To Gear Or Not To Gear?
Is negative gearing really a good investment
The question is often asked by property investors,
many of whom do not fully understand the meaning and implications of negative gearing.
In a nutshell, the answer is that it is really more
a tax strategy.
Basically, negative gearing occurs where the costs
of renting out an investment property outweigh the rental returns that are
received from the rental of that property.
The cost of the loan (i.e. interest on mortgage
repayments and stamp duty etc.) is taken into account when calculating whether
the investment is running at a loss. Some of the other costs of running a
rental property that can be used to negatively gear a rental property include
body corporate fees, building depreciation, cleaning costs, council rates,
insurance costs, land tax, repairs, maintenance and water bills.
If the investment is shown to be running at a loss,
the Australian Taxation Office allows investors to offset this loss against
their income tax assessment.
This means that negative gearing on a rental
property can be more of a tax strategy than an investment strategy. While it
can help property investors to reduce their taxable income in the short to
medium term, it should not be considered the main reason for investing in any
There are, of course, obvious tax advantages to the
negative gearing of a rental property. But the purpose of investing, after all,
is to receive a positive cash flow and to make a profit. Over the longer term
at least, you should be aiming to make a profit from your rental returns rather
than a loss.
By making a loss in order to negatively gear your
investment property, you may be relying too much on making a huge profit when
it comes time to sell your property at some point in the future.
Harris Partners Property News.
Tips To Get Great Rental Returns
One of the biggest mistakes property investors can make is believing that once you’ve purchased the property the only thing you need to do is up the rent every six to 12 months.
Getting the best rental return is about ensuring your property is well maintained and has up-to-date decor. This doesn’t mean you need to splash out on high end European kitchen appliances and fittings but it does mean you should have an ongoing maintenance program.
Here are some top tips:
1.A fresh coat of paint – First impressions count and nothing will turn off prospective tenants faster than grubby walls and chipping paint.
2.Neutral colour schemes – While you may like bright colours and patterns, your property needs to appeal to a broad range of clients. Keep main areas neutral.
3.Professionally cleaned – Don’t skimp on cleaning for inspections. No one wants to move into a place with mouldy bathtubs and dusty blinds.
4.Storage, and lots of it – Built in cupboards and wardrobes are high on the list of tenant must-haves.
5.Realistic Expectations – Don’t price yourself out of the market. It is more important to have reliable long term tenants than run the risk of having your property vacant for weeks on end because you want to raise the rent $50.
6.Low maintenance garden – Keep it simple. Easy to mow, easy to maintain. Consider planting natives that don’t require much TLC.
Cyclone Preparation – Advice for Page & Pearce Clients
It’s a matter of fact, we live in an area that is at threat of cyclones every year. These are out tips for being prepared:
When a system is developing click here for the latest cyclone tracking report.
FOR UPDATES about the status of your property, after a cyclone has passed, we ask you not to email us. If necessary we will contact you if your property has been reported damage with a summary. Page & Pearce staff have spent the morning attending to any vacant properties, making them as secure as possible.
Handy tip would be to have any Insurance documentation located in case you need to make the call. Depending if our office has power and we have staff available at work, we will attempt to give you an update as soon as possible.
Again, PLEASE DO NOT email us with requests for an update, once the threat has passed and we are operational our aim is to advise you as soon as we possibly can in a timely manner.
TRADING HOURS: To allow our staff time to prepare, the office will be closed prior to the cyclone threat. Updates will be posted on Page & Pearce Facebook page.
RENT PAYMENTS and arrears: It’s highly likely that many tenants who are due to pay rent over the next few days may not pay their rent due to unforeseen circumstances. However if this is the case we have procedures that we will implement to have this rectified in a timely manner. We will send you an email for serious arrears as per our standard practice.
Routines Inspections that may be planned across the threat period will be postponed and will be re-appointed to occur after the system has passed. Depending on the outcome of the cyclone there could be more delays to allow our staff and trades people to focus on emergency matters first.
Tenants will be advised to prepare for any cyclone and be reminded of our local emergency SES and Page & Pearce procedures.
Facebook:We will also be providing updates through our Page & Pearce Facebook page of the developments of any systems.
Thank you in advance, we have your best interest at hand in protecting your investment.
Todd & Sue Pearce and the Team at Page & Pearce.
Keep Your Home Safe On Social Media These Holidays
It appears safe enough: posting a holiday snap on Facebook, uploading an airport check-in on Foursquare, or announcing dinner plans on Twitter. But these private moments broadcasted on social media may be cues for burglars.
In recent years social media platforms have become a tool for thieves with location sharing features often used by unsuspecting holiday makers when uploading happy snaps. These features tell people who’s on holiday and indicate an empty home.
Typically burglars will attempt a house burglary quickly, often avoiding homes with extra security, alarm systems, cameras and sensor lights. Those thieves assured homeowners are on holidays may take extra time and leave with more valuable goods.
This holiday season try turning off location sharing on social media and don’t announce interstate travel plans with the world. Better yet, make sure your home address hasn’t been shared and if it needs to be, do so by private message. Checking privacy settings for individual social media platforms is recommended and reverse stalking yourself will reveal just how secure are your personal details.
Back at the house, security measures can be taken to help dissuade thieves over the holidays. A big deterrent is a visible security system and the threat of a professional response. The simple sight of a car in your driveway can also give the impression that someone is at home. Why not consider having a neighbour park their car in your driveway as they come and go over the holiday period or you may choose to leave your car in plain sight, but just remember to take the keys with you.
RACV general manager home services Peter Brindley says, “thieves have been known to check for car keys in obvious spots and steal cars, right from your own driveway,” he says.
“Having your home burgled is already emotionally traumatic, and having the car taken too makes it even worse.”
Set light timers inside the house and leave the radio on because nothing says an empty home than a dark quiet house. Outdoor lighting and gravel driveways provide visual and audio signals to neighbours that something might not be right so investing in motion-sensing porch and garden lighting is advisable. Ask the neighbours or friends to collect the mail and any newspapers or get them diverted.
This silly season be safe online and on holidays, and feel secure that your home is too.
Read our story on keeping the outside of your home secure, and find out more about home burglaries with the nine-part Safe as Houses series.
Source: Royal Auto
Higher Investment Property Rent Not Always Higher Income
Most experienced investors understand that $500 a week for fifty two weeks a year means more money in their pocket than $550 a week with several weeks vacancy during the year. So if maximizing income from rental property investment comes from keeping their properties occupied, why do some landlords charge such high rents that their tenants move on whenever they get the chance and new tenants are slow to move in?
It is a fact of life that some investors fail to see the big picture and only look at the money in their pocket ‘right now’. They are blind to the possibility of rent loss down the track and don’t see that they might create dissatisfied tenants who move on when they find a better value option, thereby creating a cycle of high turnover and increased vacancy.
The problems don’t stop there. Investors whose properties are ‘good value’ get more enquiry and can afford to be more selective when deciding who will rent their property, while those asking over priced rents get fewer and less well-referenced applicants. Furthermore, if a property stays empty because the rent is too high, owners can get desperate enough to overlook a tenant’s patchy references; in the effort to get the highest income, they make themselves more likely to get less because poor references could mean greater likelihood of getting behind with the rent.
New investors can avoid a lot of common errors by making use of the expertise of their managing agent. Many novice investors don’t think of asking their managing agent’s advice until something goes wrong. Investors who do their homework and tell their agent up front what their needs are find it much easier to keep abreast of what’s happening and avoid confusion.
Most experienced investors ask their agent to provide a monthly statement of all income and expenses with cheques banked directly into the owner’s account. Most also ask for an annual written report of state of repair (internal and external) and cleanliness as well as a mid-year written curbside report of state of repair and cleanliness. They should also receive a six-monthly written report of the current rental value and the local area vacancy rate and an annual written report of the current reasonable selling price of the property. Owners should carry out an internal inspection of the property themselves once every two years so that they can visualize its state of wear and tear when maintenance and repairs are discussed.
Most investors say it takes three to six months to get to know a managing agent and their way of working. Until then it is best to require all expense items to be referred to the owner (other than emergencies) prior to the agent spending any money. After the initial period, set a limit on the amount the agent can spend (usually about the equivalent of one week’s rent) without reference to the owner.
Naturally, as with any contractual arrangement, investors should always have their agreement with their agent evidenced in writing.
New Queensland Smoke Alarm Laws to Take Effect 1 January 2017
The Queensland Government has just passed the Fire and Emergency Services (Domestic Smoke Alarms) Amendment Bill 2016.
The amendments have been introduced following a coronial inquest on 28 November 2014 in which the State Coroner made two broad recommendations:
1. That legislative amendments be made to mandate the installation of photoelectric and interconnected smoke alarms in every bedroom, between areas containing bedrooms and the rest of the dwelling, in any hallway servicing bedrooms and in any other storey of a domestic dwelling. For new residences, the Coroner recommended that the smoke alarms be hard-wired, while in existing residences, smoke alarms may be hard-wired or powered by a 10-year lithium battery;
2. That Queensland Fire and Emergency Services (QFES) conduct enhanced awareness campaigns including promoting the development of practised escape plans.
These measures are supported by QFES as providing best practice in the use of smoke alarms. Evidence exists to suggest that each component of these revised smoke alarm provisions will reduce the risk of harm to residents in a house fire.
Requires that smoke alarms that comply with Australian Standard 3786-2014 be installed in domestic dwellings and that the smoke alarms be photoelectric, interconnected and be powered by an enduring power source (hard-wired or 10 year lithium battery); and
Requires that smoke alarms be installed in locations as prescribed in the Building Fire Safety Regulation 2008 for existing domestic dwellings and the Building Regulation 2006 for new dwellings.
These new provisions will apply to domestic dwellings where an application for a building approval is made after 31 December 2016 and the building work is a substantial renovation.
From 31 December 2021, these new requirements will apply to existing residential properties where a Contract of Sale is entered into or a Tenancy is entered into or renewed.
These amendments also require that owners of residential properties, including Landlords, replace smoke alarms under the amended requirements within 10 years after the manufacture date or if they fail when routinely tested.
These changes commence on 1 January 2017 and are to be phased in over a 10 year period. From commencement, if an existing smoke alarm needs to be replaced, it is to be replaced by a photoelectric smoke alarm.
New or substantially renovated homes will need to be compliant with the new smoke alarm provisions.
After five years from commencement, all dwellings that are sold or leased will need to be in compliance at the time a Tenancy Agreement, Contract of Sale is entered into.
All other homes will be required to be in compliance within 10 years of commencement.
Source: Nicole Garnham, Real Estate Dynamics SEPTEMBER 2016
You can find a copy of the Bill here for your reference.
The 10 Commandments Of Property Investing
By Chris Gray, Property Mentor
It never ceases to amaze me how few people have a
strategy in place for investing in property. This is a trait I have witnessed
in those just starting out in the market as well as industry veterans I
interview for ‘Your Money Your Call’ (Fridays on Sky News Business Channel).
When you consider that, for most people, property is the
single biggest asset they will purchase; it seems ludicrous to not have a firm
strategy in place for investing in it. Whether you are an experienced investor
or a novice looking to break into the market, my top ten rules can help you to
buy smarter and achieve better returns in the long term. These tips form the
backbone of my strategy for Empire clients and for my
property that’s attractive to tenants
Any property you purchase should be in reasonable
condition (or able to be upgraded for a reasonable price), have good sized
bedrooms, off-street parking and good positioning away from noise and main
roads. Look for something that suits the majority of tenants in the area to
ensure your property is always attractive to renters. A property that is always
tenanted means a stable income stream.
property that will grow in value
Properties in locations close to the CBD, leisure
facilities, schools, public transport and beaches (where possible) are more
likely to gain value in a good market and less likely to lose value in a down
3. Buy blue
If a property seems too cheap to be true – it probably
Cheap properties are cheap for a reason,
and that reason is the lack of demand for properties combined with an
oversupply in the area. In general, it is worth paying market value for a good
property in a top suburb rather than a property that is cheap because no one
really wants it.
instant equity through simple renovations.
Quick, low-cost renovations such as a paint job,
re-carpeting, tidying the garden, painting the fence, installing new curtains or
blinds and replacing kitchen cupboard doors can have a significant impact on
the value of your home. A good rule of thumb is to aim to get back at
least $1.00 – $2.00 in value for every dollar you spend on renovations.
5. Create a
buffer by refinancing.
When your property has grown in value, it’s sensible to
create an emergency buffer zone by refinancing. This will ensure you can
continue to make mortgage repayments even if unforeseen expenses or loss of
income (such as losing your job) occur. Don’t find yourself in a forced-sale
position, as you won’t get the best price and you may have to pay capital gains
taxes and other expenses.
Hire a professional property manager to ensure you get
reliable tenants who pay a good market rent. Consider tying your existing
tenant down to a new 12-month agreement to help guarantee your rental income.
7. Get an
independent valuation before you buy.
Buyers can get emotionally involved when buying property,
causing them to pay more than the property is worthy. By investing a few
hundred dollars on an independent valuation, you can almost guarantee you will
never pay too much.
8. You don’t
have to sell to profit.
Don’t think you need to sell to realise capital growth
gained in a property. Selling a property incurs sales costs and taxes and,
often, re-buying costs. By refinancing you have access to profits made on the
property while holding on to your asset. This is similar to a reverse mortgage.
investing is all about time in the market.
Timing the market is for speculators not investors. If
you can afford to buy and hold on to your asset, the time is right to buy.
And my most important tip:
10. Build a
team of professional advisors.
You can’t do everything yourself. An initial outlay for
hiring professionals who are experts in their field can make a difference of
tens of thousands of dollars to your long term returns. As a starting point,
every investor should have an accountant, mortgage broker, financial advisor,
valuer, building inspector and managing agent. There are companies who will
organise all of this for you.
Source: Chris Gray, Property Mentor
Managing your level of input for your investment property
How much input do you WANT to have in the
management of your Investment Property?
Getting the right level of input is often a
great step in making it a less stressful, and more satisfying Investment Experience
– and it can be a lot easier to achieve than you may think.
What should you do to get your Managing
Agency to be in contact with you about the situations you WANT to be involved
in? No more, and certainly no less!
up front about what you want from your property manager!
Don’t wait until you are sufficiently
irritated to eventually say something; set the expectations and your needs
early on. Not only can this stop your irritation, this can also help create a
greater working relationship with your Agency to more effectively managing your
If your Agency isn’t involving you as much
as you would like, tell them you would like to be more informed and involved.
If they are calling you unnecessarily during your busy day – and you’re perhaps
of the opinion that you are paying them to handle these things and not bother
you – make sure they know this is what you want! You may even decide to review
and increase the Agency’s authorised spend limit with maintenance so they do
not need to contact you with minor repair items.
So in summary, these are some things you to
- Outline to your Agency how much input you
want to have: Don’t wait for it to become irritating!
- If you would like the Agency to handle
things more autonomously, give them the authority to do so in writing.
Once your Agency is aware of your
expectations, it is very likely your experience in having an investment
property with them will improve – and with it your happiness in owning your
If there is one thing your Agency wants, is
their owners to be happy with the service they provide; so if you can help
create this by having one conversation with them to set your expectations,
isn’t that a worthwhile phone call?
Call Todd or Sue Pearce at Page &
Pearce anytime to discuss any requirements or queries you have in relation to
Henke, Real Estate Dynamics 2016
Maintaining an Investment Property
There are some realities about owning & managing an
investment property that landlords should accept before they become landlords.
If not, the investment property that was meant to serve you as a rock solid
performer can cause unwanted expenses, energy and stress.
It is commonly accepted that tenants on the whole will not
maintain a property as well as an owner-occupier would. We are not here to make
judgements on this point, rather just let you know the facts. When you do have
a tenant that takes good care of your investment property, ensure that you take
good care of them.
Landlords make 1 of 3 mistakes with their investment
properties around this fact.
1) They under invest in the maintenance of the property – If
you buy a brand new investment property with a 10 year plan but neglect the
maintenance of the property, you end up selling an un-renovated property. The
capital gains in the general market can be wiped off due to the deterioration
of the property. When finance costs and expenses are higher than rental returns, it is not a great surprise that many landlords have difficulty
finding spare cash to maintain their investment property.
However, it is far cheaper to maintain a property than
renovate one. A stitch in time saves nine!
2) The second mistake that landlords make is they don’t
inspect the property often enough. Relying on a condition report from the
property manager is not sufficient supervision of the property. Maybe it should
be sufficient, but in reality its not. Many landlords are horrified when they
finally inspect their property having not inspected it for several years. The
actual condition of the property is so far removed from the condition reports
they have been receiving that it defies logic. This is a shattering reality
when the superb residence you originally leased out is now a battered wreck.
The 1% you negotiated off the agent’s commission won’t be
much compensation if your agent does not keep your investment property to a
3) The third mistake that landlords make is they allow
issues to fester. When the landlord is happy to let maintenance issues slide or
insists they are done on the cheap (& nasty), they set the expectation
standard for both the agent and tenant. As a landlord, it is important that you
insist your investment property is maintained to a high standard, both through
your actions and words.
All properties experience wear and tear. It is the
landlord’s responsibility to address it. If not, over time, the festering issues
become major problems.
If you know the mistakes that other investors have made, you
have a better chance of avoiding them. If you maintain the investment, the odds
of achieving an acceptable return increase.