5 Essential Features for Any Investment Suburb

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Must Have Investment Suburb Amenities

It’s not uncommon to be overloaded with information when searching for your next acquisition, but here are five must-have features for your next investment suburb.

Given the countless considerations that need to be taken into account when searching for an investment property, finding a high-performing investment property isn’t easy.

It requires extensive research – quite literally hundreds of hours if you want to do a thorough, and adequate, job.

What’s more, with so much conflicting information, it’s no surprise that many investors make the wrong decisions and waste their opportunity to grow their wealth through property.

However, here are five must-have features that your next investment suburb should include.

1. A vibrant activity centre

People will always want to live closer to vibrant activity centres where they can meet with friends and family. Café and retail strips should be in close proximity as well as major shopping precincts and supermarkets.

 2. Within 10-25 kilometres of the city CBD

Properties within the 10-25 kilometre radius of the larger city CBDs are highly sought-after as urban sprawl continues to impact most Australian capital cities.

Land on the urban fringe can continually be developed to add new supply, which limits capital growth. However, most land within 10-25 kilometres of the larger city CBDs has been already developed, meaning new supply is limited, which will help to boost property values. In addition these locations are more likely to be re-rated by the market. Often many suburbs within 10 kilometres of the CBD have already experienced rejuvenation and re-rating.

 3. Public transport links

Given many capital cities around Australia are suffering from urban sprawl, particularly congested roadways, it’s favourable to purchase investment properties near good public transport links. Ideally train stations are best, but a bus exchange can also be attractive.

 4. Recreational facilities and parks

Well-maintained parks, fitness and recreation centres and other social amenities are sought-after by most and important features of an investment suburb. Not only do they provide an aesthetic appeal to the area, but they also provide lifestyle options that are attractive to residents.

 5. Good schools and childcare centres

A major drawcard for families is living in areas with good schools and childcare centres. This is particularly the case for families wanting to live in catchment zones that contain high-performing public schools. The performance of public schools is accessible on the NAPLAN website.

While there are a number of other factors that need to be considered when buying a high-performing investment property, these five features represent a good starting point for your search.

Is Your Property Gas Compliant?

The Jumpers like this article from Gaswatch:

 Gaswatch often gets called out for repairs to rental properties.

However too often we get called out for repairs and hardly ever for servicing
so we already know that landlords and property managers are not compliant
with the gas act, tenancies act and manufacturer’s recommendations.

By not servicing gas appliances, and anything was to happen to tenants
carbon monoxide related, which can be harmful or fatal, it will expose the property manager and landlord to legal action, jeopardize landlord insurance when it comes time to repair and it can even put the property management business at risk.

The South Australian Gas Act states that the gas installation and appliances connected to it are safe and safely operated ( follow manufacturers instructions), if not the maximum penalty is $ 250 000, something an insurance company will not cover.

 

Domestic Violence Protection for Renters

The Jumpers found this good information to know from the Attorney-General’s Department

 Everyone has the right to feel safe and live in an environment free from violence.

Renting laws changed on 10 December 2015 to provide more options to help people escape domestic violence.

The laws will allow for people:

·             to stay at the rented home and have the perpetrator leave; or

·             to leave rented premises and be removed from their rental agreement.

Staying will mean applying to the South Australian Civil and Administrative Tribunal (SACAT) to have a perpetrator removed from the rental agreement.

Leaving will mean applying to SACAT to either end your part in the agreement or terminate the agreement altogether.

Other changes will:

·             empower SACAT to determine that one or more, but not all co-tenants, are liable for compensation to the landlord.

·             prohibit a tenant’s personal information being listed on a Residential Tenancy Database (tenant’s blacklist) in certain situations of domestic violence. For example, where the damage was caused from an act of abuse.

This initiative supports the South Australian Government’s commitment to addressing domestic violence.

For more information about the changes to renting laws please visit www.sa.gov.au/tenancy/renters

  If you are fearful of being subjected to domestic abuse, you should contact your local police station to discuss appropriate responses or apply to the Court for an intervention order. Visit www.police.sa.gov.au/contact-us/find-your-local-police-station or call 131 444 for patrol assistance, or call 000 in case of emergency.

This message has been authorised by Rick Persse, Chief Executive, Attorney-General’s Department.

How to find the Best Property Manager

The Jumpers like this article from Which Investment Property?

A good property manager can be the difference between an investment property that plods along and one that supercharges your portfolio’s growth – so how can you identify the perfect property manager?

Whether you have one investment property or a multi-property portfolio it’s imperative that you get the most from your assets. This means staying on top of costs (and ensuring they don’t blow out) and making sure you’re maximising the earning capacity of your portfolio.

What is a property manager? 
Property managers are often cited as a key member of the team of professionals you should have around you in order to build a sustainable and efficient property portfolio.

Property managers are real estate professionals who work on behalf of investment property owners (landlords) to lease and manage properties. Good property managers will make the ownership of investment properties less stressful and take care of many of the day-to-day responsibilities associated with managing a property portfolio.

Savvy property investors know a lot about the property market they’ve bought into, are financially ‘fit’ and know what they want from their portfolio, but they often don’t have the time to deal with tenants on a day-to-day basis and might be in the dark about certain legislation. This is where a professional property manager can save you a lot of stress and hassle.

What are a property manager’s responsibilities?
A property manager should perform three main functions for you, the landlord: provide excellent customer service, act as a liaison between you and your tenants, and help you get the most from your individual property and/or your property portfolio.

Some of a professional property manager’s main duties include: 
• Marketing the property to prospective tenants
• Going through potential tenants’ applications
• Selecting tenants for your investment property
• Collecting rent
• Liaising with tenants about potential repairs and property maintenance
• Deciding whether requested repairs and maintenance are required/necessary
• Arranging repairs
• Advising on market rents
• Negotiating leases and rent reviews
• Keeping on top of legislation and advising you how it affects your properties
• Advising the landlord what to do when the tenant is in rental arrears or in breach of the lease
• Representing the property owner at tribunal hearings

In a robust and thriving property market, selecting tenants may seem like an easy task. After all, if people are competing to live in your investment property, surely you can have your pick of the bunch and charge even more than you were initially planning?

However, wading through numerous rental property applications may not be the most effective use of your time, and good property managers know what to look for and can quickly and easily check up on a prospective tenant through their references and rental ledgers.

In addition, a property market that is currently attracting numerous prospective tenants may not stay that way for the property’s entire lifespan, so having a property manager who can attract quality tenants in different market conditions will ensure your portfolio is generating sufficient income even when the boom is over.

One of the largest unexpected costs associated with investment property ownership arises when a property becomes vacant and isn’t filled with new tenants quickly. Vacancy periods can drain your cash flow and seriously hamper your ability to invest in more properties.

Property managers should help you minimise vacancy periods (or avoid them completely) by ensuring the rent you’re charging is in line with the market rate, marketing the property effectively to prospective new tenants and managing your tenants so that (where possible) they are on a fixed-term lease.

What to look for in a property manager
Communication: You need a property manager who is going to work hard for you and your property portfolio. They will be taking some of your rental income to cover the cost of their services so you would be wise to make sure you’re getting the most from your property manager.

It’s important to remember that even though the property manager works for you – and not the tenants currently occupying your property – it will be easier for everyone if they have a good rapport with the tenants and communicate effectively with them. Tenants are more likely to communicate issues with and damages to a property if they feel their property manager is listening to them.

This doesn’t mean the property manager has to say ‘yes’ to every request from the tenant that comes their way; instead they should be able to effectively act as a liaison between you, the landlord, and the tenant, and explain the reasons behind a decision and what may happen in the future.

Experience:  Some property industry experts will say experience is everything. After all, how can someone be the best of the best if they only just joined the game?

It’s important to remember that experience doesn’t just relate to the individual property manager though.

As an industry, property management does have a relatively high turnover rate, so in certain property markets it may not be a simple task to find the perfect property manager who also has years of solid industry experience.

In these instances, it’s important to focus on the experience of the property management company, rather than the individual who will be looking after your property. Ensure the company has a strong record of managing properties in the area and has robust training mechanisms in place for new property managers who may join the team and take over your properties.

Passion:  The ‘care factor’ is a big one when it comes to property management.

A lot of property managers are tasked with managing numerous properties, so it would be easy for them to simply focus on the ‘problematic’ properties and let the others simply keep ‘looking after themselves’.

Even if your property and your tenants are completely problem free, a portion of your rental income still goes to the property management company, so you should constantly be assessing whether they’re working hard enough for your hard-earned investment dollars.

This is where passion is key. A passionate and driven property manager who cares for the local area is more likely to go above and beyond for you and ensure that your property is at its maximum earning capacity.

How a property manager can help you grow your property portfolio
In addition to helping you run your property portfolio on a day-to-day basis, property managers can play a key role in helping you maximise and grow your income.

Property managers with a sound knowledge of the local area where your property is located will be on top of market movements – both in terms of capital growth and average rental incomes.

Effective property managers will be able to advise you when you should increase the rent you’re charging and can handle its implementation in a way which reduces the chances of you losing tenants along the way.

Similarly, good property managers will know when the market has taken a bit of a dip and can help you establish if you need to reduce the rent you’re charging. While this may seem far from ideal, a $10 per week reduction in rent will lose you $520 over the course of one year. On a property which charges $500 per week, however, if you fail to keep your rent in line with market conditions, and the property is vacant for just three weeks while you scramble to re-tenant it, you have already lost $1,500 – not to mention all the fees associated with marketing and reletting the property.

Market-leading property managers can also advise you on small cost-effective cosmetic improvements that will appeal to the local market and increase the amount you can charge for rent (and ultimately increase your resale value as well).

Questions to ask your property manager 
If you still need some help selecting your property manager, here are some questions you can ask to ensure you find the best person for the job. 

• How many properties do you manage personally? 
• How many properties does the wider company manage? 
• How can you demonstrate knowledge of the current rental market in my area? 
• What action do you take if tenants go into rental arrears? 
• How will you collect rent from the tenants and how frequently will you pay this money to me? 
• What is the process if my property needs urgent repairs? 
• How do you assess if maintenance is necessary? 
• How do you reject a tenant’s request for upgrades or repairs? 
• How do you attract the best possible tenants? 
• How do you screen tenants?
• How frequently will you inspect the property? 
• How much can I expect to pay for your services? 
• How will you ensure I’m receiving the best possible rental return for my property? 
• What sets you apart from other property managers?

 

How to Cosmetically Renovate Your Investment Property

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Is one of your properties a little worse for wear? A cosmetic renovation could add hundreds of thousands to its value, and significantly broaden your prospective tenant pool.

What is involved in a cosmetic renovation?
Cosmetic renovations, in contrast to structural renovations, are changes to the visual appearance of a property. To differentiate between a structural and cosmetic renovation, it is important to first understand what a structural renovation entails. As a general rule of thumb, anything that requires moving or adding load-bearing walls, including adding a storey or an additional room, is considered a structural renovation. A cosmetic renovation, on the other hand, is any other renovation that changes the physical appearance of a property.

A cosmetic renovation could involve:

•   Painting
•   New flooring
•   Replacing light fixtures
•   Replacing door handles
•   Replacing cabinet handles
•   Adding a splashback to the kitchen sink
•   New blinds
•   A facade refresh with new paint
•   New plants in the garden or new fencing
•   Replacing bathroom tiles
•   Change of colour scheme
•   New window fittings

In addition to these small updates to the appearance of the property, cosmetic renovations can also involve much larger-scale projects, such as:

•   Ripping out the kitchen to replace it with new cabinets, bench tops and appliances
•   Ripping out the vanity in the bathroom
•   Replacing an old combined bath tub and shower with a more easily accessible shower
•   Pulling down a non-load-bearing wall to open up spaces; for instance the walls of an enclosed kitchen

If ever there is a time you decide to pull down a wall, always consult a professional builder or architect to ensure it has no load-bearing responsibility.

Why cosmetically renovate?
A cosmetic renovation is an effective way to spend a budgeted amount of funds on work that will improve the physical appearance of a property. Even the smallest cosmetic renovations can greatly affect the feel of a home, attracting a wider pool of tenants.

In addition to provoking an increase in interest in your property on the rental market, cosmetic renovations keep your property well maintained and looked after. Tenants tend to have more respect for properties that are well presented. It also means that when it does come time for resale, your property will achieve a higher sale price, as a renovation will add value to the property.

Cosmetic renovations on your bathroom and kitchen
The condition of a property’s kitchen and bathroom are the biggest indicators of a property’s age, which is why it is essential to keep these rooms updated.

Depending on the state of the rooms, you could get by with just a few small cosmetic refreshes. In the bathroom, for example, that could mean a new faucet and showerhead, a fresh coat of paint, or a new toilet seat.

In some cases a few additional and more substantial things could need replacing, like cracked or outdated tiles or basins. Where it’s necessary, and funds permit, a complete rip-out of the bathroom or kitchen could be the way to go. A brand-new, modern kitchen or bathroom can add a huge amount of value to your property.

When making the decision to renovate a bathroom or kitchen, there are a number of things to consider.

Bathroom:
•   Does the whole bathroom need a rebuild?
•   Could I get away with keeping the vanity and simply replacing doors or handles?
•   Do I need a whole new toilet, or would a seat replacement be sufficient?
•   Does it have a timeless and bright/clean colour scheme?
•   Is the shower easily accessible for people with limited mobility? A separate tub and shower is generally a more practical idea
•   Is there enough storage space?

Kitchen:
•   Does the whole kitchen need a rebuild?
•   Could I get away with keeping the existing cabinetry and simply replacing doors or handles?
•   Is the space functional? Is there enough bench space?
•   Is there enough storage space?
•   Are the stove elements in decent condition or do they need to be replaced?
•   Does the kitchen have a neutral, fresh colour scheme that would appeal to a majority of renters?
•   Are the appliances functioning properly?

Which areas suit cosmetic renovations? 
Cosmetically renovating property can have a completely varied outcome depending on the area in which the property is located.

Firstly, if you are renovating a property in an affluent area, it is necessary to spend the extra money on high-quality finishes, as the tenants looking in these areas seek a high-quality feel and will pay extra to ensure they get it.

Secondly, if you are renovating in a less expensive area, there are places where you can cut corners, so to speak, while still achieving an attractive result. In direct contrast to renovating in a more expensive area, tenants looking to rent in a less expensive area don’t typically have a flexible budget, and therefore won’t have the luxury of being able to pay extra for designer finishes.

In addition to this, properties located within popular lifestyle hubs are generally more expensive, in terms of rent, than their sister suburbs. It is important to keep this in mind when renovating, as people are already paying extra to secure a property within the hub, thus won’t necessarily have a lot extra to play with.

Suburbs just outside of a central hub are more affordable to begin with, thus could be more likely to benefit from a cosmetic renovation as they will still be within an affordable budget with a rent increase.

Property investors who are cosmetically renovating their properties need to make sure they carefully consider their target demographic and current prices in the suburb. There’s no point increasing the value of the property to a point where no one living in the area can afford to rent it.

Cosmetic renovating tips
•   Consider flat-pack options for things like cabinetry
•   Shop around for appliances and consider factory seconds or even near-new second hand
•   If you are renovating a property in a less expensive area, consider buying no-name brands of appliances – stainless steel appliances will look good despite the missing badge
•   Look for discounted designer stock, as opposed to full-priced, cheap stock
•   Set a strict budget and don’t overspend on things that won’t increase the potential value of the property
•   If you are renovating a property in a high-end area, don’t cut corners. The tenant pool in these areas are looking for quality finishes, and won’t be fooled by budget renovations
•   Choose your tradespeople wisely – ask for recommendations rather than simply finding someone on a directory
•   Time is money, so stick to a strict schedule so you aren’t losing incoming rent
•   Do a lot of research before you start any sort of renovation – and have a thorough plan to work with

 

Increasing the Rent for your Investment Property

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In a rising market, investors often consider raising their asking rents – but is it actually justified? Here’s how you can raise your rent, increase your bottom line and hang onto your tenants.

Why investors raise the rent
In order for an investment property to remain profitable, landlords must regularly review and increase the rent of their properties. There are a number of reasons why this may be necessary.

Mortgage rates going up
If mortgage rates go up significantly, landlords are faced with the decision of where they will get the money to cover the increased outgoings. Raising the rent on their investment property can assist with this, as long as it remains within market rates.

Council rates/strata levies going up 
Similarly, if council rates and/or strata levies are raised, property investors must cover these increases without putting themselves out of pocket. A rent increase is a viable solution.

Demand for rental properties
Supply and demand is a big reason for a rent increase. If you have a property in a popular area, on a tree-lined street, walking distance to amenities and public transport, you will always have demand. When the demand for property in the area outnumbers the supply, a rent increase may well be warranted.

People will pay the price for the property they want in the area they want to live in, and renters understand it is going to be competitive in the more sought-after areas. It is, however, still important not to exceed the market rate or you will risk deterring tenants and facing long vacancy periods with no incoming rent.

When to increase the rent
It is recommended that landlords increase the rent for their rental properties on a regular basis, to keep increases minimal and manageable, and to avoid shocking tenants with a large increase down the track simply to keep up with market rates.

It is advisable to provide your tenants with as much notice of the increase as possible, to allow them time to prepare and adjust their budget. Keep in mind that there are minimum notice period requirements when increasing the rent for your property. In Australia, all states and territories require landlords to provide written notice to tenants at a minimum of 60 days prior to the proposed increase – with the exception of the Northern Territory which enforces a 30-day minimum. 

On top of this, a landlord cannot increase the rent of their property within a fixed-term lease, unless a rent rise clause has been signed with the lease. This is an important thing to consider for leases longer than 12 months, since you should be reviewing your rent at least as often as once per year. It is also not permitted for a landlord to increase the rent more than once every six months.

Comparing your property with others to establish a suitable rent
To get an idea of what you could be charging for your rental property, you should be comparing it to other properties in the area that are similar to yours.

Monitor local rents each quarter to ensure you stay in line with the competition. You can also get a feel for how much you could be charging by attending open homes of other rental properties on the market, and taking note of what they are offering that your property isn’t, and vice versa. That way you can position your property on the scale of rental prices in the area and get an idea of what you should be charging for yours.

There are certain aspects of rental properties that allow you to ask for rent that is above market price, but only if your property excels above others in the area.

These features could be anything from a property that accepts pets, has air-conditioning or a pool, or is situated in a secure apartment complex. Certain features such as these will attract tenants who are happy to pay extra for the use of these facilities.

Another way to compare your property’s rent with others in the area is to calculate and compare rental yields. It is important to review the yield of your property on a regular basis to get the most out of your investment.

How to increase the rent
There are several steps you should follow when increasing the rent of your investment property.

1.    Establish a solid relationship with your tenants. Handle maintenance issues promptly when they arise, and communicate professionally.

2.    Review your rent. Compare your rent with other rental properties in the same market.

3.    Calculate a reasonable rent increase. Typically around a 4 to 5 per cent increase is acceptable.

4.    Give tenants at least the minimum required notice – 60 days (30 in the Northern Territory). This must also be outside of a fixed-term lease.

5.    Explain to the tenants the reason why the rent is rising. This will justify the increase and allow tenants to be more understanding and accepting.

6.    Deal with any disputes in a timely and professional manner. A negotiation may be on the cards.

Issues you may face when increasing the rent
Tenants are never going to be happy about a rent increase, but the more transparent you are with them, the more likely they are to take it in their stride. Rent increases must happen in a growing market in order for your investment to remain profitable.

If a tenant is unhappy, however, he or she may argue against the increase.

Landlords have to consider whether the rent increase is worth the risk of losing a good tenant. If a good tenant disputes a rent increase proposal, it is worth listening to their argument. Good tenants tend to respect their rental property, slowing wear and tear and limiting money out of your pocket for maintenance. If you lose a tenant to a rent increase, there is the risk of leasing the property to a bad tenant, which can often mean that the extra money coming in each week will only end up going towards extra maintenance.

It is, however, unlikely that you will lose a tenant due to a reasonable rent increase. What the tenant will find is that most landlords in the area have also raised their property’s rent, to keep in line with market prices.

Sometimes landlords and tenants can negotiate and come to an agreement on the increase rate. If the parties are unable to reach an amount that they agree on, the matter can be taken to a local tribunal, like the Consumer, Trader and Tenancy Tribunal, which differs from state to state. They can assess the property, the market, and the proposed rent and make a decision as to what the maximum rent for your property should be.

 

5 Reasons Why Landlords Should Say "Yes" to Pets

The Jumpers like this article from Which Investment Property?

 Many rentals explicitly specify a ‘no pets allowed’ policy. But are landlords doing themselves a disservice by closing the door on a substantial number of pet-loving tenants?

Australians are a nation of pet-lovers and we have one of the highest rates of pet ownership in the world.

According to the RSPCA, about 63 per cent of households own pets with the total number nationally estimated at 33 million. Dogs are by far the most common with an estimated 4.2 million in Australia – which translates into a lot of furry friends!

These figures highlight an important issue for owners of investment properties: that is the question of whether or not to make your property pet-friendly.

Let’s take a look at some of the positives of having a pet-friendly investment property.

Responsible tenants
As a general rule, someone who has a pet will be responsible. After all, they’re committed to the welfare and wellbeing of their pet, so they should have the maturity to treat your property with the same degree of care and respect.

Longer tenancy
Pet-friendly rental properties aren’t always easy to find, so it’s highly likely tenants who have pets will stay longer in the property because it will be harder for them to secure another property where their pet is welcome. That means lower turnover of tenants and consequently lower vacancy rates.

Wider pool of tenants
Given that such a large proportion of the population are pet-owners, it’s logical to assume that a pet-friendly rental property could help to increase the pool of prospective tenants. Again, this could mean reduced vacancy rates – and more stable rental returns.

Higher rent
It’s also not uncommon for pet-friendly rentals to attract higher rents. It’s also not uncommon for landlords to ask for a pet bond from the tenant that would cover any flea treatment or cleaning expenses.

Home-centred tenants
It’s likely that responsible pet owners will be home-centred. In other words, they will be focused on creating a stable home for their family and their pet and will spend time at your investment property in order to be with their pet.

If you own an investment property or are considering buying one, it’s worth doing some research into rentals in your property’s area to see if there’s a demand for pet-friendly accommodation.

It’s also worth speaking to a reputable property management company in your area to get a professional opinion about the question of pets and, if you’re going down the pet-friendly route, to get their expert advice on drawing up a pet policy or agreement.

For example, as the landlord, you may want to see and approve the pets personally, check the vaccination records and establish whether the pet has been trained, whether it barks frequently, etc.

The property management company will help you work out the specific guidelines for any pet policy, such as if the pet is to be housed outside or allowed inside, whether the pet is legitimate in terms of any by-laws or property regulations, noise considerations and so on.

 

 

Is Your Rental a DRUG Lab?

The Jumpers like this article from Smart Property Investment…

No landlord wants to see their investment property involved in an illegal drug bust on the evening news. 

Illegal drug manufacturing can cause tens of thousands of dollars worth of damage to rental properties and leave unsuspecting landlords without rental income for a considerable amount of time.

Tenants involved in cultivating illegal drugs, such as cannabis, methamphetamine, ecstasy and ice, went to great lengths to hide their activities. 
Self-managed landlords could be targeted as they may not have the same experience or conduct as thorough checks as property managers. Early detection is important to help avoid or minimise financial exposure.

Included below are five signs your investment property could be being used as a drug lab.

1. Unauthorised modifications to the property

  • Check for potential tampering of the property. Hydroponic set-ups may require pipes or hoses to be filtered through the roof or the property’s man hole. Unexplained holes in the ceiling could be a sign of hidden systems.
  • Meter boards are commonly tampered with or rewired, particularly those situated near walls, walk-in wardrobes or built-in cupboards in order to connect electricity wires to the power source.
  • Extensive and excessive security systems, such as barbed wire fences, CCTV cameras and guard dogs, can also be cause for suspicion.

2. Irregular activity

  • When conducting property inspections, look for signs that the property is being lived in. Drug manufacturers generally do not live in the properties they are using to cultivate drugs.
  • Drawn curtains or lowered roller shutters in daylight hours could be signs of attempts to hide illegal activity.
  • Infrequent visitors during strange hours or for short periods of time can also trigger suspicion.

3. Visible damage

  • From an insurance perspective, damage caused by illegal activity is considered a malicious act and likely to be viewed as an insured event.
  • Intense lighting, which is used in hydroponics, can cause visible fading to paintwork, so check beneath rugs and behind photo frames and open doors for discrepancies in colour.
  • Similarly, look for signs of water damage – such as warped walls and floorboards, or stained carpets – because there’s a chance it could be more than just a leaky roof.

4. Unusual items on site

  • Certain items are commonly used to manufacture illegal drugs, including glass flasks, beakers, rubber tubing, gas cylinders, chemical containers, drums, drain cleaner, garden fertiliser and cough, cold or allergy medicine.
  • The non-visible damage cost, such as the forensic cleaning required on a property that has been used to manufacture chemical substances, is often one of the most expensive.
  • Portable air conditioners are also often used when cultivating hydroponic crops.
  • If such items are present at the property and are inconsistent with practical use, it could indicate the presence of a drug laboratory.

5. Suspicious dealings

  • New potential drug-manufacturing tenants may be willing to pay rent months in advance and be happy to pay cash. This may be their way of keeping their landlord ‘off their backs’ and leaving no paper trail for the authorities.
  • Other suspicious signs include applicants who try to avoid background checks and tenants who regularly postpone or cancel property inspections.
  • Landlords suspicious of illegal activity should contact authorities immediately and not confront the tenant directly.

 

 

6 Things You Need to Know About Property Valuations

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Valuations are an integral component of every property purchase, so it's important you know how they work and the ways in which they can affect your investment potential. 

When you call a few property valuation companies and request a valuation on a residential property, the first question you generally get asked is: “Is this a bank valuation or a market valuation?”

In this blog, you’ll learn six key things about market and bank valuations to ensure you understand the world of valuations, an essential part of every property purchase.

1.   Is there any difference between a market and a bank valuation?
2.   Are they always the same?
3.   New properties versus established properties
4.   Why are valuers conservative with bank valuations?
5.   Not satisfied with the bank valuation? What you can do about it?
6.   How to find out how much a lender will lend.

1. What's the difference between a market valuation and a bank valuation?

Market value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
(Definition: Australian Property Institute – A&NZ Valuation and Property Standards)

A bank valuation is the figure that the lender is prepared to lend against for that particular asset.

2. Are they always the same?

Sometimes, but not always. We have seen the same property valued by exactly the same valuer (at the same company), within two weeks of each other with a substantial difference in valuation.

The only difference in the process was the investor had instructed the first valuation and the bank instructed the second. Interestingly, the investor paid $400 to that company and the bank paid $190 (which was subsequently passed on to the investor).

Why are they different?

Banks prefer to be conservative to protect themselves, which is understandable. This covers them so that if they need to sell the property quickly in the event of a foreclosure, they can easily recover selling costs and any potential downward movement of the market.

This is why we have seen different valuations on the same property when the loan-to-value (LVR) ratio is different.

Bank valuations can be significantly less if the purchaser is borrowing 95 per cent against a property than if they were borrowing 70 per cent – the risk to the lender is a lot greater.

How can they do this?

Valuers have the ability to offer their subjective opinion of value and support that figure with subjective ‘comparable’ properties.

3. New properties versus established properties

Where the property to be valued is within a new subdivision or development and is being purchased from the developer, re-sales or sales from other comparable developments should also be provided and considered where available as a cross reference (6.2 of the API Valuation and Property Standards).

Valuers are supposed to compare re-sales or sales, but this rarely happens. They use comparisons of the sales of existing/established properties, which does not always reflect the added value of the property being new. Apples are not being compared with apples.

4. Why are valuers conservative with bank valuations?

They can potentially be held liable if a bank suffers financial loss. There have been situations where valuation companies have been sued. An industry expert once said: "It is the cheapest insurance policy for banks."

Unfortunately, this doesn’t help a purchaser if they are dependent on the valuation being at the purchase price.

What if the bank valuation comes in at the asking purchase price?

Normally this is a good result, however, at the end of the day a lender can reject a valuation and does not need to justify their decision. If a lender’s mortgage insurer is involved they too can override the valuation figure and state what amount they are comfortable in insuring.

5. Not satisfied with the bank valuation? What you can do about it?

Tip 1:   Request a reassessment of the valuation (this rarely happens, but is not impossible) – you will need to provide evidence supporting this request, such as comparable properties reflecting the higher value.

Tip 2:   Cancel the finance application and try another lender. We have seen this work in the past – the biggest difference we have witnessed so far was an apartment (purchase price $397,000) that was valued by one lender at $308,000. The finance broker took the application to a different lender, which returned a valuation of $385,000. All within 48 hours.

Tip 3 :   If you are purchasing a property and are concerned that it is being sold at above market price as a result of the low bank valuation, instruct and pay an independent valuation company to conduct a ‘market valuation’ of the property.

You are more likely to get a true valuation (which is still, of course, subjective to the individual valuer).

6. How to find out how much a lender will lend

Submit a finance application with them. Some lenders may give you this figure up front. But be prepared:

If you are purchasing a property off-plan, understand that a bank valuation may be significantly lower than the purchase price once it is getting close to completion/settlement.

If you elect to go unconditional for the purchase contract, ensure you have room to move if this happens.

Obviously, circumstances can change from when you purchase to when you have to prepare to settle on the property. The longer a property is off-plan for completion, the more opportunity there is for this to happen – so take that into consideration when making your decision.

What Your Buyer's Agent Should Be Doing For You

The Jumpers like this article from Smart Property Investment…

Buying a property is probably one of the biggest transactions you will ever make. Searching for the right property that suits your needs, whether as an investor or owner-occupier, is one of the most stressful processes you could undertake.

Aside from the hours spent searching and finding the time to attend inspections, there is then the intensity of bidding at auction and the anxiety of securing finance.

For those looking for a helping hand and guidance, a buyer’s advocate or buyer’s agent (depending on which market you’re based in) may be worth considering.

A buyer’s agent is to a buyer what a selling agent is to a vendor. As a selling agent will represent the needs of a vendor, devise the sales campaign, and source potential buyers, a buyer’s agent will represent the needs of the buyer, devise a search plan within a set criteria, and bid at auction or place offers on behalf of the buyer.

The responsibility of a buyer’s agent is to take away the daily grind of searching for property from the buyer. The agent will assume the duties to search for your ideal property, essentially doing all the leg work for you.

They will scour through databases such as realestateview.com.au to find the best options to suit your needs, and attend inspections on your behalf. Aside from taking on the heavy lifting, buyer’s agents bring vital experience, expertise, and networks when searching. The kind of knowledge and market awareness that is only earned from years of practice can prove to be invaluable.

For example, agents will be able to connect with a network of selling agents to uncover listings not available to the public. Off-market property may be available to buyers, but they would be highly unlikely to come across property if it is not listed publicly. Buyer’s agents may be able to find unlisted holdings, and if the vendor is interested in selling you have the opportunity to avoid the auction process or the intricacies of the open market.

Buyer’s agents can offer different services depending on your needs, from a full service including searching, assessment, negotiation, and purchase, to providing specific expertise such as representing you at auction if you already have a property in mind.

Different buyer’s agents will obviously offer different services depending on their approach, but generally they will undertake the following:

Searching

– Develop a clear criteria based on your requirements. This will include budget and size of the property based on your situation, but can also include factors such as proximity to amenities or even the desire to subdivide later on.

– Search listed properties through industry databases like realestateview.com.au as well as source off-market holdings through professional networks and area canvassing based on the agreed upon criteria.

– Submit a number of options or a specific recommendation to you for your consideration.

Assessment

– Research the surrounding area to discover any possible developments planned that may affect the capital growth of the property in the future, such as housing estates or apartment developments.

– Determine comparative sales in the area or similar areas to gain a better understanding of the property’s value. The more information that can be uncovered will give you a clearer idea as to the property’s value. For example, if you’re looking at a $550,000 property with reasonable potential and your buyer’s agent is aware of a comparative home recently sold for $600,000, then you could have confidence making an offer and achieve a good deal based on the agents local knowledge of as yet un-recorded sales figures.

– If the agent feels that their research points to a potential purchase they will then attend an inspection. From there they can also arrange building and pest inspections if required to ascertain the structural quality of the property.

– Buyer’s agents can also act as an adviser with regard to enhancing the property. A common mistake that buyers make if they intend to renovate their new property is to over capitalize. A buyer’s agent can guide you through any renovation plans to ensure you get a good return on any further investment you make. Any renovations undertaken should aim to recoup the investment and add to the overall value of the property.

If for example you intend to make $100,000 worth of renovations to your $400,000 purchase, you should be certain that you will recoup that investment plus gains upon sale. However, your area may not support sales in excess of $500,000. Due to location, available amenities, or projected growth, your area may struggle to attract buyers in that price bracket, no matter how good your renovations are. Buyer’s agents will be able to provide an objective point of view to ensure you don’t lose out in the long run.

Negotiation

– If required, the agent will represent you at auction and bid on your behalf. Alternatively they can liaise and negotiate with the sales agent on your behalf to present an offer to the vendor. The purchase process can depend on the type of market you’re buying in – some markets tend to take property to auction, while others will be by negotiation. Either way, the buyer’s agent will know the tricks of the trade and will work to secure you the property for the best price.

– Knowing when to walk away from a negotiation is just as important. A buyer’s advocate’s experience can be invaluable in this instance. They will know if a vendor is asking too much for a property and if they are unwilling to show some flexibility. Some vendors will dig their heels in on price or ask over what a property is necessarily worth. You may be desperate to buy, but paying too much to do so will only be detrimental in the long run.

 

Maximising Borrowing Capacity for Your Investment Property

JUMP Property have reviewed an article in Smart Property Investment Magazine (a magazine written by investors for investors) and we particular like this article on maximising an investors borrowing capacity.

At some point an investor building an extensive portfolio may reach the bank’s maximum lending limits. Investors can try to stay off the bank’s radar by focusing on balance and diversification.

Balance means investors should aim to have a mix of cash flow properties and negatively geared properties, so that your personal discretionary income isn’t to impacted by your property investments.

Eventually a bank may refuse to extend any more loans to a heavily leveraged borrower. In this case, investors may be able to push past these limitations by moving to a less strict lender.

If you start out by knowing you have a $2 million borrowing capacity, you go to a more conservative bank for the first two or three properties. Once you get closer to your borrowing capacity, you go to banks that are easier on serviceability.

At the same time, investors should keep in mind that banks are likely to provide discounts for clients with multiple loans.

Spreading your loans among lenders helps mitigate risk in your portfolio, as well as allowing you to grow your holdings more aggressively. However, investors will almost certainly need the assistance of a broker to navigate each banks policies.

Most investors would be well served by establishing a relationship with a quality broker who specialises in investment property to unpack that strategy.

Rebecca Hughes, Director at GR8NUMBERS is a qualified and experienced mortgage broker and can help investors achieve their goals of maximising lending capacity by having a thorough understanding of all the pitfalls with bank policies.

# Reference: Smart Property Investment, written with the permission of Sterling Publishing.

Meet our latest Jumper!

 

Hi my name is Eliza Reddy and I recently joined the Jump Property team as Senior Property Manager. 

I have worked in the property industry for the past ten years.  My in depth knowledge, finely tuned management skills and an enthusiasm for my profession give me an industry edge and most importantly I love what I do!

Having worked in both Commercial and Residential Property Management roles, I enjoy managing a diverse portfolio of properties and developing great working relationships with my landlords and tenants.  Relationship building is the most satisfying part of my job.

I am always approachable, resourceful and committed to providing a service that is above and beyond expectations.  I listen carefully and answer questions thoroughly and honestly.

I believe that Jump will set new industry standards by showing everyone how Property Management really should be done!

I look forward to meeting and working with you.

Tax Time

JUMP Property have reviewed an article in Smart Property Investment Magazine (a magazine written by investors for investors) and we particular like this article on tax implications on an investors property portfolio.

When looking at the tax implications of a property portfolio, a key consideration is whether you plan to buy through your own name or a separate entity. For investors with an ambitious goal, a more complex Structure may be the way to go.

You may want to use a trust structure for asset protection, for instance – or if you plan to make buying and trading in real estate your career, then you may need advice on setting up a company structure to eventually manage your investments.

As each structure attracts a different tax scale, investors should sit down with an Accountant to determine which suits best.

The main structure an accountant is going to look at is a discretionary trust. Some may look at Hybrid trust, which is a combination of discretionary and unit trust, and some may look at a company.

They are all legitimate strategies and your accountant is going to know based on your plans and your current position, ways in which you can legally minimise tax.

Holding properties in several structures has the major advantage of diversifying investments across different entities.

Aside from income tax, investors also need to consider state based taxes like land tax and stamp duty.  Spreading your portfolio across multiple state markets may cut down on your tax bill in some circumstances.

On a federal level, investors should start thinking about capital gains tax (CGT), which will be payable when they sell properties in their portfolio. Investors should know if they need to sell then do they have provision to pay CGT?

Taking advantage of tax deductions can take the pressure off an investor’s cash flow. Depreciation can play a huge role in boosting an investor’s cash flow, especially on new properties. Depreciation can be a game changer and a schedule should be done, even on older properties. Renovations can result in excellent depreciation write-offs.

While negative gearing may come into play in a large portfolio, cash flow needs to be carefully managed, also negative gearing may not be available to investors who buy through a trust or company structure.

The best finance and tax strategy is one that incorporates the investor’s personal circumstances and ambitions, as such qualified advice is essential.

Investors contemplating investing in property in a serious way, buying more than one or two properties should strongly consider obtaining qualified and experienced advice from a mortgage broker, mentor or coach and accountant as the difference can be a mediocre property portfolio and an asset portfolio that delivers long lasting wealth.

JUMP: Investors who would like more accounting advice on structuring their property portfolio to maximise their tax advantages may want to contact Mr Nic Formichella, Director at BCFR Accountants

# Reference: Smart Property Investment, written with the permission of Sterling Publishing.

Structuring your Portfolio

The financial structures underpinning your portfolio are like the structure of a house, get it wrong and the entire thing could collapse.

For investors who already have a home loan, it may be best liquidating equity and moving it on to an offset account or line of credit facility, where funds can be withdrawn as necessary.

Part of this liquefied equity can be used as a deposit for the next investment. In addition, the line of credit can be used to pay bills and deal with other expenses that arise.

While purchases can be funded by extracting equity from existing loans, investors should be warned to avoid “cross-securitisation. This means offering the lender two or more properties against a single loan.

Some investors may find cross-securitisation appealing because all their properties can be held within a single loan facility. However, this may rob investors of the flexibility of grow their holdings faster. For example an investor with six properties, where two have seen strong growth and the other four have held steady. If you’re cross –securitised and want to access equity in high the growth properties, the bank would want to value every property and that would impact on the amount of equity you’re able to release.

In addition banks may also calculate the loan to value ratios (LVR) on the portfolio as a whole rather than each individual property which may leave investors out of pocket. To avoid cross-securitisation investors need to specify that they want their properties to remain separated in their loan documents.

In your loan application it’s important to clearly instruct that you’re going to take a portion of equity out of that existing property and that is going to be the funds you use to purchase this property over here, but you don’t want those crossed.

“Cross-securitisation” gives the bank more power, if something goes wrong, it gives them the power to strip you of all your properties.

# Reference: Smart Property Investment, written with the permission of Sterling Publishing.