Tag Archives: property

Property Investments VS Share Investments

Property investments vs share investments – are you in two minds regarding the best type of investment, whether it be property or shares? All investments would ideally be based on sound research, due diligence and correct investment analysis…

 In reality, getting correct advice is a good investment. However there are differences between property and stock market shares which influence people depending on their financial goals and investment needs.

Property investments vs share investments, so do shares actually perform better than property? The fact is shares perform relatively similar to property…for example, a good property investment in a high performing suburb historically doubles every 7 to 10 years and generates a rental yield of 4% – 6%.

property investments
Property investments vs share investments

The total return from a good property investment can be 13 – 14% per annum. Similarly from 1983 to 2009 stock market shares grew on average 8.4% per annum. Now if you add dividends to the stock, this equals to 13 -14% growth per year.

The fact that the return on investment per year is very similar, there are vast differences in involvement, liquidity and the amount of control you get with each type of investment.

Property…historically has shown to be less volatile and is regarded as a relatively secure investment by the banks, which lend up to 80% of the property cost compared to higher volatility of stocks…banks are prepared to lend only 60% of the market value of shares.

As you already know volatility in the share market is influenced greatly by market sediment, national and global economic factors and media, whereas the property market is influence mostly by local sediment and supply and demand.

Property investments vs share investments…shares are easily liquidated, property can be slow to liquidate. Tax deductions are treated similarly in Australia as both are considered investments.

Property investments make use of tax benefits and depreciation or  tax deductible advantages, which are available on new buildings such as capital work deductions and any costs associated with property. These deductions are not directly available to share holders.

Depreciation is ‘on-paper’ loss in value of the building over time. The Australian Tax Office allows you to claim depreciation as a tax deduction, which can save you thousands of dollars every year.

The only problem is depreciation tapers off as the years go by so the newer the property is, the greater depreciation claim will be…

Property investments vs share investments…both investments can be negatively geared, however the biggest difference is investors ability to change and add value to their investment.

Share investments means an investor has little control over the running of the company, whereas in property the owner/investor can add value and improve the investment.

Why is it better to create a balanced port folio of both shares and property? Firstly you need to carefully consider what you want from your investment before you decide where you invest your money.

If you understand the idea of adding value and how to influence your better lifestyle, you want to put yourself in a much stronger position to improve the value of property investments…

Property Investments 

Properties with Equity?

How to use equity to buy investment properties?

 

Properties with equity…what is equity? Equity is the difference between what your home is worth and how much you owe on it.

For example, if your home is worth $500,000 and you owe $200,000, you have $300,000 in equity. As you continue reducing the amount you owe on your home or value of your home grows (capital growth), your equity increases. It’s that simple.

Properties with equity and how to get equity to build wealth through property investment. Unlocking equity in your home can be an effective way to assist in purchasing rental property to help build your wealth.

Residential investment properties are a popular investment vehicle providing investment funding in the form of capital growth and rental income…

Properties with equity, what if you’re already a home owner? Firstly, you may not need to provide a deposit to fund the purchase of your next investment property. Imagine if you could leverage and harness the power of your home equity…

Home equity is the difference between your home’s market value and the balance of your mortgage.

buying an investment property with equity
Buying investment property with equity

 

What if you’ve owned your own home for a few years? There’s a good chance you have by default already built-up some reasonable equity (in context to capital growth), and this can be a valuable resource when it comes to buying property investment.

Here’s how it works. Let’s say you want to buy an investment property with a market value of $400,000. There are also additional purchase costs (legal fees, stamp duty and so on) of $20,000, bringing the total cost to $420,000.

Assuming that you meet the loan approval requirements, a lender fund 80% of the property’s market value (potentially more if you are prepared to pay Lenders Mortgage Insurance LMI)…

Meaning the bank lends you $320,000 to buy the investment property. As the total cost of the property is $420,000 you still need an additional $100,000 for the deposit. This can come from the equity in your existing home.

Let’s say the market value of your existing home is $500,000 and the balance of your mortgage is $300,000. The difference between the two is $200,000, which is your home equity.

Properties with Equity in context to an investor because it means you can access up to 80% of your home equity (without the need to take out LMI), which equates to $100,000 in this example .

Instead of coming up with a cash deposit for the additional $100,000 needed to buy the investment property, you can take this from the $100,000 of accessible equity in your existing home.

The available equity in your home is calculated at 80% of your home (without the need to take out LMI) less any current loans, which equates to $400,000 less $300,000 = $100,000.

Alternatively some lenders lend to 90% of the property value less the existing mortgage, where lenders mortgage insurance would be paid on the amount borrowed over 80%.

You should note many property investment gurus say it is important to repay the loan on your home as soon as you can.

properties with equity
Properties with equity

 

The equity which is drawn down from your home to purchase an investment is tax effective, however any remaining debt on your home is not. Therefore the loan on your home costs you much more on an ongoing basis than the loan on your investment property.

Properties with equity…property you live in is not the only source of home equity. You can also use the equity in an existing investment property to help fund other property purchases/buying investment property.

Contact your mortgage broker to help you work out how much equity you can access in your property and how it can be leveraged as a source of funding for your next investment property.

Properties with Equity

Renovating for Profit?

How to finance property renovations to increase the market value of your property?

 

Renovating for profit is all about home improvements which continue to be popular among Australia’s property owners. Renovations are a great way to add value to an investment, especially houses which are purchased under market value or cheaply.

What are your renovating for profits goals? You want to understand the strength one focused strategy offers you:

  • Buy under market value
  • Research ways to add value
  • Diversify strategy when profitable
  • Take advantage of capital growth

What’s the best or most effective way to achieve your goal? What if you buy in an area predicted for strong capital growth and buy property where you can value add?

Renovating for profit, there are three main strategies which can be achieved:

  1. Demolish and rebuild
  2. Renovate and extend
  3. Refurbish and redecorate

Renovating is also a smart way to increase the standard of living for a property you are living in because simple cosmetic improvements can add value quickly and could add ten per cent to value of the house.

Renovating for profit if you’re taking the first option of demolish and rebuild because this depends on land value and location as property is underpinned by value of land. The further away from public transport the less the value of the land.

When building a new home, neighbours are an important consideration, its important the design fits in with the existing streetscape.

Renovate and extend, family rooms leading to outdoor entertaining areas are popular extensions these days, however the reality is major extensions and structural renovations can be as expensive as building a new house.

The third option refurbish and redecorate involves working within existing walls for example remodeling or replacing kitchens and bathrooms so its relatively simple as there are no major extensions or renovations in the plan.

renovating for profit
Renovating for profit…what is your paint by numbers success formula?

Financing your renovation…let’s start with home equity loan which is a common way to borrow money for renovations. Bank lends money against the value of your home. If your property is worth more than amount still owing, that amount is the equity in that home.

Banks are usually willing to lend up to eighty per cent of loan to value ratio (LVR).

So if your property is worth $530,000 on the market: amount owing is still $330,000, bank can lend you around $160,000 which is eighty per cent of the $200,000 equity held in that home.

What if the cost of your renovations is going to be more than the amount of equity currently in your home? You might be able to take out construction loan against predicted value of your home once the new constructions are completed.

In previous example, if you wanted to renovate to the tune of $200,000 the bank would be willing to lend in a home equity loan would fall short. What if value of the home once renovations are completed is estimated at $820,000 instead of pre-renovation $530,000?

You could apply for a construction loan at around eighty per cent of the amount, of the $420,000 of equity in the home. This would give you access to $336,000 construction loan.

To cover risks in a construction loan, most financial institutions or companies don’t pay out entire loan upfront because its done in phases as needed in construction ensuring money is going towards making the property more valuable, instead of something else.

If you’ve only just purchased your property and it holds no equity, you can take out a personal loan to fund the renovations. Personal loan would generally be for smaller scale renovations typically around $30,000 or less. The drawback is higher interest rates…

An emergency option for a minor renovation could be a credit card. Credit card finance is comparably easy to get, however it comes with the risk or temptation might be to spent on something else or minimum payments are not kept on track.

Bear in mind interest rates on credit cards are higher than other options.

There is no time limit so payments can be made to suit the credit card holder. Keeping payments low and stretching time it takes to pay back credit card however costs much more in the long run because of escalating interest payments.

Renovate or not renovate? If you want to borrow for renovations for your property, you need to work out two factors:

  • Do renovations definitely increase value of property to the level you expect?
  • Can you afford the repayments?
  • Renovating for profit, a property which is worth more is more expensive if you can’t pay back loan…

If the answer to these three questions is yes, you want to plan the renovating for profit strategy, which matches the best finance option for your home improvement…does that make sense?

Renovating for Profit