Lithgow Properties

Having a quick look on www.realestate.com.au you will see there are several properties that can provide you with neutral/positive gearing. Have a look below at a list of properties with their figures and gross yields for each of them. These are all simple calculations and using a spreadsheet was able to take only a minute to generate them. Note these are all free standing houses so have no strata associated with them.

House Cost	Rent Per Week	Gross Yield	Interest	Weekly Profit
$143,000.00	$165.00	6.00%	$151.25	$13.75
$155,000.00	$175.00	5.87%	$163.94	$11.06
$185,000.00	$210.00	5.90%	$195.67	$14.33
$209,000.00	$225.00	5.60%	$221.06	$3.94
$235,000.00	$265.00	5.86%	$248.56	$16.44
$180,000.00	$195.00	5.63%	$190.38	$4.62
$199,000.00	$225.00	5.88%	$210.48	$14.52
$160,000.00	$180.00	5.85%	$169.23	$10.77
$165,000.00	$185.00	5.83%	$174.52	$10.48
$160,000.00	$175.00	5.69%	$169.23	$5.77
$249,500.00	$350.00	7.29%	$263.89	$86.11
$229,000.00	$300.00	6.81%	$242.21	$57.79
$169,500.00	$250.00	7.67%	$179.28	$70.72
$235,000.00	$265.00	5.86%	$248.56	$16.44
$240,000.00	$375.00	8.13%	$253.85	$121.15
$245,000.00	$300.00	6.37%	$259.13	$40.87
$189,000.00	$210.00	5.78%	$199.90	$10.10
$150,000.00	$175.00	6.07%	$158.65	$16.35

The interest is assumed to be 5.50% per annum. 

As you can see, just having a quick look there are plenty of properties which can offer you positive returns. Now I understand that I have only done gross yield, and there are plenty of expenses that have to be accounted for that will severly reduce the overall yield, but hopefully even without some of these expenses the properties should be at least neutrally yielding. 

It is also important to note that it is not always the best to go purely off yield as a figure, but sometimes a figure like weekly profit would also be a good test. In the above table, a higher yield does not always correspond to a higher weekly profit. And at the end of the day that is what is really important, getting that money in your pocket! 

A cash on cash return is also a good way to check and compare properties, the following table does a cash on cash return with a couple extra assumptions. Assumes a deposit of 20%, additional purchasing costs of 5% (stamp duty, lawyer fees etc). And additional expenses such as property manager fees, insurances, rates etc of 2% of property value.

House Cost	Total Purchasing Costs	Loan Size	Interest	Expenses	Gross Rent	Yearly Profit	Cash on Cash Return
$143,000.00	$35,750.00	$114,400.00	$6,292.00	$2,860.00	$8,580.00	-$572.00	-1.60%
$155,000.00	$38,750.00	$124,000.00	$6,820.00	$3,100.00	$9,100.00	-$820.00	-2.12%
$185,000.00	$46,250.00	$148,000.00	$8,140.00	$3,700.00	$10,920.00	-$920.00	-1.99%
$209,000.00	$52,250.00	$167,200.00	$9,196.00	$4,180.00	$11,700.00	-$1,676.00	-3.21%
$235,000.00	$58,750.00	$188,000.00	$10,340.00	$4,700.00	$13,780.00	-$1,260.00	-2.14%
$180,000.00	$45,000.00	$144,000.00	$7,920.00	$3,600.00	$10,140.00	-$1,380.00	-3.07%
$199,000.00	$49,750.00	$159,200.00	$8,756.00	$3,980.00	$11,700.00	-$1,036.00	-2.08%
$160,000.00	$40,000.00	$128,000.00	$7,040.00	$3,200.00	$9,360.00	-$880.00	-2.20%
$165,000.00	$41,250.00	$132,000.00	$7,260.00	$3,300.00	$9,620.00	-$940.00	-2.28%
$160,000.00	$40,000.00	$128,000.00	$7,040.00	$3,200.00	$9,100.00	-$1,140.00	-2.85%
$249,500.00	$62,375.00	$199,600.00	$10,978.00	$4,990.00	$18,200.00	$2,232.00	3.58%
$229,000.00	$57,250.00	$183,200.00	$10,076.00	$4,580.00	$15,600.00	$944.00	1.65%
$169,500.00	$42,375.00	$135,600.00	$7,458.00	$3,390.00	$13,000.00	$2,152.00	5.08%
$235,000.00	$58,750.00	$188,000.00	$10,340.00	$4,700.00	$13,780.00	-$1,260.00	-2.14%
$240,000.00	$60,000.00	$192,000.00	$10,560.00	$4,800.00	$19,500.00	$4,140.00	6.90%
$245,000.00	$61,250.00	$196,000.00	$10,780.00	$4,900.00	$15,600.00	-$80.00	-0.13%
$189,000.00	$47,250.00	$151,200.00	$8,316.00	$3,780.00	$10,920.00	-$1,176.00	-2.49%
$150,000.00	$37,500.00	$120,000.00	$6,600.00	$3,000.00	$9,100.00	-$500.00	-1.33%

As you can see, when you do a bit analysis into the figures a lot of the properties start to give you poor returns, and are slightly negatively geared. Keep in mind that even the worst performing property above is only in negative about $1,700 per year, about $33 per week. But still, it is costing you money, not making you money! On the other end of the scale, there is a property that is earning you $4,140 per year, an extra $80 per week! It may not sound like a lot of money, but it is all passive income, money in your pocket for doing minimal work. 

As I said at the start, finding positively geared properties is very difficult, the list of properties above, although looking at the gross figures appeared to give you positive returns all of them, with a bit of analysis, it showed that most of them were indeed negative, albeit not too badly. But the point to remember is that the positively geared properties are still out there! I searched for about 30 minutes to find this list of properties above, and only searched in one city. The analysis took a further 30 minutes, so one hour of my time and I can find a good positively geared property to help increase my real estate portfolio.

------------------------------------------------------------------------------------------------------ 

Disclaimer: By viewing this website, you acknowledge that it is for informational purposes only and does not imply any contractual agreement, promises of returns or legal expertise. All investors should consult with legal representation and appropriate accountants before making any investment and should ensure that individual due diligence is done. Any information provided here is for educational purposes only and should not be taken as financial advice.

The Business of Property Investing in 2013

With a new year under way, now is the best time to organise your financials and plan for a prosperous year ahead. These four tips will assist you in making 2013 your strongest investing year yet.

Number 1 – Set goals

You’ve probably heard this one a bunch of times, each time brushing it off as unnecessary or something to look at later. It took me quite a few years of doing just that before I finally realised the benefits of setting goals at the start of each year.

Setting goals will help you focus your energy and give you some direction throughout the year. It doesn’t need to be an onerous exercise but each goal does need to be actionable and measurable. For example, ‘purchase another investment property’ or ‘increase passive income to $500/week’ provide clear benchmarks to aim for. ‘Get rich’, on the other hand, won’t really do.
Make sure that each goal:

• can be achieved within a year
• is something that you can measure your progress against
• is, most importantly, something that you’re passionate about achieving.

The goals that you set at the start of the year can be amended and updated as things change.

 

Number 2 – Undertake an end-of-year review

 

An end-of-year review is something everyone should do, regardless if you set any specific goals the previous year or not. When you treat your investments as a ‘business’, your overall results will improve.

Undertaking a review doesn’t need to be too complicated. Start off by asking yourself simple questions such as, ‘Am I happy with what I achieved this year?’ and ‘What area could I have improved in?’.

 

Next, list your achievements for the year (this doesn’t need to be limited to your financials) and areas where you lost a bit of focus (for example, sticking to a budget).

 

The final step is to review all of your current investments to see how they are travelling.

 

Number 3 – Set a budget

 

Budgeting ties in nicely with the first two tips. Once you’ve set your yearly goals and undertaken a review of the previous year, you’ll be in a much better position to move forward with all of your financial pursuits.

 

Find a basic budgeting spreadsheet on the internet and fill it in as accurately as possible. If you’re unsure about any numbers, make an educated guess, but do try to be as comprehensive as possible.

With your budget complete, you will be able to see exactly where your money is going on a weekly or monthly basis. This will also assist you when you undertake your next end-of-year review.

 

Deposit a portion of any excess income into a high-yielding online savings account where it can stay until the next deal comes along.

 

Number 4 – Keep good records

 

Start each year with a relatively clean slate when it comes to records. It’s easy to be overrun with too many emails, RSS feeds and ‘to-do’ lists. Give your inbox a thorough clean-out and try to keep it clear by archiving old emails. Keep one ‘to-do’ list (preferably one that you can access everywhere, for example, with Evernote), then write down each day’s actions on a Post-It note.

 

Lastly, file everything (electronically and hard-copy) that is important using a clear folder structure.

Interest rates: are your investment decisions sending you to an early grave?

On the first Tuesday of every month something happens that gets every property investor and commentator curious.

I am talking about the meeting that the Reserve Bank of Australia (RBA) has every month to talk about all things interest rates. 

It may seem insignificant to change interest rates by 0.25%, but 0.25% means millions of dollars for banks and financial institutions. If property owners are treading that fine line of only just being able to service their loans, then one rate change in the wrong direction could leave them struggling to make ends meet, and a couple rate changes could leave them close to having to sell their home or even facing bankruptcy.

This is why it is so important that people take into consideration the potential consequences of rate changes before they sign up to a new loan. A property loan is a long-term deal. Even with refinancing you could still be locked in for up to three years - and facing 30 potential rate changes in that period.

It's a matter of needing to hope for the best but plan for the worst.

I still remember when I got my first home loan ... the standard variable rate at the time was about 5.80% per annum and with that rate I was comfortable making the repayments, even being able to manage some extra repayments. But before I finally signed off on the contract, I wanted to make sure that changes to the interest rate wouldn’t leave me bankrupt. Having done the sums, I would have still been able to make the repayments if the interest rate rose to 10.00% per annum.

A simple way to check is to add 3.00% to the current standard rate and see if you are still able to make repayments. If you can then you should have no problems servicing the loan.

It’s interesting to note that most financial institutions don’t advise you to carry out this sort of simple, yet very important, check. I was given pre-approval for a loan amount way out of my limit. Add to that a few rate changes in the wrong direction and I would have been on the brink of not being able to service the loan.

In my opinion, this is just pure greed on the part of financial institutions and is plain negligent. A lot of people will take the pre-approval amount and start looking for properties up to this price range, completely unaware of the precarious position they are putting themselves in. Add to this the tendency for Australians (at least in the past) to live way above their means and you have a perfect recipe for disaster.

At the end of the day, however, people still need to take accountability for their own actions and should take a greater interest in their finances. Getting finance is the most powerful tool property investors have in regards to building wealth, but, like most things, it is a double-edged sword. You need to take stock of your current situation and plan for the different circumstances that could arise in the future.

I have watched my parents worry about bills as they come in and get stressed at the increases to grocery prices. One of the things that they did do right was to pay off their home loan as fast as they could. Couple that with a large deposit and they didn’t need to wait for RBA’s monthly interest rate announcement with sweaty palms.

It is this mentality that I have emulated. When I see the interest rates change, I know my large buffer will keep me going before things get tight. As I increase my investment property portfolio, I make sure that I use these ideals in every investment decision. The last thing that I want is to be watching the news once a month, praying that the RBA does not increase interest rates, knowing that if they do, it would lead to financial catastrophe.

Investing is about growing wealth, not about growing stress.


--------------------------------------------------------------------------------------------------------------------------
Disclaimer: By viewing this website, you acknowledge that it is for informational purposes only and does not imply any contractual agreement, promises of returns or legal expertise. All investors should consult with legal representation and appropriate accountants before making any investment and should ensure that individual due diligence is done. Any information provided here is for educational purposes only and should not be taken as financial advice.

Managing US Property Investment Currency Risk

When investing in property abroad, you should take care to manage your exchange rate risk appropriately, since currency fluctuations can have a significant impact on the overall success of your real estate investment.

Not only is it important to get a great deal on the initial exchange rate that you transfer your local currency at in order to purchase the foreign property, but subsequent exchange rate changes often require management or hedging in order to minimize risks and maximize returns.

The following sections cover some straightforward methods for managing your property investment currency risk efficiently.

Shop around for the best exchange rate when buying property abroad

A key thing to remember when making the initial currency transfer for an overseas property purchase is that you are generally not locked into using your local bank for foreign exchange transactions and forward contract hedges.

This means that you can shop around among various banks for the best forex rate, which can often save you as much as 1-2% on your currency transfers. You can also use reputable currency transfer providers like OzForex, who make sure that all of your currency transfers will be both cost effective and straightforward to perform.

Furthermore, not only can you shop around for the best exchange rate on your large initial property deposit, but you can also get better exchange rates on your regular currency transfers if you plan on making periodic mortgage payments in a foreign currency.

Placing currency limit orders

Placing a limit order with your foreign exchange provider is another way to help you get the best exchange rate on your property-related currency transfers.

When you enter a limit order, you will need to specify an exchange rate level, a currency pair, an amount of one currency and whether you wish to buy or sell that amount at that level.

If the market exchange rate subsequently fluctuates to your specified level, then your foreign exchange provider will buy or sell the specified amount of currency for you automatically based on your instructions.

Limit orders are especially helpful because people cannot be watching the actively fluctuating foreign exchange market all of the time, and so they might miss out on a short lived exchange rate improvement. Although limit orders are often used when dealing through stock brokers, this useful ability is rarer among foreign exchange providers. Be sure to ask whether your currency transfer provider offers limit orders if you think you might wish to use them.

Managing currency risk from foreign property investment with forwards

Most real estate investments have a fairly long time horizon. As a result, people who invest in property abroad typically tend to manage their long term currency risk by using forex forward contracts as a hedge against adverse exchange rate movements.

These contracts permit you to lock in a market-determined exchange rate for a certain amount of currency and a given future delivery date. The forward exchange rate you receive is related mathematically to the prevailing spot rate and the current interest rate differential between deposits in the two currencies involved in the transaction.

Forward contracts can be used as much as two years in advance of when you anticipate actually needing the foreign currency to make payments related to your foreign investment property.

-----

This article is brought to you by OzForex Foreign Exchange Services. OzForex is one of the world’s leading foreign exchange companies, providing live exchange rates and focused on providing a smarter, online alternative to existing international money transfer services. Established in 1998 with the aim of giving individuals and corporate clients a better deal, OzForex has offices in Sydney, Toronto, London, Hong Kong, San Francisco and Auckland. 

The OzForex Group includes OzForex, UKForex, Canadian Forex, USForex, NZForex, Tranzfers and ClearFX. It is a strategic investment of Macquarie Bank, Accel Partners and The Carlyle Group.

Funding Property Deposits

If you are reading this then you have most likely made up the decision to at least look at investing in property. And why wouldn’t you, investing in property should be easy right? Purchase a house, put some tenants in, hopefully the rent collected would cover all your expenses and pay the home off. Few years later, capital appreciation has increased the value of your asset and you have made yourself a tidy profit without having to do much at all, money for nothing, as ZZ Top might say.

But the most important part of property investing is the actual purchase of a property. Buying a property at a good price can be the difference between a great investment and a terrible investment. Buying your first property, whether for investment purposes or otherwise, is typically the most difficult. With rising house prices all over Australia, affordability has decreased dramatically and has left a lot of first home buyers with no hope of being able to enter the property market. The first step is getting the required deposit. I am a firm believer in trying to minimize your finance as much as possible. I am not saying that you should avoid finance all together, because I am sure most of you do not have $400,000 lying around to be able to purchase a property outright, so of course you will have to use some finance to be able to fund your dreams. But even if you are buying with someone else’s money, there still comes the difficult part of having to find enough money for a deposit for the property. Gone are the days where you can purchase a property with no money down, obtain a mortgage of 105% of the purchase price to be able to cover all the fees associated with purchasing. This means that we are left with no option but to obtain finance, and in my opinion I would generally try and aim for a LVR of 80% maximum, not only are you able to avoid LMI (Lender’s Mortgage Insurance) but it should also protect you against a negative equity situation and provide a more sustainable mortgage.

But then the question still remains how you can come up with the 20% plus purchasing costs required. For a $400,000 property, that would be $80,000 plus purchasing costs of around $10,000. A total of approximately $90,000, and again I am sure most of you do not simply have this money lying around. So what is the answer? Well I think I will disappoint you because unfortunately my solution is not very exciting. Save, pure and simple, just keep saving up money until you have enough money to comfortably enter the property market. If you are a first home buyer, the government offers a “First Home Buyer’s Account” which means interest earned on your savings is not only tax deductible, but also receives additional government contributions added on top of your savings. There are of course some regulations associated with this account which I will not go into here, if you want a full list of the information for this account, please see this link – First Home Buyers Account.

So what are the benefits of saving, well first of all you will have a much lower financed amount which will mean you will end up paying a whole lot less over time. See below for some numbers to put things into perspective –

Situation A – $350,000 loan with 7.00% interest with a monthly repayment of $2,500 will take 24 years to pay off. Total cost of $720,000 + $50,000 deposit = $770,000

Situation B - $300,000 loan with 7.00% interest with a monthly repayment of $2,500 will take 17 years to pay off. Total cost of $510,000 + $100,000 deposit = $610,000

So as you can see, even though you may take an extra 5 years to save up the extra $50,000 deposit, you will still end up owning the house faster and paying $160,000 less. This is a very simplified example which does not take into account a lot of variables such as capital appreciation of the asset, rent money required while not living in your mortgaged house, and several other variables. But the main point you need to take out of this is the power that having a sizeable deposit can have on your overall loan term, and the overall return you can make.

Once you do own your first property, you will find it much easier to be able to fund future deposits, because provided you did have a good sized deposit, you should be able to discuss with your lender about accessing equity in your property which you can use as a deposit for future properties. For example, if you purchase a property valued at $400,000 with a finance amount of $300,000, you have access to $100,000 in equity which you can use for further deposits. In one year’s time, if the property value has increased to $420,000 (5% increase), then you would have access to potentially $120,000 in equity. You would need to discuss this with your lender as they would typically not allow you to access ALL of the equity you may have in a property, and a more realistic assumption would probably be the lender would allow you to use up to 80% of the equity available in your property.

Using equity is probably the easiest way to be able to fund property deposits, and one of the best things you can do is to be able to purchase a property below value and then you have access to instant equity. For instance, if you purchase a property for $200,000 and the bank has it valued at $220,000, well then you already have access to potentially $20,000 in equity and you have not had to wait for any capital appreciation. Other ways to increase the equity available to you is to force the property value to increase, such as by performing renovations and the like. Both these methods can allow you to access equity a lot quicker, without having to wait for it to grow naturally like you would with capital appreciation.

The only potential issue with using equity is that you are essentially borrowing 100% of the property value for your new purchase, this would increase your LVR and your lender would start looking at your ability to service the loan before it instantly allows you access to the equity.

There are countless ways to be able to fund property deposits, but I hope I have outlined the most common ways, and unfortunately they may not be the most adventurous ways but they are proven to work and nobody ever went broke by saving a dollar.


If you have any questions or comments feel free to email us at streamlineinvesting@gmail.com

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only. Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

OzForex

 

Sending money overseas can be expensive if you are using the major banks or money exchange companies like Travelex. Thankfully, Streamline Investing have partnered with currency specialist OzForex, Now you can transfer money overseas faster, with minimal to no fees and at a great rate. Their fee is only AUD15.00 for transactions of under AUD10,000, free for above AUD10,000 and their exchange rates are much better than banks and other providers. Best of all you can do it anytime you like online or by phone as they are open 24-hours a day, every business day!

By using OzForex you will enjoy:

-       No receiving bank fees in most countries

-       Extremely competitive foreign exchange rates across 18 currencies

-       Online access 24/7

-       Access to a dedicated Dealer by phone 24-hours a day, 5 days a week

-       Complete exchange rate transparency

-       No transaction fees for amounts over AUD10,000

-       Risk management tools through Limit Orders and Forward Exchange Contracts

-       Exchange rate alerts via email

-       Access to our highly regarded daily and weekly Market Commentary

To speak to one of their accredited dealers about your foreign exchange requirements call 1300 300 424 in Australia (0845 686 1950 in the UK; 1800 680 0750 in Canada or 0800 161 868 in NZ) or register online. Registering with them is FREE and you can view their live dealing rates immediately.

By subscribing via the link below, you will receive your first two transactions fee FREE: OzForex Registration