This Property Pays You – Roma Qld Property of the Month

We’ve scoured the Australian investment property market and found it, an investment property that will pay you from day one.

Roma in South Western Queensland is a small town offering big opportunities with high rental yield and good capital growth potential.

Now with a positively geared property to add to your portfolio you could build on your strategy to pay off your mortgage sooner. Roma offers the benefits of long term growth and high rental yields. A well connected town, the urban centre is also a regional hub boasting schools, retail and other essential community services. Roma also has a relatively low unemployment rate of around 3% with property occupancy rates below 1%

About Roma

With a population around 7,000 people, Roma is also located in the Suarat Basin in the western Darling Downs area of Queensland approximately 480kms WNW from Brisbane. It is situated at the junction of the Warrego and Carnarvon highways and is the centre of a rich pastoral and wheat-growing district.

The local agriculture industry is worth approximately $620 million annually, 64.3% being generated from crops. 58.7% of businesses in the Maranoa are in the agriculture, forestry and fishing sector, which employs 32.7% of the region’s workforce.

A Changing Industry Mix

But the industry mix is changing.  The “mining boom” is creating towns that are producing exceptional rent and capital growth. The Queensland Resource Council estimates more than 18,000 new jobs will be created in coal seam, gas and LNG industries and another 23,000 in the minerals sector.

Since 1906 natural gas from the local area was used for lighting in Roma. The industry is now expanding exponentially, particularly with coal seam gas.

Origin Energy’s Spring Gully Coal Seam Gas Development is located about 80 km north of Roma and its projects include an 87 km gas pipeline to Roma’s neighbour town of Wallumbilla, Queensland to connect with the 434 km Roma-to-Brisbane gas pipeline hub there.

The Proposed Spring Gully Power Station is an $870 Million, 1000MW power station will provide electricity to South-East Queensland.

Great Potential

If you prefer positively geared property to balance out your portfolio, contact us quickly as there are a limited number of these properties available. In the fields below leave your name and phone number – this will be sent to our private server and we will be in contact.

Add Roma to your portfolio today.

The sub prime market in America caused all sorts of problems for the lending marker world wide, raising the cost of lending for lenders and of course increasing interest rates for the average borrower. We examined this in our last article on the sub prime market.

But the low doc market in Australia did not cause the same issues locally as the sub prime market did in the US.

Why?

In short the Australian Reserve Bank knew about the American sub prime market and long prior to banks being able to offer low doc loans was able to put a watch on the market and keep it under control.

About Low Doc Loans

“The term ‘Low Doc’ came about because borrowers need fewer documents to apply for a loan. Rather than provide payslips or tax returns, a borrower can simply state what their income is, a process called “self-verification”. Low-doc loans are primarily for self-employed people with limited records of their income.”

One of the controls over the low doc market has been the Australian Taxation Office. Unlike the IRS in America, the ATO has been watching the low doc market for people who understate the income on tax records for tax purposes and then ’self determine’ their income to be higher for the lender. With this stand over tactic the low doc market has not had the same free reign.

History

Back around 2005-7 when the low doc market was booming the Reserve Bank was more concerned about borrowers who used low-doc loans to overstate their income and get their hands on more money.

“In its biannual Financial Stability Review, early 2005, the Reserve put low-doc lending on its watch list, citing it then as a potential threat to the banking system.” This action perhaps protected many Australian property investors and home owners from the credit crunch that took hold from late 2008.

Some Banks More Exposed Than Others

The rural / regional banks in Australia, perhaps desperate to increase their market share, were the major protagonists of low doc lending. Banks such as the Adelaide Bank was at one stage lending over 30% on low doc with Suncorp around 10% with the majors staying somewhat in single digits.

Criteria In 2010 – Greater Stability

Today, in Australia, to be able to apply for a low doc loan you must be able to secure 20% of the equity yourself. Banks will no longer lend above this amount on a low doc loan giving the borrower and the lender a healthy buffer against loss.

If you look on the Portfolios Property site you will see in each of our property deals we supply both low doc and full doc scenarios with lenders requiring 20% or more equity for low doc.

Managing Lender Risk

The lenders also manage the risk by requiring mortgagees to take out lenders insurance. Mortgage insurance protects the lender from default and can cost over $10,000 on an average loan.

The financial difficulty and bankruptcy clauses in the US has allowed them to become a nation of entrpreneurs, but has also made it too easy to default.

The ‘get out’ clauses in Australia are much tougher than in the US. While lenders here went on a spending spree in similar proportions to America, the regulatory constraints of getting out of your debt in Australia is much tougher than overseas. In America lenders in many instances were simply walking away from the properties leaving the keys in the door and sometimes within months were back in another mortgage again.

Having a glut of properties worth nothing, with huge mortgages over them, and no one to buy them stung the American, and world financial system hard.

This situation hasnt been and is unlikely to be repeated in Australia with tighter controls.

A Good Strategy For Some

We recommend you review your loan types with Portfolios. Low doc loans are still available and in the right conditions can be very profitable.

Contact Portfolios for more information using the form below.

We are constantly being asked why we put so much of a focus on Queensland when there are great deals around the country in property investment.

At Portfolios we scour the entire Australian property investment market, and will be bringing other property opportunities from other states, but it is true, we have seen the most potential to date in Queensland.

In this article we will show you why Queensland show great potential in property investment and why we have chosen to offer such a large proportion of our property selection here.

Firstly you will you note that all Portfolios Property is measured against our strict property selection criteria. In selecting these properties only properties scoring more than 15 out of 20 even make our short list, with the majority of our offering being 18 or above. See our previous article on property selection.

When we show you Queensland’s benefits, perhaps you might ask yourself – when looking at your potential investment – whether the area you are investing in stacks up.

What About Queensland?

The real Gross Domestic Product growth in Queensland is the highest in the country. When placed on the international stage, GDP in Queensland even out performs global competitors like UK, USA and Japan. This is staggering for one state. Much of this is on the back of the resources sector but there is also heavy expenditure right across the state in infrastructure.

Following on from above, Queensland is home to the largest public infrastructure spending program in Australia’s history. You only have to take a drive through Brisbane to see the massive expenditure taking place, but outside of the metro areas ports, roads and rail are being constantly upgraded to meet the growing market.

Queensland is home to a growing young and entrepreneurial workforce fueled by numerous world-class educational institutions. In step with this is Australia’s fastest growing consumer market, being buoyed by the relatively young affluent population. Not to be outdone many parts of Queensland are experience growth in the retirement market with favourable climate and low cost of living.

In terms of trade and economy, Queensland has the 2nd highest number of international arrivals into Australia behind Sydney. The East Coast now known as Australia’s trade coast – connects Queensland to global markets (through many ports including Gladstone, Cairns) There are over 127,000 businesses and the number is growing daily.

Queensland has been ranked by KPMG as one of the world’s most cost-competitive locations. With the fastest growing population in Australia – major domestic inward migration – as well as from outside Australia, it is unlikely property prices will stop growing in the near future.

So there you have it – we believe Queensland is a great market for property investors.

Portfolios encourages you to consider your next investment in Queensland and as always are happy to discuss your unique requirements and investment strategy to help your investment property portfolio grow.

Ready Now Or Ready Later? What’s Your Preference?

This month we take a brief look at investment properties purchased off the plan and those that are turn-key.

Which is better? We take a look at the pros and cons of both.

With an off the plan investment property the purchaser is literally buying an apartment “off the plan” based on perhaps a completed prototype or even on the developers history in the development game. Usually the developer is required to sell a certain number of properties prior to the development commencing construction.

On the other hand a turn-key property is as the name implies,  a completed new property that is ready to “turn the key” and move in.

Off The Plan

So lets look at the pros and cons of off the plan first.

Pros:

• You secure a property at today’s prices with minimal initial cash in (sometimes as low as $1000) and dont have to worry about mortgage repayments for some time – or any other cost for that matter – BUT – you also dont have income from a tenant
• Depending on lead time (some as long as 18 months) you could experience substantial capital growth and sell for a profit at time of completion
• You can sometimes determine basic inclusions and colours – usually from a set range so you may have the opportunity to connect with the market better than your developer
• You are gurranteed the property will be brand new and fresh.

Cons:

• There is a risk that a decline in the property market could spell trouble for values and a drop in your LVR. You may not be able to finance the full loan at settlement.
• If property values have plateaued or fallen, the rental yeild of the property may also have fallen
• The developer is only as good as their last project – you need to be sure that the quality of construction and fitout will be in keeping with the price you are paying and the market your development will be aimed at. There have been reports of developers changing fit out at the last moment to cut costs.
• Buying off the plan can be difficult for someone who does not visualise well – being clear on what you are getting, sense of space and functionality will be important.
• You could start paying your mortgage long before a tenant moves in – sometimes the builders work on a progressive scale of work completion – particularly if you are building a house for investment. You could be paying your mortgage months before a tenant moves in, particularly if a hefty deposit is required.

Turn Key

Turn key properties are ready to be tenanted immediately. You will notice that properties listed by Portfolios Property are always turnkey, we want people to being their investment journey today.

Pros:

• You can start your investment cycle almost immediately. Once you have settled you can start earning money from tenants. To get the first tenants in we advise you to work with local agents during the exchange phase to ensure a tenant is ready when the mortgage repayments start.
• Turn key properties in many states attract stamp duty concessions – you need to check in your local state – stamp duty concessions can wipe thousands off the purchase costs.
• You can see what you are getting in terms of investment – you can go through the normal process of getting a building inspections and of course take advantage of the maintenance period of the new property from the builder.

There are not a lot of cons with the turn key option – specifically related to turn key – at the end of the day you get to choose the property that best suits your situation and market and with the assistance of Portfolios can even look at how the investment plays out over the coming years.

We look forward to being able to work with you to make property investment happen.

Welcome to the end of the 09/10 Financial Year.

Paying tax is something we all need to do but none of us like to do.

Next tax time you could be adopting legitimate tax minimisation strategies reducing your tax burden whilst building a strong investment property portfolio.

Find out how…

Before reading this article you should always seek proper, independent financial advice before making any investment decision. See the Disclaimer section at the end of our legal page.

With tax time looming we will all be doing our tax returns and probably realising one thing – we are paying too much tax.

Tax is not a bad thing – someone has to pay for our roads, schools and other infrastructure, but there are legitimate ways to reduce your tax by using the money for something more worthwhile like building an investment property portfolio.

We get questions all the time – how can you own a property for under $30 per week? Why so little?

Well one strategy is Negative Gearing.

What Is Negative Gearing?

Negative gearing strategy in Australia is motivated by our tax regime, which allows deduction of ongoing losses against taxed income. This is further offset by taxing capital gains at a lower rate.

This might sound complicated but in reality it isnt.

How It Works!

You purchase a property and incur costs on that property – these costs include third party expenses, loan interest and set up costs.

If the costs on the property are greater than the (rental) income generated you will technically be incurring a loss on that investment.

But the story continues…

You Earn An Income? This Is How It works

In Australia the losses made on property are able to be weighted against your taxable income.

You will need to have a clear picture of your costs versus income to know your losses – costs include depreciation, setup costs, mortgage costs and interest, ongoing maintenance and property costs such as rates. Just like your personal income – you can claim anything that contributes to the generation of income in your property.

All Portfolios properties come to you with a clear understanding of the costs involved so you make an educated decision on the potential for negative gearing of the property before purchasing.

Your capacity to cover the loss is an important factor in determining the right deal.

So If It Is  A Loss Why Do It?

There are a number of reasons why people consider negative gearing as an option for their property investment strategy from straight tax minimisaton through to the great investment returns to be made on the property.

Many of the Portfolios properties are expected to return in excess of 250% return on investment giving you great returns in any market.

Property is a great investment, but like any investment there is risk and you should seek proper independent financial advice.

Talk to Portfolios and see how we can help you make those steps to a future in property investment.

In this second article we give you further insight into making property renovation a great opportunity for you.

The truth is that renovating investment property is an involved and complicated process. But we can help.

In last month’s article we looked at a range of issues including starting out with your end game in mind, understanding the gains you wish to make by having a clear picture of your entry costs, improvements to be made and buffering a contingency.

I remind you that becoming a great project manager is perhaps the best skill you can bring to any reno deal.

Here are some more tips to guide you in successfully renovating an investment property:

1. Be Armed With Knowledge

When you look at a property there is a lot you will need to know about it. Here are some questions you might ask:

• What is the property worth?
• What needs to be done?
• What should be done to capitalise on a profit?
• What is the cost of works?
• Based on your end result get an honest market appraisal on your plans

Due Diligence and knowing all the ins and outs are the key.

2. Know Who Your Selling To – Remember Capital Gain Is The Game

Too often in investment property renovation investors are unclear of the market they are selling to. Make sure when you are deciding on the kind of dwelling you are ending up with that the improvements will suit the local demographic.

For example, if you are renovating a small two bedroom apartment in a dense urban area surrounded by chic cafes and restaurants you are likely to be targeting a young professional or possibly even singles market. Know what this market is looking for and adapt appropriately. Also use colours, textures and furnishings that are appropriate for your market.

This is a good time to remind budding renovators to not get too personal or emotional in your improvements. You are improving to sell not to live in. Keeping it simple also keeps the profit larger.

3. External Factors

What else could possibly hinder the profitability of your development? Use the settlement period to discuss your plans with the local council, if independent assessors are involved perhaps get them onside with your ideas.

Build a relationship with a reliable building team – particularly one you might be able to pay to handle your estimating for you – if you aren’t planning on doing it yourself. Truth is we do very little of our own physical work now purely managing the deal and the project.

At Portfolios we can even show you strategies how to finance the deal using other people’s money and time.

4. Get Loan Pre Approvals

This is your greatest bargaining tool. Both vendors and agents love them and it could help you get a better purchase deal.

Also once you have costed the entire project and built in contingencies, and been approved for the finance then you can get to work immediately and not spend costly months waiting for additional finance.

5. Ask If You Are Unsure

Asking questions can save you from embarrassing mistakes. Ask experts, get information on your potential deal from everywhere possible including competing agents, local council, neighbours, builders, professional property inspectors, valuers, independent property information specialists, and the list could go on.

Financing The Deal

So the deal looks good and you have done your homework – like in any income generating opportunity (or business) you have to spend money to make money.

We have personal experience in renovating property. By talking to Portfolios we can show you how to structure the deal and in turn finance it to maximise your returns, and our friends at Renovating for Profit can show you how to make a lifestyle out of renovating investment property.

First things first fill out a portfolio review or give us a call and we will help you through the steps to making a good life out of investment property renovation.

Make It Happen – you’ll love it.

Paul Pritchett

You can have it all from $7 per week in Kingaroy

July Property Of The Month, Kingaroy, is still offering a great entry into the property investment market with the potential for fantastic returns both in rental and capital gains.

Find out how to purchase an investment property for under $280,000, costing you from $7 per week depending on your financial situation.

Kingaroy is a busy, and popular little town located in the northern Darling Downs positioned as a regional centre with a strong and diverse economy.

The town is located approximately two hours North West of Brisbane and just 90 minutes from the burgeoning Sunshine Coast.

Over the past ten years the region has had an average capital growth in excess of 12%  with forecast growth of 8% being predicted over the next ten. Like all areas of the Darling Downs there is a predicted strong growth over the coming years as new industry moves into the region including coal mining, wind-farming and a 400 MW power station, alone in the immediate proximity.

With rentals fetching $260 per week this property might cost you as little as $7 per week, depending on your tax situation.

Portfolios is offering turn key investment properties in this region including 3 bedrooms, 2 bathrooms, double lock up garage and air conditioning.

You can purchase a property in Kingaroy through Portfolios for as little as $260,000  for a brand new 3 bedroom home on a large block.

To find out why we think this is such a great deal have a look at the properties at www.portfoliosproperty.com.au or follow the link directly to the property.

You’ve watched the lifestyle shows, dreamed of buying the do-upable dump and making a good return out of it.

All over the world people take on projects to renovate and make money from property. It is contagious, both challenging and rewarding.

But what happened to making the dream a reality?

Portfolios is proud to be associated with Cherie Barber and Stephen Tolle and the Renovating For Profit team. It is a unique community of people that buy houses, do them up, and sell them – for a living. The amazing thing about this community is it is made up of ordinary Australians like you and me. There are some who wouldn’t dare put a lick of paint on a wall or pretend to be the carpet layer, tiler, sparky and plumber all in one.

In fact most of these people are simply great project managers, I will come back to that later.

Renovating property is a rewarding experience that, given the right tools, structure, strategy and financial platform, will give you a very fulfilling career or some extra income.

I personally complete 2 -3 projects per year, look after the Portfolios group businesses and along with meeting our wonderful clients that is my plan. Business will give you a lifestyle, your deals will give you your financial wealth.

So how can I help?

When looking into renovation project there are plenty of aspects to consider.

The main 3 are: Structure, Strategy and Finance, other fine print considerations for you could be:

1. What is your exit strategy?

Are you going to renovate and hold or renovate and sell?

Always be prepared when you have to hang onto the property that you have the capacity to hold via income or equity.

2. What is your costs and profit margin?

Understand the kind of gains you can make and manage your improvements accordingly. Knowing your numbers for buy, renovation and end sales price are critical to success.

3. What improvements/ works do you need to make?

Are you just making cosmetic changes or major structrual or even extending the property?

Firstly make sure you can make the changes you want to – check with council and look at similar properties.

Your due diligence is your chosen area will make sure you know what is desired and the end sale price for delivering that to the market.

As you make more an more deals this job will get easier because you will be able to estimate better yourself. But in the mean time surround yourself with professionals. Dont be afraid you will be helping their businesses too.

4. What is your contingency?

I see too many developers, renovators and property investors that come in with a conservative estimate on improvement works and do not consider an contingencies.

Lets face it there are many and varied factors to property projects, allow in your plan to cater for these.

5. Become A Project Manager

Project management 101 – manage your project closely – watch your progress, scope and budgets.

Timing is also critical so use a program to manage day to day activities who is where when – what needs to be completed to allow other works to take place on site. And like your contingency build buffers into your program – rain delays, holidays, slack contractors.

6.  With each deal it gets easier

When I started out – like all of us – I made mistakes but in each case I have learnt far more from them,now I have the privilege of helping people avoid the mistakes I made, saving them valuable time and money.

There are aspects of this business that you will always rely on others to solve for you but increasingly you will be able to take on aspects of the deal yourself based on your growing knowledge – you will become more astute and will see potential everywhere.

Financing The Deal

So the deal looks good and you have done your due diligence, what now.

Make the time to work with the Portfolios Team on your plan, whats possible, the project, structure, strategy and then we can work on finance options.

We can even show you strategies how to finance the deal using other people’s money and time.

First things first complete our Portfolio Review and we will work with you through the steps to becoming that Professional Property person.

Make It Happen – you’ll love it.

Paul Pritchett

Despite Mortgage Downturn

Property investors are continuing to grow in numbers despite an overall decline in the number of mortgages across Australia on the back of successive interest rate rises.

We look at why this is the case…

Portfolios is part of Australia’s largest independent brokerage network Australian Finance Group (AFG). Throughout March, April, and likely to continue in May, AFG confirms the emergence of a two tier mortgage market, with the proportion of investors surging as sales to owner occupiers decline.

Property investors accounted for 36.9% of all mortgages arranged in April, the highest such figure AFG has ever recorded.  This compares with 10.2% for first home buyers and 16.3% for up-graders.

The remaining mortgages in April, 36.6%, were for refinancing purposes.

Why The Confidence in the Investment Property Market?

In our opinion there are a number of reasons to be confident in the Australian property market, we offer some below and welcome your comments:

• The volatility in the share markets always serves as a reminder of the stability and strength offered through a property portfolio
• When company profits fall dividends stop – amongst all of this property investors continue to take in rental income and experience changes on an anualised basis not day by day
• Property investors – buy and hold particularly – are long term investors – minor fluctuations in the market, and they tend to be minor in Australia, do not pose a threat to long term investors
• The Australian population continues to grow at rates outstripping the supply of housing
• Australian lenders continue to operate on the conservative side of the market meaning there is confidence in the capacity for Australians to repay their debt – unlike the scenarios witnessed in the American sub-prime market collapse. See the comment by Paul Braddick below.
• Rents are continuing to climb across most markets regional and metropolitan meaning investors can get in and hang on for longer.

Property Investors Still Making Money

Property investors are continuing to see potential in the Australian property market, particularly in key market areas such as rural mining communities, growth cities such as SE Qld and Brisbane. Major growth centres, or smaller towns receiving substantial financial and infrastructure investment are good bets.

This is not so obvious as in the resource rich state of Queensland where property prices in the mining communities are still reasonable and rentals are beginning to climb even on the back of the existing investment.

Confidence Amongst Bankers

Paul Braddick, Head of Property and Financial System Research, is upbeat about the state of the housing market and is cautious when discussing the need for deleveraging of debt in the market place.

Braddick says “Economy wide debt to income ratios, gearing ratios and even debt service ratios tell us little about the underlying sustainability of household debt. The distribution of debt across the household sector, lending criteria applied and the strength of the labour markets are far more telling for debt sustainability.”

“Relative to offshore  experience, lending into the Australian household sector has remained very conservative.  This is reflected in the virtual absence of a sub-prime mortgage market and extremely low delinquency and default rates.”

Braddick’s sentiments are echoed across the banking sector.

What Next?

Braddick sums it up well:

“In the near term, Australia’s growth prospects are bright and much will depend on the RBA and government’s ability to effectively manage the expansion. Higher household debt means the RBA has considerable leverage over the household sector and their actions during the GFC should instill confidence that the present upswing in growth will be handled well”

Source AFG Mortgage Index April 2010.

Source ANZ Australian Housing Update April 21 2010

What if you could own your own investment property from just $32 per week? *

You could be realising return on invesmtent in excess of 700%.

Portfolios investment property of the month is Chinchilla.

Chinchilla, located in the Surat Basin Region is undergoing a massive build up of workers and their families, with a strong capital growth over the last 3 years and with the newly signed LNG deal with China this is a place to buy.

Chinchilla is located about 200km west of Brisbane with ever increasing job opportunities. Tightening rental availability has driven up rents sharply and will continue to do so.

The region has hospitals, schools and many amenities of normally much larger towns. Over $10 Billion being spent on Coal mines, a gas pipe line, rail links, gas exploration and waste water purification projects.

The government is also investing in rail in the Darling Downs, linking this region and its rich, diverse production with export ports such Gladstone.

According to investment sources the region around Chinchilla enjoys a 98% employment rate and a rental vacancy rate around 1%.

If you earn over $80,000 per anum we’d love to talk to you about this deal. We have turn key, brand new, four bedroom homes ready to be tenanted today.

If you earn under $80,000 then you might find this deal to be worth while with low property price entry, expected capital gains and expected rental hikes in the coming 12-24 months.

Chinchilla presents a great opportunity. You can view this and other properties in this region at www.portfoliosproperty.com.au or just go to Featured Properties.