Posts Tagged 'property investment tips.'

Changes in the Opportunities in Sydney for 2018?

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Change is the constant in our lives and it can be challenging to sort out which changes we need to stay on top of to stay informed.  If you are a property investor (or home owner) what do you need to pay attention to in 2018 for property prices in Sydney?  

Over 2107, property demand has been squeezed with restrictions imposed on investors and foreign nationals, those who are not Australian taxation residents. 

Nationally, availability of finance is the tightest it has been for many years.  Policy changes have restricted investors’ access to money.  This has occurred in three ways, firstly through the amount of money they can borrow, secondly through assumed serviceability limitations and thirdly through restricted access to interest only loans.

Owner occupiers, on the other hand, have no restrictions to on their access to funds. If we put this into perspective investors represent about half the value of funds being borrowed according to the ABS.

Regulators are trying to make sure that investors do not compete with owner occupiers by forcing banks to increases their loan to value ratios (LVR) for investors. This means the investor is going to have to find a larger deposit to invest.

Lenders are only taking part of the real rental income, and only part of the real depreciation allowances into account when assessing investors serviceability.  Plus, they are measuring the investor’s capacity to make repayments against much higher interest rates.  Lower income earners with high equity can’t release it as they can’t service the loans. 

Lastly access to interest only loans has changed. This change in policy required the banks to restrict their interest only lending to 30% of new loans however most have made this historical as well.  This has created huge turmoil in the sector.

Investors buying off the plan may need a larger deposit payment to make the property work for serviceability if they need to repay the value of the loan as well as the interest.  Scary for those with limited funds. 

Depreciation laws have changed.

In addition, national taxation laws for depreciation benefits have changed. 

New properties attract taxation benefits for the costs of the actual building and for the fixtures and fittings such as kitchens, bathrooms, carpets and lighting.  

However, those buying existing property can only claim the building depreciation, not any of the fixtures and fittings amounts unless they have changed these things personally through renovation. 

This supports investors buying new property, doing renovation or buying in higher risk regional areas with higher returns.  However, most investors make more money from capital growth than cash flow so regional properties are not as appealing. 

Regional cities have other risk factors with property cycles being either on or off giving much less discretion for selling at will.  They also have more volatile prices. 

Additionally foreign buyers’    demand has been restricted through taxation changes.  Foreign buyers: those who are not resident for taxation in Australia have had their capital gains exemption on their own home removed. There are also changes planned for investors.

State based NSW stamp duty will double from 4% to 8% on 1st July 2018, for foreign buyers.  This is above Victoria’s 7% but below some Canadian provinces with 15% fees.  In NSW this cost for a $1M purchases rises from $40,000 to $80,000.  Land tax rises are also rising from 0.75% to 2%pa.  If your land is valued at $600,000 then this cost rises from $4,500 to $12,000pa.

Our question is what do these changes in demand add up to?  They appear to have tipped property prices into relaxed decreases in Sydney.  More significantly how will reduced supply of investment property impact the rental market.  Will it tighten and rents rise significantly in the next 12 – 24 months? 

Population growth continues to be strong, and, as housing supply is till not keeping up with demand we are likely to see rents increase due to strong demand. Then we are likely to enter into another phase of continued capital growth, perhaps just not as strong as in recent years.

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Five Tips for Good Rental Management

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Rental Managers are often undervalued assets in the management of your rental property.

What is their role and what factors should be considered then selecting one:

  • Your Rental Manager needs to evaluate your tenants for their willingness to care for the property and pay the rent on time. This is an evaluation of character.

We have had an onsite Rental Manager who had a quarterly dinner for the tenants.  This made a stronger community who were better able to enjoy the amenities.  It also put pressure on antisocial behaviour: like parking for too long in the visitor spots.  She actually had a list of tenants wanting to move into the  complex and could charge premium rents.

On the other side, Rental Managers have been sufficiently impressed by tenants to recommend them; and then it has been discovered they used false names and skipped out before the end of the lease owning money.

  • Your rental manager needs to have the strength of character to have some tough conversations with tenants should they fail to pay their rent or to keep the property well.

We have seen a diminutive female Rental Manager insist the burly male tenant find the right cleaning product to clean the carpet right then and there during a routine inspection.  The conversation was delivered with humour to the job get done and maintain the relationship.

For over due rent we have also landlord’s insurance and need our rental manager to be squeaky clean on their rental management processes or our policy is invalid.

  • Your rental manager needs to have some tough conversations with you if you fail to approve repairs in a timely manner or neglect the maintenance of the property.

Have respect for your tenants and keep your property to a standard of repair that meets your rental expectations.  If it is a corporate rental that may mean 24hour emergency support.  If it is a basic property that may mean everything works and it is clean.  If you want more rent, speak to your Rental Manager.  It might be that a cost-effective investment can increase the appeal of your property.

  • Your rental manager sits in the middle of two relationships, between you and the tenant.

You give them the ability to earn a weekly income through your rental management agreement.  They are appreciative of this however often their attention to your needs can fade over time, there simply may not be time to care for you.  It can also fade if you fail to maintain your property as it is harder to rent and takes more time than they have to spend.

The tenant actually gives them their weekly income through the rent, without this they don’t have a business.  This makes some focus more closely on tenant care as the priority. It is natural they like one party more than the other.  Their business experience helps them to manage both parties well.  You can help too by doing your bit for the relationship.

  • Your rental manager has a responsibility to provide expert feedback on the state of your property. If it is an older property this can be to identify insidious problems like dry rot; or plumbing and electrical problems.  The key is to find and repair these issues before any damage is caused.

If it is a new strata titled property this can be anti-social behaviour overuse of the shared amenities that upsets your tenants.  If it is consistent it can even earn the building a bad name.

One local agent consistently rented two bedroom apartments to families of six.  The body corporate was able to assist in communicating with the owners involved and gaining their support to change rental managers.

Choose your Rental Manager carefully as they are a key part of your success in maintaining the value, the appeal and the presentation of your property.

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