Right now you may be on the fence as to whether to move out solo or with another individual. Consider these options for the latter.

Tenants in Common

Ideal for individuals who don’t want equal ownership, ‘Tenants in Common’ depend upon the agreed shares of each party which may be something like 70/30. This also means that if one party dies, rather than their interest passing on to the other tenant, it goes on to the individual’s estate and will.

Joint Tenants

The most common form of ownership, particularly for husbands and wives is ‘Joint Tenants’. Essentially what this arrangement entails is that both parties have equal shares. Alternatively to Tenants in Common, if one party passes away, all the shares are transferred to the other individual through rights of survivorship.

Although this is universally the most common option, it is not always the best. For example, in the situation where one party is earning remarkably more than the other, an arrangement such as Tenants in Common may be more appropriate in certain situations which will be discussed below.

These options are polar opposites which can make it hard to decide, however, fortunately there can be some flexibility in certain cases. There are different situations that can arise which would combine both. An example would be if a third party was involved that desired a smaller share, whilst the first two parties would share the greater half. This would result in a Tenants in Common and Joint Tenants relationship.

How to Determine What Option to go With

Whether you go with Joint Tenants, Tenants in Common or a combination will solely depend on your circumstances and personality. There are certain factors and situations that call for one option over the other. The below points will provide you with some insight as to what option may be more appropriate for you depending on your conditions.

Joint Tenant

• Both parties are in equal or similar income brackets.
• Ideal for married couples or business partners.
• Continuity – you desire to keep ownership of the property for whatever means if the other party dies.
• Financial stability – will not go into turmoil if other party becomes deceased.

Tenants in Common

• You earn significantly more or less than the other party.
• You do not want full ownership if the other party passes away.
• Financially cautious (lower income party).

Both options are advantageous depending on your situation. The final decision would have to be made between the two main parties or more, to come to a conclusion if you’re set about moving out with someone. Ideally if there are more parties involved, a combination may be the best option.

Although Joint Tenant has historically been seen as the default option in most cases, this is beginning to change as people have begun to act more consciously with their capital in property purchasing. At the end of the day, it will come down to your research as well as your knowledge to choose the option that’s best suited for your circumstance.

Want some help deciding which option is best for you? We can help! Contact us today.

1. 75,000 new homes are expected to be built across Sydney in the next financial year, which is double the long-term average of 40,000, and Councils are under even more pressure to rezone more land for housing as part of the state government’s determination to increase the supply of new homes in the city.

2. Not only that, the recent budget committed a further $118 million over the next four years to deliver new infrastructure, housing and employment initiatives, review land use and infrastructure strategies for priority growth areas.

3. Another $19 million will be used to support the construction of 30,000 new homes in priority precincts, and almost $70 million will be allocated to fast-tracking the assessment of major projects, and helping merged local councils run planning systems.

4. The Planning Minister, Anthony Roberts, said the government’s “number one priority” was to get more houses built in order to make new homes more affordable. “We are working on many fronts to make owning a home a reality for more people, by streamlining and simplifying the planning system so housing approvals can be fast-tracked and are continuing to release and rezone more land.”

5. Combined with the reduction of stamp duty for first home buyers purchasing properties between $650,000 and $800,000, this is all good news.

Find out more from the original source: https://www.nsw.gov.au/improving-nsw/projects-and-initiatives/first-home-buyers/

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.

We take a retrospective look at median dwelling values across the suburbs of Australia to show the deterioration of more affordable housing across the capital cities.

A retrospective look at median dwelling values across the suburbs of Australia shows the bracket creep that has occurred over the current growth cycle, highlighting the deterioration of more affordable housing across the capital cities over the past five years.

At the end of 2016, 7.6% of suburbs nationally had a median house value under $200,000 and 5.9% of suburbs had a median unit value below $200,000.  To put these figures into some perspective, 11.4% of suburbs had a median house value of at least $1 million and 3.0% of suburbs had a median unit value of at least $1 million.

Over the five years to the end of 2016, there has been a substantial decline in the proportion of suburbs with a median value below $400,000.  At the end of 2011, 53.5% of suburbs had a median house value of less than $400,000 and 69.8% of suburbs had a median unit value of less than $400,000.  By the end of 2016, the proportion of suburbs with a median value of less than $400,000 had fallen to 41.0% for houses and 55.3% for units.

Suburb median values by value range,

National, December of each year

A five year retrospective look at the individual capital cities highlights the significant shift in the proportion of suburbs with a median value under $400,000, particularly in Sydney and Melbourne.

In 2011, the proportion of total suburbs with a median house value below $400,000 across each capital city was: 21.2% in Sydney, 28.9% in Melbourne, 40.9% in Brisbane, 40.5% in Adelaide, 31.1% in Perth, 69.2% in Hobart, 2.1% in Darwin and 1.1% in Canberra.  Units offer a more affordable option highlighted by the proportions of suburbs values below $400,000 at: 38.8% in Sydney, 48.2% in Melbourne, 81.7% in Brisbane, 94.3% in Adelaide, 59.8% in Perth, 92.7% in Hobart, 53.3% in Darwin and 44.6% in Canberra.

Suburb median values by value range,

Capital cities, December 2011

By 2015, the proportion of suburbs with a median house value below $400,000 had shifted to: 1.2% in Sydney, 12.2% for Melbourne, 31.4% in Brisbane, 29.5% in Adelaide, 15.5% in Perth, 55.7% in Hobart and 0.0% in both Darwin and Canberra.  For units, the proportion of suburbs with a median value of less than $400,000 in December 2015 were recorded at: 10.9% in Sydney, 34.9% in Melbourne, 64.4% in Brisbane, 87.7% in Adelaide, 37.2% in Perth, 88.4% in Hobart, 51.4% in Darwin and 50.5% in Canberra.

Suburb median values by value range,

Capital cities, December 2015

The proportion of suburbs with a median house value of less than $400,000 at the end of 2016 was recorded at: 0.1% in Sydney, 6.3% in Melbourne, 29.2% in Brisbane, 28.0% in Adelaide, 18.9% in Perth, 52.1% in Hobart and 0.0% in Darwin and Canberra.  For units the proportions were recorded at: 6.5% in Sydney, 31.8% in Melbourne, 62.7% in Brisbane, 85.1% in Adelaide, 46.4% in Perth, 88.4% in Hobart, 57.6% in Darwin and 45.8% in Canberra.

Suburb median values by value range,

Capital cities, December 2016

Five years ago every capital city except for Darwin and Canberra had at least 20% of suburbs with a median house value of less than $400,000.  At the end of last year, it was virtually impossible to find houses for less than $400,000 in Sydney, Darwin and Canberra while less than 7% of suburbs had a median house value below $400,000 in Melbourne.  Across each city there has been a substantial decline in more affordable housing over the past year despite the fact that outside of Sydney and Melbourne there has been only moderate value growth over the period.

Even units have recorded a fairly substantial decline in the proportion of suburbs with a median value of less than $400,000 over the past five years.

At the end of 2016, looking at both houses and units, 20.5% of Sydney suburbs had a median value of less than $600,000 compared to 38.5% of suburbs having a median value of at least $1 million.  To further highlight deteriorating housing affordability in Sydney, 34.6% of suburbs had a median unit value of less than $600,000 at the end of 2016.  In each other capital city, a higher proportion of suburbs had a median house value of less than $600,000 than the proportion of suburbs with a median unit value of less than $600,000.

If you’re interested in starting or growing your property portfolio, contact CPS Property today.

So, what’s the difference between positive and negative gearing?

Positive gearing

Positive gearing simply means that your investment property earns more income than it costs to have it, so you are receiving more rental income from your tenants than what you pay for things like the loan repayments, interest, maintenance of the property, rates and other fees. Usually this happens when rents are high due to a strong demand, or when interest rates are low.

For example, if your investment property earns $500 per week in rental income and your loan repayments and other associated costs are $450 per week, then you are positively gearing that property and you don’t have to pay anything out of your own pocket each week to continue your investment. The property effectively pays for itself.

That said, it’s not always the investment strategy of choice for many investors. Let’s look at some of the pros and cons of positive gearing:

Pros

• The risk isn’t as high – because the property pays for itself, the risk isn’t as high if your circumstances were to change such as a job loss.
• More money in your pocket – on a week by week basis you have no out of pocket expenses, and you might even be making enough from the property to make extra loan repayments or save for your next investment.
• Future lending – the status of your investment portfolio can look good, which may mean you are appealing to lenders for your next loan. 

Cons

• Changing markets – depending on where you buy, you could experience a dip in demand for the property which would mean less, or no, income from the property.
• Income is taxable – just like any other income, the income you earn on a positively geared property is taxable.

Negative gearing

Negative gearing with property is when your expenses, such as loan repayments and rates, are higher than the rental income you receive from tenants. This means that you are out of pocket as you will have to contribute to the loan repayments yourself as well.

While it sounds like an odd thing to do in the short term, the goal with negatively gearing an investment property is that you will eventually make more money through an increase in its value than what you pay out, or lose, through expenses.

Let’s look at the pros and cons for negative gearing:

Pros

• Tax breaks – a lot of investors choose negative gearing because it allows you to claim tax deductions relating to expenses you incur. Investment losses reduce your taxable income which in turn reduces the amount of tax you pay.
• Appealing to tenants – often properties that are negatively geared have slightly lower rent, which is appealing and more affordable to potential tenants.
• Capital gains – if the property continues to increase in value, the capital gains from it will eventually be high enough to cover borrowing and associated costs, meaning the investor can earn more when selling.

Cons

• Higher risk – if your income suddenly changes, you may not be able to cover your costs for the property.
• Budgeting – you need to be able to budget way ahead of time, for things like maintenance, increases in interest, or if the property sells for a profit you will need to pay tax on the capital gain.
• A long game – negatively investing in property is a longer term strategy to create financial freedom, so you need to be prepared for that and not expect passive income yet.

So, at the end of the day, neither investment strategy is better than the other. The both have their advantages and disadvantages, and the benefit of either will depend on the investor and their ideal strategy.

If you’d like to discuss which option bests suits your needs, contact us today!

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.

In Australia, we’re seeing a rise in rental yields, and while a good indicator on a sound investment, an investor shouldn’t rely solely on this information to make purchasing decisions. Here are a few tips on why you shouldn’t rely on rental yield alone when it comes to your next investment decision.

Look beyond rental yield

Rental yield shouldn’t be seen as a guarantee of future growth by hopeful investors, as it is far too simplistic to provide a comprehensive overview of a property’s potential performance. As author of Real Estate Riches Dolf de Roos says, “are we talking gross or net returns? Pre-tax or after tax?”. De Roos goes on to explain that for residential real estate you have to remember to remove insurances, rates and maintenance costs to arrive at the net yield. This alone can often mislead investors. While yields provide some information about the property, it’s merely a snapshot in the overall property performance.

Use the resources available to you

Unlike rental yield, there are resources available to you that can paint a full picture of the property’s current, and potential performance. Many software programs have been developed to help analyse relevant data including vacancy rates, inflation, costs, insurances and maintenance, revealing anticipated yields as well as equity growth.

This level of sophistication is scarcely used by investors and landlords, which is unfortunate considering the true impact it could have on purchasing and investing decisions.

See the bigger picture

Although software can be pivotal in purchasing decisions, it is limited when it comes to individual circumstance or investor questions. There will always be additional factors or queries that a computer simply cannot answer, for instance, “should I invest in the Chinese market if I cannot speak Mandarin?” Each investor is going to have a unique set of circumstances, which is why engaging with a financial planner or with a local real estate agent will assist in making decisions that suit your situation.

Think about the future

Purchasing an investment property is a long-term strategy. Although analysing the current market performance is crucial upon purchase, it’s just as important to think about the future. When you’re weighing up your options it’s worth considering the following;

• Buying below market value
• Buying a property which can be renovated or upgraded
• Buying in an area with good capital growth potential

Rental yield, although worthwhile considering, is not the golden ticket to making a decision. Capital growth is equally as important as it will allow you to sell at a profit. Combining this with a renovation or substantial upgrade, will then allow you to increase the rent in the short term. If you successfully purchase a property in the right location, add value through renovation and therefore acquire capital growth, you’re more likely to be able to use this new equity to purchase another investment to replicate your success.

To discuss your investment options, contact CPS today.

The most efficient way to claim these tax benefits is through a depreciation schedule; a report undertaken by a surveyor, usually when the property is purchased. The surveyor is responsible for providing a physical analysis of a property, clearly identifying materials used throughout the building (including fittings and flooring), internal and external wall treatments and appliances. An estimated value is placed against these items and depreciation is calculated based on the age and value of the property. Most properties regardless of their age can offer investors substantial tax benefits through obtaining this schedule.

Although depreciation can be an annual tax deduction, only one depreciation schedule is required for the property rather than a new schedule each year. However, it should be updated on an annual basis should the property need major repairs or undergo renovation. With Australians spending over $100 million every week on renovations, undertaking a tax depreciation report has never been so important.

There are certain assets within a building that generally have a higher depreciation value, including timber floorboards, air conditioning and solar power systems. Other items which are more commonly claimed for depreciation include hot water heaters, appliances and bathroom accessories, as well as smoke alarms and exhaust fans.

With all of these assets in mind, the cumulative deduction over a five year period can save the investor tens of thousands of dollars. However, to qualify for these tax benefits, it is suggested investors complete a depreciation report for the property as near as to the date of purchase as possible. If you don’t obtain a tax depreciation report then you cannot claim for these substantial tax benefits.

For advice on your investment property and how to claim depreciation, contact CPS Finance today.

How to diversify your property portfolio

Location

It is easy for an investor to favour an area that has proven to be successful for them in the past by providing strong capital gains or high rental yields. However, investing in the same location several times over makes you more vulnerable should natural disasters, population fluctuations or declining employment rates occur. If all of your properties are experiencing the same economic or market changes, it could place strong financial pressure on your assets.

Price point

Another diversification strategy involves purchasing properties at different price points, providing more flexibility should a property need to be sold. Instead of purchasing a property with your entire budget, splitting this over two assets allows you to free up cash by selling one asset, instead of two. It is important to note, diversifying your property portfolio does not mean compromising on the quality of your investment – quality always trumps quantity for long-term investment goals.

Style of property

The benefit of investing in different style properties, is appealing to different segments of the market. For example, purchasing a townhouse in a suburban area will attract the right rental market and candidates. Both re-sale potential and rental demand will benefit from purchasing the right style property in the right locations.

Residential vs. Commercial properties

The fourth diversification strategy is purchasing commercial property as an alternative to residential assets. Investing in commercial property is more focused on rental return of the asset and the security of tenure which is directly linked to the covenant on the property. Generally speaking, net returns are higher for commercial than for residential meaning that most outgoings are paid for by the tenant.

Although investors may not be able to control the property market, local environmental changes, infrastructure or the economy, they can learn to minimise risk within their portfolio through diversification.

Contact CPS Property today to learn how you can offset risk through diversification of your property portfolio.