REAL ESTATE INVESTMENT INDUSTRY UPDATE SEPTEMBER 2016
Here’s what a snapshot of this month’s update.
Nathan’s Update: Cake? What comes after a foundation portfolio?
Financial planning update: Getting the best life insurance premium
Finance update: Reduced number of interest only loans
Property management update: Interconnected smoke alarms for every bedroom
Accounting update: Superannuation “austerity measures” scrapped
Legal update: Selling agents to disclose pre-purchase property reports
NATHAN’S UPDATE: CAKE, AFTER BREAD AND BUTTER?
When you spend years building a foundation portfolio of bread and butter properties, sometimes it’s easy to lose sight of the light at the end of the tunnel.
Bread and butter properties are a great staple, but who can deny that craving for something more? You might be wondering, when can I start buying cake!?
There are a range of big-ticket opportunities out there for the investor who has built a strong foundation portfolio. Apartment blocks, motels, land banks, commercial real estate and new developments are just some of the things I have been able to do since building my foundation portfolio.
But, you need to keep in mind that when it comes to property, you have to first be able to walk before you can run.
However since quite a number of people have been asking me what comes after a foundation portfolio, we’ve published an article here to answer some of these questions for you.
FINANCIAL PLANNING UPDATE: GETTING THE BEST LIFE INSURANCE PREMIUM
It is absolutely vital for a property investor to have proper insurance policies in place. This will make sure you don’t lose your hard-won property portfolio in case an unwelcome twist comes your way.
We get it! Paying for insurance seems like a major financial chore. We all like to think that we will never need a payout, so it’s hard to see the value of something you believe you will never use.
You may even be tempted to tell a few white lies about your smoking habits or health in hopes of getting a lower premium. After all, no one has ever called you out on it yet, so why not right? Well here is why not being completely transparent can bite you hard later.
YOU END UP WITH THE WRONG INSURANCE
If you don’t give the insurance company or underwriter a comprehensive and accurate picture of yourself and your needs, your insurance policy might not end up being the right fit for you. It may not provide the cover you need, when you need it.
YOUR POLICY ISN’T PAID OUT WHEN YOU NEED IT
When you go to claim a payout, the insurance company’s underwriter will often double check the information you’re provided, such as smoking status etc. If they find out you misrepresented the truth they may not give you the payout you need, or anything all.
YOU PAY TOO MUCH
If you don’t provide enough detail you may even end up paying too much for a premium.
It’s not a sexy topic, in fact, it’s probably a bit morbid and one we’d all prefer to avoid, but the fact is you’re not doing yourself any favours by being inadequately insured. You and your loved ones could be exposed to a lot of financial risk.
After all, you’ve insured your car, your home even your investment properties….why wouldn’t you insure something as important as yourself and your income?
The financial advisors at Dynasty Private Wealth can help you review whether your current insurance policies fit you like a glove or whether they need some work.
FINANCE UPDATE: REDUCED NUMBER OF INTEREST ONLY LOANS
This month ASIC released its Review of interest-only home loans: Mortgage brokers’ inquiries into consumers’ requirements and objectives report, which examined the responsible lending practices of mortgage brokers.
According to the report, the number of new interest-only home loans generated by the largest 11 brokers fell by 16.3% in the six months from July 2015 to December 2015, with the total value of these loans reducing by 15.6%.
Over the same period, the percentage of interest-only loans with a term longer than five years reduced by more than half, from 11.2% to 5.1%.
It is clear that banks and brokers are being urged to lend responsibly. This means making sure to only provide interest only loans if they meet the borrower’s requirements and objectives.
Broadly speaking interest only loans are now less likely to be handed out for personal residences, where the interest only period would add a significant net cost over the life on the loan.
However, interest only loans for investors are less likely to be seen as non-beneficial. Unlike personal residence loans, it is possible for investment interest only loans to not have the same associated net cost, as the extra interest over the life of the loan can potentially be recouped by overall portfolio growth and wealth generation.
However, in light of this, it is clear brokers are being pressured to justify their lending and brokers without a sound strategic grounding in property investment finance may not be applying this reasoning and thus not be willing to source interest only loans.
PROPERTY MANAGEMENT UPDATE: INTERCONNECTED SMOKE ALARMS FOR EVERY BEDROOM
New laws passed in response to a Coroner’s report into Australia’s worst ever house fire at Slacks Creek, which lead to the death of eleven people, have been passed.
The laws will come into effect as of January 1, 2017 and will require photoelectric smoke alarms to be installed in every bedroom within Queensland homes. The smoke alarms also need to be interconnected, and either hardwired of fitted with a 10 year battery. The new laws will be phased in over 10 years.
QUEENSLAND SMOKE ALARM LAW ROLLOUT SCHEDULE:
• By January 1, 2017: All new dwellings or substantially renovated properties
• By January 2022: All dwellings sold or leased; all Government-owned housing
• By January 2027: All domestic dwellings
If own a Queensland property, you are now required to upgrade your smoke alarms to the new standard anytime a smoke alarm is being installed or replaced.
ACCOUNTING UPDATE: SUPERANNUATION “AUSTERITY MEASURES” SCRAPPED
Do you remember reading about the new superannuation lifetime cap announced in the budget earlier this year? Well, now you can forget all about it! In a classic government backflip, this much publicized “austerity measure” has now been scrapped.
In short, this means you will no longer be able to contribute up to $180,000 of your after tax income annually, with a total cap of $500,000 across your lifetime.
Instead, there will once again be no limit to how much of your after tax income you contribute to superannuation over your lifetime. However, you will only be able to contribute up to $100,000 after tax in any given year.
This is great news for people who know their long-term plan and their goals, as it opens up an opportunity to create a bigger nest egg for retirement.
WHAT DOES THAT MEAN FOR YOU?
Well, ask yourself the following questions.
• Do you have enough in super to retire?
• How much do you need to retire?
• Do you have property in super?
• Can you afford a property in super?
• If you sell your principal place of residence for downsizing what can you do with the funds?
• Have you considered how the above cap will affect you in retirement?
If you unsure of your goals, don’t have a plan for your super you need to speak to your advisors. You need to educate yourself and make sure that you don’t get caught doing the wrong thing or not taking advantage of the tax opportunities presently available to you. The tax experts at OnePath Accounting and Dynasty Private Wealth can help you work through these questions.
LEGAL UPDATE: NSW SELLING AGENTS TO DISCLOSE PRE-PURCHASE PROPERTY REPORTS
Improvements to the laws regulating property agents in NSW came into effect on August 15, 2016.
To help home buyers access pre-purchase property inspection reports more cheaply and easily, real estate agents now need to record details about certain reports.
When the prospective buyer requests a contract of sale for the residential property, an agent will need to inform the buyer about any reports they have recorded. Buyers may then opt to access an already available report or negotiate a reduced cost to purchase the existing report from the original author.
The report agents are required to record details of include;
• Pest and Building inspection reports
• Inspection of documents for the property (section 108 of Strata Schemes Management Act 1996 and section 26 of the Community Land Management Act 1996)
• Financial Matters Certificates
Details to be recorded include the contact information for the author of the report and whether the report is available for repurchase.
Before opting to use a pre-existing report it is important to make sure the report is recent and was conducted by a reputable professional.
This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation.
The information may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any investment decisions.
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