Category Archives for "KNOW HOW"

Trust or not to trust that is the Question

Should you Trust!

Choosing to own an investment property in the name of a trust is very popular due to a desire to distribute asset income, capital gains or offset losses in a tax effective manner and for asset protection reasons.

Property owners are often disappointed by the benefits actually achieved by use of trust structures for property ownership, and it may seem to the property investor that the trusts only real purpose is to cost them establishment fees and ongoing annual administration fees.

Trusts will work well in circumstances where losses from a negatively geared property can be offset against income and where there is a realistic need for an asset protection structure and where additional land tax payable due to the use of a trust does not cause hardship or make the investment unfeasible.

Those investors who cannot offset losses and incur additional land tax are often those disenchanted with the choice of trust structure for property ownership. So, trusts are not for everyone, every time.

Frustration about the use of trusts for property ownership, generally comes down to: –

(i) Insufficient consideration of the trust structure before the purchase is made. Whether a discretionary, hybrid or other trust is most beneficial will depend upon your circumstances in each instance and what you want to achieve and specifically whether the investment is for negative gearing or not. Investors buying multiple properties need to revisit the trust structure before each purchase, consider future land tax liability and consider if the use of the trust continues to serve their interests; or
(ii) Higher liability for land tax, due to state land tax thresholds being lower or nonexistent for trustee owners. With rapidly increasing land values and rising rates of land tax, this is becoming a more common problem; or
(iii) An inability to offset losses against trust income. Careful structuring is necessary to avoid this situation.

The decision as to the type of trust needs to be established before the contract is formed, as changing the buying entity after contract formation may lead to payment of double transfer duty by the buyer.

The decision as to the type of trust appropriate (if any) and the terms of the trust deed are critical to achieve positive benefits for the property investor and expert legal and accounting advice is recommended before the purchase is made.

This article was provided by Susan Sing

 

Record Keeping a must for all property investors

 

 

Accurate record keeping for your rental properties is essential for any landlord.

Rule number one in record keeping is to keep all your paperwork and organise it so you can retrieve any documents easily when needed.  If you have any disputes due to a misunderstanding about a property’s condition or you are required by the taxation office to verify a claim, you will need to call upon your records to do the explaining for you.

Record keeping is also a means to ensure that you are able to pay your outgoings when they are due.  Managing your cash flow is crucial.

To keep things simple, the best method for property investors is to have two files for each property you own, an Annual file and a Permanent file.

ANNUAL FILE

An annual file should include documentation for the ongoing operation of a property. It should be based on the financial year, and kept for five years after you lodge your annual tax return. In Australia the financial year runs from 1 July to 30 June, whereas in New Zealand it is from 1 April to 31 March, but can be aligned with the Australian year.

Items to keep in your annual files include:

All invoices and receipts. Written receipts are essential, the Taxation Office might not accept a cheque butt as ample evidence of an expense. If you have costs for multiple properties on a single receipt, photocopy it and highlight the applicable item so you can include a copy with each property file.

You will also want to save your receipts and documentation for any expenses you incur for your rental properties.  This might include replacement items, repairs and maintenance, new fixtures, cleaning and maybe even furniture.  If you make phone calls to your rental manager or travel to inspect the property, you will also need to keep a record of these details.  Land tax, insurances, water and council rates notices will also need to be kept.

What can you claim?  Please check with your accountant regarding allowable rental property deductions.  The taxation offices in Australia and New Zealand have several of articles of reference regarding  Rental Properties.

Australian Taxation Office:  http://www.ato.gov.au/content/downloads/IND00133187n17290608.pdf

New Zealand Inland Revenue (Te Tari Taake)  http://www.ird.govt.nz/toii/property/information/

Rental statements. Whether you keep copies of tenant rent receipts or a quarterly statement from an agency, evidence of your income from a property is essential. Electronic banking makes record keeping easy, through either direct debit or electronic funds transfer (EFT).  If you are using a computerised program to manage your rental properties, ensure you regularly back up your data and keep printed up hard copies as an extra safety measure.

Condition Report.  Before a new tenant occupies the property a detailed condition report should be completed and signed by the new tenant.  Always take photographs of your empty property before your new tenant moves in, and make notes of any damage on the condition report.  Dated photos or videos can also prove invaluable if you ever need to substantiate damage caused by a tenant.

Tenancy agreements. It’s also a good idea to keep copies of each tenancy agreement in the annual file.  Even If they’re not required for tax purposes, they’re still important records and should be kept for each tenant of each property.  This particularly applies to commercial properties.

Cash book. You can use manual accounting systems, spreadsheets or accounting software, but you need to keep a record of your income and outgoings in relation to each property.  This makes it simple to  hand over the required information to your accountant to complete your financial statements.  If you do not use a software program or computer to keep records for your property, you may want to consider giving it a try. You may also be able to deduct the cost of such software as a business expense.

Bank statements. Simple — just keep them all in one place. If some of your statements relate to more than one property you can either make a copy for each file and highlight the relevant items or keep just one copy in front of the rest of your annual property files.

PERMANENT FILE

The permanent file is to record the history of each particular property, from purchase to sale. It should be kept for five years after the tax return that records its sale has been lodged.

Documentation to keep in this file includes:

  •  Purchase contract
  •  Solicitor’s settlement letter on purchase
  •  Loan agreement, including any refinancing
  •  Depreciation schedule
  •  Renovation costs, details and totals
  •  Contract of sale
  •  Selling agent agreement
  •  Solicitor’s settlement letter on sale
  •  Loan finalisation documents

Tip:  When you have multiple properties and therefore multiple folders, consider printing up a photo with address details for each property.  If you insert this into the spine and front views of the folder, it makes it easy for identifying which folder belongs to which property.

Property Investment Analysis (PIA)

Property Investment Analysis (PIA) software helps you to analyse and forecast the capital growth, cash flows, and tax potential for an investment property. Some of the Key Features of the PIA software include:

  • Data Entry Checklists
  • Spreadsheets
  • Reports
  • Graphic Screens
  • Property Investment Calculators

If you would like more information or to purchase your own copy of the Property Investment Analysis (PIA) please click here this is a great recording keeping tool.

 

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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