The Blogs that appear on this page may be sourced from outdated material so please seek appropriate professional advice. The blog material is in no way intended to be personal financial planning advice.

Catherines Chat

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

Happy Client Testimonial

Tuesday, February 16, 2016

Catherine

Thank you for sending the additional information on property hot spots.  It was a very interesting read (as well as a good quality product) and I think very worthwhile.

I also want to thank you for your time – the Pathway to Wealth session was very useful from a practical sense but also, in terms of giving me a sense of control, confidence and certainty over my short and long term financial futures.

I would also like to commend Lara and Lynda for their professionalism and courtesy

Regards

Ray

Property Hotspot

Thursday, October 01, 2015
SUNSHINE COAST
South East Queensland

 

 

Highlights
• Strong population growth
• Nation’s 10th largest city
• $2 billion University Hospital
• $5.3 billion Oceanside Kawana
• $350 million expansion of
Sunshine Plaza
• $2 billion light rail
• $150 million private hospital
• Caloundra South development
• Economy based on tourism,
retail, healthcare, construction
and education 

 

The Sunshine Coast market in 2014 returned to growth for the first time in six years.

 

Having previously been hampered by a struggling tourism economy, an over-­‐supply of dwellings and poor affordability, the coast has now moved into a strong growth phase.

 

(Source: Terry Ryder - Hotspotting)

Wealth Creation Strategies for the Average True Blue Aussie

Thursday, February 05, 2015

 

Wealth creation strategies for the average true blue Aussie

When the average person thinks of wealth creation strategies they generally think of ‘financial advice’.  However, there is a fundamental flaw in the financial advice industry in that it relates very little real wealth creation strategies.  In addition, it is neither accessible nor comprehendible for the average Australian family.  So the very ones that need financial advice, the average Australian family, cannot access it or understand it.  Even those that are lucky enough to be able to afford very basic financial planning, aka wealth creation advice, find it overwhelming and not comprehendible because the very term financial planning is misleading. 

Wealth Creation Strategies Definition

So what is the definition of ‘wealth creation strategies’?  One financial dictionary defines it as Accumulation of assets (especially those that generate income) over a long period of time.

Let’s see if real wealth creation strategies actually relates to financial planning.  It is actually very had to find an agreed definition of the term ‘financial planner’.  However, a ‘financial plan’ is defined as  ‘a comprehensive evaluation of someone's current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans

Yet when the average Aussie thinks of financial planners they generally think the person will be a highly educated and experienced professional that can assist them across all areas of their financial life.  Someone who can help them budget and save, then invest these savings in various investments including property, and also someone who will be able to reduce all the complicated financial strategies into a simple to understand no easy to implement plan.  However, this is not what happens when they see a financial planner. 

Financial Planners

Financial planners are basically product sales people getting paid commissions based on how much they sell. Worse still, some of them, are not highly educated at all, as a financial planning diploma can be obtained via internet based training courses. Some of these courses are quick and easy to complete and are more designed to make the supplier of the course money for course fees as opposed to ensuring a high quality financial advisor.  Financial planners also do not advise on property investing which is a key investment for financial wealth building and an investment that average Aussie wants included in the 'financial plan'.

Why is this such a problem? Clients want wholistic advice cross all financial fields. They want financial coaching that includes saving, budgeting, investing in shares, super, property, tax minimisation, asset protection, finance and more.  But each of these topics is dealt with by different professions.  A financial planner will sell you share or superannuation investments and convince you to take our high commission insurance policies.  But they won't help you invest in property.  An accountant may help you minimise tax, my even explain how to do this by investing in shares and property, but they can't actually advise on investing in such.  Mortgage brokers can advise on the best finance but can't advise on anything else. And the of course are the Property spruikers.  They will advise on property investing but they are generally unlicensed, uninsured and uneducated. They also get seriously high commissions on anything they sell you.  So can you trustee advice.  I think not. 

So why aren't their advisors who are licensed, insured, educated and experienced across all financial fields?  There are, but they are few and far between.  The difficulty for such advisors is the complications that the various governments have introduced via legislation that make it near impossible to give wholistic advice across all financial fields. 

Buying Property in an SMSF

Let's look at an example.  Say you want to buy property in an SMSF.  A very common and effective wealth building strategy at the moment.  Who do you turn to for advice?  If you see an Accountant they can set up an SMSF do you but they can't advise whether you should or shouldn't do so.  You can see a financial planner who needs to do a very complicated and expensive Statement of advice SOA to advise whether you should or shouldn't set up an SMSF.  The price of this Advice alone puts most clients off.  If you’re willing and able to pay for such and they do advise you to set one up, they can't actually set one up, you need to go back to the accountant for that.  Then you need to find a suitable investment property.  The financial planner and accountant can't assist you with this.  So you end up trying to hunt for one yourself and getting caught up with not so scrupulous real estate agents and property spruikers.  Once you find a property you need a loan. A mortgage broker can help you with this but the broker can't advise on whether you should do this and the banks require you to get advice so you are now back to the financial planner for another very expensive SOA to recommend you should take out a loan to buy the property.  Then you need an accountant to account for the SMSF accounting and taxation needs.

Does the process above seem overly regulated, overly complicated, overly off putting or is it just me that finds it ridiculous?  From my own experience what generally happens is that the wealthy who can afford the advice persist and get the right advice and grow wealthier.  The Average Aussie family can't afford the advice or even if they could, it just gets so overwhelming and complicated that they give up and don't get the advice they need to grow wealth.  And so, the divide between rich and not so rich continues to grow. 

So what is the secret to wealth creation?

Find a professional advisory firm that is licenced to advice across all financial fields.  A firm that can assist you create real wealth creation strategies.

The Importance of a Valuer when Purchasing an Investment Property

Tuesday, September 09, 2014

A valuer can be the linchpin to the transaction.  A valuer can make or break the transaction.

A valuer is used to assess the market value of a property.

The first thing to look for when appointing a valuer is to ensure they have the correct accreditation.  You need a valuer who can provide reliable, accredited assessments on the value of all types of real estate property.

When will you need a valuer?

If you are applying for finance your bank or lender may require a valuation of your existing assets to ensure they are able to calculate the actual equity you have within your real estate investments.

The bank providing finance will usually require the usage of their own valuers and they will generally err on the side of caution when making a valuation of your existing assets to ensure they are well-covered when offering you loaned money.

Valuers use a combination of market information, land values, development investigations and other analysis techniques to come about the valuation for the property.

Why do I say Valuers are the lynchpin?

The sale of a property is often dependent on the valuer.  Often the purchaser needs to raise finance against the property being purchased and possibly against their existing properties.  If the valuation on the properties fall short than the purchaser if often unable to raise enough finance.  Also a purchaser may decide to back out of a purchase if the valuer says that the property is worth less than the sales price.

So why aren’t valuation precise?

Valuations are an ‘INEXACT SCIENCE’.  There is no set value for a property.  The value is heavily dependent on the individual expertise and opinion of the selected valuer.

Valuers are poorly paid and need to do many valuations.  Pumping them out quick is the only goal.  They don’t take the time to examine all of the specific aspects of a property that add value. To make matters worse, the Global Financial Crisis (GFC) has caused lenders concern and lenders are specifically instructing valuers to value properties at FIRE SALE value as this reduces the lenders exposure to loss. Fire sale value is what the properyy would sell for in a quick, urgent sale and this is often far less than the achievable sale price in a normal market.

Valuers are also protecting themselves from personal litigation by adopting a conservative. 

How to possibly avoid a bad valuation on a property you are selling:

  • Try to develop a personal relationship with a valuer in the area
  • Sometimes it is possible to request the bank to use your chosen valuer
  • In any event, prepare a report for the valuer that contains
    • The house plans
    • Photos of all the special features of the house
    • A list of all the special features of the house that add value
    • Most importantly – a summary of comparable sales in the area that support the estimate of value that you are aiming to achieve

Things you should consider using when Purchasing Investment Properties

Tuesday, September 09, 2014

The sale of a property within Australia will be conditional upon the execution of a building and pest report.

Not only does this protect the investor by making sure the property is structurally sound, but it also protects the lending institution, ensuring they do not loan money on a home that is possibly in structurally defected.

Even new properties can have serious building and pest issues, especially if the materials used were inappropriate for the construction, but used as a cost cutting mechanism by a shady developer.

Older properties inevitably have several possible problems that the buyer should be aware of from the outset.

Before you make an offer on a property, you need to have appointed a trusted and qualified building and pest inspector.

Why?

Because once you sign a contract on a home you usually only have 14 days before you are expected to go unconditional with the sale.

The building and pest inspector will report on the quality and condition of the property in question if the property is found to be extremely poor quality or perhaps has an invasion of white ants you will be glad, as a buyer, that your purchase was conditional upon a satisfying report from your building inspection.

A poor report can basically get you out of a sale that would be a poor investment decision within your portfolio.

Insurance will be one of your best pieces of ammunition in managing risk and protecting your assets.
An insurance broker will assist real estate investors to find the best-suited insurance product to cover them for liability.

There are literally hundreds of different insurance packages out there, and finding the right one at the right price to suit your requirements takes more effort than its worth.

If you let an insurance broker do the ground work for you, not only will they have a better understanding of your insurance needs and the players within the industry that can provide them, they will also save you time and will not cost you a cent.

The commission fees charged by insurance brokers come from the insurance underwriters, not the insurance customers this is very good news!

An insurance broker will be an incredibly useful member of your real estate expert team.

Why Property Managers are Worth Using when Purchasing Property

Friday, August 08, 2014

 

Why Property Managers are Worth Using when Purchasing Property

“It’s crucial that your investment property is well-managed and that you choose a good property manager. Effective property management is the key to protecting your asset. Remember, it’s not just a property, it’s a significant investment and you want it well looked after. You want its value to remain high and you want the best rental return on your investment.”

 Some landlords try to manage their investment property themselves. Sometimes this works OK. However, there can be many pitfalls. We have found from our experience that a good property manager is worth their weight in gold in looking after our investment and saving us hassle.

A good property manager will excel in the following:

Marketing

– Marketing your investment properly to get the maximum exposure to the right kinds of tenants. Effective marketing is a key factor in ensuring your property is not left vacant.

Legal requirements

– Being fully aware of all legal requirements and ensuring that all requirements of government legislation relevant to your investment property are complied with – advising you on your rights and obligations.

Your rent

– Consistently monitoring market trends for rental returns and ensuring your investment is getting the highest possible rental return – regular rental reviews – ensuring tenants pay the rent on time.

Tenant selection

– Ensuring the best quality tenant for your investment property – following strict and professional guidelines in tenant selection, including checking references, employment stability and proof that the tenant is capable of paying the rent and a proven quality in their previous rental history.

Agreement preparation

– Arranging the preparation and signing of the residential tenancy agreement and lodging the rental bond.

Tenant management

– Ensuring the tenant is well educated in the terms of the residential tenancy agreement and that the terms of the tenancy agreement are complied with

– Building a good relationship with the tenant – a happy tenant is a tenant who stays and who will contact their property manager immediately with any issues.

– Acting as a negotiator in any disputes between tenant and landlord. A good property manager can ensure that most disputes between landlords and tenants are solved before they escalate.

Rent collection

– Providing a good range of options for tenants to pay their rent – requiring tenants to pay rent in advance – daily monitoring of incoming rentals – having zero tolerance for any rental delays.

Looking after your investment

– Knowing your property, inside out – conducting regular inspections of your property (as per the legislation) and forwarding you a written report on its condition and any maintenance that may be needed.

– Conducting regular external surveillance of the property to assess the external appearance and to ensure its being well-maintained.

– Giving you feedback to help you budget for larger items of expenditure that may be required – providing an after-hours contact for emergencies.

Communicating

– Communicating well with you on your investment.

Saving you hassle

– No need for you to interact with your tenant at all – paying bills for you – invoicing tenants for user-pays water costs – monitoring and handling any maintenance required, obtaining quotes, dealing with trades people, ensuring the job is well done – providing statements for your tax return.

And if you decide to refresh your investment portfolio

– Liaising with your tenant and your real estate agent to make the sales process easier, smoother and faster – or liaising with your mortgage broker regarding access for valuation purposes, all making things easier for you to refresh your portfolio.

The Right Management solution is one of the most important strings to your investment bow. The management of your property ensures that your investment is being looked after in all aspects. The property manager makes sure that your interests are looked after priority number one! Diligent property management will ensure that your investment property is always tenanted with only top quality tenants.

The point is that the Right Management is the tool that allows you to have a safe worry-free investment solution that is truly ‘Set and Forget’.


Check out the video below:


Real Estate and Superannuation is the most Powerful Wealth Creation tool of all

Monday, July 14, 2014

Since time immemorial it has been argued by numerous opponents as to whether the benefits of investing in property outweigh the tax concessional environment of superannuation. 

From a cynic’s point of view, one could say that the opponent’s opinion’s debate varied considerably depending on their own bias.  And this bias seems to be greatly influenced by the advisor’s commission structure. 

Funnily enough, analysis provided financial advisors proved, without a doubt, that superannuation and shares is the way to go whereas just as convincing arguments, raised by property spruikers, real estate agents and mortgage brokers, suggested that property was by far the superior investment.

Who should you believe? 

A new battalion – property and superannuation join forces?

The battlefield has changed and changed dramatically. 

Why would you choose Property over Super OR Super over Property, when you can have the best of both worlds instead!

So Why has the front line shifted?

New laws introduced in September 2007 allow Self Managed Superannuation Funds (SMSF’s) to, for the first time, buy geared property in a simple and uncomplicated manner. 

SMSF’s can now select a property of their choice, be it;

  • residential
  • commercial,
  • or rural

and borrow up to 75% of the value of the property. 

Previously an investor had to choose between;

  • using his spare funds to invest in a negative geared property,
  • OR contribute the funds to superannuation.  Let’s have a look at an example comparing the two alternatives.

Comparing the two – Option 1:

Take Johnny who is 35 and purchases an investment property.

Presuming average capital growth of 7% and rental yield of 5% (both very achievable) the following scenario occurs at age 60.

Value of Property:  $1,775,328

Mortgage owing: $350,000

Net Value: $1,425,328

Plus, the property has been cash flow positive since year 7 netting a cash flow of $584,480 which Johnny could use for further property investing.

Taking tax out of this amount will bring the returns down to:

                        Net Capital Gain: $1,211,529

Net Cash flow: $409,136

Overall Outcome: $1,620,665

 

(*Presuming a 30% tax rate,8.5% IO Mortgage rate,rent yield grows at 6% in line with property growth, excess cash flow taxed)

Comparing the two – Option 2:

Compare this to Sally who invests the same amount as Johnny into superannuation. Presuming the same growth and yield (if his superannuation was invested in a well diversified growth portfolio) he would achieve a superannuation balance of $432,658 by age 60.  This is well short of the gains made by Johnny.

(*Presuming a 15% tax rate, contributions include the initial deposit and the cash flow shortfall and cease in year 7 when property cash flow positive, no CGT as investment held until after age 60)

Comparing the two - An un-biased opinion

As any professional advisor and serious investor should know there is more to consider than the pure numerical outcome.  Whether considering property or superannuation other important factors need to be considered. 

One of the most important factors is the stage of the investor’s lifecycle. 

In the working years of an investor’s life a strong cash flow allows the possibility of using gearing strategies to maximize returns thus making property a preferential option. 

Once the investor reaches the pre-retirement phase, it may be unwise to take on the risk of gearing.  Therefore, this may be the preferential time to consider locking away as much as possible into super.

The most common investment strategy seen in the baby boomer era was to invest all surplus funds into accessible investments including property and shares and then cashing these in and contributing the funds into super just prior to retirement.  The only disadvantage of this strategy was a potentially very large Capital Gains Tax bill.

Why would you buy property in a SMSF instead of personally?

For many reasons including;

  • you get the benefit of ‘leverage’,
  • a maximum of 15% tax on any rental income in excess of costs,
  • you receive a tax deduction for the loan repayments of principal (which is normally impossible) via salary sacrificing the amount required to cover the shortfall,
  • asset protection – the asset is protected from creditors in the event of a lawsuit or bankruptcy (some conditions apply),
  • the property can still be sold and the loan repaid at any stage,
  • any capital gains on the property when sold will be taxed at a maximum rate of 10% (if asset held for more than 12 months)

 

But the biggest incentive of all – if you keep the properties until age 60 and commence a pension from the fund;

  • any capital gain on the property will be TAX FREE,
  • any rent on the property will be TAX FREE,
  • any income paid out to you will also be TAX FREE.

 

The laws are only new and law complying products are now being introduced and marketed.  It is envisaged that these products will hit the market like a storm once investors realize the potential.  There are already over 350,000 SMSF’s operating in Australia and it is likely that this figure will increase exponentially once knowledge of the loan products becomes widespread. 

In fact, as at May 2010, SMSF’s are growing at a rate of 2500 per month.

It is also interesting to note that this may be the first time in history that all advisors (financial planners, accountants, auditors, property advisors and mortgage brokers) have a common ground for advising clients.  All advisors have something to gain by assisting clients into these products. It’s not only a busy time ahead for advisors but a time to join forces and put a cease fire on the battle.

Real Estate is a more Effective Wealth Creation tool than Business

Friday, June 06, 2014

 

Check out the "rich lists" and you will find many business owners. A lot of these entrepreneurs started out with a small business operation or an innovative idea which developed over time into a very large corporation.

There is no doubt that business investments can deliver an extremely lucrative outcome but there can be drawbacks.

Interviews with high net worth business owners reveal a common theme -- an intense focus on the business and a very significant commitment of time, often at the expense of personal needs and relationships. Today's business world is an extremely complicated scene with various facets to consider -- you are required to wear many different hats or pay for a lot of professional advice.

By contrast, an investment in real estate can deliver all the benefits of a business investment and more, but without all the management headaches.

As with a successful business investment, real estate will give you capital growth, an income stream and tax advantages however with business investments there is an appreciably higher risk (many businesses fail) and a drop in liquidity (it can often take a very long period of time to sell a business operation and they can be difficult to value).  The easiest way to say it is that wealth through property investing is just so much easier, understandable and far less risk.  Far more investors lose in business than by property investing. Property investing, by its very nature, investing in bricks and mortar, provides a far more stable and secure investing foundation.

Another factor is funding -- often lenders are reluctant to support the growth plans for a business because it is difficult to get a clear picture of its current financial situation or future prospects. There are generally no such problems with real estate loans because of the easy availability of records and financial data and the more tangible and transparent nature of property assets.  For example, banks will lend up to 95% of the value of a property whereas in most cases they want lend at all for business unless you have property to offer as security. 

While it is possible to operate as a "silent partner" or withdraw from a lot of the day-to-day worries and workloads of a business investment by employing managers, it is in an investor's interest to monitor a business closely.  Property can be a set and forget investment basically as your property manager can look after it for you.  Whereas a business requires constant day to day management.

Property Investing is simply far easier than business investing.

Will Australia Crash like America did?

Friday, May 30, 2014

 

Comparing Australia to America is like comparing Chalk and Cheese’.

As explained in earlier chapters Australia has a

  • Massive undersupply of houses
  • Record Population growth
  • Vacancy rates are at a record low.
  • Demand > Supply

In contrast America has a

  • HUGE oversupply of houses – empty streets, empty suburbs – where no-one wants to rent or buy
  • Very low population growth – if fact, American’s are deserting their own country
  • Horrendous vacancy rates
  • Supply far exceeds Demand

Australia also has different lending policies including 

  • No NINJA loans – Ninja loans are known as ‘No Income, No Job, No Assets’ No problems – here’s your loan.
  • The Amercian banks were also lending up to 110% of the value of the property. So it didn’t matter if the applicant had no deposit  - No problem – here’s your loan.
  • They gave out loans at 0% interest rate then hiked the rate up to 5% and wondered why the owners could no longer afford the loans.
  • They also have ‘Jingle Key Lending’  also known as ‘non-recourse’.  If you couldn’t afford the loan anymore, No problems, send the keys back to the bank and all will be OK.  The bank won’t chase you for anything

In Australia, on the other hand, bank requirements are much more onerous. ‘Lodoc’ loans only make up a very small % of overall lending in Australia and the banks are very careful to not go over 80% of the value of a property to a lodoc applicant.  Loan servicing ability is assessed at 2% above the current standard variable rate.  And all Australian loans (other than for SMSF’s which will be explained in later chapters) are full recourse loans.  If you default on the loan the bank will come after all of your other properties, other assets, your cars, your cash and even your husband or wife if you are lucky (just jokes).

Simply put, comparing Australia to America is like comparing chalk and cheese.

It is worth pointing out though, that America now, may be a fantastic investment opportunity for Australian’s.  You will need to read our later chapter on this issue.  It is not for the faint hearted but a great opportunity for those willing to take the plunge.

Do you want to know more? Click here to watch five free webinars on - ‘Proven, Must Know, Property Investment Advice’

Property Utilises the Power of Leverage

Friday, May 23, 2014

 

Leverage is one reason why real estate investment makes so much sense to so many of the wealthy.

Leverage = using other people’s money to make more money

Leverage is also described as making ‘more’ with ‘less’

In the example below – if you have $30,000 and you invest it in the bank you will make a 5% return (based on today’s rates) so $1,500.

But if you take the same $30,000 and invest it in a $300,000 property and lets say it only goes up by 5% (to compare apples with apples) then you have now made $15,000 – 100% more than simply putting the money in the bank.

How good is that?

And, if instead, the property went up by 10% (closer to the average) then you have made $30,000 or 20 times the amount you would have made by putting the money in the bank.

 

And you don’t have to feel bad about using other people’s money.  Institutions called ‘banks’ WANT you to use their money – they make money too. 

Leverage has been a tool used by mankind since cave man ages.  The first spear was invented to catch more prey than the bare hand could.  Then horses were used to pull carts to get us places faster.  The greatest form of leverage in today’s world is the power of the internet.

Property is unique for its ability to be leveraged as you as you can borrow up to 95% of the value of the property.  In contrast to shares where you are lucky if you can raise 60% of the value of the share.

This really means your property investment is working hard for you.

There is a multitude of ways to leverage property in your favour and these include;

  • Leverage the banks money to buy property to make you rental income as an investment;
  • Use rental yield collected from tenant to help pay the mortgage;
  • Improve the property to increase the value of the property
  • Improve the property to gain a higher rental yield.

 

Do you want to know more? Click here to watch five free webinars on - ‘Proven, Must Know, Property Investment Advice’


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