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HOW TO ACCESS YOUR EQUITY
Jun 14th, 2018 • Home LoansIt doesn’t matter whether you’re a first home buyer, next home buyer or a property investor, deciding between a brand new home and an established one is an important choice that every property buyer needs to make.
Jun 12th, 2018What is co-housing?
Co-housing is defined as “an intentional community” of private homes built around shared facilities. These common spaces may include a common house with a shared kitchen and dining area where residents can cook and eat together. There may be community gardens, playgrounds and recreational spaces. Some co-housing developments may even include communal swimming pools and movie rooms for residents to enjoy.
Each household in the community is independent and fully equipped with its own amenities, including private kitchens and baths. However, the idea behind co-housing is for neighbours to be part of a collaborative community. Co-housing differs from regular retirement villages in that the community is owned and managed by the residents who live there.
The key benefits of a co-housing community are that residents may have the opportunity to collaborate over how it is set up, what amenities it includes and how much it costs.
Where did the idea originate?
The idea of co-housing started in Denmark in the 1960s. From Scandinavia, the concept spread to other parts of Europe, on to North America, and over to New Zealand and Australia.
Co-housing initiatives are now popping up in many parts of Australia, reinvigorating the concept of community. Seniors’ co-housing has been suggested as an alternative to aged care or retirement villages for those wishing to age in place.
What are the benefits?
Enthusiasts believe co-housing offers the following advantages:
- More meaningful relationships with neighbours.
- A feeling of belonging, in that you’re part of a community.
- Reduces loneliness and isolation by connecting you with others.
- A collaborative culture of sharing and caring.
- Maintenance tasks are divided among the community.
- Decisions affecting the community are based on the consensus.
- You still have privacy, as well as the support of your neighbours as needed.
- Reduces household bills, as expenses for shared space are divided between residents.
- Depending on your community, it may be less expensive than other housing options.
- Reduces your environmental impact thanks to a “greener” approach to living.
Refinancing your loan allows you to access the equity in your property. Equity is the proportion of the property you own – for example, if the property is worth $500,000 and you owe $200,000 to the bank, then you have $300,000 in equity.
Savvy property investors use their equity for a variety of different purposes:
- To renovate and add value to an investment property
- As a deposit for their next investment property
- To fund their lifestyle and living expenses.
Another popular reason to refinance is to secure a more competitive interest rate or a loan that better suits your needs. There may be loan features that can improve your interest savings or cash-flow, like offset accounts and redraw facilities. It pays to talk with your mortgage broker and reassess your property investment loans regularly, to ensure you’ve got the right loan to maximise your financial benefits and tax advantages.
1) Market value and equity
Generally, the right time to refinance your investment property is when the equity has grown sufficiently to take the next step in your investment strategy, or to fund your renovation plans. To get an idea of the value of your property, and how much your equity has grown, you’ll need to compare public sales data for similar properties in the area. Ask us for a free suburb and property profile report with the latest on-the-market information.
You could also ask real estate agents for an estimate (make sure you hit up at least three different agents) or pay for a professional property valuation. Keep in mind that a lender’s valuation will be on the conservative side of any estimates, and a formal valuation will be required by the lender before they will allow you to refinance.
2) Consider the costs
Switching lenders and refinancing your investment loan can help you achieve your goals, but there are costs involved. These may include break fees or discharge fees, establishment fees for your new investment loan, and valuation fees. Speak to us and we’ll run you through the costs and help you decide whether refinancing is worthwhile right now, or if it may be better to wait until your equity has grown further.
3) Investigate how the market is performing
Part of the decision about whether to refinance will depend on how the property market is performing for your investments. National dwelling values have been falling in many capital cities in recent months, while regional dwelling values have been edging higher. That may mean the location of your investment property will be a key consideration when deciding to refinance.
It’s important to be aware that if do you refinance after your property’s value has decreased, you may be facing negative equity territory. This is when the value of your investment falls below the outstanding balance on the mortgage. In this situation, it may be better to wait until the market recovers before you refinance.
4) Other considerations
The investment lending landscape has seen many changes in recent times. In April, the Australian Prudential Regulation Authority (APRA) announced the 10 per cent limit on bank lending to property investors (in place since 2014) would be removed for lenders that could demonstrate prudent lending. As a result, we’re seeing interest-only investment loans becoming easier to obtain, and interest rates being reduced by some lenders. That means now may be a good time to reassess your investment strategies and refinance requirements.
Talk with your mortgage broker first
If you’d like to access equity to grow your investment portfolio or renovate, or you just want to know you’re getting the best deal, it’s worth having a chat with your mortgage broker. You’ll find we are a wealth of information – and it’s always best to make a fully informed decision. If the time is right for you to take the next step in your investment journey, we’ll help you find the right refinance option to help you achieve your goals. Call us today!
Pros of renting
- You can live wherever you want
Career and lifestyle are important considerations, whether you’re single or a family. Renting a place in a suburb or location that is close to your work, friends and ideal lifestyle amenities (like schools or shopping) can often be much more affordable than buying there.
If your work or lifestyle require you to be ready to up stumps and move at short notice, then renting gives you greater flexibility and mobility. Or if your situation changes and you find you need less expensive digs, you can quickly find a rental that fits your new budget.
- Lower costs and less hassle
Renting is usually cheaper than buying and you won’t have to worry about ongoing expenses like rates, body corporate fees, maintenance, repairs and building insurance.
Cons of renting
- The ‘dead money’ argument
Have you ever heard the phrase ‘rent money is dead money’? Many argue it’s much better to pay off your own home loan than someone else’s. It’s certainly true that capital gains on a property can potentially grow your wealth, and you can look forward to living ‘mortgage free’ within 25 – 30 years.
Common complaints from renters include living with the landlord’s décor, not being able to put hooks in walls, restrictions on pets, or even the number of people who live with you.
Rental properties don’t offer long-term certainty. Moving can be expensive and you’re vulnerable whenever the lease ends or the landlord decides to renovate or move back in.
Most rental properties require you to submit to inspections by the landlord or agent every six months. These can be stressful and inconvenient.
|What the statistics say
* Based on the 2016 census
|Percentage of Australians renting||30.9%|
|Percentage of Australians who own their home outright||31%|
|Percentage of Australians paying off their home||34.5%|
Pros of buying
- Freedom to do what you like with the property
Buying your own property means you have the freedom to do whatever you want with it. You can decorate any way you like, and add value by renovating.
- Capital gains and wealth-building opportunities
You’ll own an asset eventually, and while you’re paying it off the property could potentially increase in value. What’s more, you may be able to use the equity in your home to build wealth through property or other investments.
You’ll have the security and certainty of knowing where you’ll be living for years to come. You’ll also obtain a degree of financial certainty – because you’ll own a substantial asset.
Cons of buying
- Affordability constraints and costs
High housing prices and low wages growth have made buying difficult for some people. However, there are incentives available like the First Home Owner Grant to help you get started. Ask us if you’d like to know more.
- Added responsibility
Becoming a home owner means you’ll have new financial responsibilities (such as paying your mortgage repayments and bills in a timely manner).
- You may not be able to afford to buy where you want to live
As a home buyer, you may have to compromise on location or property type to find a property that suits your budget at first. However, once you get a foot on the property ladder, the potential capital gains could help to make your next property purchase more ideal.
Just because you want to live close to the action doesn’t mean you have to forfeit your dream of owning property. Rentvesting is a strategy that allows you to live where you want and buy an affordable investment property elsewhere! You could potentially get a foot on the property ladder now, enjoy the benefits of capital growth and having a tenant to help you to pay the mortgage, but still live wherever you like.
Talk to us about what’s right for you
Whether to rent or buy comes down to your personal situation and goals. If you’ re considering buying, then talk to us and we’ll help you decide what’s right for you. Keep in mind that even if you don’t have a 20% deposit saved, there may be other ways to get you over the finish line to buy a home or kick off your rentvesting strategy. We’re happy to explain everything you need to know, so please get in touch today!
Jun 5th, 2018 • Industry News
Step 1: Talk to us about your borrowing power
The first step involves a friendly chat with us about the finance set-up. We’ll run through your personal financial circumstances and help you determine your borrowing power - which is the amount a lender may be willing to lend you. Your borrowing power may be very different for an investment property than for a home to live in yourself.
Like all property purchases, you’ll need a deposit. If you already own your home and it has appreciated in value, or you’ve paid down your mortgage somewhat, you may be able to refinance to access equity to fund it. We can explain how this works and the kind of loan that will best suit your situation. We can also organise pre-approval so that you can set a purchasing budget and be confident a lender will come through with the finance when the time comes to start investing.
Step 2: Formulate an investment strategy
Ask yourself what your ultimate objective is – do you want to build a big investment portfolio of 10 properties or more and make a business out of it? Or are you more interested in concentrating on paying off your own home, perhaps using an investment or two on the side to generate some money to do it?
We recommend seeking advice from your financial planner or professional tax advisor when formulating your investment strategy. Maximising tax advantages is a big part of property investing and knowing what they might be in your personal situation is key. Ask us for a referral if you don’t already have a professional on board.
Step 3: Set your budget
There are many costs to factor into your budget when buying an investment property. The financial side of a successful property investment is a balance between costs, income, tax deductions and how they affect your overall cash-flow. The costs to factor in may include the following:
- Initial costs
- Loan establishment fees
- Lenders’ mortgage insurance (if you have less than 20% deposit)
- Stamp duty (calculators are available here)
- Conveyancing and legal fees
- Building and pest inspection reports
- Quantity Surveying fees – to create your Depreciation Schedule for the fixtures in the property, so you can maximise your tax deductions (after purchase).
- Ongoing costs
- Rates/government taxes
- Mortgage repayments
- Body corporate fees
- Utilities not paid by the tenant
- Property management fees
- Repairs and maintenance costs.
Step 4: Do your research
The key to buying the right investment property is to spend plenty of time researching. Property investors usually focus on two key financial returns – capital growth potential (which is the growth in the property’s value) and rental yield (the income the property will generate from the tenants).
These factors are driven by supply and demand, so try to find a property that will be in high demand by tenants and future potential buyers. Ask us for assistance with the right property market data to inform your property searches.
Once you’re set on a property, be sure to organise building and pest inspections. You’ll want to know that the property is structurally sound and free of unwanted guests before making an offer or going to auction.
Step 5: Finalise your finance
The final step involves us helping you secure an investment loan that suits your financial circumstances and goals. Ask us to get you pre-approval on a loan for the specific property you want to buy before you make an offer or buy it auction, so you can have a realistic ceiling price to work with during the negotiations.
This step is the most important one of all if you’re buying at auction – you will be required to put your deposit down on the spot and it is not refundable if the lender does not agree the property is worth the price you paid and won’t lend the amount you need to complete the purchase. If you are buying under offer, we recommend you include a ‘subject to finance’ clause in the sales contract, to cover this contingency.
If you’re thinking about joining the thousands of Australians building wealth for the future through property investment, don’t wait to give us a call. Our mortgage brokers are here to give you expert guidance about investment loans and structuring your finance. Talk to us today!