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Sydney’s undervalued suburbs

Anything with infrastructure has historically seen increased in capital gains and rental yields. If you look at the North-West rail link suburbs such as Castle Hill or Kellyville, these suburbs have had strong demand thanks to demand from dual income families looking to purchase homes.

Suburbs surrounding Sydney’s second airport may be next to boom but have already seen a dramatic increase in prices thanks too speculation from investors. A strategic place to look at a long-term plan for purchasing are the suburbs which are next to receive rail infrastructure near Leppington. These are suburbs such as Rossmore, Bringelly, Maryland & Oran Park are all about to receive brand new rail stations connecting them to the surrounding suburbs and beyond.

According to the Australian Bureau of Statistics a suburb such as Bringelly sees 5.5% population growth from the year before, consists primarily of couples with children and the main occupation is people within trade work. This is generally strong indicating factors to a growth in demand for the suburb.

Do not expect overnight returns in these areas as it is a long-term waiting game to see the suburbs grow and develop to their full potential.

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Where to buy an investment property?

Whether your a first time buyer or a seasoned investor, there are a few key features an investment property must have. The property must be able to achieve an increase in capital growth, an increase in rental yield and have low costs associated with maintenance or strata levies. It is also helpful if there are less other properties available for rent in highly desirable areas to create upward pressure on prices.

Areas with a wave of new housing supply are the best options for tenants as there usually is a downward pressure on prices. Suburbs such as these are not the best options for investors as there are long vacancy rates and an over supply of apartments. Usually a number of apartments settle at the same time and they all go to market at the same time creating an over supply. This is occurring in suburbs like Zetland and Ryde where developers have created a tonne of apartments which has also effected greater Sydney’s rental prices.

According to the latest quarterly Domain Rental Report, median weekly asking rents for homes has dropped $25 to $525. Low vacancy suburbs for units include Kirrawee, where rents have risen 8.7% to $500, darlington, which increased 8% to $540; and Glebe, which rose 7 % to $534. The trend the suburbs have is they are all close to amenities like rail, good schools and are located close to Sydney’s CBD.

Properties which still have room for capital growth and increases in rental yields which are not located within construction boom areas and have good amenities whilst be closely located to the CBD are situated in areas such as Glebe, Annandale, Darlington and Leichhardt. The Inner West is a good pick for any investor.

If you are looking to buy, sell or secure a property manager for your property please give us a call on 9 357 4086

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Choosing a real estate agent

Being a good real estate agent (sales) boils down to a few simple things.

The most important things is COMMUNICATION

If a real estate agent is hard to get a hold of or does not return calls, this is a red flag. Good real estate agents answer their phone no matter what they are doing. The agent must be ready to receive enquiries from potential buyers and negotiate the prices. If they are hard to reach then this process will be much more difficult.

They NEVER switch-off

Agents who don’t answer their work phone after 5pm do not deserve your business. Good agents must be contactable (at a reasonable hour) outside of work hours.

They are empathetic to your situation

A good agent should be able to put themselves in the shoes of the vendor and sympathise with their reason for selling and take initiative to achieve the outcomes and expectations that the vendor has.

They keep you well informed

A high quality real estate agent will call you….a lot. They should have you updated every step of the way.

When selecting an agent ensure they are proactive, energetic and receptive.

If you’re looking to sell or would like a sales appraisal please call us at Prestige Property on 9 357 4086

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WHEN A TENANT VACATES CLEANING, REPAIRS OR FAIR WEAR & TEAR

The tenant/s have just vacated your investment property. The property manager has a copy of the original condition report (the only legal evidence that can be taken into consideration to release the bond) and attends the property to undertake the final inspection.

The property manager enters the property and observes:

The griller is dirty, there is a chip on a kitchen tile, marks on the lounge room wall, walk-way wear marks down the hallway, slight mould on the bathroom tiles, a soap holder has been broken off, there is a crack in the toilet seat, a dent behind the bedroom door from a missing door stopper, dust in the window tracks, small tears in several fly screens, a wardrobe rail has broken off, there is a bleach stain on the bedroom carpet and weeds in the garden. It seems like a long list of things that require attention.

Who is responsible… is it cleaning, repairs or fair wear & tear?

Whenever there is a dispute, it is always good business practice to try and mediate the situation between all parties to come to a win/win situation or a compromise. If an outcome cannot be reached between the parties, the matter will have to be determined by a hearing at the tribunal/courts, which will vary depending on the circumstances. The tribunal/courts will take into consideration:

  • How old the property is?
  • How old the fixtures and fittings are that require repairs, taking into consideration depreciation (the diminishing value)?
  • How long did the tenants reside in the property?
  • How many tenants resided in the property?

If the property is six-months old, has almost brand-new fixtures and fittings and there were two tenants residing in the property for six-months, this could be considered cleaning and repairs that the tenant needs to action. However, if the property is 18-years old, with the original fixtures and fittings (that have depreciated over time in value), had a family of six reside there for five-years, then this could be considered fair wear and tear and an owner/landlord expense.

We upload all inspection reports, including photos to the owner’s login portal. You can access these at anytime with your login details.

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WHAT DOES RENTAL YEILD MEAN TO AN INVESTOR?

Rental yield is a measure of how much cash (or rental income) your property generates each year, as a percentage of the property value.

The property investor dream is to secure a high rental yield property, in a location that delivers large capital gains, combined with low management and maintenance costs.

This means, rental yields are not the only consideration when purchasing an investment property, but still a very important one.

Calculation

Rental yield is calculated as a gross percentage and generally calculated before expenses are deducted. Gross rental yield is commonly used.

It is simple to calculate and allows you to easily compare properties with different values and rental returns to assist when considering different investment options.

Gross rental yield = Annual rental income (weekly rental income x 52) / property value* x 100

For example:

The property purchase price = $400,000 and weekly rent = $350

(350 x 52) / 400,000 x 100 = 4.55%

While the gross rental yield is a simple calculation, it’s important to note that it doesn’t take expenses into account. A property may have a high rental yield, but may also have high expenses, making the rental return low when these are taken into consideration.

If you do want a more precise calculation, you will need to know (or estimate) the total expenses for the property, including both purchase and transaction costs (property purchase price, stamp duty, legal fees, pest and building inspections, any startup loan fees, etc.) and annual costs such as vacancy costs (lost rent and advertising), repairs and maintenance, managing real estate agent fees, home and contents insurance, strata levies (if applicable), rates and charges etc.

Net rental yield = (Annual rental income – Annual expenses) / (Total property costs) x 100

A high yield means good cashflow for investors, which helps to improve your return on investment.

* Either purchase price or current market value

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HOW TO CREATE EQUITY FROM SIMPLE RENOVATIONS

Whether you are thinking about listing your property on the market or simply looking to add value to an existing investment property, renovating can be an effective way to create instant equity.

Property owners eager to lift the value of their homes often ask the question, how can I ensure maximum value from a simple renovation?

Before jumping straight into a renovation, it is essential to carefully plan and budget for any upgrades you are considering. The key is to make sure you know what adds value, without over-capitalising.

Here are a few recommendations:

  1. It is always important to consider your renovations with rental yields in mind. As with investment property selection and purchase, a renovation is all about attracting the best rental yields or bottom-line profits. It is important to keep the prospective tenant’s needs at the forefront of any renovation. For example, consider what upgrades would appeal to a tenant. A simple re-carpeting job can cost as little as $3000 while adding as much as $10,000-$20,000 to a property’s value, and undertaking a complete refurbishment for $50,000 may add $100,000 to its value.
  2. Know how to add value with little outlay. If you are looking to sell your home or investment property, but do not have the budget for a large-scale renovation, there are several small-scale improvements you can do yourself to instantly lift it’s value. A fresh coat of paint can make a world of difference to worn-out interiors, and it is impressive how much a decent scrub and clean can increase the appeal of a home. Backyard gardens can be improved with a selection of new plants, bark and the grass areas fertilised. Re-grouting of wet area tiles, replacement of old appliances and fresh window coverings can transform the appeal of a property.
  3. Light it up. One of the things that buyers subconsciously notice is light within a property. Despite whatever amazing features the property might have, if it is not naturally well-lit, it can impact the feel of a property. If your property is dimly lit, consider replacing old light fittings, switches and sockets with more efficient ones.

If you are in a house, semi or townhouse, a skylight could also uplift living areas, kitchens or bathrooms with poor natural light. Removing clutter and opening blinds/curtains are other easy ways to enhance your property’s appeal and demonstrate an abundance of natural light.

  1. Hire an independent property valuer. Many inexperienced buyers risk over-capitalising or making upgrades that don’t impact the value of the property. Even before beginning the simplest of renovations, it’s worth hiring an independent property valuer, as they can advise you on how much value a renovation has the potential to add. A valuer can guide you if spending $30,000 on a kitchen renovation will add more than $30,000 to your home’s overall value, for instance. They will also be aware of circumstantial factors, such as the average value threshold of properties in your street.
  2. It doesn’t have to be perfect. Don’t worry if not everything about the property is pristine. A place that is liveable to rent out straight away is often the most realistic and affordable option for investors. If you have an eye for improvements, investing in a place that needs a simple renovation presents a real opportunity for equity. However, if you are purchasing a property to ‘flip’, beginners should start off with small improvements rather than a complete renovation. That way, not only can you take your time saving and planning for a complete renovation, but seeing the difference between the property’s actual worth and what you can make it worth enables you envision its’ full potential.

Regardless of whether you are considering minor upgrades or large-scale renovations, renovating a property has the potential to significantly increase your home’s overall value, even in a flat market. To receive maximum return from renovations, always remember to consult the experts and stick to your budget.

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ATO TAX DEDUCTIONS CHECKLIST

More than one million Australians claim deductions on rental properties each year. There are many possible expenses that property investors can potentially claim against income generated from leasing out the property. It is important to remember that deductions can only be claimed for times when the property is rented or genuinely available for rent (otherwise expenses may need to be apportioned).

Expenses you may be entitled to claim as an immediate deduction:
 Advertising for tenants
 Body corporate fees and charges
 Council rates
 Water charges
 Land tax
 Cleaning
 Gardening and lawn mowing
 Pest control
 Insurance (building, contents, public liability)
 Interest expenses
 Property agent’s fees and commission
 Repairs and maintenance
 Some legal expenses
 Travel to inspect the property, to collect the rent or for maintenance

Borrowing expenses you may be entitled to over time:
 Depreciation
 Capital works expenditure
 Stamp duty charged on the mortgage
 Loan establishment fees
 Title search fees charged by your lender
 Costs (incl. solicitors’ fees) for preparing/filing mortgage documents
 Mortgage broker fees
 Fees for a valuation required for loan approval
 Lender’s mortgage insurance

Get prepared now to make sure that you have all your invoices and paperwork ready for tax time. We always recommend that you speak with your accountant to ensure that you are maximising your tax return.

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10 BULLET PROOF WAYS TO SELECT THE RIGHT INVESTMENT PROPERTY

Assessing whether a property is better than another requires a big picture point of view, expert assistance and clarity around indicators for growth that will help build your portfolio. When purchasing your next investment property consider the following 10 top tips:

1. The investment property is suitable for the local demographic

Know the demographics of the area and purchase a property that will be in high demand. If the area predominately has families and you purchase a 2-bedroom unit, you may experience an extended vacancy period.

2. The investment property has ‘several’ standout features

The more features your investment property has, the more attractive it will be to potential tenants and therefore, likely to command a higher rent. Look for features such as: newly renovated, parking, security, lawn & pool maintenance included, NBN, additional appliances, ready to move in with minimal maintenance required, across the road from a school, around the corner from a shopping centre or a railway station.

3. Seek out a property on a manageable block size

When you purchase a standalone house, ensure that the block size is not too large for a tenant to care for, otherwise you may find it harder to rent. Most tenants don’t like to look after yards, so make the choice easy and find a land size that’s small enough for them to manage.

4. Choose a location where government spending is happening

It can be risky to invest in areas with an intended growth forecast as governments can change their minds. Instead, look towards areas where millions (or sometimes billions) are already being spent, which is an indicator for capital growth. This includes construction of airports, schools, railway stations, hospitals, health hubs and major arterial road upgrades, which can lead to thousands of jobs and future population growth.

5. Strong capital growth potential

It is not always easy to predict this without expert help and research, but ‘capital growth potential’ increases property values, providing you with greater equity to purchase future investment properties.

6. Select an area where employment opportunities are high

Most people like to live close to where they work, so consider buying an investment property close to an employment hub to maximise the chances of a strong on-going tenancy.

7. Future development opportunities

When purchasing an investment, consider how its’ future development can strengthen your portfolio. E.g. Through subdivision or adding a duplex.

8. The investment property is in a good condition

It is a must that you carry out a building and pest report to identify any costly issues that cannot be seen by the eye.

9. Avoid areas with an oversupply of rental properties

Research the area to find out if there are new developments or housing estates that may cause an oversupply of rental properties in the future. Tenants generally prefer to rent new properties. If you buy an older property in an area affected by new developments or an oversupply, you may have to drop your rent significantly to secure a tenancy.

10. Buy a low-maintenance investment property

Look at the long-term requirements for maintenance and how old the property is. A low-maintenance property will save you money and ensure a happy relationship with the tenants.

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FIVE COMMON PROPERTY INVESTING MISTAKES

Property investing has long been a mainstream investment strategy for both novices and experts alike. Yet, as rewarding and effective as property can be as an investment, there are some pitfalls that are unfortunately all too common. These can render investments potentially ineffective, if not costly. Here are a few key areas to consider before buying a property, making offers or signing on the dotted line.

Poor financial structures

With property being a major purchase and one that attracts considerable costs in addition to the purchase price, such as stamp duty and legal fees, it is important to consider the ‘how’ of buying just as much as the ‘what’. Other than buying the investment in your own name, you might want to set up a family trust or use your superannuation fund and turn it into a Self-Managed Super Fund (SMSF), to undertake the purchase. Changing the ownership of the property later is going to be a costly exercise, so it is worth considering the options before you decide to buy the right property. Likewise, with the many loans and mortgage products out there, it is good to consider the options before you pursue the right property. Getting the right advice from suitable professionals with experience in structuring investment portfolios is highly recommended.

Lack of solid research and due diligence

Researching the market, looking at competitive pricing, rentability, vacancy rates, and proximity to employment centres, education, transport and shopping should all be part of your due diligence process for sourcing a suitable investment property/location. This should happen well before you even think about buying a property, which many investors overlook. In addition, undertaking research into infrastructure, both current and future, should be a priority as these can have a major bearing on the performance of your investment over time.

Using emotions to make decisions

The most important thing to remember is that you are not buying a home – you are buying an investment. All too often people make investment decisions based on emotion rather than looking at the figures that should be the basis of any investment decision.

 

Over-borrowing without a safety buffer

Interest rates are the lowest they have been and now is the time to buy. However, always allow yourself a buffer in case there is a shortfall in rent; the property requires unexpected repairs or maintenance, or the interest rate goes up.

All these factors can easily occur and you should never leave yourself in a vulnerable situation causing unnecessary stress or potentially even jeopardising your investment. A rule of thumb is to allow for at least 3 months of costs as a buffer as well a having all relevant insurances in place to minimise risk and protect your investment and your capital.

Lack of strategic planning

Fail to plan then plan to fail. It is important to have an investment plan. Know how you need to finance the property and how it will build your wealth. Know your short and long-term goals. Will it reduce your tax bill (negative gearing), add extra income or are you looking at buying with a view of renovating/redeveloping it later?

Property investing is a great wealth creation strategy. To avoid unnecessary risks and mistakes, it is always wise to seek advice from people that are experienced. Seek out qualified experts who hold their own successful property portfolios.

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Top 5 tips for landlords

Property investment is a long-term game. Finding and financing a good property are just the initial steps. To succeed, you need to plan for all possible contingencies.

Here are five tips on how to protect and grow your investments:

Read more here