idea of your spending. When this exercise is completed a lot of people are normally shocked, they realize that they spend a lot more on certain things then they thought they did.

Now when we look at our expenses, we have both fixed expenses and discretionary expenses. Below are examples of what is a fixed expense and what is a discretionary expense.

Fixed Expense- The weekly rent amount or weekly/monthly repayment to your home loan.

Discretionary Expenses – The couple of beers that you have at the pub each week or the avo on toast with some crumbled feta that you can’t resist at the café on the weekend.

What we will discuss below are some strategies to look at reducing both your fixed and discretionary expenses. These will depend on your situation, and which are going to be the opportunity for you to improve. I believe there is always opportunity to improve both. I’m a strong believer that every cent counts. You might do this exercise and realize you can only save $50 a week. Over a year that equates to $2,600. If you focus 2 hours every 3 months that’s 8 hours a year. $2,600 / 8 hours is $325. Not a bad hourly wage if you ask me, perspective is everything.

Fixed Expenses

Fixed expenses can sometimes be a little more challenging to reduce, depending on what strategies you implement that might impact your life a little more significantly than that of the discretionary expenses. Let’s take a look at some of the most common fixed expenses below.

Rent

If you are currently a tenant, you have a couple of options to look at reducing the amount you pay each week. The first may be to downsize or rent a little lower quality house or location that is a little less desirable. This can be a dramatic change to save some of your fixed expenses, you would also need to consider your moving costs however this still may be a fixed expense save for you. Again, this comes back to sacrifice and whether you are willing to do this.

The second is getting an additional person to live with you, you might room share or be a younger couple. If you had an extra house mate they would contribute to the whole cost base of your weekly rent, therefore saving you money. This again comes back to how bad you want to achieve your goals and what you are willing to sacrifice in the short term for the long-term results.

Mortgage

If you have your own owner-occupied property, there are still ways to reduce your mortgage repayments. You can contact your financial institution and ask for a rate review, typically to do this successfully you would quote a couple of competitors rates, if you are with one of the larger banks it is always more effective to quote rates of the larger competitors. If you aren’t successful and you’re in a position to refinance, do it. If you can get a better offer elsewhere you should take advantage of that!

If you have a variable loan and have the 100% offset facility for your mortgage, you need to ensure this is set up. That way any amount you have in the offset account will offset your mortgage and you pay less interest calculated daily. For example, if you have a mortgage loan with a balance of $500,000 and you held $100,000 in an offset account the interest would be calculated daily on the difference between the two amounts. Meaning that you would only pay interest on $400,000 and not that of the full balance in the mortgage being the $500,000. This will save you money each month and help you to pay off your mortgage sooner.

Another option is that you could again rent a room out to a house mate. This way they are contributing to your mortgage and helping you either pay this off sooner or allowing you to pay less to put towards the deposit on your next property.

Utilities

Utilities that you can look at reducing are your internet expense and your mobile phone expense. You may have set these up years ago and the price you’re paying now is not competitive in the current market. If you are locked into a contract for a year or two, that may make it a challenge, however as soon as that contract is up you should always explore your options. It is always good to review these on an annual basis. There are many platforms online that can help you compare plans and prices. The alternative is you contact several providers individually and negotiate with them on the best offer they can provide. I recently finished my two-year contract on my mobile phone plan, I was paying $80 a month. Moving across to Aldi I now pay $35 a month. I still have unlimited calls and texts. This alone has just saved me $540 a year, not bad for a small amount of effort to change over.

Discretionary Expenses

Discretionary expenses are the expenses where you can make the most meaningful differences in my opinion. These are generally where the biggest opportunity is to reduce expenses however this does come at a cost, generally sacrificing on your lifestyle in one way or another. However, if you have read this far, you’re most likely committed, your focused, ready to be disciplined and sacrifice now to reap the rewards later, also known as delayed gratification.

Discretionary expenses can be clothing, online shopping, takeaway, eating out and alcohol/entertainment, etc. These are variables costs, meaning it isn’t the same amount each week, fortnight, or month. Therefore, it is the biggest opportunity, if you are super disciplined and focused, these expenses can be reduced to almost nothing if you really want. The amount you then save on effectively reducing these expenses can then be translated into savings. Let’s look at the following:

Takeaway and Eating Out

If you are anything like me, you’ll LOVE food. Ribs, burgers, smoked meats, pizza, pasta, garlic bread… mmmmm delicious! Anyway, we are talking about ways of reducing our takeaway and eating out, not getting excited for dinner. The question we need to ask ourselves is how often do I get takeaway or eat out? Once you complete your budget every three months, you’ll see how much you spend on food and takeaway, I’m sure you’ll be shocked at what this comes in at. Buying takeaway and eating out can be super expensive and ads up quickly.

If you think you buy takeaway or eat out 5 times a week you could aim at reducing this and cut it down to 2 or 3 times a week. You should focus a little more time on planning your week out and knowing what you need to buy when doing your groceries. There are so many ways that you can make those meals you buy at a restaurant at home. They’ll cost half the price, you can adapt the recipe to how you like it, most likely it will be healthier with less calories. Saving money and helping your waistline all at the same time!! What a combo!

Online Shopping/Clothing

Online shopping and purchasing clothing are so easy these days, you don’t need to go to the shop and can do this in the comfort of your own home. You don’t even need to get off the lounge or leave your bed and still have the temptation to spend money. When we are shopping for clothing and purchasing things online the most crucial question we should ask is ‘Do I need this?’ or ‘Do I want this?’. If you truly need something then buy it, if you don’t need it and you simply want it should you really buy it? If you have 10 pairs of nice shoes, do you really need the 11^th pair? Remember you’re not a centipede and only have two feet. I have gotten so good at not spending money that I don’t even buy things when I need them now. Ask the pair of shoes that I’ve been wearing for 6 months with a hole in the sole (haha).

Another tactic to help reduce online shopping and clothing is putting a time limit on making the purchase. If you see something you want, make a rule that you’ll look at this again in 2 weeks, if you still really want it then you can make the purchase. This will give you the opportunity to think it through and not impulse buy, if you have 2 weeks to think it through, you may realize that you don’t really need it.

Entertainment/Alcohol

This is another expense that can really add up. If you go out one night a week and have a big night you can easily spend $100-200 in a night. Then if you factor in the hangover and the food that you’ll most likely purchase, this can add up to even more. Please don’t think I’m telling you to not have fun, if that is something you enjoy and you value do it. However maybe if you do it once a week you could limit it to once a fortnight or once a month. This one is powerful again because not only will you’re bank account thank you but so will your body. I’m almost at 1 year without a drop of alcohol all because I feel so much better without this in my life. I feel physically and mentally better without it, but that’s my personal choice.

Now you might think, “what am I going to do if I’m not partying every weekend?” Well, this is time for you to get creative and put a little time into what you could replace that time with. What can I do to still be social, active and see my friends? I am a strong believer that some of the best things in life are free. You could have a BBQ at the beach or park with some mates, kick the footy around or throw the frisbee. You could go for a walk by the beach, go on a bush walk or a walk-through dense forest. Now I completely understand that because this is something that I value that you may not value this and that is totally okay, we are all different. These are just some ideas; you might realize that you actually do enjoy these and it’s just that you haven’t really tried any of these before.

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Some people struggle to see the value in engaging a Buyer’s Agent, saying they ‘can’t afford to pay the Buyer’s Agent Fee’. The real question they should be asking is, ‘can they afford to not use a Buyer’s Agent?’

Can you afford to not use a Buyer’s Agent?

When engaging a Buyer’s Agent, you are engaging a professional and leveraging off their knowledge, experience and expertise to ensure you make an informed decision around purchasing a quality asset.

Buyers Agents use in depth methods, strategies, reports, data and due diligence processes and key performance indicators to help you make informed decisions to purchase high quality properties. This provides a higher probability of growth and performance then what you could achieve on your own, also reducing the time, energy and stress that is associated with the experience of finding a suitable property.

I want to explain an example now showing what the difference could look like in terms of a dollar figure over a 15-year period when using a Buyer’s Agent to help you purchase a property vs purchasing a property by yourself without the help of a professional that does this day in and day out.

Potential to generate $340,000 capital growth in a 15-year period through just one simple decision!

For this example, we are looking at a property worth $500,000 and considering only the capital growth. We are not even considering the in depth strategy, relationships with agents, access to stock, systems to identify market value or access to property data to identify key performance indicators. All of these are a must when purchasing property!

Let’s say that the property purchased without a Buyers Agent wasn’t purchased in a great pocket of a suburb, it was purchased on a main road in a high noise zone. Now this property over the next 15 years could make an average of 5% growth. This means after 15 years the property will have a value of $1,039,465. This is a good result don’t get me wrong, but we are aiming for a great result. Obviously, we want to achieve the highest outcome possible!

Now the second purchase was for the same value of $500,000 however this time a high-quality Buyer’s Agent was used. The property was purchased in a high-quality pocket, using local expert knowledge of the area, in depth due diligence measures consisting of the last 12 months sales data mapping of the suburb, flood report, noise category report and housing commission searches to name just a couple. We are being extremely conservative as this percentage difference can be far more. If this property was to perform better, on average, by 2% per year attracting an average of 7% for the 15-year period. The value of the property purchased with a Buyer’s Agent would now be worth $1,379,516.

A huge difference of $340,051 all with the same starting budget and price point, the only difference is not cutting corners and making an educated decision to leverage a professional.

Now the Buyer’s Agent fee for this type of purchase wouldn’t even consist of 10% of the difference in capital growth gained over this 15-year period. So the question is – Are you willing to save on a purchasing cost on the way into the deal because you think you ‘can’t afford it’, to ultimately miss out on $340,000?

Imagine having been able to build your wealth by more than $340,000 just by making one great decision and entrusting a professional that specializes in purchasing property day in and day out. If you use a Buyer’s Agent to build a portfolio of just 3 properties your wealth position could have increased by more than 1 million dollars!

We must look at the potential that a Buyer’s Agent represents and what the return on investment creates, this is a huge opportunity to grow your wealth and get you closer to retirement sooner. The question when paying a Buyer’s Agent fee should not be “can I afford it?”, rather, “how can I not afford it, to ensure I set myself up for success and increase my chances of purchasing a high-quality asset?”

Always remember not to think short term when investing and always think long term, what the decision we are making today will look like in a 15-year period. Average decisions create average results, leverage a professional, a high-quality Buyer’s Agent and set yourself up for success. Make a decision that your future self will be thankful and grateful for!

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Today I want to dig deep into some strategies to help you efficiently increase your cash surplus as well as discussing the importance of structure and organization with your finances. This will help you achieve your goals sooner or even to ensure you achieve these goals in the first place.

When we want to look at increasing our cash surplus there are two key ways in which we can do this. We can either look at ways in which we can increase our income, or alternatively we can look at ways at reducing our expenses. If you really mean business and are super motivated and focused you might look at implementing both, increasing your income and decreasing your expenses. Increased Income + decreased expenses = Higher Percentage saved!

Increasing your Income

There are a multitude of ways to look at increasing your income. To increase your income means that you are going to have to stay motivated, focused and be consistent with what you are doing to achieve this.

At lot of people that know me know that I have a huge work ethic and am a hard worker. I’ve worked multiple jobs for years, sometimes 7 days a week 12-hour days all to get me towards my goals sooner. When you say you don’t have time or it’s too hard, you’re just making up an excuse in your head. It’s not going to be easy, however it all comes back to how bad you want to achieve your goals. As I tell people all the time, “ain’t nothing to it, but to do it!” Rip in and get it done, it doesn’t have to be for years, it doesn’t even need to be for a whole year. You could even choose to work harder in the winter months when there isn’t much going on and spend a little more time enjoying the warmer summer months. This works differently for different people and the key here is to find what works for you and your lifestyle.

Pay rise

You might be working hard and being that model employee that your boss wants you to be. Performing at a high level and meeting and exceeding your KPI’s. If you are doing this your boss may provide you with a pay rise, or you might back yourself and get your negotiation boots on and ask your boss for a pay rise. Always remember to document your achievements and accomplishments to use as ammunition and know what you’re worth.

Second Job/Overtime

You might work a full-time job and can work overtime, or you might have the opportunity to work weekends where there are penalty rates. Be punctual and reliable and communicate to your employer you’re willing to do any overtime available or work the weekend shifts. Once you start to do this, you’ll be surprised how much your employers appreciate this and they will go to you first before giving the opportunity to someone else.

Getting a second job is another great way to earn some extra money if the opportunity for overtime or penalty rates isn’t available at your full-time job. You might get a job at a pub, restaurant or café and work the early morning shifts, night shifts or weekend shifts. The wonderful part about this is you will find you aren’t out on the weekend spending as much as you normally would, and you are making more money than before. Increasing your income, decreasing your expenses ultimately increasing your percentage saved.

Side Hustle

Living in 2021, although these are challenging times, there are also many opportunities and many ways to look at creating a side hustle. What are you good at and could sell for a profit? You could be an artist and sell your paintings. You could start an online business of some sort or find products that you are passionate about that you could sell locally at the markets. You might reach out to your neighbors and see who will pay you cash to mow their lawns. Sell old furniture or clothes on gumtree or marketplace. You could do some uber driving on the side. The possibilities are endless, get creative and think of something outside the box. Always remember as well not to worry what others may think or verbalize to you.

Structure and Organization

Now that we have discussed various strategies on increasing our savings through both increased income and also reducing expenses, we need to ensure that the final steps in our savings are set up in a way that are going to make all our hard work pay off and set ourselves up for success. There are two important factors that we need to get right to make sure we are across the fixed target amount or the target percentage each and every week.

Pay yourself first!

The famous words of Robert Kiyosaki who wrote Rich Dad poor Dad, a great book to read if you haven’t already! Robert you’re welcome for the plug! Now it’s important to pay yourself first each week, fortnight or month depending how you get paid.

For example, if you are paid every Wednesday you need to either transfer your savings goal across manually as soon as you are paid, or you can automate this and set it up as a scheduled payment in your internet banking.

Completing it this way ensures that you don’t accidentally start spending more than you should and therefore have less to save then you were intending to. Make sure this is the first payment you make!!

Limited Access Savings Account

Once you have started the habit of paying yourself first and ensuring that payment goes across before you have time to spend it, you want to structure the savings account in a way that you are less tempted to withdraw funds from the account.

You can limit the access on your internet banking to view only access. Different banks may refer to this differently however the benefit is the same. You can only view the account on your internet banking and not able to transfer from the account. This way you can see the balance grow, but you can’t have a couple of the old silly sauces on the weekend and think you are made of money and blow your hard-earned savings. We’ve all been there before.

When you do need to access the savings for a worthwhile purpose, it may mean you need to attend your local branch, this might seem painful, however, it’s a small price to pay to increase your chances of ensuring you are hitting your savings goals.

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