As we enter into the fifth month of 2011, are you wondering whether the market is going to gain traction and build upon some early positive signs? Positive key drivers are indicating that we are now in one of the most important selling periods of some time. What are the 8 key drivers that are making 2011 a strong year in property? Read on to get McGrath’s in depth Market Review for Autumn 2011.

Read the John McGrath’s Market Review – Autumn 2011 here.

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.

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

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.

With the average loan for an investment property being refinanced every three years it is little wonder the banks have introduced fees to make you think twice about moving away from them.

Loan exit fees have become common place in the mortgage market. Today very few banks provide loans without them. But it hasn’t always been the case.

Lenders exit fees serve to discourage people from refinancing to other banks – or even with the same bank. They are designed to keep customers as long as the bank can.

The challenge for banks is that most home loans do not make as much profitability in the first few years as they do in the ensuing years. Banks need to recoup profit if the customer chooses to exit early.

Fees can range from $400, an average of major lenders around the $750-$1000 mark with non-bank lenders charging a percentage to exit of around up to 2.5%.

Whilst we dont necessarily agree with these exit fees it is something we have work with developing your strategy.

What you need to understand is your strategy affects the loan options and it is far more than just the interest rate.

At Portfolios we understand all consideration of your deal and the associated loan/s which is why we aim to offer up to three loan options into your strategy each with its own profile and considerations. Make sure you take the time to review and discuss.

For example if you are purchasing to renovate and sell  quickly  then we will offer up to 3 loans that typically would have  lower exit fees for great profitability in your deal.

However if your strategy is to buy and hold the property then the early exit fees are not so much of a consideration.

Portfolios will work with you to develop the right strategy that includes Structure, Strategy, the Property and Finance.

If you wish to look at your options and get started complete our FREE Portfolio Review and we will be in contact with you shortly.

Portfolios looks forward to working with you to …Make it Happen.

Will the market go up?

Will the market go down?

Will it stay exactly as it is?

What is happening out there?

Without predicting the next market movements lets talk about the state of play.

Currently in Australia the economy is looking good, growth is abounding, people are sensing a greater level of confidence in the market as evidenced in a recent news article. CommSec’s National Performance Guage shows that those who owned shares and property have increased their wealth by 8% in the last year and 40% in the last decade.

The way I see it there  are two sides to the property market – what is going on locally and what is going on globally. I just want to focus on the local market for now.

The Australian Economy is performing well. Growth indicators are up, interest rates are climbing in response to strong economic growth and there has been a considerable jump in house prices.

In the favour of property investors is the growing housing shortage facing Australia. It is predicted that Australia will need an additional 800,000 properties than it is currently supplying if nothing changes between now and 2030. This is a phenominal claim, and even if something is done this is great news for property investors.

A shortage of properties means great potential capital gains, as well as increased rentals driving more cash flow positive property, or at least swallowing the gains in interest rates.

Finally, on the economy, banks continue to be tight in their lending – so getting money for that investment property is a challenge without someone like Portfolios to work for you. We have sound long term relationships with a number of banks and financial institutions , with our level of understanding of the finer details of their policies and ways we can often help you where others cannot.

So boom or bust? – the age old question is when is the right time to buy, but a long history of capital growth has taught us that now is always the right time to buy in the long run.

Join The Queue…

What would you say if we said we could help you pay off your home loan in 6 years by buying investment property?

Do you know there are strategies you could be following that could be leading you to financial freedom while paying off your house sooner.

A recent report put out by PRD Nationwide notes that Australian households now need on average 29% of their income to service the average home loan.

There is a significant impost on already cash strapped families, and with rates set to rise – we believe at least 0.5% over the course of 2010 – affordability can only get worse.

Firstly what does this do to the property market?

The first affect could be slowing the rate of people purchasing property – putting pressure on home prices but also then placing upward pressure on rental as more people entre the rental market.

Secondly it can slow the price of houses as people choose to stay away from property.

Australia does continue to face a chronic shortage of dwellings, effectively insulating us from the risk of downward prices to the extent seen in the USA or the UK. However, as people baulk at the cost of owning a home this could pressure the property market somewhat.

But we believe – the astute buyers can still make money in the property market in Australia, both in rental returns in tight markets and in many capital growth hotspots around the country.

Don’t let the cost of home ownership fool you – we can show you ways that you could own investment property and pay off your home much faster than you are doing now. All without affecting nor using any of your household or job cashflow.

By leveraging some of the equity in your home, people can purchase property, and if properly structured through tax savings, deductions and restructuring finances save yourself time and of course money on your home loan.

I would love to have the time to be able to show you our strategy for saving you money on your home loan and at the same time increasing your investment proeprty portfolio, so why not give me a call and I’ll show you how in your situation.

Make It Happen

Paul Pritchett – Founder Portfolios

In the property investment market buying the right investment property should be more about where should I invest not so much when should I invest.

See what Portfolios has to say about the current market and where you should be looking.The Portfolios Property team has many developers and project marketers present their best offerings nationwide each month. It allows them to scour the Australian property investment market place to find you the best properties to a set criteria.

So lets look at an area of Australia we see great potential now as a good property investment opportunity. Gladstone NE Queensland.

Gladstone should become Australia’s next super infrastructure town. If all the projects are confirmed, it very well could be. The number of future projects (15 in total) means that Gladstone is rightly classified as a ‘super infrastructure town ‘, which will struggle to cope with the enormous influx of future workers.

Where Gladstone differs from other resource “ boom towns” is in the medium house prices. In other infrastructure towns the medium house prices are from $800,000 to $900,000, not so in Gladstone where the media house price is currently $360,000 with plenty of potential for growth.

Portfolios Property has investment properties available in and around Gladstone including the Stoneybrook and properties in nearby Calliope.

Paul Pritchett himself has been investing in Gladstone for the last 5 years with a few spec builds and some buy and hold. Paul is also planning to add more property within Gladstone to his own portfolio.

To view these and other great property investment opportunities go to Portfolios Property and view our Monthly Top 10 Properties.

Keeping it streamlined and delivering on your property investment deals is key. We thought it beneficial to share ways that you can ensure streamlined approvals and delivery:

1. Be Clear, concise and consistent with information and documentation.

At Portfolios we ask you to complete a Client Portfolio Review with all required information, especially Assets and Liabilities on the second page.

Make sure the quality of the copies are good, noting faxes and ID documentation rarely mix well.

Tell us you whole story, good , bad and not so good,  we need to know.

If you do not know tell us, as we like to ensure you understand and continue your property investment education.

2. Have a your story straight.

Take the time upfront to allow Portfolios to work through and document your property investment strategy and the finer details. This is important to get the process right and the strategy to deliver your plans.

Knowing the fundamentals of your deal after thorough due diligence and then not changing it unless forced to.

If you have a change of plans notify us  as soon as you can as usually we can accomodate your new direction.

3. Send the full set of documentation all at one time.

Just like planning to know your strategy – taking the time to get all the documentation together for then initial submission.

Lenders will not even review a loan that is not 100% complete with documentation. Hence it  will mean less grief when the lenders and stop them putting your deal in the deferred pile.

For over 50% of loans at present the lender is requesting additional documentation after submission, allow for this.

4. Be patient after loan submission.

The current lending climate is full of red tape and delays. Approval delays have improved on this time last year.

You need to understand and appreciate that we chase service levels with lenders and sometimes stick to the ones that deliver consistently in lieu of another.

The team understands your passion and interest in the ‘knowing of loan approval’, its ours as well.

5. You will hear about any update.

Know that as soon as we hear an update we will inform you.

Its exciting when approval comes through – at Portfolios sometimes we get more excited than our clients.

Check your email each day, as any update from a lender would be to us via email which we review and forward to you.

6.Conditional Approval – Formal Approval

Note that currently Conditional Approval is forecast as 3-5 days and Formal Approval is forecast as 10- 14 days.

To settle a refinance (you have cleared funds in your account) and for purchases it takes 5- 6 weeks at present.

This is from loan submission to the lender, 100% complete, ready to purchase your property/ies.

Contacting us with expectations over and above the timeframes may cause you frustration, we ask you to note point 5.

Portfolios works to a program outlined above, we put client service at the top of our priority – we deal with the banks for you and keep you informed.

For example, each and every day, for each loan submitted, Portfolios checks the lender’s website as well as email and phone follow up in some way. The team are well drilled in keeping your loan progressing and pushing your loan through…its in all stakeholders interest.

Its an interesting lending market out there at present. You might need a hand to deliver your plans, Portfolios wants to help Make it Happen.

In its monthly review of the Australia property market, Herron Todd White has given us a broad picture of what has happened in January in Australian capital cities both in houses and unit dwellings.

We have focused here on the Australian housing market. For the full report – you can download it here.The report looks at a number of factors including:

• rental vacancy snapshot
• the rental vacancy trends
• demand for new houses
• trend of new home construction
• volume of house sales
• stage in the property cycle
• and whether new properties are sold at prices exceeding their potential resale value.

The report shows what we all expect – a somewhat strong capital city market leading into 2010. However there are some exceptions.

In Melbourne for example the figures show the volume of house sales to be declining.  This could be the conservative market that Melbourne is with rising interest rates.

The worst performer is Hobart – where the writers believe that in terms of its stage in the property market cycle that it has reached its peak. Not great if you are considering the Hobart market or thinking of capitalising there and selling out. (Unless of course you purchased at the turn of this century. )

In terms of the position on the property cycle, Brisbane is showing recovery trends whilst Sydney, Darwin, Perth and Canberra are all trending as rising markets.

Perhaps Canberra, that city no Australian ever wanted, is the surprise entry, showing strong growth indicators throughout 2009 and into 2010. High rentals are also said to be contributing to the investor market in Canberra.

What are your observations of the property market?

Why not drop us a line and tell us what is happening in your area? The hotspots and the “not” spots.  You can comment below.

In the coming weeks we will look at some of the areas we have chosen to offer you properties through Portfolios Property.