Ask Heidi Blog
Renovating for profit can be a risky venture if the proper preparation isn’t done. You may think that all renovations will increase the property’s value, but that isn’t always true.
There are plenty of changes and editions you can make which usually add value. Some examples include adding in a second bathroom or upgrading the kitchen. But what improvements are on the no-go list?
Most Australians love the idea of having a pool, especially in the warmer months. However, when it comes to maintaining and cleaning the pool, you may find that most buyers don’t want to put in the effort.
Swimming pools can also be considered a safety risk for families with children or even pets as an accident could happen. Therefore, having a swimming pool may limit the number of tenants who are interested.
Although landscaping plays a big part in the first impression appeal, which is important for attracting buyers, it may not add value to the property if it is too over the top. Not everyone enjoys gardening and may cringe at the thought of spending their spare time weeding and pruning.
It is often the simple, tidy gardens that buyers find most appealing as the house will still look attractive, but will only require minimal effort.
There are two areas where upgrading may not improve the property’s value.
Firstly, you need to look at what needs to be upgraded and not what you’d like to upgrade. There are a number of projects that can be expensive and the buyers may not even notice the change. Some examples include a new air conditioning unit or new pipes. Although the house must be in a liveable state, if you are renovating just for the sake of renovating, it may not improve the purchase price.
Also, your renovation project may become trickier if you are fixing up an older house. If you are only planning on renovating one or two rooms, it may not increase the value as the rest of the house will still look old. When it comes to renovating, you need to try and maintain one specific style throughout the house.
It will be beneficial before beginning to have a certain type of buyer in mind (eg. families, couples) to help keep cohesiveness. Remember, the more neutral the house design is, the better chance you will have at appealing to a larger pool of buyers.
Retirement has become a big issue at the moment as it is predicted that many Australians will have to stay in the workforce longer than they’d like to.
According to a recent study by Suncorp Superannuation, “in the next decade, 2.6 million Australians will need to work their entire lives out of financial necessity.”
So, what is there, apart from contributing more to super, that you can do now to enjoy a comfortable retirement. Even if retirement is still 30, 40 or even 50 years away, it’s never too early to create a plan.
Many Australians are learning how to become financially independent during their 20s, making this an important time to think about what your financial goals are and work out how you are going to reach them. If you are hoping to own your own home in the future, your 20s is when you should start saving.
According to the Genworth Homebuyer Confidence Index (Sept 2013), 25% of prospective first home buyers have been saving for a deposit for more than three years. The more you can save for a deposit now, the more beneficial it will be in the long run. Many lenders reward borrowers who have a large deposit with more competitive interest rates.
A big part of saving for a home is getting all of your finances in order. Come March 2014, lenders will be able to see the past 24 months of repayments for ongoing financial commitments like credit cards and personal loans. How you manage your money now will affect your chances of getting a home loan in the future.
At this stage of your life, you may have settled down with a family and a stable career and have definite personal and financial goals. If this is the case, it may be a good time to start thinking about purchasing a property.
However, before you purchase a home or obtain a home loan, it is important to do your research on the following points:
Property Location: You will need to consider what things are important to you, for example, proximity to schools, work and shops and also what the neighbourhood is like. If you find a property at a great price, but takes an hour to get to work, is it worth it?
Property: It is important to see what other houses in the area are selling for to ensure you are not paying too much. Our free property report can show this. Also, to avoid buying a lemon that may end up costing you extra money down the track, make sure you organise a building and pest inspection.
Home loan: When looking for a home loan, make sure you compare more than just the interest rate. The comparison rate will give you a better idea of how much you will be charged as it includes fees as well. It is also important to compare features to see which one will enable you to pay off the loan the quickest.
If you have bought a home and now have a mortgage, your 40s should be the time that you focus on repaying as much as possible. Remember, the more money you can put towards your home loan, the quicker you can repay it and be financially free.
An offset account and free redraw are beneficial to have as they can help you save interest. An offset account is a separate account connected to your loan and by depositing funds into this account; it will help decrease the amount of interest you have to pay. You can also use this as an account for everyday transactions. Free redraw allows you to pay extra into your loan while still having access to it via redraw if needed.
There may be times where you feel like you cannot afford extra repayments, but it will be worth it if you are able to pay off your home loan before retirement.
Although most home loan terms are 30 years, if you have put in the effort to make extra repayments on your mortgage, the amount owing should have reduced considerably or you may have repaid the loan completely. If this is the case, now is the time to think about directing some of your income towards investing.
According to a study by Suncorp Superannuation, in the next decade, there will be a 52% increase in the number of people over 65 in the work force. Investing can provide you with passive income and can help support your lifestyle during retirement.
Purchasing a house is a huge accomplishment for many Australians; however, it seems that not all buyers are approaching purchasing with caution and due diligence.
According to research by realestate.com.au, 41 per cent of home buyers during September and October were prepared to bid above the asking price, compared to just 23 per cent the same time last year. In order to avoid surpassing your limits and potentially overpaying for a property, you will need to be prepared. Here are some tips to help you get the best property for your money:
Start researching early
Many buyers make the mistake of putting all of their eggs in one basket and focus on just one property. However, it is important for home buyers to research several different properties in different areas. Not only will this give you a realistic sense of what properties are selling for, but it will help stop the ‘fear of missing out’ from influencing your decisions.
Be prepared financially
Before you can purchase a property, you will need to have your finances prepared and the sooner you can do this, the better. Obtaining a home loan pre-approval early will give you a limit to how much you can spend. Also, as you have already completed the groundwork for the home loan application, you can confidently bid at a property auction or make an offer for a private sale.
Attend practice auctions
Everyone knows that practice makes perfect and the same can be said for property auctions. If you have never attended an auction before, it may be beneficial for you to attend several auctions just as a spectator so you can gain an understanding of the procedures, rules and even check out the techniques of the winning bidders.
Take advantage of the inspections
It is recommended that before buying a property, both a building and pest inspection is done to ensure it is in a good condition. This could save you a lot of money down the track, especially if there is a problem with the property such as termite or foundation issues.
If you do find problems during the inspection, but you are still keen to purchase that property, you could use the issues to negotiate the purchase price down. Always be cautious if problems are uncovered since, if it is too bad it could mean that the lender won’t consider it to be a suitable security for the loan. The valuer will note any “essential repairs” which are things that need to be done to bring the property up to a standard expected by the lender. The lender will then need you to show that you have the funds left over after the purchase to get the work done. Always weigh up cost versus benefits with any properties that are in poor repair.
Keep your emotions in check
A survey conducted by the Commonwealth Bank found that 58 per cent of home buyers said that they were “rushing in and negotiating a price before they have done their due diligence” as they had a fear of missing out on the perfect property.
Purchasing a property is one of the biggest commitments people will make in their life, so it can be hard to keep your emotions out of the decision making process. So in order to avoid overpaying, you will need to learn how to keep your emotions in check. This can be done by:
- Getting professional advice from a financial adviser as they can help you make rational decisions without letting emotions get in the way.
- Keep your mind open: There are plenty of houses out there and although you may think you have found the perfect property, you will need to be prepared in case you are outbid.
- Engage a buyer’s agent. This is someone who can help you select the property and do the negotiating for you. They will charge a fee to do this but could help you purchase for less and avoid issues of getting emotionally involved.
So before you start looking for a property to purchase, take the time to establish your limits and then take the time to thoroughly research before you make an offer or commit at auction.
Although the holiday break is coming up, it doesn’t mean you should forget about your investment property.
The last few weeks of the year is a great time to take a good look at your property to see what is working and what isn’t.
Take action if your tenants are leaving
If you know that your tenants will be leaving in December, don’t wait until the New Year to take action. You may find that other investors do the exact same thing and when January rolls around, there could be an influx of rental properties and not enough tenants. Be one step ahead of the crowd and get organised early. Speak with your property manager about looking for tenants or if you self-manage, start advertising for new tenants before the old ones leave.
If your tenants aren’t leaving, it important that you still remain available for them to contact you or your property manager over the Christmas period. If there will be a period of time where you or the property manager is unavailable, you will need to inform the tenant. The last thing you would want is to come back from a holiday with a stack of complaints and very unhappy tenants who feel neglected.
Check in with your property manager
This is the perfect time to review your property manager’s performance over the year. Have they kept in regular contact with you? Do they respond to your enquiries in a timely matter? If you don’t have a property manager, why not take a look at your own performance and see whether being a landlord is worth the extra work.
Use vacant periods to do repairs/maintenance
If you have been waiting to do some maintenance work or give your property a fresh coat of paint, the Christmas/New Year period could be a good time to do it if your tenants are planning to vacate.
Renovating or adding improvements to your investment property may give you the opportunity to increase your rent for the New Year.
Make sure your property is insured
Unfortunately, robberies do often occur during the Christmas period as many families go on holiday. Firstly, you should check to see if your tenants will either be vacating the property or going on holiday during this time. If the property is going to be vacant, you will need to double check that you have all of the necessary locks and alarms to help prevent someone breaking in. This is also a good time to review your insurance policy to make sure you are covered for any damage.
Even if you are planning to slow down and relax at the end of year, it doesn’t mean you forget your investment property.
Gazumping sounds like something that might happen during a board game, but in reality it can be extremely distressing for buyers in the property market.
Gazumping is when a seller accepts an offer from a buyer on their property, but then later sells the property to another buyer offering a higher price. Unfortunately for the buyer, the seller is not required to repay any of the legal costs, inspection costs or home loan application costs that you may have incurred.
The sale of a property is not legally binding until contracts are exchanged and the deposit paid. Any time prior to this you are at risk of being gazumped and losing the property to another buyer who has offered more.
So how can you protect yourself from being gazumped?
Organise your finances
You shouldn’t wait until you make an offer on a property to organise your home loan. There is plenty of groundwork you can do whilst house hunting which will not only give you peace of mind knowing you can afford the property, but it will save you valuable time when you do find a property you like. If you have already been pre-approved for a home loan, you may look like a more valuable buyer to a vendor and can grab a great deal quickly.
Check out the State Custodians online pre-approval tool which can give you an indicative pre-approval in minutes – perfect for re-crunching the numbers when you are out house hunting. Always ensure that you follow this up with a formal pre-approval which is a more thorough assessment with your details verified.
Get a copy of the contract ASAP
A verbal agreement is not legally binding, so if you are serious about purchasing a particular property, get a copy of the contract as soon as you can to have your solicitor look over it. This can be obtained from the real estate agent even before you make a formal offer. A lot can happen over a weekend or even overnight, so a few extra hours or days saved may mean the difference between securing the property or missing out to someone else who was able to get their ground work done sooner.
Don’t waste time once your offer is accepted
As soon as a purchase price has been agreed with the vendor, you need to move quickly to proceed to exchange contracts. So that you don’t take any risks, before you exchange contracts, you should have your finance fully approved, pest and building reports complete and your solicitor review the contract and be happy with what it contains. All this will take precious time so move quickly. Notify your lender as soon as your offer is accepted and forward a copy of the contract. Even if it is blank they will still be able to proceed to ordering the valuation which will take a few days to come back. Keep in close contact with your solicitor or conveyancer and let the pest and building inspectors know that your request is urgent.
Don’t risk everything by relying solely on the cooling off period
If you do decide to exchange contracts you will still have a few days to pull out of the purchase and this is called a cooling off period. In some states it can be 5 days but can vary. Some buyers do this so that they can’t be gazumped but unless you have your finance, pest and building inspections and legal advice on your contract complete by the end of the cooling off you have to make a difficult decision at the end of the cooling off to pull out or proceed but risk needing to pull out of the contract later.
If you do withdraw the contract after the cooling off you will be required to pay a percentage of the purchase price to the vendor which could amount to the full 5 or 10% deposit. It may happen because your finance wasn’t approved, the property wasn’t acceptable to the lender, there was issues uncovered in the pest and building inspection or the solicitor found unacceptable conditions in the contract. Apart from losing your deposit you will also lose sleep due to stress. So, before signing the contract, make sure you are confident that everything is in place. If in doubt seek legal advice from your solicitor or conveyancer.
Keep in close contact with the real estate agent
By law, the real estate agent is required to pass on any offers made to the vendor until the time when the contracts are exchanged. So, if you want to make an offer, make sure you let the real estate agent know. However, the vendor is able to instruct the agent to only advise them of offers above a certain price. So it is important that you are making appropriate offers, otherwise you could be wasting your time.
A verbal agreement is only as good as the paper it’s written on. So don’t take any chances when it comes to purchasing a property and work quickly to being able to lock it in.
Although financial advice is highly valued, only a small percentage of Australians actually use a financial adviser.
According to the recently released BlackRock’s global investor pulse survey, only 15 per cent of Australians seek advice from a financial adviser and the majority of these people are in the 55-64 age bracket or those approaching retirement.
The survey also found that income played a part in a person’s decision to get advice as 25 per cent of people who earned over $150,000 used a financial adviser compared to 10 per cent who had a lower income. With many Australians living on a tight budget and new self-managing technology being released constantly, will there be a place for financial advisers in the future?
Although there is a small percentage of Australians who use a financial adviser, 89 per cent of these people believed that professional financial advice was extremely valuable. So what are the benefits of seeking financial advice?
A financial adviser can provide you with the professional, personalised advice you may need to make informed decisions about handling and investing your money. Financial advice can cover budgeting, tax planning, investments, estate planning, superannuation, government benefits and life and risk insurance.
Some other benefits include:
Goal Setting: If you’re at a crossroads with your finances and are not sure which way to turn, a financial adviser can help you. They can help you work out your long and short term goals such as money for retirement, property or your children’s education and then make a plan to help you reach them.
Protection of your money: A financial adviser can help you plan for the unexpected. Illness or injury could drastically affect your life and also your finances. By seeking financial advice, you can put provisions in place to help protect your wealth.
Build your portfolio: It doesn’t matter if you are a first time investor or an experienced investor, a financial adviser can create a strategy to help you not only build your investment portfolio, but help you manage the investments along with other debt and living expenses.
Although it is clear that advised investors truly value financial advice, will the younger generations place the same amount of value on it in the years to come?
The instant you find your perfect house you may breathe a sigh a relief. The months of house hunting has finally ended and it’s time to make an offer.
However, many house hunters rush this stage and can often end up overpaying for a property or missing out altogether.
So what steps should you take when you are ready to make an offer?
Organise a home loan pre-approval
It will be beneficial for you to already have a formal pre-approval organised with a lender before making an offer. This pre-approval will give you the confidence to make an offer knowing you already have the finances to afford the purchase. Also, as you have already completed the initial stages of obtaining a home loan, you can make the offer quickly and not waste valuable time. Take a look at how you can get approved with our online pre-approval tool.
Organise a solicitor
A solicitor will be extremely helpful in organising the legal side of purchasing the property. They can also give advice relevant to your personal situation in regards to making an offer and signing the contract.
Make the offer on the property
When making offers and negotiating with the vendor (this is usually through their agent), it is best to make any opening offer low as increasing it is much easier than trying to retract a higher offer and replacing it with a lower one. Be sure to know the point at which you are prepared to walk-away and don’t go past it. This is also the time where you can include any conditions in the contract. Some examples may include:
- Building inspection
- Pest inspection
- Loan approval
If you and vendor do agree on a price, there are a few important steps you need to take. Firstly, you will need to take the contract and discuss it with your solicitor. Secondly, you will need to speak with your lender and get approved for a home loan and finally, you will need to organise any inspections to ensure you are buying a quality house.
Once you have satisfied yourself on these points, then your solicitor can guide you through the formal exchange of contracts. With most of the hard work done you can relax a little and get ready to pop the champagne.
Although the festive season is still a month away, many are feeling the financial pressures already.
According to a study by Commonwealth Bank, in 2012 Aussies were predicted to spend over $16.2 billion on Christmas and it looks like 2013 will have similar results.
So, with many Aussies already stretched to the limit with financial commitments, you should work out how you can get through the holiday season without buckling under the pressure.
Keep spending in check
Although it is hard to resist all the sales, if you know that due to extra expenses that your cash flow will be tight over the festive season, you will need to come up with a plan to ensure that there is enough to go around. This doesn’t mean that your Christmas has to be less fun or memorable; you just need to be a smart spender.
Speak with family and friends who you are spending Christmas with about sharing food expenses or having a secret Santa instead of buying individual gifts. It may also help to create a list of expenses and start buying small amounts of food, decorations and presents each week instead of waiting until Christmas Eve where you could possibly end up making unnecessary impulse buys when you are caught up in the moment.
Avoid the temptation to put it all on credit and worry about how to repay it later. This is not a solution and could leave you paying off your Xmas splurge well into the New Year.As there is still a month to go, now is the time to create a budget and work out your spending. Take a look at the range of online calculators available on the State Custodians website and there is also a Christmas Budget app where you can budget for Christmas gifts and holiday spending.
Your home loan is first priority
Your home loan is a long term investment worth keeping and it’s important not to lose sight of this, especially when you are planning to spend extra money.
If you are already making extra repayments on your mortgage, you may find that cutting back to the minimum repayment amount just for December could help your holiday spending. Also, if you have extra money saved in your offset account, you could use this as well.
Remember, miss a repayment and you will incur fees and if it is not made up quickly it may appear as a default on your credit report. If things are tight, ensuring that you home loan repayment is made in full and on time is of prime importance.
Keep in contact with your finance team
If you experience financial trouble over the holiday period, don’t just keep it to yourself. Contact your lender to let them know the issues. They will be looking for you to come up with a solution so think of how you are going to be able to turn things around before you call. Not only will this show that you are taking steps to try and prevent any defaults, but they may be able to negotiate an alternative option to help you.
Although you want to enjoy Christmas with your friends and family, remember not to go overboard. Nobody wants to start the year off with a financial hangover lingering over their head.
A valuation and appraisal both determine what the market value of a property should be.
Although both of these terms technically mean the same thing, they are done in different ways.
A valuation is a formal report that is done by an accredited valuer who is registered and has completed the necessary training. Mortgage lenders use this to ensure the property is a suitable security for a loan and that the market value is enough to cover the mortgage if there is a forced sale. Therefore, it is a more detailed inspection of the property and will usually take into account features such as:
- Description of the property including number of bedrooms and land size
- Risk ratings for things like environmental risks as well as market risks
- Condition of property
- Comparable sales
- Any issues uncovered in the inspection of the property or other searches conducted
The actual valuation given to the property will be based on recent sales in the past 6 months of similar properties in the same suburb. The market value is determined by looking at these and comparing the differences to the actual property.Since it is based on past sales it is historically based and this is a conservative approach that the banks need.
An appraisal is an informal valuation usually completed by a real estate agent. It tends to be forward looking in predicting where the property market is headed and what could be achieved in the near future. This is not a legally binding document and is often done as a first step to aligning expectations and putting the property on the market. An appraisal can be used as a guide if you are planning to sell your house and is an indication of what price you may achieve when you sell.
Wanting to get a combination of the two without having to pay for a formal valuation? Use a real estate agent who is familiar with the area and has access to past property sales to compare your house to. Ask them to put as many comparable sales in the report as possible so that you can make a judgement about what is a realist value.
As the real estate agent is hoping to gain you as a customer, they may be optimistic about the value that is being achieved. Therefore, it is a good idea to have a few appraisals done by different real estate agents to get a sense of what the property is really worth.
Unlike valuations, appraisals usually do not have a fee involved. However, to avoid a surprise, check with the real estate agent beforehand to see if they do charge a fee.