Renting laws are changing
When was the last time you improved your property?
Establish a pro-active replacement plan, giving you more control. Plan to renovate or upgrade the property over a period of time. The below table template is an example only to help you determine how much extra you should be saving each week.
Quick Rental Tip!
HOME TEMPERATURE TIP
The Real Estate Institute of NSW has released the residential vacancy rate for Sydney in July 2008 was 1.2%.
To Do List
AND REMEMBER – IT IS ALL ABOUT THE LOOK!
Capital Gains Tax Focus for 2007-2008 Tax Returns
People who do not report capital gains for the sale or disposal of assets including property will come under the scrutiny of the Tax Office this year.
The Market is Stirring…
Now is the time to buy!
The signs are there! Low vacancy rates across the nation; rental properties in demand; rising rental returns; property prices stabilising and even increasing in some areas; a volatile share market and the expectation that interest rates will remain steady in the short-term. These are all signs indicating, now is the time to invest in property.
How to take advantage of the forthcoming property boom
roperty booms never last, but neither do property busts. So how can investors make the most of the next property boom when it eventually comes around, as it surely will?
The answer is simple.
The investment strategy that has worked well for the most successful investors and will work just as well as the next property cycle rolls on is to invest in real estate for long-term capital growth. And capital growth will always occur in our major capital cities in Australia with median property prices increasing by about 10% per annum over a 10 year period.
It's all to do with the value of the land, which is related to the supply and demand for that land.
Capital growth is highest in an area where there is a demand for property and the land is scarce. If you look at Melbourne, Brisbane and Sydney you can instantly see why house prices grow there faster than they do in regional Australia.
Sydney has almost run out of land because of its geographic boundaries. In Melbourne the perimeters of the city cannot expand because of town planning boundaries. While there is a huge demand for property in Queensland and in particular South East Queensland, there is still quite a bit of land available for new housing, but as most people want to live near Brisbane or near the water, much of the most sought after land has been taken.
One thing to remember about scarcity is most people want to live in the most desirable locations.
As our next property cycle comes around, as it already has in some parts of Melbourne and Brisbane, it will be the most desirable, the most sought-after areas that start growing first. These are usually the most affluent areas.
What happens to those people who cannot afford to buy in the most desirable areas?
They buy in the next most desirable suburbs. This has been well documented in previous property cycles.
How can investors take advantage of this knowledge?
Firstly, understand the big picture. Understand where we are in the general property cycle. We are hovering around the bottom of the slump stage of the property cycle in Sydney and well located properties are definitely selling well in Melbourne and Brisbane where the cycle is in its early upturn phase
Next, become an expert in the suburbs that are going to grow in value first. Get to know those areas so you can pick the bargains in those suburbs near the city, near the water or in the more affluent, the more desirable suburbs.
If you buy a good property in those areas you are likely to achieve excellent capital growth in the next 5 years.
Then over the next few years the suburbs ‘one ring’ further out will start to make good investment sense. It is only near the end of the cycle that the outer suburbs, those that have traditionally been first home owner areas get good capital growth.
The spread of capital growth from the inner to the outer suburbs is called the ‘ripple effect’.
Extract Source: domain.com.au
Author: Michael Yardney
Now is the time to buy…
I hesitate to make a list
Of all the countless opportunities I’ve missed
Bonanzas that were in my grip
I watched them through my fingers slip
The windfalls that I should have brought
Were lost because I over thought
I thought of this, I thought of that
I could have sworn I smelled a rat
And while I thought things over twice
Another grabbed them at the price
It seems I always hesitate
And make my mind up much too late
A very cautious person I am
And that is why I never buy
When others culled those sprawling farms
And welcomed contracts with open arms
I chose to think and while I thought
They bought the deals I could have got!
The golden chances I had then
Are lost and will not come again
Today I cannot be enticed
For everything’s so overpriced
At times a teardrop drowns my eye
For opportunities I had but did not buy
And now life’s saddest words I pen…
Rents are on the rise!
Rents are on the rise nation-wide.
Following years of rents increasing just marginally, landlords are now reaping some long over-due rent increases in most rental areas.
When a tenancy agreement expires, it is a great opportunity to increase the rent and improve your cash flow. But is it always wise to increase rents? – And by how much?
Rents have been going up as a result of strong demand for rental properties, due to vacancy rates being at an all-time low.
To determine the market rental for your property, you need to factor in the rate of inflation, and you need to find out the rent being charged for comparable properties that have recently been rented.
The best way to determine the market rental is to rely on the advice of your property manager, who can tell you the market rental for your property.
If you are relying on local advertising, it is important to take into account that a property may not be at market rent when advertised, but a zealous, over-priced hope of achieving that rent.
If you’re managing the property yourself, you can always get local property managers to give you an obligation-free rental appraisal.
What if I am concerned about losing my tenant?
The more settled your tenants are, the more likely they are to accept a rental increase rather than deal with the upheaval of moving. However, a “significant” rental increase will definitely make some tenants consider leaving.
If a tenant does not want to remain in the property at the new increased rent, it may be in your best interest to consider the following before losing the tenant:
· Are they reliable with rental payments?
· How long have they resided in the property?
· Do they care for the property?
· How easy would it be to re-rent the property?
· Can you afford to have the property vacant?
If you are afraid of losing a good tenant or if you just want to be nice, then you might leave the rental untouched, or opt for a compromised increase.
Another aspect to consider when possibly losing a tenant, is the high cost of finding a new one. You’ll have the cost of the vacancy (for example, two weeks of lost rent), as well as advertising costs and a new letting fee if you use a property manager.
You might also negotiate to leave the rent unchanged if you need to have the tenant on side, for example, if you’re planning to renovate soon or wish to sell the property in the near future.
Token Rental Increase
It is best practice to increase the rent each year, even if it is a minimal amount. Otherwise the tenants may start to expect that the rent will stay the same. This may make it more difficult to increase the rent to market value down the track.
A token rent increase could be $5 to $20 depending on the actual weekly rent.
When dealing with rent increases with quality tenants you may not want to loose, you could state that market rent would involve a $20 rent increase, however, as they are a valued tenant the landlord has agreed to a $10 increase. This can present a win-win situation to both parties.
Market Value or Above?
There are property owners that are feeling the pressure of interest-rate rises and as a result wish to raise rents by more than a token amount. But sometimes it can be detrimental to be too greedy. So how far can you push the tenant?
If you ensure that the requested rental increase is in accordance with the market rent, you should be ok. If a tenant wishes to move out of your property due to the increase, they still have to find a comparable property.
So what if you’re struggling with cash flow? Is it possible to ask for a rent above the market rate?
Anything is possible! You can ask for a rent above the market rate – but will you find a long-term caring tenant. Some newcomers to an area may be unaware of market rents and pay what you asking. But eventually they will realise that they can get the same property for less rent and move out. You want to avoid high tenancy turn-overs as it can lead to increased wear and tear and a greater loss of rent in the long-term with extended vacancy periods. Over-priced properties can also attract undesirable tenants that cannot rent anything else.
You can be confident that our office is constantly monitoring the market rent on your behalf and understands theimportance of rental increases. Even it is just a token increase. ■ (5.2007)
Now is the time to spend money
With the end of the financial year fast approaching (less than eight weeks to go), now is the time to consider actioning any pending property maintenance.
By attending to maintenance prior to the end of financial year, you can claim the tax benefit immediately in your tax return. It may also help reduce your taxable income if needed.
It is important to note that all work carried out on your investment property may not be an immediate 100% tax deduction.
Some maintenance, building renovations and improvements may not be considered a taxable expense – but a capital appreciation cost.
Before making the decision to spend money on your property to assist with reducing your tax, we strongly recommend that you contact the Australian Taxation Office (ATO) or your accountant.■(5.2007)
The Real Estate Institute of NSW has released the residential vacancy rate for Sydney in August 2006 was 2.1%, it is more or less the same as the beginning of the year. We wish to inform you that the rental market is quite stable at the moment. We shall review the rental in accordance to the market movement and advise the landlord if the rental need to be increased in due course. (10.2006)
Why do properties remain vacant?
Our office understands that many investors rely on the weekly rent to meet mortgage commitments. You can be assured that every endeavour is taken to minimise vacancy periods.
Listed below are some reasons why properties may remain vacant for an extended period of time?
The rent is too high
The market and the tenants determine rent. We are constantly monitoring the market rent to ensure that you are receiving the maximum return on your investment. High rents can lead to long-term vacancies or high tenancy turnovers, which ultimately affects your income.
High Vacancy Rate
If there is a high ratio of properties to tenants (more properties than tenants) it will have an affect on the vacancy factor. Tenants have more position to negotiate on rents.
It is important that the property is maintained in an excellent condition to attract the same quality of tenant. A tenant will often have a choice between two or three properties.
Accessibility to local facilities and transport
Often the property can be maintained in an excellent condition, the rent is priced at market value and yet it still remains vacant. This could be due to its location. Tenants today (due to the supply and demand of properties) can be choosey.
Often they require a property that is close to town, shops, clubs, the
beach or water, transport or schools etc.
Notice to Vacate -“2 day turnover”
When a tenant gives notice to vacate the property, it is our number one
priority to quickly re-list and advertise the property for rent, to reduce
the possibility of the property becoming vacant for an extended period
Rental Shortages bring good times
For more than a decade, access to tenancy databases have formed part of a real estate office’s daily tenant selection process as well as the tenant vacating process.
There are specialised tenant database agencies established nationally,
who track, record and monitor tenant details that are accessed by reputable
real estate agencies as part of their reference checking process.
RECOVERY OF TENANT DEBTS
Fundamental influences such as supply and demand are the main drives for future property return. Prime candidates for purchasing properties these days tend to fall into two groups. Not surprisingly, the first is the baby boomers, who have considerable equity in their homes, many are conscious they need to do something outside of superannuation to boost their retirement income. Interestingly, the other emerging group is aged between 20 and 30. As first-time buyers, they are exempted from stamp duties for property under $500,000 and have $10,000 cash rebate (an increase of $3,000) from the Government irrespective of the value of the property. Many "generation Y” are bunkering down, saving their pennies and getting into the market. They tend to focus on the investment potential of their first home. They view it as a stepping stone that can help them to set up later on.
Australians, as they always are, committed to real estates. (6.2006)
Carrying out a final inspection when a tenant vacates the property involves
comparing the condition report completed at the commencement of the tenancy
with the final condition that the tenant leaves the property at the end
Once again, the above areas will depend on the circumstances of the tenancy.
Why you need a property manager?
When you engage the services of a Property Manager who is a member of the Real Estate Institute of NSW (REINSW) you know that your investment, regardless of its size, will be managed professionally. REINSW members are constantly updating their skills by attending on-going education programmes designed to keep them up to date with legislative changes and market trends.
There are many advantages in engaging a professional to manage your property. The main one is peace of mind - knowing your investment will be managed professionally. A managing agent knows the market and ensures the maximum return on your investment. In using a managing agent you will avoid direct confrontation with the tenant and, should there be a need for representation before the Residential Tenancies Tribunal, your managing agent is able to act on your behalf.
Managing agents have a thorough understanding of the Residential Tenancies Act, the Retail Tenancies Act and the Strata Schemes Management Act. Their skill and expertise will reduce the risk of non-compliance with these Acts and save you from facing the possibility of severe financial penalties through non-compliance. (10.2006)
Understanding investment property
Repairs and improvements can be a tax deduction minefield in investment property. The Tax Office provides the following useful guidance to clarify some issues which often cause confusion.
What is a repair?
A repair replaces a part of something or corrects something that is already there which has become worn out or dilapidated. A repair is usually occasional or partial, and restores something to its original efficiency. Repairs correct damage which has occurred through normal wear and tear , the effects of natural causes or by accidental or deliberate means.
The important point here is that repairs are generally partial. Replacing a faulty filter in a dishwasher may be a repair; replacing the dishwasher generally is not.
You may be able to claim an immediate deduction for expenditure on repairs if you’re using your property to generate income. However, if you’re claiming repairs as a deduction, you must be aware there is a difference between a repair and an improvement, as you cannot claim immediate deduction for improvements. However, you may be able to claim a capital works deduction for improvements.
Although there is a difference between “ maintenance “ and a repair , you may generally claim an immediate deduction for maintenance costs.
What ‘s an initial repair?
Quite often when you buy a rental property, there may be defects which need to be fixed before your first tenants can move in. A repair is not an initial repair simply because it is the first repair made after you acquired your property. Broadly, it is an initial repair if the defects, damage or deterioration in need of repair existed when you acquired the property.
Basically, if you buy a property to generate income, the cost of bringing that property to a state where it’s suitable for tenants is part of the cost of its acquisition, not a cost of repairing defects that arose while you were renting it. You can’t claim an immediate deduction for initial repairs, even if you start to rent the property before you carry out the repairs. Generally the cost of initial repairs may be included in the CGT cost base of your rental property
What’s the difference between a repair and an initial repair?
The difference is that generally repairs made to defects that arise while your property is producing income are tax deductible, while initial repairs are not because they lack a connection your use of the property to produce income. Essentially, an initial repair is an additional cost of acquiring your property or an improvement to the property.
If you’ve spent money on fixing a problem which existed when you bought the property, it’s a capital expenditure, even if your tenants move in before you make the initial repair . It doesn’t matter whether or not you knew the property needed initial repairs when you acquired it , or whether the purchase price of your property reflected the need for repairs.
A lease may be breached in many ways, rental arrears is the most common form of breach, a tenant need only one day late with his rent, the lease is breached.
It’s really a nightmare to landlords that their tenants do not pay the rent on time. In fact, many tenants do late when paying rent, you may not aware how we can ensure the rent is paid, so we would like to use this opportunity to advise you of the following procedures that we have taken:
1. If the rent is late for one week, reminders are sent to tenants on
the 8th day in arrear followed by phone call. If this is the first payment
from a new tenant, courtesy call will be made once the rent is in arrears.
We shall inform our landlord if an order from the Tenancy Tribunal is required. If you wish to be advised prior to the application of the tribunal, please instruct our office in writing. (10.2006)
How to stay ahead of the rising interest rate cycle
While the interest rate hikes will or have put a damper on property investment
markets, low vacancy rates across the nation will eventually lead to higher
rents and in turn strengthen property demand.
All types of income producing properties have substantial taxation benefits
available to be claimed as a tax credit. Many property investors are missing
out on literally thousands of dollars in lost tax depreciation deductions.