Sydney Auction Results

Sydney Auction Results – 28 Sept 2019

Latest Sydney Auction Results

 

Last Saturday saw the published clearance rate for Sydney increase to 80.5% from 72.4% the previous week, from 436 auctions. 

 

See below the latest auction results from our local sub-regions:

 

Northern Beaches – 89.9%

Lower North Shore –  86.4%

City & East – 78.2%

 

(Source: My Housing Market)

 

Sydney Auction Results (4 week moving average)

 

Sydney Auction Results - 28 SEP 2019

 

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The truth about negative gearing

I’m not sure there is a hotter topic in the property space than negative gearing at the moment.

 

That’s because it could be one of the biggest issues that decides the upcoming Federal Election.

 

Now, this blog is not a political one.

I’m not here to tell you which party you should vote for, however, as an experienced property advisor I believe I need to explain what negative gearing is and what it isn’t.

You see, there is a lot of misinformation out there about negative gearing, including a false belief that most investors buy property so they can solely reduce their tax.

This is incorrect – if anybody buys property just to minimise tax, they want their head read (despite what Kerry Packer said back in 1991!)

The reality is that negative gearing is not an investment strategy, it is a tax outcome.

 

Plus, negative gearing applies to any income-producing asset, including shares, and has been a legal taxation deduction in Australia for nearly 100 years.

At the end of the day, gearing is simply the practice of borrowing money to purchase an income-producing asset.

Positive gearing occurs when income is greater than expenses (including interest costs) before tax.

Negative gearing occurs when income is less than expenses (including interest costs) before tax.

 

Negative gearing is a moment in time

 

Negative gearing is also a mere taxation moment in time.

What I mean by that is that most investors will become positively geared over time because their rental income should increase while generally their interest costs will decrease during their investment ownership.

In fact, according to the 2018 PIPA Investor Sentiment Survey, about 60 per cent of investors indicated they would be positively geared within five years.

When that happens, they will be making a profit, which ultimately means they will pay more – and not less ­– tax every year.

Negative gearing is more prevalent at the start of an investor’s journey because they generally have higher loan to value ratios or LVRs.

That means that their mortgage repayments will be higher, and their rental income might not be able to cover all the interest costs at the outset.

Also, there are a number of other expenses involved in holding property such as council rates, management fees, and insurances, which are also legal tax deductions for income-producing assets.

It bugs me that the fact that investors pay billions of dollars in Capital Gains Tax each year when they sell their properties never seems to get much air-time.

In fact, PIPA modelling has found that an investor who bought a $675,000 property today would receive about $23,583 in negative gearing benefits over a decade, but they would pay $104,703 in CGT if they sold the asset – leaving the Federal Government with a $81,118 net gain!

 

Capital growth is key

 

While you can’t hold an investment property for the long term without the cash flow to see you through, it is not rental income that will make you wealthy.

All the investment properties that we recommend to our clients are chosen because we believe they have strong capital growth potential.

They are generally located in desirable areas of Sydney such as the Lower North Shore, Eastern Suburbs and the Northern Beaches, which are continually in strong demand from buyers.

As we all know, demand is key to price growth over the medium- to long-term.

Labor’s plan to restrict negative gearing is slated to begin on 1 January next year, however, there are a number of things that need to happen for that to occur.

 

The first, of course, is that Labor needs to win the election.

The second is that the legislation needs to pass both the House of Representatives and the Senate, which does not appear to be a sure thing at this point in time.

Thirdly, Labor wouldn’t be the first political party in the world to change its mind about a policy once it won office, especially if there are economic headwinds.

One thing that is likely to happen if Labor is victorious on 18 May is that the market could experience an upswing while savvy investors buy existing properties to beat the aforementioned 1 January deadline.

That’s because existing investors of any type of property before that date will be quarantined from the new rules.

So, given established property does have a history of higher capital growth over the long-term, it makes financial sense to get in to the market and invest in quality established properties between now and then.

 

If you would like to get in to the market this year and find out how you can take advantage of the current conditions, please get in touch with STRAND today and ask about our FREE Property Roadmap Meeting to help identify your next move towards buying a property. 

Why Sydney is full of opportunity for property buyers

If you’ve read a paper or real estate news website lately, you’ll have heard that Sydney’s property market is crashing. Property buyers have vanished. Prices have ‘collapsed’ up to 20 per cent or more. It’s a catastrophe!

 

But what’s really going on?

If you look at the full picture, you’ll see that the current state of play is really just a blip on the radar – a short-term anomaly.

And on the flipside of all the bad news, now is the perfect time to buy real estate that has good fundamentals and exceptional value prospects.

 

Here’s why.

 

This isn’t a crash

 

Prices are down, there’s no denying it. But where is the reduction? It’s not on the intrinsic value of quality Sydney property.

Prices skyrocketed across 2016 and 2017, with buyers in a frenzy thanks to intense competition and a scarcity of stock.

They were paying 15, 20 or 25 per cent above the guide in order to beat everyone else and get their hands on the property they wanted.

This insane activity blew up medians in almost every part of Sydney.

 

But if you take 2016 and 2017 out of the equation and join the dots between 2015 to 2018, to last year’s apparently horrible market, prices have actually gone up.

Yes – up. So much for that market crash.

In total, prices might’ve come off around 10 per cent across inner markets but they’ve really risen around 60 per cent if you look at the past five to seven years of activity.

For an asset like property, that’s an incredible result.

It’s something shares wouldn’t be able to deliver without wild volatility.

 

This isn’t a crash. It’s an adjustment. It’s a return back to realistic levels and the true intrinsic value of property.

And it’s a place where property buyers ready to move now can snap up some good deals to hold for the long-term and cash in on the renewed growth that won’t be that far away.

 

Where to look for value

 

There is a significant lack of competition in the Sydney market right now.

Selling agents have to work hard to get an offer – any offer in some cases.

But the perception that they’ll do anything and everything just to move stock is flawed.

 

Vendors are under pressure, for sure. Those on the market do want to get off it. But they won’t shoot themselves in the foot.

My view is the majority don’t need to sell, we’re not in a distressed market scenario.

When property does eventually sell, it’s selling at a fair value that reflects the current state of things.

And similarly, property buyers who come to the table with a stack of conditions, such as needing to sell their current place before settling, or ones without finance, aren’t attractive.

 

Banks are being tough, as you’ll know.

Those buyers in a position to move now – pre-approved and with no conditions – are in the most exceptional place to make a deal with a vendor who wants to move on.

 

So, where can you find that value?

We’re looking in the Lower North Shore locales such as Waverton, Cammeray, Cremorne and Mosman.

We’re surfing around the Northern Beaches in suburbs such as Manly, Frenchs Forest, Balgowlah and Fairlight.

And we’re always interested in blue-chip eastern suburbs with character Victorian terraces such as Paddington, Surry Hills and Bondi Junction.

 

How property buyers should determine value

 

Value is different to price. The value of a property reflects its investment fundamentals, the current state of play, future demand, and an area’s profile now and later, to name a few.

The intrinsic value of Sydney property right now means prices are about where they should be for current conditions.

For solid property investment opportunities in good areas, values are holding.

Prices are where they were in 2016 before the crazy premiums were splashed around.

 

As an independent buyer’s agent and property advisor, my job is to determine a property’s true current value so that my clients don’t overpay.

I find the best potential opportunities and look at what they’re really worth.

I then determine the ones that offer the best fundamentals for future growth.

Then look at comparable sales from recent months – not ones from two years ago, when the peak was at its dizzying high and overblown.

I also assess localised demand and stock on market and plot out the likely path of that property in the mid to long-term.

That’s how you find out what a property’s value is now, so you can pay the appropriate reflective price.

 

There are good deals to be found, for sure, but even in the current market, uninformed property buyers risk making some huge mistakes.

You need all of the information available – and the best expertise and professional advice – to avoid paying too much or investing in something that’s got little or no future potential.

 

Look at the bigger picture

 

Would-be property buyers are understandably hesitant at the moment.

They’re umming and ahhing about whether to move now or sit tight.

But really, there has never been a better opportunity to pay a fair price – in some cases to snap up a bargain – before the market bottoms out and begins its recovery.

 

Plus, of course, buying property should always be about the long-term, not the here and now.

Those who sit on their hands will pretty soon wish, with the glorious benefit of hindsight, that they had picked now as the time to move.

Don’t find yourself with those same regrets.

 

If you would like to get into the market this year and find out how you can take advantage of the current conditions, please get in touch with STRAND today and ask about our FREE Property Roadmap Meeting to help identify your next move towards buying a property. 

How to profit from a granny flat in your backyard

There are some definitively Australian structures out there – the Sydney Opera House, the Story Bridge, Federation Square and Parliament House to name a few.

 

Yes, our wide brown land contains quite a cache of ‘fair dinkum’ builds, but there is one Aussie-built legend that also helps property owners boost rental income – the humble granny flat.

 

A granny by any other name

 

The granny flat goes by many labels – Fonzie flat, secondary dwelling, auxiliary home… but all refer to a self-contained second dwelling unit on a single residential allotment.

Granny flats were traditionally built to provide accommodation for older family members.

When a retiree needed some assistance from their family, but didn’t want to lose their independence entirely, a granny flat was the solution.

For homeowners, the flats were also a chance to give young adult children a sense of freedom without them having to wander too far from the nest and all its perks.

But for investors, secondary dwellings have evolved to become an income booster, with many landlords taking the chance to increase their returns.

Their rise in popularity as an investment strategy is easy to understand.

There’s increasing demand for accommodation in major population centres, but land has become progressively less available.

Granny flats have been among the town planning solutions offered by councils trying to address rising densities while avoiding new-unit over-construction.

And granny flats are generally viewed as a ‘win-win’.

 

Tenants have access to well-presented accommodation at a reasonable price in a desirable location, while owners boost their returns through the extra lease arrangement.

Not all local authorities have jumped on the bandwagon of course – and there are building guidelines that must be complied with – but the option has certainly gained popularity in recent years.

 

So, if you decide the granny flat path is for you, what’s the financial upside?

Well, the income boost is a potential cracker.

 

I’ve seen stunning, modern granny flats built for $150,000 that achieve rental returns of $600 per week – that translates to a gross yield of 21 per cent on costs!

Not bad – particularly if it helps with servicing loan repayments so you can hold a property long-term and enjoy the capital gain upside.

Grannies help find a balance between high-growth, low-return houses and high-return, low-growth units.

 

The challenges

 

Granny flat construction works well on the cash flow side of the equation but isn’t a smart strategy for capital gains in the short-term.

The added value of the granny flat to a property rarely exceeds the cost of its build.

In my experience, a granny flat costing $150,000 to build might only add $75,000 in value.

It’s an equation that doesn’t add up if you’re hoping to sell soon after construction.

In addition, adding a granny flat to an existing property does impact its utility due to factors such as lost yard space and increased property density.

You may need to reduce the rent on the existing dwelling to compensate for the granny flat’s impact on things like privacy, open space, and parking.

That said, the numbers often stack up for the right investor.

Here’s an example of one I’ve seen recently:

 

Pre-granny flat

  • House purchase price: $1.5 million
  • Typical rent: $900 per week
  • Yield without granny flat: 3.1%

 

Post-granny flat 

  • House purchase plus granny flat: $1.65 million
  • Rent house: $800 per week
  • Rent granny flat: $600 per week
  • Total rent: $1400 per week
  • Yield with granny flat: 4.4%

 

When it comes time to sell your property, however, there is a more restricted buyer pool.

Expect to see mostly investors, or larger families with adult children or elderly relatives among your purchasers.

 

Maxing the outcome

 

I have a couple of tips for getting the best result out of a granny flat venture.

First up – think about renter demand in the area.

Granny flats appeal to a small section of the rental market such as single people in public sector jobs, single parents, students or single downsizers.

Students will need a designated quiet space for privacy while commuters may require covered car accommodation.

Make sure you design a flat to meet tenant requirement in your area of interest.

Also, ensure you can comply with council construction guidelines on elements such as floor space restrictions and boundary setbacks while still building a functional and liveable space.

Make sure you’re also within reasonable proximity of lifestyle factors, public transport and employment nodes as well.

These fundamentals guarantee strong tenant demand and maximum rent.

 

Finally, ­use an experienced property professional to help you locate a prospective site and run a comprehensive cost-benefit analysis of the project.

Choosing the wrong type of property in the wrong location for a granny flat can be a disaster.

 

Granny flats can be a profitable option for savvy investors, just make sure the venture fits your long-term strategy.

Why it’s time to get professional about real estate

For more than 100 years, the Real Estate Institute of New South Wales (REINSW) has been fighting for the real estate sector to be classified as a profession.

 

Not only is real estate the largest industry in the State, it is a sector where transactions are high value, with most people making the biggest financial commitments of their lives when they buy a property.

Yet, the educational standards for anyone who wants to work in real estate remain ludicrously low.

Can you imagine a financial planner, for example, only needing to complete a minimal amount of study before advising people on how they should invest their money?

Of course, you can’t, but that is the situation in the real estate sector.

 

I am a proud member of the REINSW as well as a representative on its buyer’s agent committee.

We are currently campaigning for increased educational standards to improve consumer protection, which is severely lacking.

Don’t get me wrong, the majority of people in real estate are hardworking and honest individuals.

However, when someone only needs to complete a course that often takes just a week to start transacting real estate, it stands to reason that the service levels can vary dramatically.

Not only do we believe that the barriers to entry should be higher to protect consumers, but it will also reduce the high churn rate in the industry as well.

That’s because about 80 per cent of people who make a start in real estate have exited the sector within just 12 months.

That’s because the property profession has an unrealistic reputation as being easy to get into but once you start working, pots of money will seemingly magically appear.

Of course, that is a fallacy with the majority of agents earning average wages at best.

 

It is only the very best performers, whether they’re buying or selling agents, or property managers, who can earn superior incomes.

And the reason why they can do that is that they usually have years of experience as well as undertake regular professional development to remain at the top of their field.

The REINSW campaign lobbied the NSW Government and Opposition for much-needed reforms in the lead up to the State Election and continues to do so.

One of the reforms is moving responsibility for the real estate profession away from the Department of Fair Trading to a Property Services Commissioner within the Premier & Cabinet’s department.

This would move the real estate, planning, surveying and conveyancing sectors under a common strategy and direction to:

  • Understand the key issues affecting real estate, housing supply and planning in NSW from a position of industry experience and knowledge.
  • Supporting the drive to increase education, service delivery standards and consumer satisfaction through the property services industries.
  • Advise government on best outcomes to remove legislative red tape and improve consumer protection.

The campaign is also asking for stamp duty rates to be urgently reviewed given they have not changed in 30 years.

Today, the median house price in Sydney is $985,000, attracting stamp duty tax of more than $40,000.

This creates a significant barrier to entry into the property market, takes homeownership out of reach for many NSW residents, and removes incentives for retirees to downsize.

Residential real estate is a $107 billion industry annually in NSW which obviously needs to be treated with the professionalism that it has always deserved.

 

You can also find out more about the Pathway to Professionalism campaign here: https://reip2p.com.au/

How to create equity in a slower market

It’s true that the market is always ideal for someone, with the current market conditions optimal for upgraders but also for renovators who want to create equity.

 

A strategy that we often recommend is to buy, renovate and hold so that investors can manufacture capital growth as well as higher rents.

However, there are a number of non-negotiables that you must understand before you begin.

 

1   Don’t over-capitalise

 

One of the common problems with renovations is the tendency to over-capitalise.

That means that someone decided to spend far above what was necessary to improve the property’s value and rental return.

Some people get caught up in what they personally like or install high-end fixtures and fittings that are unnecessary.

While each renovation is unique because of its location and the demographic of people living in that area, we do use a calculation to ensure a renovation is going to be worth it.

Say you want to spend $20,000 on a renovation and are using equity to finance it.

The increase in your repayments, based on an interest rate of five per cent, would be about $1,000 per year.

So, the renovation would need to increase the weekly rent to cover these additional repayments, by at least $20 per week. Any additional rent achieved would be bonus cash-flow in your pocket.

Of course, the second part of the equation is the property value uplift, which should also cover the cost of the renovation from, say, a valuation of $800,000 to $820,000 at least.

 

2   Understand the demographics

 

One of the most vital steps in successful renovations is an understanding of the local demographics to ensure you are providing what they want and need.

If you’re buying a property to renovate and hold in suburbs such as Manly Vale or Freshwater, you would likely buy an older unit that is need of modernisation.

The reason why you’d select a unit is because there is solid demand from renters in these locations, as well as it being much more affordable than a house.

All renters want a property that is clean, tidy and modern, which means updating some of the fixtures and fittings in apartments that were originally built in the 1970s for example.

Conversely, if the predominant demographic are families in a specific location like Allambie Heights, then you would buy a house because of the demand for this dwelling type from renters.

 

3   Keep it simple to maximise equity

 

One of the major problems with “reality” shows like The Block is that they make renovating seem easy, plus they generally are spending big on fixtures and fittings because they’re trying to achieve the highest sale price at the end of the season.

That is never a good strategy for smart investors who should spend wisely whilst also improving the value and rent of their property as much as possible.

One of the most under-rated cosmetic renovations is paint.

It’s amazing how it can transform the interior of a tired unit into a property that will be in demand from tenants.

Ditto, with tiling in the bathroom, because you don’t necessarily have to rip out old tiles.

Rather, you can keep costs down by simply tiling over the existing ones, if they are in good condition, which will also mean you save money on water-proofing.

When it comes to the kitchen, far too many people get carried away with expensive ovens and marble bench-tops or even complete kitchen fit-outs by high-street retailers.

The truth of the matter is that flat-pack kitchens, mid-range ovens and laminate bench tops are just as effective in upgrading a kitchen that has seen better days.

Another idea could be to install a drop ceiling and down lights in old mottled ceilings, which will instantaneously modernise it.

 

Renovating in slower conditions is the ideal time for savvy investors who aren’t prepared to sit on the sidelines just because the market is taking a breather.

Instead, they are creating their own equity in a property that will be in strong demand from renters.

After about six months, they also usually have the property revalued with the manufactured equity either used to undertake another renovation or towards growing their portfolio.

The smartest ones also understand that adopting a renovate to hold strategy, rather than flipping, will see their financial position strengthen with each passing year.

 

If you would like to be one of them and find out how you can take advantage of the current market, please get in touch with STRAND today and ask about our FREE Property Roadmap Meeting to help identify your next move towards buying a property. 

Five buying tips to make the most of the Sydney market

Did you know that an average of about 40,000 properties were sold across Australia every month for the past decade?

 

Of course, a significant proportion of those properties were in Sydney each month, plus the average stats don’t include off-the-plan sales so are technically higher still.

What these numbers mean is that properties are bought and sold every month regardless of the market conditions.

Sellers might need to upgrade to a larger home, or an investor might decide to offload a property in their portfolio – whatever the reason, the fact is that the wheels of the property market keep on turning.

Therefore, with prices softer across much of Sydney and vendors needing to still sell, there are ample buying opportunities to secure great properties for attractive prices.

 

So, here are five tips to make the most of the current Sydney market.

 

1 Buying in the same market

 

Upgraders especially are well placed to make the most of softer prices because they will be buying and selling in the same market.

So, they may sell their current apartment for $1 million in Balgowlah, which might be five per cent less than what they could have achieved last year.

However, they can upgrade to a higher priced house in say Allambie Heights where if the price adjustment has also been five per cent, then the price has reduced by a greater amount.

That means they will also pay less stamp duty than if they had upgraded last year as well as paying a lower price for a premium property.

The caveat is it is best to sell first and then buy because lending is taking a little longer to secure at the moment and there remains solid demand for good properties from savvy buyers, so you don’t want to miss out because of finance issues.

 

2 Less competition

 

The reduction in the volume of investors has been well documented, but rather than being a bad thing it is actually rather good.

That’s because fewer investors means reduced competition for properties, which ultimately means a stronger negotiating position.

While sellers are often a little late to the party when it comes to reducing their price expectations, if a qualified buyer is the only one who is interested in their property, well, they’ll have to take a reality check if they want to secure a sale.

 

3 Better yields

 

Another tip is that while prices have softened across parts of Sydney, rents have not correspondingly fallen to the same degree.

According to the latest figures from CoreLogic, the median house price in Sydney has reduced by 7.4 per cent over the year to October 2018, but rents have only softened by 2.4 per cent.

What that means is that an investor has more buying power to secure a premium property that is likely to achieve solid capital growth over the long-term while also recording better yields than a year ago.

In fact, CoreLogic figures show gross rental yields have increased by 3.2 per cent in Sydney over the past 12 months.

 

4 Buying after auction

 

At the end of 2018 the auction clearance rate in Sydney was hovering around 50 per cent or below, mainly due to sellers not being prepared to meet the market on price.

I had seen a number of properties passed in at auction because too many sellers still had their heads in the property clouds.

In fact, a recent property that had an initial guide price of $1.35 million, went up for auction and was passed in at $1.2 million.

A strategy to implement if the vendor is being totally unrealistic is to wait for the property to pass in at auction and then negotiate with the seller afterwards when hopefully reality has started to sink in.

That same property was then secured for $1.16 million post auction.

 

5 Expert assistance

 

Premier locations like the Northern Beaches, the Lower North Shore and the Eastern Suburbs will always be in demand from buyers who want to live there.

The temporary price retraction in play at present means that it is the perfect time to gain a foothold in some of Australia’s most desirable precincts.

Working with an expert can not only ensure you’re securing the best properties for the best prices, but you can also have access to opportunities that have yet to hit the market.

 

While many people are sitting on the sidelines hoping to be the first person to ever successfully pick the bottom of a market cycle, savvy buyers and investors are making the most of the current buying conditions.

It makes financial sense to be one of them.

 

If you would like to be one of them and find out how you can take advantage of the current market, please get in touch with STRAND today and ask about our FREE Property Roadmap Meeting to help identify your next move towards buying a property. 

New tenancy laws a sign of the times

The New South Wales Government’s Residential Tenancies Amendment Bill 2018 was passed in October – some three years after the review of tenancy laws was first announced.

 

The changes certainly caused some heated discussions amongst real estate professionals when they were first announced, with many suggesting that they give too much power to tenants.

Some of the major changes include:

  • Tenants making minor alterations in properties;
  • A new minimum standard for properties;
  • Tenants allowed to get rectification orders from Fair Trading for repairs;
  • Capping rent increases for periodic leases to once a year; and
  • Victims of domestic violence to break a lease without incurring a penalty.

 

Late to the party with new tenancy laws

 

Without getting into an argy-bargy about the pros and cons of the amendments, I believe it’s important to recognise that legislation often comes late to any party.

The review of tenancy laws was first announced in 2015 and has been painfully slowly working its way through the necessary legislative checks and balances.

Since that time, the Sydney sales and rental markets have changed considerably with both now experiencing softer conditions in some areas.

Plus, it’s always a tricky path to tread when it comes to balancing the rights and responsibilities of tenants and landlords.

 

Some of the amendments seem to be relatively benign such as instigating a minimum standard for rental properties.

The requirement to provide a safe rental property has not only been a legal requirement for a long time but it should also serve as the backbone of a landlord’s investment philosophy.

That’s because most investors simply want a long-term tenant who will look after their property and they’re unlikely to do that if it’s in a state of disrepair or, worse still, is a dangerous place to live.

The amendment to allow tenants to make minor alternations to properties, such as picture hooks, is also one that we all know has been happening for a while already under the radar – a bit like a pet whose presence is miraculously erased on inspection days!

 

A more commercial mindset

 

While there has been a bit of a palaver about the restrictions on rental increases for periodic tenancies to once a year, the rental market rarely has been strong enough for landlords to do more than that for a long while now.

In fact, the amendments to the tenancy laws have actually made me consider the vast differences between residential and commercial tenancies.

In the commercial sphere, leases are generally much longer, with five years usually the minimum, plus tenants can undertake fit-outs to the premises, which they have to “make-good” at the end, meaning they return it to its original condition.

Also, commercial landlords tend to consider their tenants as customers rather than tenants, because they are more aware of the financial relationship that exists between the two parties.

They actually want their customers to stay for the long-term – hence the longer leases – partly because commercial “customers” can be harder to come by, which might mean longer periods of vacancies and deeper holes in their cash flows.

 

Savvy residential property investors have this more commercial mindset, too.

So, they tend to try to keep their tenants happy, including realistic rental increases when necessary to ensure their property remains in-line with the market.

Even if their tenant wanted to paint an internal wall, they may even say “yes” as long as it was a modification that would not reduce the value of their holding.

They have developed such a mindset because they know they need to hold their portfolio for years to be able to realise significant capital growth and they can’t do that without customers whose rent helps to repay the mortgage.

 

A new way of living

 

Another aspect of the current debate is that the way people are living is changing.

The current softer market conditions in Sydney means that first home buyers are more active than they have been in years.

However, as I wrote about in my blog last month, many people – young and old – are opting to stay renting for longer because of a desire to live in an area that they couldn’t afford to buy in, but where they can afford to rent.

In fact, with Sydney’s population now more than five million people, it seems that our rental market has become more European in its sensibilities.

In the UK, where I grew up, long-term renting was common with people choosing to invest in other more affordable areas or in different asset classes, so they could remain living in a truly global city like London.

 

So, at the end of the day, I believe that the tenancy laws reform is a sign of the times.

Plus, investors must always consider that if they are to grow a solid portfolio that they can afford to hold over the long-term, they can’t do that without tenants.

And the best kind of tenants are the ones who stay there for years and who treat your investment like their home.

 

If you are renting at the moment or have outgrown your existing home and considering your next move, STRAND Property Group can help you. As experienced independent property advisors, we have the industry knowledge and tools available to assist you to map out your property goals or help you buy a new property.

 

Contact us below to discuss developing a property strategy tailored specifically to your personal goals and let us help you become a new landlord:

How to climb the property ladder by rentvesting

Every once in a while a “new” strategy crops up in property circles that becomes the talk of the town.

 

Once upon a time, investing outside of your home state was considered “new”, whereas now it is a common part of a savvy property investment strategy.

The latest concept to gain traction is ‘rentvesting’, which simply means renting where you want to live and investing where you can afford to buy – although it is not technically new.

Rentvesting has been a successful strategy for sophisticated investors for a while already, because they understood that they didn’t have to compromise lifestyle to become a property owner or investor.

 

Clearly one of the reasons why rentvesting is more popular today is because of the strong property growth in Sydney and Melbourne over recent years.

With prices up significantly over the past five years, some people have simply given up on their dream of home ownership entirely.

Others, though, have recognised that Australia is a land of multiple markets that have more affordable property than their home cities.

 

How does rentvesting work?

 

One of the reasons why rentvesting is so popular is that it allows investors to make the most of the difference in the price of renting versus buying in the same location.

Take a suburb like Cremorne on Sydney’s Lower North Shore for example. The median rent for a two-bed unit is $680 per week, yet mortgage repayments would be around $1,000 per week for the same property. Renting and saving for a 20 per cent deposit, as well as all the other holding costs of owning a property is a stretch for many prospective property owners.

However, buying in a more affordable location such as Brisbane or Newcastle would require a smaller deposit, plus you get to make the most of the tax deductibility of the costs associated with investment property ownership.

Rentvesting also enables investors to benefit from market cycles in other locations, rather than buying into areas that may have already peaked.

That way, they can potentially enjoy capital growth sooner, which they can use to grow their portfolio, or even to purchase a home in a more desirable location.

 

Detractors of rentvesting as a viable strategy argue that rent money is dead money so why would anyone consider being a tenant for longer than they must?

The only way that thinking is correct is if someone remains a renter for the long-term and does nothing about improving their financial situation in the meantime.

The key to rentvesting success is to make your savings work harder for you by investing in more affordable locations.

Plus, you benefit from remaining in the location where you want to live – just without the hefty price tag of mortgage repayments.

 

A property strategy for everyone

 

Rentvesting has become a popular option for Sydney and Melbourne first-time property owners because of the ability to buy into more affordable markets.

However, it also works for upgraders, too.

Perhaps their family has outgrown their current home, so they need something bigger.

Of course, the problem is the high entry and exit costs of buying and selling property.

Say their home is valued at $1.2 million with a $600,000 mortgage, if they sold it to upgrade, they actually won’t end up with $600,000 in their bank account.

That’s because they are likely to be hit with about $120,000 in buying and selling costs, which cuts their nest egg down to $480,000.

Plus, they will need to spend more to upgrade to a larger home, which means their mortgage will potentially be about double what it was – and that will be a huge drain on their cash flow without question.

 

By adopting a rentvesting strategy, they could turn their current home into an investment property – thus transferring that non-tax-deductible debt into tax-deductible – and rent a larger home in the location of their choice.

Even if they continued to make principal and interest payments on their home loan, which is now an investment property, the cost of renting could be significantly lower than if they had bought in that location.

If that wasn’t enough of a windfall, they have retained all of the equity in their property, which they can use to invest in other locations.

They may even have enough equity to buy two affordable investment properties, which will supercharge their investment portfolio.

At some stage in the future, they may opt to buy a home in their preferred location, but because they have additional equity, the impact on their cash flow will be vastly reduced compared to what it would have been without rentvesting.

 

As you can see, rentvesting might be seen by some as a flash in the pan, but it is really a long-standing property investment strategy that can make a big difference to wealth creation as well as lifestyle.

 

If you are renting at the moment or have outgrown your existing home and considering your next move, STRAND Property Group can help you. As experienced independent property advisors, we have the industry knowledge and tools available to assist you to map out your property goals or help you buy a new property.

 

Contact us below to discuss developing a property strategy tailored specifically to your personal goals and let us help you climb the property ladder:

What to look for at your next property inspection

I’ve always found it interesting that people decide to buy a home after usually only spending a few minutes at a property inspection.

 

Sure, they might go back one or two more times to solidify their love for the property, but often their decision-making is based solely on how they feel about it.

Even a poor building and pest report might not be enough to dissuade them from pushing forward with their decision.

When buying as an investor, emotion should be kept to a minimum when purchasing property.

What matters most is whether that property fits with your investment strategy and whether it is everything that it seems.

As well as being a property investment adviser and buyer’s agent, I am a qualified architectural engineer and when it comes to property inspections I have an eye for what’s right and what is clearly not.

 

What do I look for at a property inspection?

 

At the initial property inspection, I use a checklist to take note of features, defects, positives and negatives of the property on a room by room basis, as well as taking photos, with the outcome communicated to my client afterwards.

On the second inspection, I query any issues with the agent, as well as conduct a more detailed inspection including checking for any cover-ups that may have been done just for the sale – especially bad paint jobs!

I also look for:
• Uneven/unstable floors
• Unsafe decks
• Concrete spalling
• Damp on the bottom of external walls and internal walls behind showers
• Musty smells
• Cracks in walls and floors
• Large trees
• Roof damage.

I try to test everything, such as water pressure and hot water; check to see that the windows and doors open properly; and turn on lights and fixtures.

I even ask the selling agent to provide confirmation in writing that everything is working in the property.

 

What are some of the most common building faults?

 

There are a number of issues which can cause headaches for new owners and that’s why knowing what to look for is so critical.

Some of the most common building faults include:
1. Water/damp issues – from poor drainage externally (gutters, downpipes, stormwater), damp subfloor, plumbing leaks internally, roof damage, waterproofing issues, insufficient ventilation.
2. Structural defects – a build-up of the above can cause damage to roof members, foundation walls and floor joists. Large trees with extensive roots can cause damage to drains, footings and slabs.
3. Safety issues – unsafe decks, balconies and balustrades/pool fencing. No electrical safety switches. Presence of asbestos. No smoke alarms or insufficient alarms.
4. Poor quality renovations and illegal additions.
5. Pest infestation – caused by poor maintenance and damp conditions.
6. Termites – about 30 per cent of freestanding homes have had some instance of termite activity, which is why it’s imperative to pay for a professional pest inspection.

One of the many great things about Australia is that we have a wide variety of architectural styles, but that also means there are different defects you need to look out for.

For example, Victorian terraces are prone to poor drainage, rising damp and ventilation issues, whilst other older homes often have sagging ceilings from heavy plaster linings with insufficient fixings as well as timber stumps that are prone to rotting.

It’s not so romantic to own an old home that is leaking, or subsiding, is it!

Of course, this is where professional guidance can help you identify any issues that are not immediately apparent to the untrained eye.

 

What about vendor property inspection reports?

 

Inspection reports are often provided by vendors but that doesn’t mean that buyers should rely on that information exclusively.

Depending on the quality of the building report, I usually recommend clients engage their own inspector to ensure independence.

Of course, it is always the buyer’s decision whether to proceed with the purchase, but by working with a professional, buyers have all of the information they need to make an informed decision about the risks of proceeding – especially if the property has any defects.

Successful property buying comes down to multiple factors, including strategy, location and asset selection, but it’s also about ensuring that you don’t buy a dud that’s been dressed up to the nines!

 

If you’re looking to get help with your next property purchase and would like advice from a qualified property professional, then please get in touch with STRAND Property Group today: 

Contact Us

If you would like to find out how to take the next step towards buying property, please get in touch on:

(02) 8324 7438

info@strandpropertygroup.com.au

Suite 3, Building 6, 49 Frenchs Forest Road East, Frenchs Forest, NSW 2086

PO Box 6220, Frenchs Forest, NSW 2086

Strategic property buying for busy professionals.