Author: Xavier Quenon

Despite the common idea that large block sizes are more desirable in the suburbs, many people are now looking specifically for homes on smaller blocks. A Melbourne Buyer’s agent, Ian James, said increasing numbers of people were requesting homes with limited outdoor space.

This trend is also reflected in a survey by realestate VIEW, which found only 13.3 per cent of buyers saw an outdoor area as a necessity.

Historically, families have favoured large homes with extensive gardens in the front and back. “Back in the 50s, 60s and 70s, the Great Australian Dream was owning your own home on a quarter acre with a big back yard for the kids. That’s what everyone wanted,” he said. Nowadays, Mr James finds many people are no longer looking for “the quarter acre and the Hills Hoist. Many of my clients these days request homes with yards smaller than 10m by 10m.” Now, I’m asked to buy properties for people and the specifics are “I don’t want larger than 50, 80 or 100 square metres in the backyard. These families value low-maintenance options that can require minimum up-keep”, he said.

This interesting change in housing trend is a fact investors should think about when looking at their next purchase. A smaller yard means less maintenance to a tenant and more time to spend with their family or out and about enjoying other things in life. It also means that there should be less potential maintenance and upkeep issues for landlords.

However, investors should do their research as these trends may be more applicable in suburbs closer to public transport options and city centres.

If you’ve successfully purchased an investment property,organisedyour finance with Go Mortgage and secured a tenant, you might think the hardest work is done when it comes to setting yourself up to reach your investment goals. But like any investment, it’s important you keep a close eye on your property and avoid all too common financial mistakes.

To help calridy some fo the ptifalls that cxomes after the initial purchase and setup period here is what Carolyn Parrella, Insurance Executive Manager at Terri Scheer Insurance, had to say about the most common traps landlords fall into financially, and how you can avoid them.

1. Setting the rent too low or too high

“Before purchasing an investment property, carry out research to help determine an appropriate rental price,” Ms Parella said.

“Setting the rent too high may result in limited interest from prospective tenants, leaving you out of pocket if the property remains empty for an extended period of time.

“However, setting the rent too low may place you under financial pressure, limit your rental income and has the potential to attract unsuitable tenants.

“Find listings with similar features to your property, as this will give you a guide on the rental market in that area.

“If you appoint a property manager, they should be able to provide you with information on comparable properties and advise an appropriate rent for your own investment.”

2. Failing to monitor arrears

“If a tenant falls behind in their rent, it can be a very long and costly process to resolve and could leave you considerably out of pocket,” Ms Parrella said.

“Diarise the dates that your tenant’s rental payments are due and check your bank account on those days.

“If your tenant doesn’t pay on the due date, monitor your bank account on a daily basis. If they fall into arrears a breach notice should be sent for non-payment of rent.

“The number of days in rental arrears before a termination notice can be sent, and the time between presenting the notice and requesting vacation varies around Australia, so it is important to be familiar with your local tenancy laws.

“Regularly monitoring arrears and issuing tenants with appropriate notices promptly may help resolve issues sooner and mitigate any financial loss.”

3. Attempting to self-manage a property

Ms Parrella said self-managing a rental property might create headaches for landlords, especially if they’re not able to commit the time or resources necessary (which they might not realise until after they’re in too deep).

“While it can be tempting to save a small percentage of rental income by self-managing your rental property, the benefits of appointing a property manager can far outweigh the costs,” she said.

“Property managers are able to conduct regular property inspections to identify maintenance issues, have systems in place to find and screen prospective tenants, and have access to databases that list tenants with a history of defaulting on rental payments, damaging property and eviction.

“If a dispute arises with a tenant, they are also familiar with the relevant legislation and can follow the correct procedures to help resolve the problem as quickly as possible.”

Furthermore the cost of the property manager is tax deductible and tenants tend to ‘play up’ less when faced with a professional agent. Also, beware as some insurance companies also refuse to offer landlord insurance to properties that are self managed.

4. Neglecting maintenance

“As a landlord, once you have been alerted to maintenance issues, it is your responsibility to act on these or authorise your property manager to do so as soon as possible,” Ms Parrella said

“If a maintenance issue arises and you are slow to fix it, you may be legally liable if your tenant injures themselves. It is also important to ensure that all maintenance is completed properly and to appropriate standards.”

5. Inadequate insurance

“Landlord insurance cover can protect investors from many of the risks associated with owning a rental property, provide peace of mind and ease a landlord’s concerns about receiving regular rental payments if their tenant damages the property or absconds,” Ms Parrella said.

“Standard building and contents insurance policies usually don’t cover landlords for these risks.

“Landlord insurance can cover property owners for malicious damage by tenants, accidental damage, legal liability for occurrences on the property that cause death or bodily injury, and loss of rental income as a result of property damage or a tenant absconding.”

The Credit Suisse Global Wealth Databook 2013 contains some interesting reading about the wealth of Australia and Australian households.

Of all countries detailed in the report, Australia’s households have the highest median wealth of all countries; have the second highest average level of wealth of all countries, and enjoy the second least unequal distribution of wealth (wealth being a combination of asset values and income).

The composition of wealth in Australia has a particularly strong focus on real estate. It represents 59 per cent of all household asset value – the second highest in the world. The author credits property as being the great wealth equaliser in Australia.

Given the relatively high percentage of retirees in Australia who own their own homes, the most important sources of wealth inequality in Australia are employment levels and wage rates.

Clearly, past and present governments have done a good job in balancing their efforts to maximise employment and to encourage higher wages. Australia has the highest minimum wage in the world, and is ranked fourth highest using OECD purchasing power parity average wage statistics.

Young employed persons in Australia are in an enviable position.

They work in a country where the medium- to long-term growth in property values are indisputably consistent over the past 100 years. They enjoy some of the best wage and employment conditions in the world.

Because property is the asset in which the majority of Australia’s household wealth is created, encouraging a movement towards property ownership when people are younger and earning more (and thus property is the most affordable) would give Australians greater wealth in their later years.

Federal and state governments clearly encourage property ownership already through various programs, including the National Rental Affordability Scheme, first home owner grants, favourable tax policies and first home saver accounts.

The variables of supply and demand drive the market in all commodities, and property is no different. One thing that most people, including housing price forecasters, fail to understand is that the reason that prices remain so stable is because federal and state governments, both directly and indirectly, hold a controlling influence of both the supply and demand variables. That’s because our government system is designed in such a way that underpins this stability.

The first supply factor is labour and materials costs, which are set by the market. The second is access to finance for developers, builders and buyers. By far the biggest supply constraints are physical barriers (such as water, cliffs, freeways and so on). The adage ‘they are not making any more land’ is now irrelevant. Development guidelines enable the creation of more lots (albeit smaller), and higher densities create more living accommodation (albeit airspace). These planning restrictions are set and controlled through the local councils (through zoning ordinances), and state and federal governments.

Governments are the largest holder of residential land in Australia. In Victoria, Places Victoria (formerly VicUrban), has a 12 per cent market share in land sales. The second biggest landowner in Victoria is VicTrack – another Victorian state government enterprise. Other states are similar. The ACT and Northern Territory are virtually all government-owned.

So ‘government’ is the largest single entity that has the capacity to influence the supply of either land or building space, and by extension is the largest single entity that influences property pricing.

Demand on the other hand is driven by buyer numbers. Aside from Australia’s natural growth rate, state and federal governments further influence buyer numbers through their migration policies, foreign investment rulings, tax rulings, and superannuation borrowing rules.

Underpinned by a government structure that is invested in its success, the argument to encourage investment into property is a solid one. A greater level of wealth for households is not only good for the Australia, but good for Australians. Wealth created through self-responsibility by the individual is far more empowering than adopting an attitude of entitlement that seems to be creeping into our modern society, and one that is imposing an increasing burden on taxpayers and governments alike. A decreased need for a government to spend on support programs, and more spending on quality of life services means a better quality of life and more household wealth. Who doesn’t want that?

Every person seeking a home loan has to undergo a number of steps from start to settlement. Understanding what happens in each step can help you prepare for the process. Of course we will be there to guide you and make the whole experience as smooth as possible.

Step 1: Assessment

During the assessment process your Go Mortgage Broker will discuss and help you select the most appropriate features and home loan rate that best suits your finance needs. To enable this process to take place you will need to complete a Fact Finder Questionnaire for your broker.

Once the right loan is selected, the loan application process begins.

Step 2: Loan Application Process

To help make the home loan application as quick and simple as possible, review the checklist below to find out what documents you may need to have ready to apply for your loan:

§ Passport/Visa/Citizenship Certificate

§ Drivers Licence

§ Marriage Certificate

§ Medicare Card

§ Two most recent payslips

§ Most recent PAYG Summary (Group Certificate)

§ If self-employed, the last two year’s full tax returns (Both personal & Business)

§ Proof of existing rental income

§ Proof of proposed rental income

§ Proof of funds to complete – Cash, Redraw, etc

§ Copy of superannuation statements, share certificates etc.

§ Most recent statement for all credit cards, personal loans, leases etc

§ Copy of contract of sale for property being purchased

Your Go mortgage broker will assist you getting all the necessary documentation for your home loan application, and will lodge the loan application with the selected lender.

Step 3: Loan Assessment

The lender will assess your application to determine whether you meet their credit requirements. This process includes confirmation of your income and employment and a credit reference check. Your supporting documents are also verified at this time.

Step 4: Unconditional (Full) Approval

Once the lender is satisfied he will issue unconditional home loan approval and a formal letter of offer will be issued to your broker. The final loan documentation is then issued for your signing and to be returned to the lender/your broker once completed.

Step 5: Insurance

Home and contents insurance provides cover for a range of events such as theft, storm damage, fire and more. This protects both yourself and the lender against a potentially financially devastating event. Most lender require you to obtain insurance on your property and note their interest in the policy; then they request you prove this has been done with a copy of your ‘Certificate of currency’ from the insurance company

We have a range of offers to help cover your property and your home loan. You may need to start your home loan insurance cover prior to settlement.

Step 6: Loan Settlement

Your solicitor/conveyancer will liaise with the lender to schedule a settlement date if you are purchasing a property.

If you are refinancing at this stage we need to organise a discharge form to be sent to your current lender so they can get all the settlement paperwork ready for the new lender to take over. The new lender will then get in touch with the current lender and they will organise a settlement date.

The first repayment on your loan will usually be required one month after the settlement date.

Step 7: Congratulations, welcome to your new Home Loan.