Monthly Archives: May 2016

Currency risks management when investing abroad

Exchange rate movements can substantially affect the bottom line of any property investment made in a currency other than that of your home country. Accordingly, if you plan on investing in foreign real estate, managing your foreign exchange risk properly makes sound business sense.

Of course, you will want to get the best deal on the larger currency transfers required for the property purchase and sale transactions, since those will be your primary foreign currency exposures.

Nevertheless, you might also want to hedge your currency risk over your anticipated investment time horizon, or you might need to make regular foreign currency payments to service a mortgage.

Ideally, such forex transactions should be made at the most competitive rates possible so that you can maximise your returns and minimise your exchange rate risks.

The rest of this article will describe some ways that you can manage the currency risk arising from your foreign property investment appropriately.

Shop for the Best Forex Rates

Since you do not have to use your local bank to make forex transactions or to hedge currency risks using forward contracts, you can inquire with other foreign exchange providers about the exchange rates they offer.

Shopping around like this can improve your exchange rate by 1 to 2 percent when making currency transfers. Reputable foreign exchange providers like OzForex work hard to ensure that your foreign exchange transactions are easy and efficient to execute.

Naturally, your top priority will be to shop for the most attractive forex rate on your initial foreign real estate deposit or when you are repatriating funds after a property sale. Nevertheless, you can also save substantially by getting better forex rates on periodic currency transfers that you might require in order to service a foreign currency mortgage.

Use Limit Orders

Limit orders placed with a reputable forex provider can assist you in obtaining an exchange rate that is better than what you might have received if you had just executed your currency transfer at the initial market rate.

Entering a limit order involves setting a target exchange rate for a particular currency pair and amount of currency that is better than the prevailing market rate.  You will also need to specify whether you want to buy or sell that currency amount if the market reaches your target rate.

Should the exchange rate move to the more favourable target level of your limit order, your forex provider will then automatically transact the currency amount you specified in your order.

Since most real estate investors prefer not to watch the forex market constantly, they can let their forex providers monitor the market for them by placing limit orders at strategic exchange rates in order to benefit from a temporary improvement in the relevant forex rate.

While most stock brokers will work limit orders for their clients, this useful ability is less commonly offered by forex providers. If you think placing limit orders might make sense for you, make sure to ask any prospective forex provider if they offer them.

Using Forex Forward Contracts to Manage Real Estate Currency Risk

Foreign property investments are typically done over a relatively extended time period of months or years. This makes forex forward contracts useful to real estate investors who wish to hedge the currency risk associated with buying foreign properties against longer term adverse forex rate shifts.

Foreign property investors can also use a series of smaller forward hedges when they need to make periodic foreign currency payments in order to service a mortgage.

Using forward contracts to manage property related forex risks permits you to set a market forex rate in a given currency amount for delivery on a specific future date. The forward rate is related to the spot rate by a mathematical formula that depends on the prevailing deposit rate differential between the two currencies involved for the chosen time period.

You can execute a forex forward hedge as early as two years before you will actually need to make a foreign exchange transaction related to your property investment abroad. Such a hedge can also typically be extended forward in time as its delivery date approaches should you wish to hold the property investment for a longer time period than originally anticipated.

If forex forward contracts might suit your foreign property investment hedging needs, then be sure to ask a prospective forex provider whether they can offer this product to you.

To learn more about your foreign exchange requirements, speak to OzForex. You can contact them via Property Women’s Property Professional Network

Risks and pitfalls of investing from a legal perpective

Weighing up the Risks and Pitfalls of your investment

Avoiding or minimising the risks and pitfalls with property investment can be accomplished following these three simple rules:

  1. Obtain the right advice from the right consultants.
  2. Obtain the right advice early.
  3. Be commercial and follow through with the advice.

Without obtaining the right advice upfront before you enter into any contract or agreement the consequences can be fatal, regardless of the size of the property small or large.

Here are some common pitfalls and traps people may fall into when investing in property:

  • Signing an agreement without obtaining advice – BIG MISTAKE. Even the smallest of investment properties can cost you thousands of dollars down the track in unwanted legal fees and potentially, payment of damages and penalty interest if no advice or the wrong advice is received;
  • Incorrect purchasing entity – if you obtain the right advice upfront before you sign this should lead you to ensuring the right legal entity is purchasing the property and is noted on the contract accordingly;
  • No conditions – every transaction is unique, therefore almost always there are some form of conditions required for both seller and buyer. The type of deal you are wanting to enter into must be discussed upfront and conditions included to favour and protect you, whether as buyer or seller;
  • Incorrect conditions – this is sometimes worse than having no conditions. What is the point;
  • Ambiguous conditions – if the conditions are ambiguous how can each party interpret what they mean. The conditions need to be clear and simple but effective;
  • Deposit details –these must be clear as to the amount, when payable and how. Methos of payment can vary. In long terms deals the deposit is usually invested.

Liability limited by a scheme approved under professional standards legislation. Who is entitled to the interest when the deal is completed would need to be accounted for;

  • Type of agreement and structure – getting the right agreement and structure for your investment is paramount. Obtaining the right taxation advice is critical;
  • Stamp duty considerations – very important. You do not want to paying out more money in government taxes than you have to;
  • GST considerations – important and often missed or not discussed. The sale and purchase of property can have GST consequences and a buyer may be misled as to whether a purchase price is inclusive or exclusive of GST;
  • Legal & accountancy advice – always obtain the right legal and taxation advice upfront before you sign and commit to the terms of the deal.

If you obtain the right advice upfront you should be able to avoid or minimise most if not all of the above issues. Getting no advice, or getting the wrong advice from the wrong consultants or professionals can be materially damaging to you reaching your end goal, and in some cases, can have detrimental and costly legal consequences for you.

This article has been provided by Despina Priala from Priala Legal

 

Maximising your rent

How Do You Determine the Best Rent For Your Property?

Every investor should be striving to get the maximum rent possible for their property; so why not just pick the rent you want to achieve and advertise it at that? That may seem the simple approach but it’s certainly not the most effective and is likely to actually reduce your overall rental income rather than increase it.

Yes it is important that you strive to get the maximum rent possible, however you also must keep in mind setting the correct market rent to get your property rented as soon as possible; the longer you have a property vacant, the more it’s going to cost you. As an investor you no doubt realise that time is money!

So how do you get the highest rent in the shortest time? Well I believe there are 3 factors to consider:

  • Demand– Is there a high or low demand for properties at present.  are there lost of adverts which have been there consistently, or do real estate agents appear to have many properties available. This can be seasonal and affected by a number of factors. If there’s high demand you are more likely to get a higher rent. If there’s low demand you could be competing with other landlords.
  • What Is Available Now– look at properties currently available for rent in the newspaper and/or the internet, and consider their location and features for comparison to yours. Have they been on the market for a while? Are they asking too high a rent? Are they lacking in facilities that you can focus on when marketing your own property?
  • What Is Rented Right Now– Compare your property with what is currently rented, taking into account property location and features. Find out by asking other local property investors or your property manager. This will give you an indication of what type of property rents more easily at what price.

These 3 key factors should give you enough information to set the right rent for your property to get your income flowing quickly.

What if I want a rent amount that is higher?

As I mentioned at the beginning of this article, you could potentially just advertise the high rental that you want to charge – you can of course place your property on the market at any rental amount you wish.

However, after reading the 3 key factors above I hope you understand that it is the market demand that sets the rent and if the market (prospective tenants looking for a rental property) deem the amount of rent too high; your property may stay vacant longer than necessary.

With this in mind, be aware your annual rental return will be reduced by 2% for every week it is vacant!

If you want to charge high than market rent, and you also want to get a tenant quickly, you need to be providing something that the other landlords are not, which is important or attractive enough to the prospective tenant for them to pay a higher rental amount.

How should the rent be reviewed?

Everything comes in 3’s and this is no exception!

  1. The ideal opportunity to review the rent is when you are looking to secure a new tenant, but always review the rent against market conditions as mentioned above.
  2. Lease renewal time is a great time to review the rent, but again, make sure you’ve done your homework if you’re self managing.
  3. Negotiating with a periodic tenant to make some improvements to the property or offer benefits to them allowing you the opportuhi8ty to review the rent, at the same time. You may even want to negotiate to change them to a fixed term lease at the same time, too.

It should be noted here also that there may be some legal limitations which apply to when you can increase the rent in your area so make sure if you self manage you have done your research on those requirements. If your property is being managed the property manager should contact you for your permission before the rent is increased.

As property managers working in the market day to day it’s easy for us to keep up to date with the market and the local legislations relating to rental properties, but if you’re self managing it may be something you only do occasionally, so keep these notes ready for your next opportunity to review your rent and make the most of your investment!

This article has been supplied by Ros Hurn, Principal at Real Tenants, Real Property Management www.realtenants.com.au Real Tenants is dedicated to providing its clients with the highest possible quality of service and standards, seeking to deliver on their promise of reliability and quality above all else.



Rent

How is the Market?

A Real Estate Agents Perspective

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As a Real Estate Agent, I am always asked:  “How is the Market?”  Right now it is a great market and it is a great time to buy.

If the media reports that the market has gone down 20% or 40% then consider this: your dollar will buy more house.  A home worth $500,000 before, should now be selling for $420,000.  If it was $1,000,000, you will now buy it for $900,000.

My name is Christine Stow and my aim is to provide you with an agents perspective so you can be better prepared as a buyer or seller.  I am an investor, a home owner, a renovator and a mum: so I am well equipped to understand how it is for YOU.

Fact or Fiction

Although the headlines say the housing market is slow, it should not substitute for hard facts and figures.  RP Data quotes that housing prices in Melbourne this year have gone down only 0.1%.  That is, on your $500,000 house it has reduced in price only $500.  In fact in many areas including the one I work in, there has not been a fall in prices and I have seen some areas increase in median value.  You can go to RP Data (http://rpdata.net.au) to get FREE suburb profile reports.  This will give you a breakdown of the types of people living in the area, their income, parks and amenities.  Even if you live in the suburb, it is a good idea to get this information, as it lays out everything in black and white.  For example, you can look at the pie chart of how many people rent in the area.  If you are buying an investment, you should aim for at least 30% renters, as this gives you a big enough rental population to keep your place tenanted.

Find a Good Agent

A good agent will give you information on comparative sales in the area.  If they are not readily available, go to RP Data.  You can buy more detailed reports if you are really keen on the area.  It is worth doing research for yourself.  It costs money but it can cost you more in the long run if you don’t do it.

It is important when building a relationship with the agent to be a credible purchaser.  When the agent asks what you are looking for, don’t answer with “I’m looking for a bargain”.  Be specific, for example, “I’m looking for a 3 bedroom weatherboard and tile in the suburb of xxxx that’s suitable for renovation.  If it has extra land at the rear I’d also be interested.”

The agent will know valuable information such as how long the property has been on the market, the reason for selling and the level of motivation of the vendor.

The Role of the Agent

Remember that the agent is working for the vendor, but without a buyer he/she received no commission.   It is the agent’s role to bring together a vendor with a set of price expectations and a buyer with different expectations to meet in the middle and agree and effect a sale.  If you have built a relationship with the agent, you will be much more comfortable when it comes to negotiating for the property.

When buying, it is worth putting an offer in writing once you have done your research.  I have seen properties where most people wouldn’t make an offer no matter how many times they were invited to.  The first person who did put in an offer, even though it was very low, had their offer accepted. You never know what an offer in writing might do.  Remember; it is the market that determines the price of housing, not the agent and not the vendor.

You can ask questions of the agent, but the answers should not substitute for a builder’s inspection report.  Get a qualified builder to inspect your prospective purchase.  The information should not determine whether you purchase or not, but rather the best price you should pay.  If a home needs work, chances are there are not too many buyers competing for it.  Most people don’t like the work.

I am happy to answer any questions on how to buy or what to look for in an agent where ever I can help make the process easier.  I have previously attended a Property Women Workshop and have formed a spin off group: “Melbourne Women in Property”.  We meet regularly to provide networking opportunities, information and tips.  I call it a “support group for renovators, investors and home buyers.”  We have some husbands attend and we don’t ask them to wear a dress anymore.

Christine Stow  works at LJ Hooker, at the Greensborough Office in Melbourne.  You can contact her directly at christinestow@bigpond.com.au or call on 0439 385 217.

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