02 Nov October 2012 Newsletter
Welcome to our October newsletter
With the Reserve Bank of Australia (RBA) lowering the cash rate by 25 basis points at its October meeting and fixed rate home loans at a five year low, now could be the perfect time for borrowers and investors to evaluate their position in the property market.
The RBA’s decision to lower the cash rate for the first time in four months was unexpected, with many economists expecting rates to stay on hold in October.
Reserve Bank governor Glenn Stevens said, “The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside.
“Investment in dwellings has remained subdued, though there have been some tentative signs of improvement,” Mr Stevens said.
“Interest rates for borrowers have for some months been a little below their medium-term averages
“There are tentative signs of this starting to have some of the expected effects, though the impact of monetary policy changes takes some time to work through the economy.”
A recent survey found that almost three quarters of home buyers think that now is a good time to buy. According to the Domain 2012 Spring Homebuyers survey, 67 per cent believe they can get a property at a better price now than they could have done six months ago.
This is supported by research conducted by property research house SQM Research which found that there was a 0.1 per cent drop in the national residential vacancy rate during August, to 1.8 per cent.
This equated to a decline of 2,127 vacancies month-on-month, the third monthly dip in vacancies, falling to 50,774.
Add to this the renewed wave of lenders discounting their fixed rate loans and now could be the perfect time for borrowers to re-evaluate their options.
With lenders battling to provide the most competitive rates available, we are in a good position to negotiate a lower rate on your home loan.
With the impacts of this latest rate cut and competitive fixed rate home loan products sure to be seen in the following months, and real estate markets heating up, now could be the perfect time to snag yourself a bargain.
If you would like help exploring your current financing options, or if you want to get together to discuss any of your financial concerns or aspirations, please feel free to get in touch.
Sincerely, Nick Foale
Raising the rent
A rental increase will always be a sensitive topic with tenants, so as a landlord, it is important to justify a rise and be open to negotiation to ensure a long and prosperous relationship
You’ve spent a lot of time and money on purchasing the right investment property and have been through an equally rigorous selection process to find the best tenants.
Now, don’t let a desire for quick returns cloud your judgement when it comes to increasing the rent.
Rising rents are a given in the rental market and most tenants expect that at some stage their rent will increase. So in most circumstances, if the rise is handled appropriately and sensitively, there should not be an issue.
Generally speaking, the following rules apply to rental increases:
- Rent cannot be increased during a fixed-term agreement unless specifically stated in the agreement;
- Rent cannot be increased more than once in a six-month period; and
- The landlord must give the tenant at least 60 days’ notice of a rental increase.
These rules should, however, be checked with your relevant state body as legislation changes and variations apply from state to state.
When considering whether to increase the rent you should take into account market prices, time since the last rent increase and the demand and supply within your market.
Once you have decided you want to implement a rent rise you should ensure you carry out the relevant processes and meet all requirements, documenting them formally in writing.
Be aware, however, that even if you do take all the appropriate steps your tenant may still come back requesting a reduction or a withdrawal of the proposed increase.
The next step would be for you to consider any counter offers and how they might affect your long-term investment strategy.
If you have a good tenant who looks after the property and who has proven their ability to pay the rent on time, you may wish to consider negotiating a rental increase.
Given the time it takes to find good tenants and build trust ? not to mention the income you lose while the property remains vacant ? it might well be a better option to forfeit some rent in the short term in favour of a longer term gain.
Another possibility is that your tenants request some improvements to the property in return for the increase in rent. This is sometimes a reasonable request and may be an option that benefits both parties.
Small improvements such as new carpets, blinds, light fittings etc don’t have to be expensive and can help to increase capital growth as well as keep tenants happy and in the property.
You should make rental increases a manageable part of your investment strategy since your tenants are part of that strategy as providers of an income stream.
Treat them as you would like to be treated yourself and the management of your investment should hopefully be smooth sailing.
Finance options for the self-employed
Almost 20 per cent of working-age Australians are self-employed, which can bring flexibility and freedom but also challenges when it comes to obtaining home finance
Prior to the global financial crisis (GFC), lenders were quite willing to provide finance to self-employed borrowers. Today, the story is a little different.
Many banks have tightened their credit policies when it comes to the self-employed, but with the right help there are still plenty of options available.
Self-employed borrowers often find meeting the lending criteria for a standard home loan difficult. Cash flow may well fluctuate more significantly than for salaried borrowers, while a self-employed person may find it difficult to provide the necessary documentation, such as regular payslips.
Self-employed borrowers may also face longer minimum waiting periods and be required to put down larger deposits than their employed counterparts.
In such cases, one option to consider is a so-called ‘low doc’ loan. These can be great if you can’t provide up-to-date tax returns or financial statements since you will have several options for confirming your income.
Requirements vary depending on the lender but, generally, self-employed borrowers will need both to have been in business and to have held an ABN for at least two years.
It’s also worth noting that a low doc loan application will still require some form of income statement, usually a signed declaration.
Some lenders may even require your Business Activity Statements (BASs) as further evidence of income, while others may ask for trading statements or a letter from your accountant.
A low doc home loan is usually processed more quickly than a normal loan since there is less paperwork involved.
There are, of course, limitations. Most lenders will only allow you to borrow up to 80 per cent of the total purchase price of your property, meaning you will need a larger deposit than other borrowers who may be eligible for a 90 to 95 per cent loan.
You may also be required to pay additional lender’s mortgage insurance, even if you can put down a 20 per cent deposit.
Low doc loans usually have higher interest rates due to the extra risk lenders associate with self-employed borrowers. The good news, however, is that you can often transfer to a better rate once you can supply the usual documents needed to demonstrate income.
Your self-employed status does not have to impact negatively your borrowing potential, although the amount of information you need and can supply will ultimately decide which products are available to you.
We can work with you to locate the lender and product that will best suit your situation and repayment potential.
Holidaying on a budget
With summer just around the corner, a holiday could be what you need ? and it doesn?t have to interfere with your investment goals
Don’t let your investment property aspirations stand in the way of a well-deserved holiday; there are ways to get away without breaking the bank.
Stay close to home ? Usually the further from home you travel, the more expensive the trip. Scope out some locations nearby that you can enjoy without having to spend money on excess travel ? and get to know your own backyard in the process!
Choose your location carefully ? Some holiday destinations are more expensive than others. Instead of going to the more pricey and crowded beaches of the Gold Coast, why not pick a beachside holiday without the price tag?
Avoid peak seasons ? Holiday destinations are always more expensive during peak season. If possible, avoid travelling during the middle of the school holidays, with most places cheaper at the beginning or end of the season.
Book online, book early ? The earlier you book accommodation or flights, the cheaper they are. You can get some good deals with last minute bookings but availability is usually limited and you may be restricted to certain dates. Also, book online and save money you’d otherwise spend on a travel agent.
Cook yourself ? Look for accommodation with a kitchen and you will save large amounts on food. Try and do your grocery shopping in bulk before you leave or from a supermarket when you get there. Forget room service unless you have squillions to burn!
Package deals ? Look for package deals that include flights, accommodation, transfers and food. It may seem like a lot upfront, but when you add up holiday expenses you will see the savings.
Eliminate excessive baggage ? If you are flying, travel light since excessive baggage often comes with a hefty fee (especially with some of the budget carriers that you might also be using to save money).
Finally, beware the credit card! ? It’s all too easy to simply swipe your card and forget about it when on holiday. Set a daily budget and use cash so you can keep track of how much you’re spending, otherwise you may get home to a bill that wipes out all your savings efforts elsewhere.
Property investors nearly always need to set themselves a budget and monitor their monthly spending, so a well-earned holiday can be a good way to reward your diligence. Just keep track of how much you’re spending on your break.