In general terms, a more functional and well located property will achieve a higher valuation figure than one less so, therefore, if you are in the process of attaining a valuation of a property to use as a refinancing tool for your investment portfolio then ensure it has the above two characteristics.

Whether you are requesting the valuation privately or through a bank or finance broker, there are 3 basic “Golden Rules”.

1. Present the property well. Ensure it is neat and tidy.

2. Have as much information for the valuer as you can.

3. Leave them in peace to do the job.

The Essential Property Valuation Checklist

For the Bank, Finance Broker or Valuer ¨

o Rates Notice.¨

o List of improvements and costs in an easy to read format.¨

o Clear instructions. Ensure you communicate whether you want an “as if complete” valuation (in the case of improvements under construction) or an “as is” valuation reflecting the property as it is inspected by the valuer.¨

o Clear contact details including your full names, phone numbers (home and mobile), email address and any alternate contact details that may help ensure a complete and accurate profile.¨

o Access Details. Make sure you provide the best contact numbers to call so that access can be made quickly and easily. If you have tenants, ensure the tenants are suitably informed as to exactly what the situation is so that they don’t try to deny access.¨

o Clear directions to the property if it is in an out of the way location. If there is any doubt as to the address of the property (such as it’s on a corner allotment or the properties in your area have recently been renumbered) then supply all possible address locations. This allows the valuation company to search the various government database systems in the event that you were not able to supply a rates notice.

For The Property ¨

o Make any improvements prior to the valuation and ensure they are complete. Be careful of overcapitalizing by attempting to add value through improvements that try to place the property into a higher price bracket than it is likely to actually sell for. Outdoor living areas are examples where improvements can add value more than their cost providing they are functional and well presented. Other examples are kitchens and bathrooms.¨

o Clean up the yards and gardens and mow lawns.¨

o Repair any obvious defects.¨

o Clean the interior of the house.¨

o Prepare the house as if you were selling it. Presentation is an important factor in any valuation.

During The Inspection: ¨

o Copy of the building floor plans and elevations.¨

o Rates Notice.¨

o List of recent improvements and costs in an easy to read format.¨

o Recent sales evidence that you are aware of. (Note: general hearsay may not be accurately recorded and therefore may not be able to be utilized).¨

o Leave the valuer to perform their duty. The actual valuation inspection time does not take long so don’t be surprised if it seems like the valuer hasn’t seen everything and don’t take them on a guided tour. They are professional people who are trained to look for relevant items and can do it quickly and effectively. Tell the valuer to come and see you if they want to clarify anything and leave it at that. The valuer will appreciate it.¨

o Be Honest.

After The Inspection: ¨

o Be Patient. Don’t ask the valuer what they think the property is worth. They still have substantial research to complete after they inspect your property and therefore will not be able to give you an accurate figure on site. Wait until you receive word from the finance broker or bank or until you receive the valuation from the firm directly.¨

o Liaise with your bank or finance broker to find out the assessed valuation figure. Few institutions are able to give you this information due to banking privacy laws. ¨

o Do not ring the valuation firm (unless you ordered the valuation directly yourself) as they are legally bound to deal only with the requesting party, i.e, the bank or lending institution.¨

o Be realistic with the anticipated assessed value. There may be a difference between the resultant bank valuation and that of a real estate agent as one is trying to win your “listing”.

(published by Propell National Valuers)

If you are a first-time property investor, be aware that investing in property involves a number of important steps, including:

• Educate yourself – read books and magazines and speak to people you truly trust.
• Establish a clear property investment strategy – do you want a property investment that provides sufficiently high rental returns to be self-servicing or are you chasing capital growth. Your choice of property investment strategy will dictate what kind of property you buy and where you look for it.
• Thoroughly research the areas you are interested in for first property investments.
• It’s a must to get a property valuation and a building inspection report before signing up to buy your first investment property.

Here are some of the pitfalls why first-time property investor’s investment properties fail to perform:

• The purchase price was too high.
• The property is in an area of low capital growth potential.
• The property is too high maintenance.
• The rent is too low.
• Vacancy periods are too long or too many.
• The loan taken out was structured incorrectly.
• Some tax deductions are missed.

The Australian Securities and Investment Commission has outlined the following recommendations for first-time property investors before buying real estate as an investment asset:

1. Be wary of pressure selling techniques and high pressure seminars
Some sales people can be extremely persuasive and persistent.

2. What are your overall financial plans?
Before investing in any asset make sure your decision fits into your overall investment strategy. If you don’t have an overall investment strategy then now is the time to develop one:

• Think about what you want to achieve financially and how soon do you want to achieve it.
• Set yourself goals.

3. Understand the risks involved
Make sure you are comfortable with the risks associated with a particular investment. All investments carry risks. Generally the higher the risk the higher the returns.

• Do you know what the risks are in real estate? Can you sleep at night knowing this? If you can’t then perhaps you should invest in an asset with less risk.
• All good financial plans will split your money up against a range of assets in order to spread the risk. Think about this as you think about investing in real estate. Will you have all your eggs in one basket if you buy a particular piece of real estate?
• Remember that all types of investments have cycles of profitability and cycles of losses. These cycles can last for years. Will real estate cycles fit your financial plans?

4. Getting advice
Decide whether you need professional advice. If you’re dealing with a financial adviser then make sure they’re licensed by ASIC.

6. Do your homework
Find out as much as possible about any investment you are making. Make sure you really understand the pros and cons of the choosing a particular investment asset. Weigh the advantages and disadvantages against your financial goals.

7. Tax and social security issues
There may be tax issues to consider that your real estate agent may not understand. Your tax accountant could be a good place to start to check the numbers and tax issues.

8. Looking after your investment assets
Love your paperwork. Read and keep all documents you receive about your investment.

If your asset is being managed by someone else, then make sure they keep you informed of what is happening:

• Insist that they give you written records and reports. Chase them up if they don’t arrive.
• Ask questions if you’re not sure. Reputable investment managers will be happy to answer your questions and will expect you to take an interest in your investments.
• Make sure you give all your instructions to a manager in writing. Also tell them what limits they have to act on your behalf.

Source: Australian Securities and Investments Commission

A document titled the “Plain English Dos & Don’ts for Property Investment” has been created by Macquarie Bank and is available here for download.

Disclaimer:This page is for information purposes only, and must not be relied upon as a substitute for professional financial or legal advice.

Resource articles for multiple property investors

If you are already a property investor, or a multiple property investor, you may find the following articles helpful to ensure you are doing all you can do to increase your property investment returns:

Tick, tick… boom!
The surest way to make money in real estate investment is to pinpoint a hotspot before it becomes one…..more details

Chasing high rents
Large capital gains may snare the headlines but rental returns can be just as critical for property investors. Rent, after all, is what investors rely on to pay off a large chunk of their investment loans……more details

Poorly kept records a tax no-no
Australian Taxation Office marketing and education assistant commissioner, Kathy Dennis-Carter, says recent audits have highlighted poor record keeping as one of the most frequent blunders made by property investors. She says this is particularly the case when people’s circumstances change. For example, if a person converts what was once their main residence into a rental property, they need to keep a record for the time the property was their main residence. We asked her for other examples of where investors can be their own worst enemy…

Disclaimer

This page is for information purposes only, and must not be relied upon as a substitute for professional financial or legal advice.

Disclaimer:This page is for information purposes only, and must not be relied upon as a substitute for professional financial or legal advice

MIAA GUIDE TO INVESTMENT LOANS

The types of loans available for investment properties are generally the same as the ones available for owner occupied properties – you can avail of the same interest rates, options and flexibility. The key to determining which loan is best for your investment comes down to your investment strategy.

As with any large financial decision you make, it’s always wise to seek investment advice from a professional before entering into any property investment. There are plenty of people in the financial and mortgage industry who can help you with this, your accountant, financial planner and mortgage provider.

The two primary ways in which investors build wealth through real estate:

• Capital Gain: relying on the increase in value of the property to be more than the initial price of the property plus your repayments and buying and selling once-off costs. For example, if you purchased for $200,000, you sold it for $300,000 and your repayments and additional costs were $60,000 the gross capital gain is $40,000.
• Building Equity: relying on an increase in value of the property and bringing down the loan. For example, if you purchased a property for $200,000, and your loan was for $150,000 you would have $50,000 equity in the property. A few years later if the property was valued at $225,000 and you had $100,000 remaining on the loan you have $125,000 equity in the property. Plus you benefit from the rental return on the investment property.

Here’s some tips to help you choose an investment loan:

1. Your Investment Strategy

First, set your financial goals and investment strategy – are you looking at a long term or short term gain? Do you want to take a passive or aggressive approach? For example, are you looking to own a few properties where you can live comfortably off their rental income or, are you looking to build a portfolio of properties which you can sell, cash up and move to the south of France? Will you structure your repayments to pay off the loan as quickly as possible or structure them in order to obtain a tax benefit?

There’s plenty of information available about investing in property – devise a plan with your financial advisor or accountant, or to determine a strategy yourself.

2. Your Loan Options

Second, research the types of loans available so you can explore all options when talking to your mortgage provider. Some of the more popular loan choices for investments are:

Interest Only Loan

This loan allows you to structure you payments where you are only paying off the interest accrued on the amount borrowed – the repayments are a lot less than those for a principal and interest loan. They are usually taken over a normal term (i.e. 25 years) with the interest only option being 1-5 years, and renegotiated after 1-5 years.

• These loans are suitable if the investor is relying on a capital gain in the short-medium term.

Introductory Rate or ‘Honeymoon’ Loan

This loan is attractive as it offers lower interest rates than the standard fixed or variable rates for the initial (honeymoon) period of the loan (i.e. six to 12 months) before rolling over to the standard rates. The length of the honeymoon depends on the lender, as too does the rate you pay once the honeymoon is over. This loan is usually flexible allowing you to pay extra off the loan. Be aware of any caps on additional repayments in the initial period, of any exit fees at any time of the loan (may be high if you change during or immediately after the honeymoon), and what your repayments will be after the loan rolls over to the standard interest rate.

• These loans are attractive to an owner-builder or DIY investor who in the short term will use the property as a principal place of residence and use their skills to add value to the property at the same time building some equity in the property. After the renovation they can seek to sell for capital gain or keep it, rent it, and build further equity in the property.

Line of Credit/Equity Line

This is a pre-approved limit of money you can borrow either in its entirety or in bits at a time. The popularity of this loan is its flexibility and ability to reduce loans quickly. They usually require the investor to offer security for the loan i.e. principal place of residence or another investment property. A line of credit can be set up over a normal term (i.e. 25 years) with the line of credit option being 1-5 years or revolving (longer terms) and you only have to pay interest on the money you use (or ‘draw down’). Interest rates are variable and due to the level of flexibility are often higher than the standard variable rate. Some lines of credit will allow you to capitalise the interest until you reach your credit limit i.e. use your line of credit to pay off the interest on your line of credit. Most of these loans have a monthly, half yearly or annual fee attached.

• These loans are very popular with all types of property investors. For those building a property portfolio and are constantly on the look out for the next bargain in a growth area, they have a loan approved and waiting. For the renovator, they only have to pay interest on the money when they draw it down in each step of the project. For those out for a capital gain they can use the line of credit to purchase the property then use it to make the repayments on the property. For both investors all income is put into the line of credit to bring down the principal and interest in the loan and build equity in the property. Longer term investors may want to change a line of credit loan to a principal and interest or variable rate loan to avail of their cheaper interest rates.
• These loans are suited to people who are financially responsible and are usually on high incomes.

Redraw Facility

This loan allows you to put additional funds into the loan in order to bring down the principal amount and reduce interest charges, plus it gives the option to redraw the additional funds you put in at any time. Simply put, rather than earning (taxable) interest from your savings, putting your savings into the loan saves you money on your interest charges and helps you pay off your loan faster. Meanwhile, you are still saving for the future (or your next investment property). The benefit of this type of loan is the interest charged is normally cheaper than the standard variable rate and it doesn’t incur regular fees. Be aware there may be an activation fee to obtain a redraw facility, there may be a fee for each time you redraw, and it may have a minimum redraw amount.

All In One Accounts

This is a loan which works as an account where all income is deposited in the account and all expenses come out of the account. The benefit of the All In One Account is its ability to reduce the amount owed and thus the interest payments while providing a one-stop finance shop where your loan, cheque, credit and savings accounts are combined into one. Normally these loans will be at the standard variable rate or slightly higher and may incur monthly fees. Be aware that if the account is split into the loan account, with credit, cheque and ATM facilities placed into satellite accounts, you will need to check your access to funds, how many free transactions you receive, and what associated fees the loan may have.

100% Offset Account

This loan is similar to an All In One Account however the money is paid into an account which is linked to the loan – this account is called an Offset Account. Income is deposited into the Offset Account and you use the Offset Account for all your EFTPOS, cheque, internet banking, credit transactions. Whatever is in the Offset Account then comes directly off the loan, or ‘offsets’ the loan amount for interest. Effectively you are not earning interest on your savings, but are benefiting as what would be interest on savings is calculated on a reduction on your loan. The advantages are similar to the All In One Account. These loans normally have a higher interest rate and higher fees due to their flexibility.

• The above three loans are for the longer terms investor seeking to build equity through a property portfolio and being able to use the investment properties for tax benefits.

Split Loans

This is a loan where the overall money borrowed is split into different segments where each segment has a different loan structure i.e. part fixed, part varied and part line of credit. Often called designer loans, the investor benefits from one or more types of loans.

• This type of loan is good for people who have one investment property and a principal residence, and who may be on the lookout for another investment property. The one loan for both properties can be split into three components, paying principal and interest on the principal residence and interest only on the investment property, plus having a line of credit option if seeking to purchase a second investment property.

Construction Loans

These loans are tailored to those building a home when you don’t need the entire amount from the start – you only pay interest on what you’ve spent over the stages of construction.

Bridging Loans

These loans are for when the sale of an existing property takes place after the settlement of a new property – when you want to buy a new investment property before selling the old one, where the funds from selling the existing investment are paid straight into the loan for the new investment property.

3. Your Loan Provider

Now you’ve got your strategy and have researched the loan choices available to you, the last step in the process is to select your loan provider and work with them to determine the best type of loan for your circumstance and strategy.

Always make sure the person you choose to obtain your loan from is a member of the Mortgage Industry Association of Australia (MIAA). The MIAA Member logo ensures you are working with a professional who is bound by a strict industry code of practice.

Disclaimer

This document is for information purposes only, and must not be relied upon as a substitute for professional financial or legal advice.

FURTHER INFORMATION

Mortgage Finance Association of Australia

PO Box 604 Neutral Bay NSW 2089

T: 1300 554 817 F: 02 9967 2896

www.mfaa.com.au

The August issue of Australian Property Investor magazine gives investors the keys to finding high rental returns, while also spelling out the associated risks.

“It’s getting harder and harder to find properties with high rental returns but as our research found, they do still exist,” API editor Eynas Brodie said.

“Apartments and townhouses are currently delivering better rental yields than houses, but house rents are rising in every capital city. This is good news for investors, because in recent years rents have struggled to keep up with rising house prices. Now that prices have steadied, people should start seeing better results from their investments.”

But where are the highest rental returns?
Capital cities

Across Australia’s capital cities, gross rental returns on houses remain at around 4 per cent. Based on median house prices and rents for three-bedroom houses, the best you can do in the major cities is a 4.8 per cent average return in Darwin.

Melbourne (5.4 per cent), Hobart (5.3 per cent) and Canberra (5.2 per cent) provide the best apartment yields, while Perth has the lowest, at 4 per cent.
Queensland

To find the best returns around Brisbane, it pays to head south. Halfway to the Gold Coast in the Logan City area, investors can find suburbs where typical houses provide returns around 6 per cent.

In regional Queensland, the Rockhampton region is a good place for high returns. It’s a major regional centre but its house prices remain very low and rents relatively high.
New South Wales

The best returns for Sydney houses are found in affordable suburbs such as Campbelltown and Cambridge Park (both 4.3 per cent)

Elsewhere, the regional towns of Parkes, Forbes, Coonabarabran and Glen Innes are relatively strong performers for yields.
Victoria

You have to head to the outer reaches of metropolitan Melbourne to find decent yields. Melton South in the far west is a standout, providing 6.4 per cent based on a median house price of $170,000 and an average rent of $210. Kurunjang, Frankston North, Doveton and Laverton also all provide 5 to 6 per cent.
South Australia

Average returns in Adelaide are only 4.3 per cent but it’s generally easier to find higher returns there than in the eastern capitals. In the northern reaches of Adelaide, for instance, suburbs such as Elizabeth and Davoren Park can provide yields up to 7 per cent.

Outside of the capital city, investors can find houses yielding between 7 and 8 per cent in the industrial port town of Whyalla.
Western Australia

Rental yields are falling as the west’s price boom continues. Even returns in mining towns such as Karratha, Port Hedland and Geraldton have dropped back to 6 to 7 per cent.

In Perth, it’s hard to do better than 4.5 per cent, although vacancy rates are down around 1 per cent, which should produce rental increases.
Tasmania

Four years ago it was easy to find returns of 8, 9 and 10 per cent in Hobart and Launceston. But prices have doubled since 2003, meaning yields have eased back to the 4 to 6 per cent range. The good news again is that rents are on the rise.
Northern Territory

Income returns in Darwin are under 5 per cent for both houses and units. But the satellite town of Palmerston offers average yields around 5.5 per cent.

Outside the capital, Alice Springs offers about 5.5 per cent for houses and 6 per cent on units and townhouses. Houses in Katherine can return about 7.5 per cent and units and townhouses 9 per cent.

Mining towns – for risk takers only

In the slipstream of the commodities boom, house prices in key mining towns have taken off and the returns aren’t as hot as they once were. However, opportunities remain for those investors willing to take a risk on these usually volatile areas.

Some of the opportunities outlined in API include Roxby Downs in South Australia, Mt Isa in Queensland and Newman in Western Australia.

# # # ENDS
© Australian Property Investor magazine – http://www.apimagazine.com.au/ Reproduced with permission.

To identify future property hotspots, investors need only learn from the past, says API editor Eynas Brodie, by looking at areas that have already boomed and identifying other locations with similar traits.

“Sea change, hill change, the ripple effect, transport infrastructure, and urban renewal and government decisions are just some of the things that make property go boom,” Brodie says.

“Our research looks at how differing combinations of these factors have led to property booms in areas such as Mandurah in Western Australia, Chinchilla in Queensland and Honeysuckle in New South Wales. Learning from those examples, we also examine locations likely to follow in those boom towns’ footsteps.”

Some of the potential boom towns and the factors driving them towards a boom are:

Surf Coast, Victoria

The surf coast has the same combination of factors going for it as Mandurah – sea change, lifestyle features and new transport infrastructure. Already a popular sea change and holiday destination, the Surf Coast shapes as a good investment now because of the $380 million western ring road around Geelong, which will bring the coastal area 30 minutes closer to Melbourne.

Ballina to Yamba, New South Wales

This stretch of the northern NSW coast is also already incredibly popular with holiday-makers and sea-changers. However, improvements to the Tugun Bypass on the Gold Coast and the Pacific Highway south of the border are about to make it a lot more accessible for southeast Queenslanders, meaning more people – and more money – will cascade further south.

KPMG demographer Bernard Salt says “There are a lot of towns with potential down that way.”

Ravensthorpe, Western Australia

Chinchilla in Queensland is undergoing a property renaissance thanks to a flurry of exploration and mining in the region – million-dollar projects tend to bring well-paid workers with them. Ravensthorpe has similar factors in its favour. Sitting 600 km southeast of Perth, it’s remote and is only home to 1400 people. But BHP Billiton’s $2.3 billion Ravensthorpe Nickel Project will add 350 workers plus their families to the mix, creating a greater demand for housing.

Sarina, Queensland

Sarina, outside Mackay, is not just another sea change location. Like Karratha in WA before it, Sarina combines the powerful appeal of the ocean with a location close to an industrial nerve centre. The wealth pouring from coal and other industries in the Bowen Basin is feeding into Mackay and then flowing on to Sarina, thanks largely to blue-collar workers making very good money in the mining industry.

Frankston, Victoria

Frankston, a bayside area in Melbourne’s south, is a classic ugly duckling, with a reputation for lower socio-economic residents and higher crime rates. But it’s undergoing a transformation – the EastLink motorway will end there and urban renewal in the shape of boardwalks, playgrounds, parklands and the like is under way. It’s still affordable, though homebuyers and investors are now starting to wake up to its potential.

© Australian Property Investor magazine – www.apimagazine.com.au Reproduced with permission.