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Wholistic Financial Solutions provides a lot of essential information and updates regarding the property investment industry. Check this page for the updates.

Property Investment Articles

Monday, March 07, 2011

This article describes the ninth strategy of nine property investment strategies.


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Strategy 9 – Guaranteed Leasebacks

Pros

A genuine guaranteed leaseback is a rare thing. If you can find one it can be an outstanding way of ensuring your ‘sleep-at-night’ factor. The biggest fears in property investing are; “What if I can’t find a tenant?” and “What if my tenant doesn’t pay their rent?”

A genuine guaranteed leaseback can take both of these fears away as the guarantor pays you your rent regardless of whether the property is tenanted or whether the tenant is paying the rent.

You can therefore rest easy knowing that your rent will be coming in to cover your mortgage, each and every month.

Cons

Well… don’t get me started on this one or I will go on for pages! In a nutshell:

There have been many fly-by-night companies predominantly based in Queensland who flew around the country hosting free property information sessions and drawing innocent investors in through mass telemarketing and promises of free holidays for their attendance. Then the holiday turned out to be a property tour, free of course, as long as they viewed the properties whilst they were there. The organizers then convinced the innocent investors to purchase the properties through ‘rental guarantees’ that sounded too good to be true.

And yes, they were too good to be true.

In some cases, the company went into liquidation straight after completing the final sales. Of course, this meant that the guarantee wasn’t worth the paper it was written on. Alternatively, the cost of the guarantee to the company was simply embedded in an inflated price for the property. At the expiration of the guarantee the investor found that they

could not rent their property for anywhere near as much as was predicted. Further, there was never any real tenant in their property. The company had simply used the inflated profits to pay the rent to the investor for the promised period.

Worse still, there were now hundreds of vacant properties in the area all on the market for rent at the same time. And to add insult to injury, investors who couldn’t afford to keep the property now that the rent was substantially less than predicted, tried to sell their property only to find that it was worth considerably less than what they had paid in the first place.

Solution
             
Once again, do your due diligence:
•       Ensure the properties are not over-inflated to compensate for the rental guarantee.  For example, are you able to buy the property on the open market, or from the developer for the same price without the rental guarantee?

•       Ask the guarantor, “What’s the catch?” There must be something in it for the guarantor or they wouldn’t do it. Ask them, “How do you make your money?”
•       Check www.allhomes.com.au or www.realestate.com.au  and ensure the predicted rental is in line with the current market rental.
•       Check that the company offering the guarantee has been in business for a considerable length of time.
•       Check the company has a sound reputation. ‘Google’ the company name and you will reveal any ‘dirt’ or dissatisfied customers.
•       Ensure the rental management fee is in line with industry norms – around 7–8% depending on the state.
•       Ensure you can withdraw from the leaseback any time you want to in case your circumstances change and you want to sell the property or move into it.
•       Most of all Get professional advice

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011

This article describes the eight strategy of nine property investment strategies.


Download the full report at www.wfscanberra.com.au

Strategy 8 – House and land packages

Pros 

Delayed settlement gives you time to get your finances in order and even buy more property than you could afford to in your current situation.

Stamp duty savings as you pay stamp duty on the land component only.
In a moving market, an investor can make a gain on the investment simply by holding it in the period between agreeing to purchase and when construction is complete.

Some investors use this opportunity to buy several ‘off the plan’ developments with a view to selling off some before settlement to pay for the remainder.

Cons

Units are subject to the possibility of oversupply in the period between agreeing to purchase and when construction is completed. (avoid this con by sticking to house and land packages, townhouses or unit developments with lower number of units)

You have no control over another 10 apartments blocks going up around yours.

Can become a nightmare if the developer goes into administration before the project is complete.  (avoid this con by ensuring the developer is fully insured).

Low valuations of the final development may lead to additional funds being necessary to complete.  (Avoid this con by obtaining professional advice as to your financial position if this occurred)

Solution

“The good news is that a lot of the cons can be extinguished by undertaking the due diligence and research. You need to ensure that the developer has a sound track record of choosing houses in the right location, choosing builders that have stable and profitable track records, and choosing house and land packages instead of units. Land is much more governed by the rules of demand and supply because it is scarce. The closer to a CBD the scarcer it is.”

You also need a really good mortgage broker. House and land contracts and the process itself is fraught with complications and technicalities. You need a broker who is experienced in financing for such developments. See later – how to select a mortgage broker.

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011

This article describes the sixth strategy of nine property investment strategies.


Download the full report at www.wfscanberra.com.au

Strategy 6 – Buy and flip

This can mean different things to different people but what it usually means is to buy ‘off the plan’ and sell before settlement. Some investors use this strategy to buy a few properties and then sell most of them before settlement. They then apply the profits to reduce the debt on the properties they retain. A fantastic strategy for the experienced investor and it works well in an upward-moving market. However, it can be fraught with danger if the market falls during the construction period and you don’t have the spare resources (cash or equity) to cover the shortfall. It can be a bit like the stock market ‘margin calls’ that are rapidly bringing the share market to a grinding halt.

If you intend to buy and flip it is important to get professional advice to ensure that you can cope with a possible decline in value.  If your financial position is such that you could survive such then the buy and flip strategy can bring some fantastic possibilities.

If you proceed down the buy and flip path (after seeking professional advice) – look for developments with the following criteria:

•       Look for brand new developments
•       Developments that have the longest possible timeframe to completion
•       Projects with Progress payment plan that does not require the bulk of the payment till near the end of construction
•       Be first in – often the best gains are to be made early when the developer needs to sell quickly to meet the banks
‘pre-sales’ requirements.  If you wait till the end – you are only choosing from stock no-one else wanted to buy, and /or the price may have already risen substantially as the developer is no longer in need of a quick sale.
•       Of the other hand, sometimes the final lots are discounted as the developer needs to move them quickly so as to move on to his next project.
•       Just get advice from a food quality buyer’s agent who knows about the development.

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011

This article describes the fifth strategy of nine property investment strategies.


Download the full report at www.wfscanberra.com.au

Strategy 5 – Buy and build and sell or hold

Pros

This strategy is similar to the ‘buy and subdivide and sell’ strategy and once again not for the faint-hearted. On the upside, once again there is profit to be made, particularly for those able to be involved in the building process themselves.

Cons

As above for subdivision –tax consequences will be adverse and you will have to become involved not only with councils, surveyors and the like but also with builders, trades-people, suppliers, etc. It could almost be a full-time job, so unless you’re like me and enjoy that sort of thing, I would recommend you stay away from this strategy until you are more experienced.

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011

This article describes the fourth strategy of nine property investment strategies.


Download the full report at www.wfscanberra.com.au

Strategy 4 – Buy and sell

Pros

 A simpler version of the buy, renovate and sell example above only that you don’t have to renovate. You simply buy, hold and sell for profit. This can be a great strategy in a fast upwardly moving market.

Cons

 Once again, transaction costs make this a very difficult strategy to profit from. You need your property to increase around $40,000 in value before you will even break even. This is on average one year’s capital gain. In my personal opinion, this is a strategy best avoided unless you know something about the future direction of a market that no-one else knows (sort of like ‘insider trading’ in the property market).

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011
This article describes the THIRD ELEMENT of the SEVEN  elements to building a successful property portfolio so that you can reach your financial goals sooner”

Download the full report at www.wfscanberra.com.au

3. The Right Tax Advice  – “How to build your property portfolio using the tax man’s money”

The Right Tax Advice

“How to build your property portfolio using the tax man’s money”

 “It is crucial to get the tax strategy right from the beginning. The wrong choices during the crucial purchase period can result in losing tens of $1000’s in tax benefits forgone. It is also very costly to change the structure further down
the track.”

We will review individual personal situations, tax brackets of major stakeholders, future tax brackets, and many other issues so we can find way to legally maximize tax deductions such as depreciation and minimize income and capital gains taxes.

Issues that you need to consider before you invest in property are:

a)     What structure to use to maximize tax benefits – individual, company, trust, self-managed superannuation fund?
b)    What the income tax, negative gearing, capital gains tax and land tax issues related to each structure are – choosing the wrong structure can seriously increase your tax liabilities.
c)     Whose name to buy in to maximize tax benefits – most people think that they should buy in the higher income earner’s name and this may be correct but can exacerbate capital gains tax and land tax.
d)    Tax deductibility of pre-purchase and ongoing costs – can you claim the travel expenses to travel around the world (or Australia) looking for property? Perhaps.
e)    How to maximize tax deductions – how are you going to record all your expenses? Should you get a depreciation report? What about travel expenses for interstate properties? Can you renovate before a tenant moves in and claim these expenses?
f)      Structuring finance so as to maximize tax benefits – this is a very important step that many people get wrong.
g)    Is there any way of legally extracting the equity from your home and using it to buy your next home in a tax-effective manner? Perhaps.

At Wholistic Financial Solutions we are able to assess each and every clients individual circumstances and provide expert taxation advice as to the best was to structure your portfolio to minimize tax.

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011
This article describes the SIXTH ELEMENT of the SEVEN  elements to building a successful property portfolio so that you can reach your financial goals sooner”

Download the full report at www.wfscanberra.com.au

6. The Right Coach – “Discover why most property investors fail – and what to do about it”
The Right Coach

“Discover why most property investors fail – and what to do about it”

This is very simple.

Most ‘wanna-be’ property investors fail because they fail to ‘act’. They really, really want to do something but they just don’t know where to begin. They start researching and get even more overwhelmed – there is so much out there! Many people then suffer from ‘paralysis of analyses’.

They get so caught up trying to pin-point the best time to buy, the best location to buy in, and the best type of property to buy. In the end they simply DON’T buy.

Many people want to research and research until they are absolutely, 100%, without-any-doubt sure that they are entirely correct and certain of their decision. If they wait till then they will simply never buy. As an experienced property investor I know you can never be 100% sure you have got it right. Even the most experienced investors get the 'D-Day’ (exchange and settlement day) jitters. It is human nature to have fear and doubts.

Other people want to do it but just can’t work out how to put aside that extra $2 a day. And I am serious, that’s all it costs at the moment to buy a property (depending on your tax bracket and the type of property you buy).

Others are just not sure whether they should invest first or buy their ‘white picket-fenced’ house for the Golden Retriever and the kids and invest later. Others simply think, “I can’t do it. It would be too hard for me.”

So what’s the answer?

Get a coach!
“What?” you say, “What’s therapy have to do with investing?” Well, a lot actually.

 What is a coach?

A coach can help you determine things like:
 What is your definition of success?
1.      Are you there yet?
2.      What do you really want to achieve in life?

 A coach can give you the support and encouragement you need to achieve your goals. They are someone who is on your side, objective and ready to assist with any blocks or challenges you may face along the way. A coach will provide guidance and help inspire you to design your financial and life journey. They will celebrate the good times with you and provide encouragement during the challenges. They can teach you to how to examine your financial beliefs and values, trust your instincts and build your excitement to be the best that you know you can be.

A coach will help you:

•   find out where you are at right now
•   look at alternative options should anything not be working for you
•  put into place the new actions to help you reach your desired destination

At Wholistic Financial Solutions all our sales agents are trained as property ‘coaches’ not just sales agents.  They will not ‘shove property down your throat’.  They will simply work with you, your goals and dreams, and hold your hand along the investment journey.

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011

This article describes the third strategy of nine property investment strategies.


Download the full report at www.wfscanberra.com.au

Strategy 3 – Buy, subdivide and sell or hold

Pros

Fantastic opportunity for those not faint-at-heart.

Serious profits can be made by buying land capable of subdivision and doing what the previous owner was obviously too scared to do.

Cons

You need a large amount of capital (i.e. cash) behind you as, particularly in the current environment, the banks are simply not willing to lend serious money to even the most experienced property developer. If you are a novice your

chances of getting finance are seriously slim. It still can be done but you will need to put in a large portion of the funds for the development yourself. There are ways around this, such as: vendor finance, joint venture partners, and obtaining pre-sales. Above all else – seek professional advice.

In this instance, the tax man will definitely see you as a property developer rather than an investor. This means you will be subject to income tax and GST as opposed to the far more lenient capital gains regime.

You will also need to become involved with local councils and their development approval processes, surveyors, architects, etc. You will need to make this almost a full-time job.

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011

This article describes the second strategy of nine property investment strategies.


Download the full report at www.wfscanberra.com.au


Strategy 2 – Buy, renovate and sell or hold

Pros

 Can maximize potential gain by improving areas of the property that are unsightly such as an un-landscaped front yard, a messy entrance way, a run-down bathroom or kitchen.

Good strategy for those with the time and skills (i.e. tradesmen or women) that can complete the renovation themselves.

Exceptionally good strategy for those that have the lifestyle suitable to living in the property for a year or more, whilst they renovate it, and then sell it capital gains free as it was their principal place of residence. (Beware – you do need to be careful with this strategy as the tax office has regulations against it – seek professional advice.)


Cons

The main disadvantage of this strategy is the chance of getting it wrong and making a loss.
  
  “Adding value by adding    improvements needs to be carefully planned and executed. Not everything adds value. It is easy to over-capitalize and not get your money back. What you do need to be is ‘market appropriate’.”
Transaction costs are another major disadvantage of this strategy. In a market moving quickly upwards, good profits can be made but in a slower moving market you need to make serious gains on your improvements just to cover the transaction costs (see above re costs).

Beware the tax man – as above. Do this strategy too often and you will not only lose your capital gains exemption but also could be viewed by the tax man as a property developer and lose the capital gains 50% exemption as well. A bad outcome – so seek professional advice.

Download the full report at www.wfscanberra.com.au

Property Investment Articles

Monday, March 07, 2011

This article describes the first strategy of nine property investment strategies.


Download the full report at www.wfscanberra.com.au

Strategy 1 – Buy and hold

Pros  

‘Buy and hold’ must certainly be the number one strategy we come across and for good reason. The main disadvantage of property over other forms of investment is transaction cost. It costs you approximately $20,000 to get in and $20,000 to get out, compared with, for example, shares, where it costs you as little as $19 to get in and $19 to get out (as long as the market hasn’t crashed in the meantime).

To minimize transaction costs most investors choose to buy and hold and bank on the average capital growth of around 10% per annum (reference needed). This way the transaction costs are averaged out over the years that the property is held and become far less significant. It is safe to say that a ‘buy and hold’ strategy should be implemented for at least 7–10 years and the longer the better.

Another major advantage of the ‘buy and hold’ strategy is that it adds to the ‘sleep-at-night’ factor. You don’t need to be constantly monitoring the market, every latest deal and every market movement. You simply buy a good property in a good location with good rental returns and high tenancy rates and then you forget all about it. You set yourself a goal of say, one property every 6–12 months and then once you have this property you just forget about it. You can continue on with your day job knowing that the property is on ‘remote control’. 

“The ‘buy and hold’ strategy allows you to withdraw equity from each property as it grows and use this towards your next purchase. This saves the significant transaction costs of constant buying and selling.”
Cons
 The main disadvantage with the ‘buy and hold’ strategy is liquidity. Due to the longer timeframe required for this strategy, if you need quick cash for emergencies it can be sometimes difficult to access. That is where having the right strategy in place won’t over-expose your financial well-being. At Wholistic Financial Solutions, we’ll teach you how to set up your portfolio without being over-exposed.
Download the full report at www.wfscanberra.com.au

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