Below is an article written by John McGrath on what could be the future of real estate ownership in Australia. It is something I have been suggesting for a long time and is only now starting to be thought about by other ‘experts’ in the industry. Buying a property as an investment as your first property purchase in the Australian market while renting the home where you live is a much easier purchase than having to try and save for a large deposit and pay down the principal and interest repayments over the duration of the loan. The tax benefits achieved from buying an investment property coupled with the additional income paid by the tenant makes owning an investment property a pleasure! See below what John McGrath has to say. We are happy to step you through the numbers in more detail should you wish to discuss this further.

—-

The rise of renter-investors

There is a rising number of young buyers who are choosing to purchase an investment property instead of their first home so they can get a foot in the door of the property market while continuing to live in the lifestyle locations they like. They’re dubbed ‘renter-investors’ and it’s a growing trend. In fact, one academic estimates 11 per cent of all residential properties are purchased by people who rent their own homes*.

There are two reasons for this. Firstly, we’ve known for some time that many young Australians are valuing lifestyle over the traditional dream of home ownership. They’re renting in beachside or cityside suburbs where there’s a café culture, restaurants, nightlife, entertainment, recreational facilities and fast CBD access to work. They can’t afford to buy in these locations but they don’t want to move to the outer ring where properties are cheaper. So they’re left with two options. They either rent for life or they buy for investment.

This choice means they don’t qualify for the First Home Owners Grant, which is only available to first homebuyers who have never purchased property before. But they do enjoy the significant tax benefits of negative gearing and with rental returns so strong right now they have greater ability to manage the repayments on an investment loan.

I have long advocated home ownership as a cornerstone investment in people’s financial future. However, I would rather see young Australians buying an investment property than doing nothing at all.

Property has proven itself to be one of the best asset classes for wealth generation and as long as these young buyers are sensible about their ability to pay high rents themselves as well as the repayments on their investment loans, then good luck to them.

Renting-investing is entirely do-able if you’re on a good income. Here’s the numbers, using Sydney as an example.

One of the suburbs I like for apartment buying right now is North Parramatta, where the median apartment price is $345,000.

With a 10 per cent deposit, the monthly repayment is $2087.

Rents in this area are an average $360 per week for a two-bedder and $420 per week for a three-bedder. This represents a very strong rental yield of between 5.4 and 6.3 per cent.

Say you buy an apartment for $345,000 and get the minimum rental return of $360 per week. That’s an average $1560 per month, leaving a $527 gap or an average $120 per week gap over the year.

Although this gap doesn’t take into account costs such as strata levies and council rates, this out-of-pocket expense is tax deductible – as are the strata levies, council rates and other costs too!

So, these young executives can live in a rental by the beach and close to work while still owning property to secure their future wealth. And there’s one thing I haven’t mentioned… capital gains. Their investment property will keep growing in value – in our example here, North Parramatta apartments appreciated a respectable 4.55 per cent or $15,000 in 2010. Not bad!

Source: Switzer.com.au | Written by John McGrath | Posted 11th April 2011

3 Comments »

Although rental yields are expected to fall in 2010, this is actually positive for property investors as growth of property prices are expected to exceed that of the rental market.

We need to look at the whole picture to understand what is currently happening in the market.

Many First Home Buyers were sucked into the market last year due to the Government incentives. Those that were on the edge of buying would have bought and those thinking about it would have rushed to take advantage of the grants made available. This has been the case and supported by the reported record number of first home buyers in the market through 2009. Towards the end of 2009 we saw the rate of First Home buyer lending fall as they moved out of the market as grants started to disappear and interest rates started to rise.

Rising interest rates are another major factor that is going to keep first home buyers out the market now. With affordability becoming an issue for home buyers, property investors will take their place as they are able to take advantage of negative gearing tax benefits.

Property Investors are all focused on property that is high in demand. This includes the 1 and 2 bedroom new apartments, townhouses and house and land packages. They are all affordable and demand for rental of these property types is going to grow as First home buyers stay clear of buying. It is also important to remember the high migration levels to Australia and those from interstate are putting pressure on the states property markets.

The property market is expected to move up substantially this year, possible even more so that last year which means that although property prices will grow, and rental prices will increases, the growth or property prices will exceed the growth in rentals thus reducing the investors yield.

How to ensure you get the best of both worlds… Buy sooner and hold for longer.

No Comments »

Sydney Home Buyer Show (Pre-Show Guide)

Don’t miss the largest event in Australia dedicated to educating home buyers & property investors of all levels.

Buying a home or investment property is one of most important financial transactions you will ever make.
So if you’re looking to buy property but keen to make the right decisions and avoid costly mistakes – then you simply can’t afford to miss the Sydney Home Buyer Show being held at the Sydney Exhibition Centre from Saturday 31 October to Sunday 1 November.

It’s the smart way to buy property and the largest event in Australia dedicated to helping people finance, find and buy their next home or investment property. We’ll help you get on the right path to the right property with over 30 free seminars and workshops on offer each day – delivered only by impartial experts from government and industry associations that you can trust including free seminars from John Symond, Aussie; Mark Bouris, Channel 9’s The Apprentice and Effie Zahos, Channel 9’s Money for Jam.

A major exhibition will showcase over 120 leading companies with everything the home buyer or investor needs under one roof, including new and established homes, apartments, townhouses, units, builders, house & land packages, holiday houses, land estates, home loans, real estate agents, property investment advice companies and much more.

Heaps of New Products and Show Specials will also be on offer plus there’s dedicated Zones for Apartment Buyers and Property Investors.

For further information including the comprehensive educational seminar program and full exhibitor list visit: http://www.homebuyershow.com.au/home/sydney

As part of a special promotion we are pleased to offer all our Blog Readers, family and friends FREE TICKETS to the Sydney Home Buyer Show which are normally $15. Simply visit the website www.homebuyershow.com.au and quote the special promotional code FINDIP when purchasing your tickets.

Visitors to can also attend the Trading & Investing Seminars & Expo next for free – tickets are normally $15. For full details visit the Trading & Investing Seminars & Expo website: www.tradingandinvestingexpo.com.au

Event details:
Sydney Convention & Exhibition Centre
Saturday 31 October to Sunday 1 November 2009
Opening Hours: 10am to 5pm daily

No Comments »

There has been much speculation about the first home buyer’s grant halving at the end of September and ending at the end of the year. On one day the media talks about prices diving and the next it tells us that prices will be steady, while the next it tells us of prices rising. What about interest rates… what if these are raised? Then there will be no boosted Government Grant and no low interest rates… will this make property unaffordable? With everyone guessing what will happen next I thought I would share my view.

Owning a property is not easy… it’s a long hard slog of ups and downs. Interest rates up and down, the economy up and down, tenants in and out, employment on and off, ongoing associated costs etc etc… So why do we do it? Owning your own bricks and mortar is the Great Australian Dream. It doesn’t matter what you own, whether it be the home you live in or an investment property, the satisfaction of owning your own property for many is worth the pain required in saving, repaying the mortgage and one day having the home paid off.

In 2006, 32.6% of Australian homes were owned outright, that’s 2,478,264 households with no mortgage to pay. There were also 32.2% of Australian homes, 2,448,205, that were in the process of being purchased and had a mortgage which they were currently repaying. There were also 27.2% of households that were owned by investors and had tenants renting them. That’s 2,063,947 Australian homes. The remaining 8% were unaccounted for.

We also are aware that most capital cities currently have very low vacancy rates, although this has been eased over the last 12 months as more home buyers have entered into the market due to low interest rates making the purchase of a property more affordable. Increased rents has also meant that the gap between rental repayments and mortgage repayments was closing and the Government had boosted the First Home buyers grants, encouraging more First Home Buyers to take the plunge into property ownership.

The supply of future development is also going to be limited while developers fight with local councils and banks for approval and funding.

So when the boosted First home Buyers Grant expires at the end of December this year, many previously thought that low interest rates were going to continue to propel the number of home buyers into the market as the record lows have greatly assisted with the affordability of property, HOWEVER, if the economists are right and the RBA (and the banks) start to move interest rates higher before the end of the year and start to scare people into thinking that we will be back up to 7% before the end of 2011, then this will cause more future home buyers to pull out of the market and look for rental accommodation. Rents will increase thus creating a better return for the property investor thus bringing the property investors out of hiding and back into the market to reap the rewards of greater returns while still having the ability to take advantage of the tax deduction incentives of owning an investment property.

What does all this mean…. Higher rents, higher property prices and greater demand with less supply.

Will this happen? I don’t know but it sure could and all the elements of a mini property boom are on the cards.

1 Comment »

With a recent review of surveys and media articles in the press over the last 2 months, it seems that everyone agrees on one thing at the moment… Property investors are starting to come out of hiding.

So the first question we have to ask is what scared them away, especially with interest rates so low and rents continuing to increase. The answer is the Government. How? …The introduction of the Boosted First Home Buyers Grants. These boosted grants have caused a flurry of home and apartment purchases by first time property owners. Many have been renting and with the opportunity to switch to ownership without a large difference in monthly outlay, due to interest rates currently being so low, the step from tenant to home owner has been a fairly simple one…especially when the Government has been so generous with their First Home Buyer handouts. These boosted grants have caused too much competition in the current market and property investors are waiting until fewer home buyers are competing with them.

The boosted grants were meant to have ended on the 30 June 2009, however the Government took it upon themself to extend it to the end of December 2009, with a reduction in the increase from the end of September 2009. The slowdown in home buyers is expected and the increase in property investors will most likely occur.

Mortgage Choice recently ran a survey that found 3 out of 4 Australians that are planning to buy an investment property in the next 2 years were waiting for the FHOB to expire. Mortgage Choice claims that many of their clients that are looking at purchasing an investment property now are doing their homework and determining how much they can borrow, so when 2010 arrives, they will be ready to act.

Other results from the survey included:

• 37% of property investors rated their level of confidence in their states housing market as “high”, 57% rated it “moderate”, 6% low and 1% very low. Queensland respondents were most confident about their state’s housing market, followed closely by Victoria.
• 75% of respondents saw property investment as a better than investing in the share market
• 49% were looking to own two to three properties
• 47% said they were intending to keep it for 10 years or longer while 41% were planning on five to ten years

When purchasing their investment property, the features respondents considered most important in order of preference were:

• price;
• locality – convenience to amenities and transport;
• number and/or size of rooms;
• locality – prestige;
• features – such as driveway access, garage, swimming pool, backyard, fireplace and so on;
• aesthetic appeal;
• age of the property; and
• green/environmental aspects or initiatives.

There are a lot of positive factors at investors’ fingertips – historically low interest rates alongside historically low rental vacancy rates, greater demand than supply, a number of extensive infrastructure programs around the country, increasing rents, healthy migration levels and relatively stable housing prices… so I tend to agree with the outcome of the survey… it will be interesting to see what happens over the next 6-12 months.

2 Comments »

Home Buyers Show Brisbane

Brisbane Property Expo on 13th and 14th June 2009 at the Brisbane Exhibition Centre. Perfect for property investors and home buyers.

Find Investment Property is excited to announce that we will be participating at the upcoming Home Buyer Show at the Brisbane Exhibition Centre on Saturday 13 and Sunday 13 June. It is the only major event in Australia dedicated to helping people actually buy or sell a new or established home or apartment whether as a primary residence or investment property.

The dream of home ownership is alive and well in Australia, and with interest rates at record lows, property prices cooling, substantial Government grants still available and a strong rental market, home buyers and property investors are returning to the market in large numbers.

Now more than ever, home buyers and investors need to do their research, understand market conditions, and have access to all the right independent advice from reliable sources to make informed buying decisions to enable them to get on the right path to the right property.

The Home Buyer Show will provide first, second and third time property buyers with all the information they need to help discover the smart way to finance, find and buy a home or investment property – direct from the experts.

Some of the major show highlights include:

• Free seminars from Australia’s leading property and finance experts in government and industry associations
• Master Builders Zone – Master Builders members, Queensland’s leading building services companies, will be showcasing a wide range of new homes, display villages and house & land packages.
• Property Investor Zone (sponsored by Find Investment Property)- educating property investors of all levels including all the latest investment properties for sale on the market today with loads of experts on hand to provide independent, impartial advice.
• Apartment Living Zone – showcasing some of the latest apartment, unit and townhouse developments in SE Queensland

As part of a special promotion, we are pleased to offer all of our clients, partners and friends unlimited $5 tickets to the Home Buyer Show which are normally $15. Simply visit the website www.homebuyershow.com.au and when purchasing tickets quote the special promotional code FIP.

No Comments »

New homes take the lead from new apartments when it comes to pushing the properrty market up. First home buyers have helped with an increase in detached new home sales by 1.1% in April according to the HIA. The number of detached new home sales was 3% higher than that of April 2008. Harley Dale, chief economist at HIA has suggested that the leading indicators point to housing as emerging bright spot int he economy.

HIA has forcast that 6,900 extra starts of new homes will occur in the second half of 2009.

Other figures released by the HIA suggested property investors were still a little hesitiant coming back into the market with new apartment and unit sales falling by 5.6% in April.

No Comments »

The Sydney property market has been through a tough time over the last few years with slow or no growth. There has even been some negative growth over a couple of periods. On the other hand other states had previously been pushing up the charts with some amazing property returns. All that has changed over the last 12 months as most of the property markets around Australia have fallen. Now with a rebalancing act occuring, the light looks bright for property accross Australia with the suggestion that the best placed property market is Sydney. Residex is predicting that Sydney units will increase by 5.95%pa over the next 3 years and Sydney houses to increase by 8.59% pa over the next 3 years.  The prediction looking further ahead suggests that  median Sydney House price in 2012 would be more than $700,000., up from the current median Sydney house price of $556,500.  

Residex go on further to predict that post 31 December when the First Home buyers grant expires, rents are likley to rise even higher. This is great for property investors that make the move now into property, however i still feel that this is not the desired outcome. Greater development needs to occur so that property continues to provide a stable predictable return for property investors and not the get rich quick style investments which property investing is certainly not!

No Comments »

Developers in Victoria are concerned that demand for new property up until 30 June 09 may drop as more first home buyers wait for the new grants to be available from 1st July 2009. Currently new home buyers will recieve a total of $26,000, however from the 1st July this is going to increase to $32,000. The 6 week gap of subdued activity may force developers to offer their own “subsidies”, which is exactly what Devine Property has done. They weren’t going to wait around for the next 6 weeks for the Governments announcmenet to take effect. Instead they have taken the innititave to offer the incentives immiedietly out of their own profits ensuring that there wouldnt be a drop off in demand for their developments.

Luke Hartman, Devine’s Victorian General Manager has said that the current times have been the best they have seen for first home buyers. Devine is targeting buyers aged 25 to 39 who had double incomes. With a 50% increase in sales since October 08 when the boosted grant was immplemented, it looks like Devine are oncourse for another successful year.

In April 09, Victoria saw almost 4,500 first home buyers come into the market with about 75% of those looking to buy established property. Victoria has the most generous boosted grant scheme compared to the other states.

No Comments »

It has been announced that NSW is the hot spot for first home buyers at the moment with a 50% increase in purchases by First Home buyers from February to March this year. There were 6084 First Home Buyers in NSW.

The total number of home buyers across the country rose from 12,664 in February to 17,265 in March. This is assisting with the recovery with the housing minister stating that there shuold be a flow on effect from next year.

The boost has been of great assitance, but dropping Sydney property prices plus increased rents has almost forced First Home Buyers to make the decision to buy instead of rent. Sydney median rents are now up at $390/week as of March 2009.

So if you are looking to buy a property, then make sure you have done your research, can attain a loan and when bidding, make sure you don’t allow your emotions to take control.

No Comments »