Renovating: a timely exercise

Renovating refers to the more complex changes that can be made to a property including changes to the floor plan, bathroom or kitchen remodels, or other structural changes.

Renovations require constant planning and execution, decision-making and solutions, and financing. There’s no denying that renovating is the most popular way to increase the value of your property, however it may not strategically be the right choice.

It’s important to be educated about the location of your property in terms of population, demand, rental yield and future and current infrastructure. These factors will all contribute to demand from tenants. When renovating, it can be easy to overcapitalise on your upgrades. If you then struggle to secure the right tenant at the right price, it can put pressure on your cash flow.

Doing your research and seeking advice from a real estate professional is paramount before undergoing any renovation exercise so you don’t overcapitalise.

Improving the right amount

The mindset of a homeowner versus an investor should be very different when it comes to upgrading your property. As an investor, removing any emotion is paramount to making financial decisions. Simple improvements can make a big difference to a rental property and can cost much less. These may include a fresh coat of paint, updated flooring – whether that be polished floorboards or new carpet – and new light fittings. Instead of renovating a whole new kitchen, simply change the cupboard doors. Similarly with the bathroom, instead of ripping everything down, try to upgrade the vanity, shower screen and fittings.

These smaller improvements can cost as little as $5,000 while adding as much as $10,000 to the property and increasing the rental amount by $50 a week.

These smaller adjustments to your property can add value to your property, attract quality tenants and won’t entice you to over invest for the location. To discuss your investment options, contact CPS Finance today.

What do I need to know?

• All deductions relating to the cost of travel to investment property will cease as at 1 July 2017.
• Investors who purchase plant and equipment (such as dishwashers and ceiling fans) after 9 May 2017 will be able to claim depreciation deductions over the life of the asset. However, owners of a property will not be eligible for deductions on plant and equipment purchased by previous property owner. This will essentially reduce capital gains made on future disposal of the property.
• Foreign owners will be charged a fee if their property is not occupied of available on the rental market for at least 6 months of the year. The fee is estimated to be at least $5,000 per annum.
• Foreign and temporary residents will not be eligible from the main residence exemption which excludes private homes from capital gains tax.
• From 1 July 2017 the CGT withholding rate will increase by 2.5% to 12.5% and the withholding threshold for foreign tax residents will reduce from $2 million to $750,000.
• Foreign ownership in new developments will receive a 50% cap meaning that any new development will need to ensure that less than 50% of the purchasers are foreign residents.

If you’d like to understand more about how the new budget might affect your property portfolio or aspirations, please contact CPS Property today.

Investing in purpose built student accommodation allows you as an investor the opportunity to participate in Australia’s largest non-resource export sector, Tertiary and Further Education. The benefit of this hugely rare opportunity is it’s highly resilient nature to economic instability.

There has been significant growth in tertiary enrolments in Australia over the last decade, against the ongoing backdrop of chronic undersupply of purpose built student accommodation. In turn this provides the potential for high occupancy rates and growing returns.

Located in Australia’s most popular destinations for tertiary students, investors will be attracted by the combination of significant annuity-style income together with the potential for capital growth.

What you need to know about this investment opportunity:

•       Asset backed, strong yielding investor returns
•       Anticipated IRR 15% to 18% p.a. net of fees (comprising yield and capital growth)
•       Targeted initial cash yield of 10.5%+ p.a. (once fully operational) payable quarterly, rising to 13.0%+   p.a. from year 3 onwards
•       Significant tax deferred component
•       Prime CBD locations close to Universities, transport and amenities
•       Investment term between 3-7 years with compelling exit opportunities

If you’d like to discuss student accommodation as your next strategic investment purchase, contact CPS Finance today.

It’s important not to confuse gentrification with urban renewal; a process of clearing and rebuilding or renovating properties in urban slums. Although both have a positive effect on investment properties, gentrification results from a shift in cultural trends and public opinions of an area (as opposed to the physical changes only) providing more powerful, long term benefits for the area.

What to look for in a gentrified area.

If we look at Sydney, we can see a rich history of gentrification within the past 20 years – for example in Balmain and Kings Cross. These areas were once rife with high crime, low economic status, high unemployment rates and dilapidated housing. Now, they represent two of the most sought out suburbs in Sydney for renters, investors and homebuyers for their appealing and luxurious lifestyle, convenient CBD location, and of course, priceless harbour views. Both of these areas experienced the displacement of the original residents (due to increase of demand, and therefore price), ultimately introducing a new, more affluent demographic to the area; a hallmark of gentrification.

Gentrification does not discriminate based solely on location. Leichhardt is a prime example of where culture was the key factor in its dynamic social shift that helped shape and influence the suburb. Italians originally migrated to Leichhardt in the 1920s, with cultural entrenchment rapidly increasing after WWII through the introduction of restaurants, cafes and local businesses. The modern day example of this cultural gentrification is Harris Park. Harris Park is the epicentre of the Indian community within Australia. It has become well known for its authentic cuisine offering and grocery stores. For an investor, it would be wise to look at this community and analyse the ongoing potential as the Indian population within Australia continues to grow.

Good or bad? Or both?

As with most major societal transformations, gentrification has its pros and cons – attracting both critics and enthusiasts. On one hand, gentrification paves the way for regeneration which in turn increases property prices and overall value. But the flip side of this usually means the original character can be lost; milk bars turn into cafes and local pubs turn into cocktail bars. Now, not all of this is bad if this suits your tastes or lifestyle. But for those who have resided in the area for a long period of time, it’s not uncommon to become emotionally attached to the area’s original character.

What does this mean for property investors?

When an investor is searching for a new property, affordability and potential capital growth are two factors which are considered. Investing in an area that could be gentrified can deliver on both of these items, but the trick is finding these hot spots at the right time. The key to taking advantage of these areas is to look to past trends to predict the future. For instance, we know that higher crime suburbs, if in a good location, may eventually be gentrified. Blacktown is a recent example of this, whereby positive change in the area is seeing investor curiosity and interest rise. Dulwich Hill is an area where the close CBD proximity and untapped social roots has seen businesses and investors take an active interest in the suburb.

Researching local government initiatives, community intentions, location and access to existing or future infrastructure will reveal the area’s potential for gentrification. It’s important to remember to analyse cultural shifts or behaviour in the area (or surrounding areas), so as to not mistake this shift for urban renewal – which still has the investor’s interests at heart, but can be more limiting in terms of long term capital growth.

To seek advice from a knowledgeable property expert about your next property investment, contact CPS Property today.

Adam Grocke at Smart Property Investment explains the investment strategy.

A buy-and-hold property investment strategy requires less investment knowledge, less risk and less deposit, making it a great entry level investment. The key to this strategy is to simply purchase a property and retain it until you have seen enough growth in the price to suit your needs/objectives or you continue to hold the property to generate a positive income to assist with retirement. Generally speaking, you should hold the property for at least 10 years to give yourself the best chance to see price growth.

This strategy is lower risk compared to the other four property investment strategies because you hold the property for a longer period. This means you increase the likelihood of achieving capital growth and are less reliant on picking the bottom or top of the property market.

As with any investment (shares, bonds, currency, etc) property goes through cycles that are hard to predict. The typical cycle consists of the following:

• Bottom of market/start of recovery
• Rising market
• Boom market
• Slowing market
• Stagnant market or falling market

There are so many variable factors that affect the property market and in particular how long it will stay in each part of the cycle. Therefore, the longer you’re in the market, the more cycles you will go through and the greater the chance you’ll see a rising and boom market. Obviously the perfect outcome is to purchase at the bottom of the market and sell just before the end of the boom, but this is almost impossible to pick.

The keys to this strategy are:

• If you want capital growth, focus on location, location, location! Property close to the CBD, transport, beaches, schools and major shopping centres generally outperform other areas.
• Research the property and the area. Know what other houses have sold for, what the future plans are for the area, what houses in the surrounding suburbs are worth. You can make good money from buying in a suburb that is next to or in between higher priced suburbs.
• Purchase for the right price. Time and time again this is where I see people make the most money.
• Have a clear time frame that isn’t too short.
• Have a plan and stick to it. Will you sell the house in 10 years to make money or pay off the loan to have an asset that generates you income? Both strategies are OK, but vastly different.
• Have a savings ‘buffer’ or ‘plan of attack’ so that you don’t need to sell the property if something unforeseen happens. You can lose a lot of money if you need to sell the property unexpectedly. I recommend at least six months worth of loan repayments saved as a buffer to cover you if you lose your job or have maintenance bills.
• Ensure you have the correct ownership structure to tackle capital gains tax issues in the future.

Also remember that the value is always in the land: as land appreciates in value, the house will depreciate in value as it gets older. Therefore, focus on desirable locations that have or will have limited new developments of land in the future. This ensures the economics of supply and demand give you the best chance of capital growth.

If you’re an astute property investor or you want to generate better yields from a buy and hold strategy, you could even consider a commercial property. It does carry more risks and it’s important to know the key differences between investing in commercial or residential properties.

Always make sure you get credible and independent advice from a property advisor.

Want to find out if this strategy will work for you? Contact us.

When looking for suburbs with capital growth potential, it is critical to ensure that that growth will be sustainable. Some suburbs present short-term capital growth opportunities which don’t always last the test of time. It is critical to identify this from the outset to avoid any traps.

In most cases suburbs with unsustainable capital growth are artificially inflated due to industry, an influx of temporary residents or tourism. In other cases, certain events can reduce the value of a suburb such as the impacts of weather or climate.

Mining towns are a good example of suburbs which are artificially inflated as a result of industry. Prices in these suburbs shoot up as a result of an influx workers with high disposable incomes. However, with the mining boom now over, many of these towns are shrinking or disappearing. Those left with property investments in these towns are often stung by falling values.

Fishing towns like Port Lincoln have also experienced rising prices as a result of the fishing industry and tourism. However, restrictions on commercial fishing, as well as depleted fish populations are likely to impact both industry and tourism, affecting the economy and subsequently impacting property values.

Canberra experiences high property values as a result of the population having high disposable incomes. Largely populated by politicians, departmental staff and journalists, the population is transient and many will only live in Canberra for short periods before moving on. This means property values are really only sustained over time as a result of a constant stream of new workers. Should cuts to government departments take place, which is a very real possibility under the current government, the population will reduce, meaning there will be more stock and less demand. This will inevitably contribute to falling prices.

Severe weather events like drought can also affect property values. For example, several years ago prices in Goulburn and the Southern Highlands fell as result of drought. Climate change is also likely to impact the value of property prices in certain suburbs, for example waterfront properties over time are more likely to experience rising water levels and erosion.

When looking for Investment Grade Property (IGP’s), it is critical to examine the capital growth drivers closely. What is driving the growth in the area and is the growth sustainable? Chat to your trusted property advisor for expert advice or call 1300 937 277 and take the fast track to creating wealth through property.