Friends of Royal seminar invite

With that hat on (I’m treasurer of the Friends group), I’d like to invite you to an afternnon seminar that we are running next month.

The date is Sunday afternoon, 20th March from 1.00pm at Sutherland. You can go to our Website to book and for further details, or our Facebook page via this link.

The seminar has a world-class lineup of speakers from well-known organisations including Bush Heritage, BirdLife Australia, Australian Wildlife Consevancy, Environmental Water Trust, Wildlife Land Trust and others.

There is an associated expo with information from other organisations such as Save Our Flora, Bushcare, Wilding Australia and several others. The cost is just $20 which includes a nice afternoon tea.

You can also call me for more info.

Now to business:

This newsletter will be in two parts today, first all the bad news and possible risks that I see on the horizon (and I have to admit there is a fair amount of that) and then an chance to read about what I think is an excellent investment opportunity at a very cheap entry-level price.

First – the bad news

Loans to SMSF soon to be a thing of the past

According to this article, AMP has joined the ranks of most of the major banks with new rules for SMSF.

They will no longer lend for new or off-plan properties or those less than six months old.

The maximum LVR has dropped from 80% down to 70%, and they have stipulated a minimum SMSF fund size of $200,000 for DIY superannuation borrowers.

One of my members is confusedas to what to do next. He wants to move from his current house to a new, bigger and better one for his family, in the same suburb, because of local ties like schools, social networks etc.

I pointed out that due to the many layers of taxes involved, he would lose in the region of 10% of the value of the property in change-over costs.

The high stamp-duty regime in NSW, and even higher in some other states, acts as a dis-incentive to re-locate, which is one reason that a broad land tax regime to replace stamp duty is now in place in the ACT and due to be implemented in SA. It is also being talked about in the mainstrem press.

Anyway, he suggested to me that he could buy an investment property and then rent it himself. As I have shown in the past, this could save him up to 1/3rd of the costs.

However, the advice from an accountant scotched this idea quick-smart:

This would not be allowed and is covered by Part IVA which is the general anti-avoidance rule of the Income Tax Assessment Act.
It is intended to counter schemes that have a dominant purpose of avoiding tax even though they may comply with technical requirements of the law.

How NOT to invest

There are any number of books out there that tell you how to become rich. This is not one of them.

Instead it is about a young lady who was crowned Australian Property Investor of the Year in 2012 with a huge portfolio of 20 properties at the age of just 24.

I haven’t read the book or the articles about her from that time, so not sure where she was getting her advice, but as the book makes clear, she was buying the wrong types of properties in the wrong locations.

A couple of years later she was in debt by $3million and bankrupt.

All credit to her, she says she is now much happier and trying to put her life back together. She says her book is :

An adventurous, heartfelt and vulnerable story, Part memoir/ Part Self help

You can find out more about her book here.

If you want some help and advice about how to invest safely in property, then contact me.

Genworth Profits fall

I’ve mentioned Genworth in my newsletters several times in the past few years. Unless you have shares in them, you probably don’t care about their profits.

They are the main insurer for the banks for loans over 80% LVR, for which you pay.

This article says their profits are down by 29% over the 12 months to December.

Considering that the APRA and banking restrictions only took major effect in the second half of the year, this is a huge fall which indicates that most borrowers are providing larger deposits.That is exactly what the RBA and APRA wanted, to make the system safer.For the banks, it is mixed news.
Good news: Their loan books are now a bit safer. Loans in default are likely to be lower than they otherwise would.
Bad news: the total value of their loans will be decreasing, reducing profits and their ability to keep dividends up and therefoe their share price up.
That could in turn affect their annual bonus pool. Shame.

State property tax windfall

 

Just a little snippit to highlight the extent that prperty has on our economy.

This chart from Macro Business clearly shows that the Sydney property boom has led to sharply increased windfall property tax income for the state treasury.

This is the largest stamp duty boom in its history, with receipts jumping by an incredible $3.09 billion (+92%) since June 2013 to $6.43 billion as at December 2015.

New tax on UK investors of 150%

The mechanism of the UK treasurer’s (Mr Osborne) tax attack is the removal of a landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.

This change was not flagged or discussed and according to this article has already started to force some landlords to sell up.

Like many tax measures, it will affect the rich much less than ‘ordinary’ people. If you have a big deposit, the effect is much less. If you bought for cash, then no change.

Now landlords in the UK are fighting back by starting a law suite claiming the tax change flouts ….

a long-established principle of taxation that expenses incurred wholly and exclusively for the purposes of the business are deductible when calculating the taxable profits

You can read more here.

In my ‘buy or rent’ calculation above for example, that property that was cash-flow positive by $5 per week, would at the stroke of a pen become negativly geared by around $150 per week and if I have understood it correctly, would actually increase the taxable income substantially, forcing many investors into even higher tax brackets – bracket creep, which is in the news here at the moment.

Australia to follow suite ?

Reported in the SMH today by Peter Martin (Click here to read), looks like treasury is considering a global cap on deductions which would include negative gearing deductions as well as work-related deductions. Quite how that gets around the concerns that the British have is unclear at this time because any proposed limits have not been articulated.

 Labour to cut negative gearing

Also in the news is the new policy annouced at the NSW ALP conference that Labour intends to allow negative gearing on new properties only and grandfather existing arrangements.

Read one of many articles about this by clicking here

Personally, I’d have no problem with this. It won’t affect me and won’t affect the club strategy, which has always been to buy new for a variety of reasons, including the negative gearing advantages.

I’m not sure the headlines about it being a big election issue risk are justified. It is a policy that is fair, unlike many other proposals that suggest retroactive changes or which disadvantage large sections of the population, usually those least able to afford it.

CGT is also on the table for labour with a cut in the concession rate from 50% down to 25%. This would also be grandfathered for existing assets.

I’m sure there will be plenty of commentary around these proposals in the weeks and months to come before the election.

And now for some positive, or better news

Buy or rent ?

When I talk to my members and they ask should I buy or rent, my answer is always that from a financial point of view, renting is better.

Other factors are often taken into account in making that decision, such as wanting to ‘own’ a home, having that financial security, being able to decorate etc.

My thesis is that the difference betwen owning or renting the same unit is around 1/3rd cheaper and that as long as you do something sensible with the money saved, you are better off.

It’s been a while since I did the numbers to validate that stance, so here we go.

I looked on realestate.com.au to find a proprty for rent in the same block that was for sale.

Here is a link to the ones that I found at 8-10 Northumberland Road Auburn NSW 2144

Unit 14 is for sale at $550K and unit 36 for rent at $460pw.

When I do the numbers, this is what I get. A tenant will pay $460 per week.

A person buying the same unit, assuming a current P&I loan at current interest rates and a 20% deposit, will be paying $665 per week, still roughly 1/3rd more.

Of course if the renter decided to save the $205 per week and put that towards a deposit for the same unit, the figures for someone buying that unit as an investment property, using an IO loan and the same 20% cash deposit, even at higher investment grade interest rates, would actually be cash-flow positive by $5 per week !

If you don’t believe me and want to see the workings, give me a call. If you have an actual property that you are considering, then let me do a cash-flow report for you so you can see what it is going to cost.

The other factor to take into account is that often, the chosen property will be where that person can afford, not neccessarily where they’d like to live. You can often find a property in your preferred location at a rent that you could afford. It might be closer to work, saving you time and money on commutes. Closer to family and friends, or closer to where you like to play.

 Growth areas to watch

In this article, data from property group PRDnationwide suggests that Chinese buyers like to stick together. Nothing new there. Suburbs all around the country have turned into mini-Chinatowns, or Vietnamese communities and in fact pretty much every ethnic and religeous group that has ever migrated to this country.

They feel more at home and have easy access to support services for their group and in their own language.

What this report also shows is that this demand has pushed up prices faster than in surrounding areas and citywide.

Using 5 years of data, they say that Robertson (in Brisbane) had the highest share of Chinese residents, at 25.3%.

Its average house price has increased 38.6 per cent in the past five years, compared with 22.8 per cent for south Brisbane and 18.5 per cent for greater Brisbane.

Similar results were recorded in other suburbs with a higher percentage of Chinese residents than average.
In other news regarding Chinese investors, this article suggests that the impact of greater controls on Chinese money will not have a great impact on Aussie property prices.

Professor James Laurenceson of the Australian China Relations Institute says in the article that:

Chinese investment has little impact on the Australian real estate market overall, only impacting “very small pockets” of real estate in Australia

 Building boom may be overstated

Multi-unit construction accounts for about 50% of all approvals, so if the conversion rate falls due to stricter finance requirements or reduced demand due to uncertainty about negative gearing or other concerns, we could quickly get back to a shortage situation in the years to come.

Free rent

Areas like West End where over 500 properties have been listed in the past six months and where the average number of days to rent was 39.

The effects of this oversupply are also starting to ripple out to inner ring suburbs where rents are also starting to fall. If the building boom continues, then I’d be increasingly looking at opportunities a little further out from the CBD.

Which brings me to this listing that I think you should consider ….

First of all location.

Beenleigh is an established commercial centre serving a much larger catchment area with a current population of around 8,000. It is expected to double in size over the next 20 years according to the Logan City Council Central Beenleigh Renewal Plan. (Download a copy from here)

It lies half-way between the Gold Coast and Brisbane. That means if you need to go to either CBD, your are only a 25 or 30 minute drive away.

Beenleigh is adjacent to the M1 Pacific Motorway which runs between the two cities. The railway that connects the two cities also runs through the town. The train is a bit slower than the drive, about 50min to Brisbane or around 30min to Robina.

This block of just 30 low-rise units with secure parking and lift access to all floors, is just 400 metres to the local shopping centre.

Beenleigh Marketplace is anchored by a large Big W and Woolworths plus over 50 speciality stores.

Just up the road is a second shopping centre, which is about to undrgo a 12 month re-vamp which will see it upgraded to a modern centre with another 22 speciality shops. Read more here.

There are a number of projects already started and planned that will aid in the growth of this town including:

Completion of the Ring Road
Upgrading of the bus and rail interchange
A new walking and cycling network
Clear signage and wayfinding
A new public parking station
A new central public plaza
Refurbished central streets eliminating the current 6 way interchange
Undergrounding of power lines in the town centre
Surveillance cameras

As you can see from this Walk Score screen-shot, it gets a very good score of 78.

This is a great free resource by-the-way, Anybody can go to this site and enter any adresss to get a similar report. Try your home address and see how suitable it might be if you were to rent it out, or wanted to build a Granny Flat at the back.

For tenants, you can’t get much better. Parks, swimming pool, tennis centre, ovals all within a couple of hundred metres, opposite a high school. Bus train and major roads all very close too.

The current vacancy rate in Beenleigh is just 2%. In the Brisbane CBD, it is over 5% and climbing and even in areas like Chermside, where we have some nice listings, it is over 3% and trending upwards.

Now to the units themselves.

As you can see from this typical floor plan, these are two bed, 2 bathroom, 1 car apartments with a very useable 28m2 balcony and even a separate smaller balcony off the main bedroom, which features a walk-in robe and en-suite.

They are larger than average at 79m2 with large living areas, fully tiled and high ceilings.

There is a good sized separate laudry.

Car parking is secure and access to the units via secure intercom from the foyer.

The complex will have a secure and fenced common area BBQ with toilets for residents.

For club members, the developer has also agreed to provide screens and blinds so these will be ready for your tenants to move straight in.

Pricing is based on a mortgage valuation and will be priced from just $335,000.

Expected rents are going to be from around $320 – $340pw

My initial cash-flow based on the above information for a single wage earner on $75K with a 10% deposit, indicates that this would be cash-flow positive from day one after tax by around $17 per week.

If you’d like me to do a cash-flow based on your circumstances, just give me a call or drop me a line.

Fencing of the site is going up next week and as it is a straightforward build, should be complete by November with settlements just before Xmas, or more likley mid January, subject to any weather delays.

You are the first to hear about these as they have not yet been listed.

They will be launched at our Expo on the Gold Coast in a couple of weeks and then listed the following week.

If you are interested, let me know well beforehand so that we can get all your paperwork in place before the listing so that you have a chance to have your pick of the units. I think the end units are much nicer than the middle ones.

Why Beenleigh ?

The suburb has historically been a cheap, low-cost area due to it’s distance from both Brisbane and the Gold Coast.
As these population centres have expanded and jobs have appeared on the outskirts of both, it is slowly growing in popularity. Loganholme industrial area, 4km to the North has grown up alongside the motorway whilst Yatala to the South is just 3km away and hosts around 29,000 jobs.
The 344 bed Logan Hospital is another major employer just 7km away emplying around 2,000 people. The Logan area is one of the fastest growing areas in the state.
As the commercial centre of this region, Beenleigh will transform into a thriving hub as older buildings are re-developed. Get in on the ground-floor of this change and reap the benefits of long-term capital growth.

 More News Sources

Please use the link below to visit our media centre. Here you will not only find the latest editions of our magazine, but also back copies, always with some interesting articles.

Click here to read on-line or even download a .pdf copy of the Jan/Feb issue for later reading.

You should all have recieved either your posted copy, or a direct email from Head Office with your email version. Let me know if you did not get this latest edition yet.

As usual, if you’d like a hard-copy posted out to you, please let me know.

Kevin Young has now produced over 30 video episodes of him answering questions from our members. You can go here to check it out.

He also wrote a long newsletter last week with his comments on the economy and his 2016 predictions. Some of you may have received that, but if not and you’d like a copy, let me know.

Our dedicated conference web-site is up and running – check-out all the details here.

This year’s key-note speaker is Bernard Salt, who is described as a highly respected media commentator who has accurately forecast major shifts in our social structure.

Other confirmed presenters will be Kevin Young himself, of course and also Clifford Bennett, who was well appreciated last year.

The Gold Coast Mayor, Mr Tom Tate will bring us up-to-date with plans for the area and why Keving Young is expecting some good growth over the next couple of years. Old favourites like Amanada Gore, Wendy Priestly and Troy Gunesekera are also on the card.

The conference location this year is the RACV Royal Pines Resort and if you are into golf, you might like to pamper yourself and saty on-site in luxury accommodation and play a few holes.

Special conference packages available. Maybe bring your partner and he/she can play golf while you attend the conference. Or bring the kids, and enjoy the attractions on the Gold Coast before or after the conference.

March 3rd-6th 2016.

We also have a new promotional video for the conference that you can watch here.

 Rooty Hill- Property Investment Information Day

The date will be Sunday afternoon, 17th April from 1.00pm until 5.00pm

There will be an entry fee of just $15 to cover the hall hire and will include afternoon tea.

The venue is the Rooty Hill RSL & Resort at 33 Railway Street, Rooty Hill , NSW 2766

Every property on our stock-list will be up on the wall for you to read about. Our mentors will be available to run cash-flow reports using your inputs so you’ll understand how holding such an asset would affect you. Brokers will be on-hand to discuss your finance options.

At the same time, there will be on-going presentations on a variety of subjects including:

How our Researchers can save you months/years in searching for the ‘right’ property
Current Hotspots
Landlord Insurance
Recordkeeping
Interest Rates
Depreciation Reports and Accounting

Space is limited, so contact me to get you registered.