Category Archives for "KNOW HOW"

Tax tips every investor should follow

With these tips tax you are sure to avoid some key mistakes

If you’re serious about investing in property, you need to be a tax smart. In fact, the Australian Taxation Office (ATO) has identified a number of common mistakes property investors make.

The first mistake is not keeping track of tax deductions such as interest, insurance, real estate agent management fees, and depreciation. Property owners need to keep proof of all their income-related expenses from the beginning.

“Keep documentation,” stresses Stella Poly, principal accountant based in Melbourne. “Write everything down. Keep tract of renovation costs. If you live in the property, then rent it out, and later return to the property, keep track of the dates. If you don’t write everything down you can miss out on deductions. Even small amounts add up over time.”

Stella’s other tax tips include:

Getting Market Valuations

Keep in mind, renting out your property, improving or repairing your property, subdividing your property, and/or operating a home office or business can all affect your taxes.

“When you change the nature of the property, for example you rent it out or renovate it, it’s important to get a market valuation of the property at that time,” Stella advices.

Using Discretionary Family Trust

A discretionary family trust can give investors flexibility in distributing profit or income from a property. Since the trust allows you to share the tax burden among family members and helps protect family assets, it can be useful if your family holds capital growth or income-generating assets.

As the name infers, the trustee has discretion in determining which beneficiary will benefit from the trust. This trust has clear advantages where there is a disparity in the income of the beneficiaries; it allows you to reduce your tax bill by distributing income to family members with lower taxable income. If you choose to use a discretionary family trust, seek financial advice from an experienced accountant.

Negatively-Geared Properties

A significant number of investment properties in Australia are negatively geared- a tax strategy where investors make a net loss on their property which can be claimed against their other income to lower the amount of tax they pay.

“Keep in mind, negative gearing gives you the option of claiming depreciation, but it increases chances of capital gains later when you decide to sell,” Stella cautions.

Depreciation Schedules

Some investors do not claim as much as they were entitled to because they didn’t have a depreciation schedule. The calculation of depreciable items is very specialized and should be carried out by a qualified professional. However, the cost of a depreciation schedule is not always warranted.

“If a property has had a major refurbishment or is of great value, say $400,000 or more, this is something you should consider,” says Stella. “But if the property is more than 25 years old, you lose the benefits of depreciation and the cost of getting a depreciation schedule may not be warranted.”

Tax considerations form a large part of any successful property investment strategy. For property owners and investors, working with professionals such as an accountant, financial planner, or conveyancer can help streamline your strategy and help you take full advantage of any eligible tax deductions.

Do you have any tax questions?

Jane Min Zhang from LJR Australia Pty Ltd, has put together a 15 page report titled “The top 10 Questions Property Investors ask their Accountants” valued at $49.95 if you’d like a copy go to our Property Professionals Network and click on Jane’s page to find out how you can get your free copy.

Top ten tips to finding positive cashflow properties

Rachel Barnes and her partner accumulated a staggering 75 rentals within 64 months. This feat was made possible by locating and buying high yielding cashflow positive property. No prizes for guessing what the most common question people ask Rachel … how do you find positive cashflow property?

Here are Rachel’s top cashflow positive tips:

1. Know what you’re looking for!
The first thing you need to define is, what sort of return do you need to make a property positive cashflow.  This may depend on your income, your tax position, and your level of comfort with debt.

2. Debt funded Positive Cashflow options
If debt is something you’re comfortable with, and can manage well, you may consider using equity to fund the short-fall in high growth potential properties. Make sure you understand the pros and cons of this sort of strategy well though, before you choose this option.

3. Check Statistics  – eg Australian Property Investor Magazine
API often provide Statistics showing Average rental returns for most areas.  If you find the highest ‘average’ and then research properties in that general location or just outside of it, then you have at least a starting point to work from.

4. Trawl The Net
The ability to find properties all over the world and even in your own backyard with the resources available online is magnificent.  You have the ability to shop and research 24×7 which gives you fantastic opportunities.

Searching for specific property types, prices, locations, and styles of housing can provide very efficient use of your time.  Use alerts (as long as they are instant) to get new listings within your search criteria delivered to your inbox instantly.  www.realestate.com.au is ideal for this option.  When searching consider:

  • Look for lower value properties (often the best returns)
  • Blocks of Units
  • Motels / Hotels / Boarding Houses

5.  Use Google Earth
This is a fantastic free program which helps you survey an area using satellite technology.  It’s great for looking at properties which aren’t in your backyard.  You can get a fair idea of the layout of the area and look at the properties you’ve found on the Net.  The layout of the land might show you potential for increasing the cashflow of the property.

6. Talking to all Agents in the Area
Talking to all or at least a number of Real Estate Agents in an area can give you an overall picture of the area, help you understand the growth potentials relating to the local economy and what areas potentially to avoid.  However, sometimes the areas they tell you to avoid can still be good to invest in.

  • This can be done completely remotely by telephone and email. Many agents are tardy in responding to emails so an initial telephone call would be more effective usually with a follow up by email. If you leave a message, make sure you are ready for their call and know the information you’re seeking.
  • It is sometimes more rewarding to have face-to-face conversations which gives you the potential to establish good rapport.
  • When dealing face-to-face always have a business card with you to introduce yourself as a professional investor and leave it with them when you go in case something comes up that might suit you.  Having specific buying criteria on the card and even your picture can really help them keep you in mind for future property listings.

Having a script ready is always good so that you make the right first impression.  You need them to feel confident that you are a serious buyer and know what you want.   Be specific in what you’re looking for – this will help them understand what a ‘good investment’ is to you!

7. Talk to the Property Managers
If you’re looking to be a Landlord then these are definitely the people to speak to – they’re dealing with Landlords and Tenants daily. They understand where the tenant demand is, what they’re likely to pay for specific style and location of housing.

Important questions you can also find out is if they know any Landlords considering selling?  Are there any problem properties where an existing landlord might be motivated to sell and where the property manager would love to have a new Landlord improve the property to make tenancies easier and less hassle.  Perhaps you could be their solution!

8. Network with other Investors
Investors often find out about changing areas – where you might still get a relatively low entry level with a good rental return and have the potential for unusual capital growth.

9. Make ‘Ridiculous’ offers
If you find a property that has a higher than usual return or potential but still doesn’t fit your specific criteria – calculate what price you could pay to have it work for you and make an offer.  It may seem like a ‘ridiculous’ offer but what do you risk? Remember it’s the offer that could be rejected – not you!

If a property has been on the market for a while or a Vendor is particularly motivated to sell quickly you’ve got a much better opportunity to get the property at a good price – and therefore a better return. Investing is all about numbers – the more offers you make, statistically you’ll eventually be successful in having one of the accepted.

10. Look for ‘Unusual’ properties
Consider unusual properties where you can potentially get a better than average yield for example:

  • Old ‘Queenslanders’ or other properties that can be renovated and turned into 2 or more separate living areas
  • Consider Granny flats as a potential for double tenancies
  • Consider old Motels that might be able to be renovated to provide individual permanent rental accommodation
  • Be creative – check out the 13 ways to turn negatives properties into positive cash flow at the Property Women Workshop currently touring the country.

 

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

Paint it off white – sounds so simple!

Sounds simple right?  But in reality choosing paint is not as simple as it sounds.

Believe it or not, choosing the right “off-white” can be agonising. I watch customers flounder as they stand in a store surrounded by harsh, artificial, commercial lighting, and try to imagine what the colour that they are looking at on a tiny cardboard swatch will translate to on the walls of their newest project.

I train retail staff in colour nationally for Inspirations Paint and Colour. In our courses we focus at length on the differences between the neutrals as it is the dilemma most of our customers struggle with.

Basic paint facts:

Paint colours are created by adding tinters to a paint base, much like food colouring being added to a cake mix. Each tinter is a definite colour. The amount of tinter and the combination of tinters will determine the resultant colour.

In the case of a neutral paint the base will be white. (Stronger colours require a different base paint.) Off-whites are still light and neutral in their appearance, but vary significantly according to the tinters and amounts added.

The underhue (hue being another word for colour) is the colour that the paint throws once it is on the wall. I can guarantee you some underhues, particularly yellows or blues, will take on a life of their own once on the wall.

Trends dictate the underhue of the day. Even if you are someone that likes to buck trends, there is some logic in following the trends when it comes to your base neutral. You will then find it easy to co-ordinate furniture and furnishings. The designers of fabrics, carpets and tiles release products onto the market and they have particular neutrals that we need to match with our paint. At the moment the trend is for neutrals to have a dirty, brownish underhue. (Dulux Hogbristle half strength is a safe bet currently).

If the resultant underhue is red, orange, yellow or earthy brown, then the room will feel “warm”. If the resultant underhue is blue, green or blue/grey, then the room will feel “cool”. Despite warm neutrals being great as compensation for south facing windows and cool neutrals compensating for west facing windows, the preference for warm or cool is usually a personal one.

Opacity is another factor that needs to be considered with neutrals. Opacity refers to coverage. The best example I have found to explain opacity is make-up. Some foundations cover all our blemishes, others appear thinner and blemishes show through. With paints, we want good coverage. Your paint stores should know if the colour you choose has a potential coverage problem. Generally, if your neutral has some black tinter in it, it should cover well and if it has a lot of yellow in it, it is potentially problematic.

Here are some steps you can take to hopefully eliminate the risk of making mistakes:

  • compare your neutral swatch with other neutrals to see the underhue,
  • compare your neutral swatch with plain white to see the underhue,
  • match your neutral with actual swatches of other materials you are using (tiles, floorboards, carpets, fabrics),
  • purchase a sample pot,
  • brush the sample onto a large sheet of cardboard or a left over piece of plaster,
  • observe the sample in the space it is to be used in,
  • observe the sample at different times of the day, and at night with your artificial lighting on,
  • move the sample from room to room as each room receives natural light differently.

Neutrals are great to use in projects where you are decorating to appeal to a large number of prospective buyers or tenants. They are also a fabulous backdrop for artwork and feature walls. Where strong colours are used from room to room, neutrals can be used for architraves, skirting boards and doors to create a flow through the home.

Happy decorating!

This article was provided by Sue Strickland

 

11 Renovation Wreckers – Reno or Run?

Renovation is not always the best option

Renovating is an exciting concept for most people, it is important to not that Renovation is not for everyone. Having the chance to pick your favourite paint colours, go shopping for all the appliances, fixtures and fittings and generally put your signature to something can be a real buzz.

Renovating for a profit on the other hand, can be a little daunting. How do you make sure you really do make a profit? What should you do to the property? How much money should you spend? Will you stay on budget? Will the property ultimately sell, rent or revalue as you need it to?

There is a definite science to renovating for a profit, which is why some people get it right – and some don’t. You need to renovate the property in the right way (that is a whole other volume of books I could write about right there!) – but first you need the right property to begin with.

In fact, one of the questions I get asked most is; ‘How do I choose the right property to renovate in the first place?’

It’s not enough to just buy an old dunger – the worst house on the street and think you will make a profit on it. Nothing is guaranteed in renovating (particularly when renovating for a profit) but you can err on the side of the positive by selecting the right house in the first place.

When I choose a house to renovate, I have a checklist of 7 main things I look out for. The more tick boxes I can put next to each of my checklist items, the better. Ideally the property will be:

15 – 35 years old
Structurally sound
Have minimal necessary invisible costs – such as re-roofing, re-wiring, re-stumping, replacing windows etc.
Be either too busy looking (lots of pattern and old fashioned finishes and materials or overgrown garden etc) OR
Too plain – for example no landscaping, no contrast in materials or colours
On a street where there is a mixture of house styles (e.g. there is only limited value you can add to a 3 bedroom brick house on a street with only 3 bedroom brick houses)
Mostly a cosmetic reno with potential to add a bedroom or an ensuite without extending

Other really important factors to consider when renovating for a profit are:

Did you buy at a discount? It’s often not enough to rely on the renovation alone to return you a good profit. You need to buy well or have owned the property for some time to give yourself a head start
Is there enough of a jump between the value/cost of your property unrenovated vs renovated (comparative property). I.e Do the numbers stack up?
Are you comfortable with the extent of your renovation? Don’t do anything that makes you feel like you’re in over your head – get help if you need to
Can you get early access (if purchasing) to begin planning or implementing your renovation

Here is an example of a great kitchen renovation.

BEFORE AFTER

This article has been written by Jane Eyles-Bennett

Jane Eyles-Bennett is the founder and head renovation consultant at Hotspace. She’s an award winning interior designer, experienced property investor and avid renovator.

If you’d like to find out more about Jane Eyles-Bennett or would like her to contact click here

 

12 steps to creating an investor mindset

How important is mindset?

Mindset is one of the key things that stops a lot of budding investors from investing.

“It’s all in the mind” when it comes to property investing.

Data from the Australian Tax Office (ATO) shows that more than 1.2 million people own one investment property, but the number of investors who own five properties drops dramatically to less than 14,000. Have you ever wondered why some property investors never get past their first property investment while a small group of successful investors achieve financial independence?

Creating the right investor mindset is probably the most important factor for creating wealth and enjoying a prosperous career in property investing. If you want to be a successful investor, you need to think differently than the average Australian.

Here are 12 steps you can take to create an investor mindset:

  1. Learn from those with an an investor mindset that are pursuing financial independence and long-term security. Find mentors, educate yourself, attend seminars and workshops, and then take action! Property Women’s Diamond Membership is a perfect place to start. Having a great team of successful people around you who are there to help and support you is so much better than going it alone.
  2. Those with an investor mindset usually have a burning desire for success. Whether they are motivated by a 9 to 5 job they hate, need to support themselves after a failed marriage, or want to retire comfortably, successful investors with large property portfolios either had or created a desire to achieve greatness. Aim high and clearly visualize what success will look like. Take your dreams of becoming a successful investor seriously so they become reality.
  3. Don’t get hung up on making the first investment a perfect one. Some people research properties endlessly and soon become overwhelmed with all the decisions. Should they buy a single family home or a condo? A property that needs renovations or new construction?  Remember, you’re building experience by taking the first step and that’s just as important as the investment itself. What you really need to do is begin.
  4. Those with an investor mindset are willing to make short-term sacrifices for long-term results. In other words, they have the ability to prioritise investing over spending.
  5. Do not allow fear to hold you back. Removing emotion from investment decisions is critical if you’re going to act in a logical and purposeful way. Less successful investors focus on what could go wrong instead of opportunities.
  6. An investor’s mindset will allow you to think outside the box. For example, maybe investing in another state or even another country will help you achieve your goals by providing diversity in an investment portfolio.
  7. Many investors stop after one property purchase and sit on their laurels. However, those with an investor mindset can see all the compounding benefits of building a portfolio.
  8. Don’t allow the haters to get you down. Others may try to discourage or criticize your investment decisions. Even if they mean well, don’t allow these people to persuade you to give up on your dreams. Associate with other like-minded investors who will support you.
  9. Everyone makes mistakes and experiences setbacks from time to time. True failure is giving up. An investor mindset will allow you to look at every property investment – regardless of the outcome – as a learning experience and remain positive no matter what happens.
  10. Buy according to the numbers. Do the math on each potential investment and be prepared to walk away if the property doesn’t meet your criteria.
  11. Set aside time each week to focus on your property investing activities. View property investment as a business, not a hobby. Have exciting goals that keep you motivated. Periodically check your progress to make sure you’re on track to achieving those goals.
  12. Study the most successful property investors and you will find they view property investing as a way of life.

With these tips in mind, create your own investor mindset. There is no magic secret. The only thing between you and a successful property portfolio that gives you financial freedom is your frame of mind.

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