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Will buying a smaller investment property provide a good Return on Investment (ROI)?

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A small property could potentially make a great investment, provided you choose the right one. The key to success with any investment property is thorough research. In this article, we take a look at how to research and choosing the right small space property to give you the investment returns you’re looking for.

Pros – why choose a small space apartment or unit?

There are lots of benefits to buying a smaller property such as an apartment or a unit. Houses often have a higher entry price point due to land value, so you could potentially buy an apartment or unit with a smaller deposit. Ongoing costs for apartments and units can be a lot less too – council rates are usually higher on a house and in many states, you’re also required to pay land tax on an ongoing basis. With a unit or apartment, costs are limited to strata and body corporate fees.

Maintenance is also a cost that must be taken into consideration. If you purchase a house, all maintenance issues are your responsibility, whereas with an apartment or unit, many of these costs are covered by the body corporate.

These factors mean that a unit or apartment may be more favourable from a cash flow perspective – which is great, particularly for first time investors. Additionally, if you do your research carefully, you could potentially locate an apartment or unit in a location set to make both great capital gains and solid rental returns.

Cons – how small is too small?

Some developments offer studio and one-bedroom apartments of less than 50sqm.  Many lenders are reluctant to finance these properties, and also some small space properties in high rise, high density developments, so it pays to discuss any property you may be considering with your mortgage broker before you sign a contract or put down your deposit.

Research is the key to success.

So how do you know for sure that a location will be in high demand for small space renters in the long term? Small space apartments and units are often in high demand in locations that are close to the action for singles! These may include the city centre and other busy employment hubs, universities, areas with vibrant nightlife, or excellent public transport facilities that provide fast and easy access to these amenities.

To find out what you need to know about a particular location, start by talking with local real estate agents and property managers. Essentially, you’ll want to find the answers to these questions about your chosen location:

  • How is the local economy doing? Is there employment growth?
  • What is happening that will affect supply and demand of small space property in the area in future? Are there many new developments in the pipeline?
  • What is the historical growth of property prices in the area?
  • What are the current rental yields on properties similar to the one you are considering?
  • What is the median price of properties in the area?

There are useful online resources where you can access market reports on specific areas. If you’d like to find out more, chat to us and we will assist you further with your property research.

How to analyse the market data.

You’ll want to analyse the data you collect to find a location with positive capital growth and solid rental yields to maximise the profit potential of your investment. (If you need help, please ask us as we have a great deal of experience.) Some other good indicators of these include:

  • Days on the market. How quickly do properties sell in the area?
  • Vacancy rate/demand to supply ratio. Is there much competition amongst renters?
  • Rental yield. What percentage of the price of the property can you collect in rent?
  • Auction clearance rates. Do sellers need to reduce the price to get a sale?
  • Limited available property. This could suggest that demand exceeds supply and this is likely to drive future capital growth.

Ask us to help you crunch the numbers!

There are always reasons for and against investing in any type of investment property. The right investment choice for you will depend on your financial position and investment strategy. If you’re considering investing in property for the first time, a small unit or apartment could be a good way to start, so ask us to help you crunch the numbers to see if they add up.

Remember, we can be an invaluable resource when investing in property. We’ll help you choose the right loan that will not only serve your needs now, but set you up for further investments in the future. Talk to us today – we’d love to help you get started with a little property investment.

Property Update – May 2021

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Australian housing values lifted by 1.8% in April according to CoreLogic’s national home value index, with the monthly pace of capital gains easing from a 32-year high in March (2.8%).

Although growth conditions have slowed, housing values are still rising at a rapid pace, up 6.8% over the past three months to be 10.2% higher than the COVID low in September last year.

CoreLogic’s research director, Tim Lawless, says the pace of capital gains could slow further over the coming months as inventory levels rise and affordability constraints dampen housing demand.

“The slowdown in housing value appreciation is unsurprising given the rapid rate of growth seen over the past six months, especially in the context of subdued wages growth.  With housing prices rising faster than incomes, it’s likely price sensitive sectors of the market, such as first home buyers and lower income households, are finding it harder to save for a deposit and transactional costs.”

There is already some evidence of fewer first time buyers in the market, with the Australian Bureau of Statistics reporting a -4.0% fall in the value of first home buyer home loans through February, the first drop since May last year.

Despite the slowdown, positive housing market conditions remain geographically broad-based with every capital city and ‘rest-of-state’ region continuing to record a lift in dwelling values over the month.   Darwin (2.7%) and Sydney (2.4%) recorded the largest month-on-month rise in dwelling values, while Perth values recorded the lowest rate of growth amongst the capital cities at 0.8%.

The four smallest capital cities recorded double digit annual growth (Adelaide 10.3%, Hobart 13.8%, Darwin 15.3% and Canberra 14.2%), reflecting a smaller COVID-related disruption and an earlier start to the growth phase last year.  Melbourne is recording the lowest level of annual growth (2.2%) due to a larger downturn, attributable to the extended lockdown period last year.

The broad trend of houses outperforming the unit sector continued through April as higher density styles of housing experienced less demand amidst elevated supply across some inner city precincts.  At the combined capital city level house values (8.6%) have risen at double the pace of unit values (4.3%) over the first four months of the year.

“A preference shift away from higher density housing during a global pandemic is understandable, however a rise in flexible working arrangements also seems to be supporting greater demand for houses around the outer-fringes of capital cities.  Relatively weak investor activity, compounded by a supply overhang in some high-rise precincts, is also dampening price growth in unit markets,” Mr Lawless said.

Source: CoreLogic

Fun ideas for your Easter celebrations

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It’s hard to believe Easter is almost here — a special time for families. We share some fun ideas for your celebrations this year. Remember, if you have any plans to purchase a new property during the busy Autumn property purchasing season, we’re here to help with all your home loan needs.

Dye your own eggs

Dyeing and decorating eggs is a great way to get into the spirit of Easter, particularly if you have children. It’s super easy and fun! Simply boil up some eggs then make the colouring. Mix 1 teaspoon of vinegar and 20 drops of food colouring in 1 cup of hot water. For different colouring effects, leave the eggs submerged for different amounts of time. Get creative with glitter, stickers and multiple colours, and let the good times roll! Check out Pinterest for tons of easter egg design ideas.

Easter egg hunt

Easter egg hunts bring up fond childhood memories for many of us, so why not celebrate this year with an egg hunt in your backyard? You could even go all out and make it a clue-based Easter egg hunt if your players are a little older. If you’re looking for an egg hunt on a bigger scale, check out your local entertainment guides or newspapers. There may be community events in your local area. You can also try hosting a virtual easter egg hunt!

Easter brunch for the adults

Another idea is to host a lavish Easter brunch and invite your nearest and dearest. There are plenty of great Easter recipes online, for example, this lamb recipe with caramelised onion and carrots sounds divine. If you’re looking for a dessert to ‘wow’ your guests, try making this hot cross bun and rhubarb cheesecake. It’s positively decadent!

Volunteer

Taking part in a feel-good activity like volunteering is a wonderful way to celebrate Easter. You could help in a soup kitchen or lend a hand at your local opportunity shop. Retirement villages often need volunteers to chat to the elderly and keep them company. For inspiration, check out the volunteer opportunities on GoVolunteer. There are heaps of options, from becoming a volunteer tutor to refugee high school students to doing some light gardening in an aged care facility. You may even be able to find a volunteer activity for the whole family!

Read story of Easter

If Easter has religious significance for you, you may like to share the story of Easter with the kids. You could curl up on the couch as a family and watch biblical movies, or check whether your local church has any special Easter services or displays.

Host an Easter hat parade

New clothes, or a new hat at Easter is an ancient tradition, but these days it’s the realm of little kids who love getting crafty and dressing up. Celebrate both tradition old and new, by hosting an Easter hat parade! Invite all your kids’ friends to put their creative thinking caps on and bring their Easter hats to the party. Prizes for originality are a must.

Bake an Easter bunny cake

If you love seeing the ubiquitous Easter bunny at this time of year, why not bring him into your home as well? You could bake an Easter bunny cake and enlist the help of your kids. If cooking isn’t your strong point, here’s a great recipe for an Easter bunny cake, complete with a how-to video.

Make Easter basket gifts

Making an Easter basket is another fun activity to do with the kids. Why not move away from traditional baskets and go for a non-conventional design? You could use a glass jar and turn it into a terrarium filled with Easter eggs and decorations. Alternatively, transform an old watering can into an eye-catching Easter “basket” by getting creative with some ribbon. Check out this slide show for inspiration.

Make Easter cards

Put the kids to work making Easter cards for family and friends. It’ll keep them busy, and the recipients will love receiving a handmade gift from a child in the mail. Cut up last year’s cards or collect Easter-themed cut-outs from junk mail advertisements. Discount stores usually stock a treasure trove of creative bits and pieces for this kind of activity. Check out this vid for easy DIY easter cards.

Have a toy exchange

Recycle and spoil the kids at the same time by hosting a toy exchange or swap party! Go through your little one’s belongings and purge any unwanted items (you may have to do this when they’re not around). Invite other parents to do the same. You could make it fun by giving the kids “tokens” to redeem for new toys. Anything that’s left over at the end could go to your local charity shop.

We hope that you find these Easter celebration ideas handy. We’d like to wish you and your family all the best for the Easter holidays. Remember to give us a call if you need support for your property purchasing plans in the meantime.

The search for your dream home

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Buying your first home or investment property can be an emotionally charged process just like planning for your next holiday. Getting caught up in the excitement and easily distracted by the more gripping things like fun activities and what bikini to pack all while forgetting the important basics like transport and accommodation.  Buying a home is the same: you may have a list of priorities in mind, but it is all too easy to ignore them when faced with a house of your dreams.

We’ve put together a list of important questions to consider when searching for your next property.

What is your borrowing power?

This first question is as easy as picking up the phone and making an appointment with us. As your Mortgage Broker, we’ll help you determine your borrowing power and give you a clear understanding of how much you can realistically afford to spend on your new property. In this conversation, we’ll get to know you financially. Having an accurate idea of your borrowing power will help ensure that you’re looking in the right price range from the very start.

Read more: What do you know about your credit report?

What are your criteria for your desired property?

It’ll be easier to research the property that you’re looking for when you have a set of criteria. With a lot of quality properties to choose from, it’s easy to fall in love with aesthetics, so it’s important to make sure that the property meets your requirements. Here are some things to consider when putting your criteria together.

  • What do you need in a house?
  • What do you want in a house?
  • What is your main purpose or reason for buying a property?
  • How long do you plan on staying in the property?
  • Do you have a budget for ongoing repairs and maintenance?
  • Who would potentially rent your property or buy it when you decide to sell?

Where do you plan to buy?

Whether you’re a home buyer or an investor, the aim is to purchase in a suburb with solid capital growth potential. It’s generally a good idea to buy in a suburb that is in the early stages of growth, rather than at the peak of a growth cycle. The surrounding area is also worth looking into. Get to know the local transportation situation, as well as local facilities located at a walking distance or just a short drive away. We can provide comprehensive market reports, so please reach out to us if this would be helpful for your research.

What is the condition of the property?

When inspecting the property, ensure you are inspecting both the internal and external conditions. Here are some items to include in your checklist.

Internal:

  • Check the ceilings for water stains and the cornices for waviness – indications of water leaks.
  • If there are carpets, check the situation underneath – if there’s cement or floorboards.
  • Be mindful of the evenness of the floor.
  • Get in touch with us, your Mortgage Broker, for referrals on building and pest inspections.

External:

  • Check for cracks in the brickwork.
  • Check for mildew in the eaves.
  • Be mindful of cracks in the driveway.

How much does the property cost?

It’s best to compare prices with other recent property sales in the same location to make sure that you’re getting a reasonable deal. There are a lot of online resources for this, where you can research property sales in a specific location, and you could compare with other properties with comparable conditions and land size. Don’t forget to also include ongoing costs in your budget. Research the ongoing costs that will be applicable to your desired property, such as council rates, strata fees, and water costs.

What is the rental yield of the property?

Consider the average rental yield of the area and the property. This means finding out the potential rental income. If there’s a strong demand in the area, the rental yield may be higher. On the other hand, if there’s a high vacancy rate, the rental yield may decline. There are useful online resources where you can access market reports on specific areas. The data include details about median prices, growth rates, and rental yields. This part can get technical, but you can ask us for a property report and we’ll gladly explain the details to you.

Read more: How to estimate the rental return on an investment property

What is the history of the property?

You may want to get to know the property a little bit more by researching its history. You can trace the history of a property through online archives, street directories, council rate books, and Title Office records. It’s also important to know if the area or property has been flooded before, as this can greatly affect the property’s resale value.

Who are the professionals that you’ll need?

Make sure to consult with reliable professionals (like us) who can give you advice that’s useful in your property hunting journey. We can give you referrals and you can also do additional research. Best practice is to ask for recommendations from friends and family based on their experience with that service provider. You can also check reviews and testimonials.

We hope you’ve found these tips useful and that you soon find the property of your dreams. We can’t stress enough the importance of doing plenty of research, but we guarantee that the effort will be well worth it in the long run. If you’re ready to start your hunt for a new home or investment property, get in touch with us today to organise your home loan pre-approval early so you are ready to act fast when you find the right property.

Additional source:
https://www.realestate.com.au/advice/buying/first-home/
https://www.nla.gov.au/faq/how-do-i-trace-the-history-of-my-house

Is it time for a home loan health check?

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With a home loan, home owners tend to just ‘set and forget’. But it’s sensible to review your home loan every two to three years. Life happens, and our circumstances are always changing — interest rates can go up and down, new lenders emerge, and more competitive products become available; so keeping the same home loan for 30 years could cost you more money than you need to spend.

We can do a full home loan health check for you and will generally cost you nothing to find the right loan with a competitive rate. Here are some questions that you may want to ask us:

  • Am I paying an unreasonably high interest rate?
  • Am I paying high fees?
  • Am I happy with the service I receive?
  • Does my loan give me the features I need?
  • Am I paying for features I don’t use?
  • Have my financial circumstances changed?

Below is the process to refinancing your home loan, though before we get into that, let us clear up a few common questions about refinancing.

WHY should you consider refinancing?

In general, there are four main reasons to consider refinancing.

  1. Your loan may be less competitive and you could potentially get a lower interest rate.
  2. Different home loan features and benefits could work better for you.
  3. Your financial situation may have changed.
  4. You want to access some of the equity you’ve built up in your home.

WHEN should you consider refinancing?

We’re currently experiencing a low interest rate period, so there are many competitive home loan products available. It’s a good idea to review your home loan every two to three years.

WHO should you use to refinance?

You should always talk to a us, as your Mortgage Broker, because our opinion is not biased towards any particular lender or product. (Unlike a bank, who will push whatever loans they have to sell at the time.) And we won’t suggest that you refinance if it isn’t the right move for you.

WHAT is the process to refinance?

We’ve explained the when, who and what of refinancing, but what’s the actual process involved? Here’s a simple step-by-step guide.

Step 1: Speak to us

Before we begin exploring your loan options, it’s important for us to have a sound understanding of where you’re at financially and what you’d like to achieve. We’ll start by reviewing your current home loan and compare it with others in the market. This is the time when we help you decide if it’s the right time to refinance your home loan and what features may be beneficial for you.

Step 2: Choose your mortgage and apply

You may opt to stay with your current lender by negotiating for a better rate or changing to an alternative product; or refinance by switching to another lender offering a more competitive rate or loan features to suit your current circumstances. We’re here to help you find the right home loan to fit your personal goals and objectives. Then we’ll submit your application.

Step 3: Get your valuation

Your new home loan provider will require a valuation on your property as part of the application process. Keep in mind that their valuation might be more conservative than the market value you estimate.

Step 4: Get approved

Within a few days of submitting your application, it’s likely our inbox will light up with that delightful email confirming you’ve been approved for your new home loan. Yay!

Step 5: Your old mortgage will be closed

We will arrange for you to complete a ‘discharge authority’ form. Your current lender will then provide a payout figure. Your new lender will fund your loan to pay out your current loan provider. If you’re refinancing to consolidate other debts, for example, credit cards or personal loans, these will be finalised with the proceeds of your new loan at the same time.

Step 6: You start afresh!

Once you have your new home loan in place, you will begin making repayments. If you need any help managing your new home loan, we are always here to lend a hand.

We hope you’ll find this guide to refinancing handy; and we would love to help you decide whether refinancing is the right step for you. The current COVID-19 pandemic has produced record low rates so now is good time for us to the review your home loan with you. We can help you explore your options and walk you through the process. Get in touch today; you never know how much you could be saving!