Extra Costs

As with buying any property, the big number you’re aiming to save needs to be well over your deposit amount as there are extra costs in purchasing a property that need to be taken into account. Stamp duty is calculated according to the worth of your property, while registration fees and mortgage application fees can add on extra costs. If you’re borrowing more than 80% of the property’s value, you will also be obliged to pay a loan mortgage insurance. To finish it all off, there are conveyancing costs. While conveyancers are cheaper, one website I read suggested using solicitors as they’re backed by heftier qualifications should things get a wee bit dicey.

Baby Steps

While it’s exciting to think about getting a foothold in the property market and starting to make some big investments, there are some important steps that can’t be overlooked throughout the process. The ground work now is essential to your enduring financial stability. To begin with, bring in some expert assistance about how best to structure your finances and searching out the best loan for your current scenario. Bring in a surveyor to evaluate the property and its depreciation over the period your intend to keep it. If you don’t have an accountant, now is the time to find a good one to maximise the tax benefit of your investment property and making sure your records are well-maintained.

Caveats

There’s plenty of expert advice online, and even better information to be had from a good real estate agent or financial advisor. One website mentioned the big whopper of a caveat when it comes to investment properties- they don’t look after themselves. Land, apartment, houses require a lot of ongoing investment. Ideally your rent will keep pace with inflation, and eventually you will become neutrally-geared (i.e. your rent covers your mortgage) or positively geared (your net exceeds your mortgage). Don’t forget extra costs like water rates and strata fees, and the likelihood that, at some point, your tenant is going to need something fixed.

Benefits

Benefits are in the short, middle and long-term. The short term benefits are mostly tax related, including negative gearing and depreciation. The mid-term benefits are based in the increase in rent due to inflation and increases in the rental market price. All things going well, and provided you can invest for a long enough period of time, the long-term benefit is capital growth.

Insure

None of us ever think it will happen to us. Unfortunately, sometimes things do happen. The most important thing is, of course, looking after your family and your own welfare. The next step is to ensure that, should something happen, you won’t be financially compromised. It’s been a big year for natural disasters, so now should definitely be the time to have another look at your home and contents insurance, and update any new purchases not currently covered. It sounds cynical, but it’s also a great time to start setting aside money for an emergency fund if you don’t have one already. While insurance companies are obliged to come through, they’re not famous for doing do in the most timely manner or without dispute. You’ll feel much more secure, knowing you have back-up money to tide you over in the case that you have to leave your home.

Game Plan

I used to laugh when my parents talked about evacuation plans. It used to always seem to melodramatic, their usual over-the-top response. Only now do I think about the fact that I live in a national park, and had very little conception of what a really bad bushfire season might look like. It’s imperative you have a game plan- that every one in your family is across what you’ll do in the case of an emergency. Get a soft copy of all your crucial documents and email them to yourself- if, at the time, you can’t grab everything you need, you’ll at least have documentation. While considering all this, even think about what you would really regret losing. For me, it’s a pendent my grandmother gave me and two books from my parents- there’s very little else I would be inconsolable about. Know where your truly precious items are, set them in a place you can grab them immediately should you have a bit of time.

The Earlier, The Better

Protecting your home is often a case of early actions. The costs appear when things are left too late. Cleaning out your gutters, getting rid of old paints you wouldn’t dream of ever using again, keeping your big trees within the bounds of the sensible- none of these things should cost you an arm and a leg unless left until far too late. Things beyond the natural disaster realm, such as termites, can be protected against by getting regular pest inspections. Your home is a significant asset, both financially and emotionally, and keeping it safe

Lock And Key

Often when people talk about protecting their home, they will be referring to protecting against theft. It’s not something that dominates my mindspace, but that said, I don’t live in a city and have never had to exercise much caution with the safety of my home. But if you feel your home needs some protection, there are options the whole way along the price range. You can invest in a security system, which is on the more expensive side of the scale, or invest in a sensor light as a deterrent. Simple things include the general acts of a good neighbour- collecting each others’ mail, parking in each others’ driveways occasionally, keeping a general eye on things. It’s free, and could pay back a thousand times over.

You’re Ready To Commit

Home ownership has to be thought of as long term. With a fluctuating house market, the cumulative costs of home maintenance, moving expenses and legal fees, home ownership isn’t something you can run from as soon as the going gets tough. Plan to live in your new home for a reasonable period of time- do you have a job that can support that? Will you be able to afford the mortgage even withstanding interest rates hikes? If you feel ready to put in the hard yakka, it’s a sign that home ownership could be for you.

Owning Costs Less Than Renting

Someone told me- around the time I moved into my first hovel- that every move, you want to be somewhere nicer. I didn’t believe them at the time but now, living in a nice place of my very own, I see that it is an inevitable of existence. With age, generally comes a disinclination to live in places with holes in their roofs. Once you’ve reached the point that your rental costs outweigh the cost of home ownership- and ensure you add in maintenance, any additional utilities, strata costs etc- you might consider renting dead money. It could be time to put the money towards an asset that can bolster your long-term finances.

Buyers’ Market

Are there lots of houses on the market? Is there currently low demand for properties? You don’t need to be a star of divination to know that now would be the time to get the pick of property at an affordable price. You’ll also have more negotiating chips and a greater position of power to bargain down the price, saving yourself some dough.

Low Interest Rates

It’s important to know interest rates won’t stay the same forever. Even if you fix for a long period of time, it’s unlikely it’ll cover the entire term of your mortgage. You need to ensure you can absorb the cost of fluctuations. That said, any difference in interest rates is going to save you a huge amount of money over the course of your mortgage and buying when the rates are low is a huge bonus to your finances.

Deposit Ahoy

If you’ve got the deposit handy- or even a bit extra on top- it’s a big indicator that it is time to take the plunge. Putting together extra money will help you to negotiate a better deal as well as reduce your interest, both of which could save you serious money in the long-term.

Seasonal

I had never heard of this theory before, but apparently the housing market is also seasonally affected and it’s worth keeping that in mind. Apparently, more houses come on the market with school done for the year but it is also a time most buyers come to the market. If you can organise yourself to move in winter, you might pick up a stray bargain from people very willing to sell.

Indeed, everyone has heard the horror stories of 200 people turning up to a property opening; couples spending 10 weekends viewing properties without having a single application approved; estate agents pulling properties out and changing conditions overnight.

So, how can you get approved for the rental property you want when you’re competing with numerous other potential tenants without simply offering to pay a higher weekly rent? The trick is to set yourself apart and make yourself a desirable tenant. Here are our tips:

Compromise and negotiate

If you want to save money on your rent, it’s likely you’re going to have to compromise on exactly what it is you’re after in a property. Work out what it is you’re not willing to compromise on under any circumstances and think about what you could go without or change. Think about looking in a less competitive location or taking one bathroom rather than two.

If you’ve found a property which you love but can’t justify the pricey rent, have a chat to the agent when you submit your application about negotiating the rate. First ask them what kind of tenant the land lord is looking for. Some land lords prefer families, young professionals or retires – it depends on their experience. If you think the description of what they want matches you, sell this to the agent and then ask if the rent is negotiable. For a property under $1000 a week you’re not likely to get more that a $60 a week decrease, but it’s worth the trouble.

Also, try offering rent paid in advance, some owners love this!

Build relationships

Don’t under estimate the importance of developing a good relationship with your land lord and real estate agent. This kind of networking is valuable in many ways including that procuring a great reference from your former land lord and agent can make a huge difference to your application for a new property since it sets you apart from other applicants.

When it comes time to have your bond released from your former rental, having a good relationship with your land lord and agent will mean that they’re more likely to absorb the cost of any damage to a property as ‘wear and tear’. The best way to build these relationships is to ensure you keep ahead of your rent, take care of the property and communicate with your agent when appropriate.

It’s also important to build a rapport with any prospective agents of properties you’re applying to. When you email in an application, always follow it up with a phone call and let the agent know about you. The key is to set yourself apart so you’re application goes to the top of the pile.

Final tips

Whatever you do, don’t be disheartened by the difficult nature of the current rental market. Be patient and persevere. It’s important to live in a home you love and something will come up eventually.

So how does one manage all this on a budget and still maintain their sanity? From someone who has done this at least three times now here are the basics:

Have a plan to save money

It can’t be said enough that we don’t plan to fail, we fail to plan. Before you leap, first consider what sort of housing will best suit you and your needs? Are you the kind of person that loves your personal space and don’t like sharing your toys or do you prefer the company of others and occasional devouring of that last piece of forbidden chocolate cake in your housemate’s fridge?

Sharing a house can be one of the most affordable options when it comes to accommodation, but it only suits some personalities. So if you prefer to strut the house naked, leave your bowls in the sink till they’re sprouting a new kind of penicillin or fancy yourself a Guitar hero god at 2am, then perhaps consider renting a granny flat or townhouse.

Know your fortnightly income and expenditure

In other words; understand the basics of budgeting. Rent or mortgage have to come first in the list of financial priorities. Having been a landlord I can tell you right now “sorry I blew my pay on the horses/pub/birthday and can’t pay rent this week” is never an acceptable excuse, not to the landlord and not to the bank.

Write a list of all necessary expenditure putting the mortgage or rent at top, followed by anticipated utility bills and if you need help estimating these, try asking family. Find out what their utility bills are per annum and divide by 26 to work out how much to put aside each fortnight. Add all of this up and subtract it from your pay – if you have money left over – these are your fun tickets, if there is none left over it may be necessary to re-assess your accommodation expense and/or type/location of accommodation.

Alternatively you can look at our Budget Spreadsheet product for an easier management of your bills and expenses.

Furnishing while saving money

If you have the restraint to put on clothes in common areas and managed to limit Guitar hero to the hours of 6pm to 9pm, then share housing can also be the easiest way to furnish a house.

In most share accommodation one or more tenants will already have at least a couch and a fridge so at most you will need a bed and maybe a desk. These items are available cheaply on eBay/allclassifieds/op shops second hand or if you prefer new try IKEA or Fantastic furniture.

If the thought of parting with your beloved alone time is too hard to bear and have a whole flat/townhouse to furnish, start with the before mentioned stores and also consider “freecycle” groups – check out yahoo.com for more details on one in your area.

Social life and still saving money

Starting over again can be temporarily damaging to your social life, particularly if you’re cash poor from setting up house. To avoid becoming a social outcast the best thing to do is tell your friends what’s going on. If they are aware you are struggling financially even though it’s temporary, maybe you can skip your round at the pub, have them over to your new place for poker/board games, have dinner at their place or even score some of their un-needed furniture.

If they’re good friends they will understand and want to help, if they’re not – you won’t be losing anything that won’t eventually cost you in the long run. Housemates can also be great company, if you do choose share accommodation, look for a place with like-minded people, you might make some wonderful new friends.

Are you physically able?

Demolishing a bathroom to make way for a renovation can be a lot of fun and taking a sledge hammer to a mouldy old vanity unit can be a great way to relieve any pent up frustrations. During my first attempt at a bathroom renovation I had an absolutely smashing time (yes…terrible I know) and even more so when I got to the shower screen.

I’m an enormous 5 foot nothing, 50kg female and carrying a large sheet of old-fashioned ‘safety’ glass through a doorway and out into the skip was not a small task. I was reminded of this as I picked up shards of glass from my living room carpet over the next week.

In contrast though, shortly after I’d avoided death by a thousand cuts I attempted chipping up tiles and went straight through the suspended floor, might have been a good idea to check the flooring material before I ate all that spinach…

Does it need approval?

I used to regularly assist my partner in his landscaping endeavours and did everything from lawn moving to paving through to retaining walls. This was a wonderful experience and a good money earner but on one occasion could have landed us in some very deep water. In the ACT retaining walls are required by law to be no more than 900mm off ground height. The 1200mm retaining wall that was installed at this particular client’s home subsequently had to be demolished at our cost and then re-built to standard at our cost and we were very lucky to avoid a fine (I knew those crocodile tears would work one day). Always check the development approvals required in your state before attempting any major DIY project.

How much will it cost to clean up?

As physically short as I am, so too is my attention span. I also frequently burn cakes in the oven because I get distracted by a tv show, or phone call, or shiny things in a catalogue. Knowing this about myself requires that I plan my renovations in small stages at times when I can devote my full (albeit limited) attention to the task at hand. My friend whom recently attempted a large scale painting project however, was not so privileged.

I devoted my Saturday to assisting her as I am now regarded amongst friends as Ms DIY-er (much more flattering than some of my previous nicknames). I turned up bright and early at her place with all my gear in hand, ready to paint her bedroom for a start, foolishly thinking she would have already moved furniture and put down drop sheets, alas not. So after watching her shuffle things about for an hour, cover things over and tell me all about the book she was reading I was already on my second beer.

The paint that she had purchased was cheap and nasty, so too was the masking tape and the rollers. Although I had some good tools with me, she was eager to participate and so pressed on with her own style of painting. By the 8th beer I’d plain given up trying to educate her on how to paint and sat back to watch her swirl and blot paint all over the room. I returned the following day after the hangover subsided to observe what was the majority her ‘handy-work’ and after viewing was not willing to admit to anyone that I’d actually assisted with the project.

She had mistakenly used enamel on one wall after I had left and subsequently had to pay a professional painter two weeks later to strip the paint and repaint the entire bedroom at twice the price of getting them in to do it in the first place. Lesson learned? Probably not…

And so Steve Keen walked this week, as housing prices have done nothing even remotely similar to dropping 40%. He maintains that he will be proven right over the course of his lifetime. Robertson has agreed that should that happen, he will walk to Kosciuzko. He’s also agreed that he’ll do the walk should Keen find proof of the Loch Ness Monster.

So, how can you predict what the housing market will do?

One expert says one thing; the next one you come across says the total reverse. Amy Fontinelle at Forbes has put together a list of some indicators that will help you make up your own mind about the future.

Pending Home Sales

None of these indicators are waterproof, and should be taken with a grain of salt. Increases in pending home sales, or the amount of homes that are under contract and in the process of selling, are thought to be encouraging sign. I would also wonder if they can sometimes be a sign that people can no longer afford their mortgages, but I’m a cynic.

Housing starts

Generally taken as an indicator of the health of the economy as a whole, people are unlikely to start building homes unless they are fairly financially secure and when they feel confident about the future. If they’re up, it’s a good sign. If they’re down, the economy is not feeling its’ sparkliest.

New and existing home sales

Houses actually being sold is another good sign, as putting your house on the market is one thing, actually selling it quite another. The ghost towns of the US are a reminder of what a town will looks like if no one can sell their home.

Home inventory

Leading on from the above comment, a great supply of houses for sale (without much being purchased) is a pretty good indication the market is weak. The way it is calculated is to take the amount of houses that sell on average a month, and to see how many months worth of houses are on the market presently. In the US, there is currently 9 months worth of houses on sale, which isn’t the most comforting of numbers.

Housing affordability

Debt repayments (and these should include other debts) should never exceed 25% of your income. If the prices of houses go down (Keen’s argument), they become more available to more families. This hasn’t happened in Australia, and Rory Robertson is feeling pretty confident he can leave his walking shoes in his closet.

Mortgage applications

It’s a fairly simple indicator (though never cast iron as previously mentioned) that if people are applying for mortgages, they’re feeling confident about the market.

Mortgage interest rates

Governments and reserve banks have done all they can in the last year to entice buyers, and keep the interest rates low. It’s not an indicator of the confidence in the market from consumers, but it is something to think about when you’re considering buying a home.

How do you decide if the real estate market is feeling healthy?

The older generation of home owners are downsizing to ward of the feeling of an empty nest or renovating to change the functionality of their home; converting old rooms and spaces into hobby rooms or playpens and bedrooms for the grandchildren.

Some are taking advantage of the lower house prices the reccession has brought about to buy a second holiday home or investment property.

The thing in common everyone has when they’re buying a home these days is we all want it tailored to suit our needs and lifestyle.

So if you’re in the market for your slice of property heaven what’s your best option to get the home of your dreams?

Well, it all depends on what you want to achieve at the end of your dollar.

Building a new home

Who it’s for: busy couples, working individuals and retirees. Those who like new, modern and functional and don’t wish to spend alot of time and effort in the process.

Buyer beware: read the fine print carefully. Especially if your home is built on a new subdivision. The water and electrical services are untested and barely used; when it comes to problems and malfunctions, no one is to tell or blame. Rest assured, problems will be fixed by the builders and developers as they arise (during the warranty period) but expect inconveniences.

The upside: clean living spaces built to specification and your liking. If you are more creatively inclined and savy dare to configure options available to you to make it that much more special. If not, there are plenty of “off the rack” homes to chose from.

The downside: even with customizations to the floor plans and hand-picked floor and wall coverings, when you visit your neighbours; expect to have the “my home is a from a cookie cutter” feeling.

Renovating

Who it’s for: people with more time on their hands to go through the renovating process and spend time chasing up their renovators. Individuals wanting to keep their existing home but change the functionality of the spaces.

Buyer beware: expect delays and expect to pay more than if you were building a new and modern home from scratch. Unexpected complications with water pumps, electrics and all things that live in the ceiling means additional costs. They get you on the variations and are not afraid to come after you on them. The best advice is decide exactly what you are going to do and the materials you will use; don’t change your mind half way through the process; this is where costly variation bills come in.

The upside: a truly unique home. The satisfaction of materializing your creative impulses — and dream home.

The downside: doing too much or too little. If you want to renovate your entire home, start with the main rooms such as the kitchen and bathrooms, floor and wall coverings and the structure (such as walls to be taken down). Doing too much may leave you with regrets. Doing too little and then deciding to do more becomes more expensive and a hassle of living in a construction site with each new idea that pops into your head.

That said, what is your best bet as a new home owner with a limited line of credit?

If your heart is set on that loft conversion, make sure to leave more than enough (quoted) room in your budget for the renovations.

If your heart is set on a new home, do your research on location. Buying smaller but in a better location has a higher potential to benefit you in the long run when property prices come on the uprise again.

As an ex- property agent my advice is never expect to walk into the perfect home. I’ve had so much experience with people buying on emotion; when they use more logic at the supermarket. The bunch of celery you bring home will be cooked in a stew or cut up as vegetable sticks. A home is the same. View with an open mind; especially when it comes to specials, because everyone makes something different of the home they walk into.

Buying a second home or investment property

Fix only if critical and buy when low. These properties, despite their promises fluctuate little and are the first to take the fall in bad times. Their return is a steady stream of income if renting or added benefit (no hotel bills!) if you are the sort to take frequent holidays and sort getaways out of town and have children. You are likely to get back your capital buying and selling at the right time but do not expect to laugh to the bank on resale — but it happens and thank your lucky stars.

Location, location, location

We are notorious for supersized homes; big as the block with accomodate in Australia. That’s not a bad thing, but don’t make size your top goal. It’s more common now to change homes as your needs and lifestyle changes, and your family grows. Being bent on location than size will more likely give you a better return for when sell and are next in the market.

Lastly, look in unexpected places such as www.gumtree.com.au and www.craiglist.org for individuals advertising homes without an agent and save on fees, you would be surprised at some of the offers you will find.

Should you be thinking of investing your hard-earned moula in a second property?

According to Digirati Life, housing turned in an annualized return of 8.6% between 1978 and 2004. Compared to the 13.4% return of stocks, investment properties do earn less for the investor. At the same time, they are usually less risky than the stockmarket.

To qualify for negative gearing and all other manner of goodies, you’ll need to rent it out. That’s right- some pack of smoking, drinking and partying bohemians might be about to descend upon your beautiful abode. You remember what you used to do when you were renting; wall-climbing competitions and races down banisters. Karma is about to kick you where it hurts.

So is it worth renting out your second property to qualify for the tax benefits? Obviously the best person to ask is a financial advisor who can give you some advice that is tailored to your situation. Here are a couple of take-home points to consider.

Rental markets go up

As someone who rents, I know full well that rental prices do not go down. In the current climate (especially if you are somewhere like Sydney or Melbourne), rents increase dramatically all the time and getting a place to live is difficult. You’re looking at an investment with a consistently ready audience.

Who doesn’t love tax benefits?

Whether it’s negative gearing or just claiming the tax on repairs and maintenance, the government has set things up so investment properties benefit at tax time. You could end up saving yourself a pretty penny, especially if you invest in an excellent accountant who knows all there is to know about tax benefits.

Understand your own finances

Rental properties are not always snapped up immediately, so you must be financially prepared to carry the financial burden for a couple of months or between tenants. Understand how much your basic expenses will be, and be assured that you can cover them.

According to Digerati Life, the one essential mantra for all people considering rental property investment is: if your rental property does not produce a positive cash flow, you could essentially go broke by attempting to become a landlord. This is basically the Micawber Principal in an another setting. If the amount of money made from the property is more than the amount you spend on it, the result it happiness. If the situation is reversed, the result is misery.

Once you have made your decision, here are a couple of pointers as to choosing a tenant:

• People with pay slips that prove they are employed are generally a good bet to make the rent on time.
• Should the potential tenant espouse a belief in anti-materialistic anarchy, terrorism or commune-based living, perhaps reconsider offering them the house.
• Installation artists are cool cats, but prepare to have your house ‘revamped’ should you accept their application.

Do you have a rental property?

What do you consider the pros and cons?

The rental market is a minefield and one not likely to improve anytime soon.

So what can you do about it?

Is it time to leave the trials and tribulations of a rental property behind, and start looking to buy? After all, the rental prices (especially those in Sydney) are set to rise and at that point you’re probably paying mortgage repayment prices anyway. According to various media, the rental market is already squeezing people out, such as seniors, police and teachers. In shirt, the rental market is no longer affordable to someone on a low-to medium income. To buy or not to buy, that is the question. Here are a couple of tips from the experts on how to choose the right time, and not end up stuck with an unpayable mortgage or a house fondly tagged as a wrecker’s delight.

Renting or buying

The first issue in working out what to do in the rental and housing markets is finding accurate information. At the same time as you read in Sydney that the housing market has gone bust, you hear in Melbourne that it’s having a “red-hot run”. So where can you turn?

Firstly, it’s a good idea to keep an eye on the papers as they will always run with news about the housing market, and whether places are moving quickly. Secondly, the Reserve Bank has a list of statistics around housing, http://www.rba.gov.au/Statistics/AlphaListing/alpha_listing_h.html updated fairly frequently.

Those in the know also suggest watching finance closely, as interest rates might be the thing that breaks you. The recent rise was slated as a means to stop the housing market from overheating, and rates this low could be the ticket you need to buy. Just ensure you understand the vagaries or fixed or varying interest rates, and be fully informed about what level the interests rates will be when they start making it impossible for you to pay back your mortgage.

In times such as these

It’s also important to think about employment prospects when considering buying a home. The surprise drop in unemployment levels this week was a good sign, but it’s still a pretty tight market should you be looking for work. Make sure you are in a situation where you can buffer yourself should things go pear-shaped.

The general consensus is that the housing market is on its way upward, since about mid-July. If you’re looking to buy a home, the feel I get from the commentators is that now is as good a time as any. If you’re looking to sell, maybe holding your hand isn’t a bad idea. But I suspect the experts can predict what might happen with about as much accuracy as I throw darts, meaning none. If the GFC showed us anything, it’s that the experts and commentators can sometimes be badly wrong.

The only piece of advice given with authority from all experts is research, research, research. Research where you want to buy, research what assistance you can get and what mortgage brokers are respected. Make sure you have a definite budget with lots of buffering incorporated into it. Sometimes, it’s just the luck of the draw but an informed guess is always a better option.

Are you thinking about buying? What would influence your decision?