Many small businesses operate from the owner’s home. This could mean the factory is a shed in the backyard and the office a corner of the kitchen or dining room table.

For others the business can have a separate section of the home or permanent structure on the property used exclusively by the business. The facts of each case will determine what costs can be claimed as a tax deduction.

Business owners are often keen to claim a percentage of the interest on a loan where a mortgage has been taken out to purchase the property. The ability to claim property related expenses will depend on two tests being passed.

The first requires part of the home or the property to be set aside exclusively as a place of business. This would mean the part of the home used for business purposes could not have a dual private usage component. Setting up half of a large rumpus room as an office, with the rest being used for private purposes, would not satisfy this test.

In addition to the exclusive use test the section used for business purposes must be clearly identifiable. This can often mean that there is an entrance for the part used as a home and a separate entrance for the section relating to the business.

Building a shed that is used exclusively by a business for manufacturing or storage purposes would result in part of a property being classed as business premises.

If these tests are passed a portion of the property related expenses can be claimed including interest on the loan to purchase the property and rates. The method used to apportion the expenses must be able to stand up to the scrutiny of the ATO. An accepted method is calculating the area used for business purposes as percentage of the total area of the home.

In addition to the property related costs a tax deduction can also be claimed for the occupancy costs such as electricity, gas, telephone and internet usage. For these costs the owners must again be able to prove how they apportioned them between business and private usage.

Where the business property tests cannot be passed a business can still claim a portion of occupancy costs.

The ability to claim property related expenses does however come at a cost. By establishing a home or property is used for business results in a loss of the main residence capital gains tax exemption for that part of the home or property.

This will mean the owners of the business need to have the home valued at the time it starts to be used for business purposes. When the property is sold a portion of the difference between the net sale proceeds and the value when the business was started will be taxable as a capital gain.

Thankfully in this situation if a business owner passes the small business capital gains tax exemption tests income tax may still not be payable.

Tax for small business, a survival guide, by Max Newnham is available in bookstores.

Story source: www.domain.com.au

The Reserve Bank’s decision this week to reduce official interest rates by 50 basis points is good news.

Falling rates and solid signs of an improving local economy provide the Sydney housing market with the prospect for increased buyer activity and further increases in median house prices this year.

Australian Property Monitors has recently reported that the Sydney median house price rose strongly by 1.4 per cent in the March quarter.

The city’s suburban regions also recorded encouraging increases in median house prices during the quarter.

The only exception was the northern beaches, where prices were down marginally, by 0.5 per cent.

The top performer was the central coast, where median house prices rose by 5.7 per cent. The next best were Sydney’s south, up 5 per cent, Canterbury-Bankstown, up 4.8 per cent, and the western suburbs, where median house prices increased by 4.3 per cent.

Despite the increases, price levels in some areas are still below those recorded a year ago.

The worst performer over the past year was the lower north shore, where median house prices were down by 6.6 per cent.

The city and east region fell by 5.3 per cent and the northern beaches was down 4.9 per cent compared with March 2011.

Several regions, however, have recorded increases in the median house price in the past year. The best was the upper north shore, which was up 1.9 per cent.

Sydney’s west was up 1.8 per cent, while house prices in the south-west rose by 1.5 per cent over the year to March.

Dr Andrew Wilson is the senior economist for Fairfax-owned Australian Property Monitors.

Story source: www.domain.com.au

The Reserve Bank of Australia has cut interest rates by 50 basis points in an unexpected move that should provide welcome relief to many homeowners.

The reduction takes the official cash rate to 3.75 percent.

Damian Smith CEO of financial comparison site RateCity called the RBA’s decision "a very big move".

"They haven’t moved rates this far since the depths of the Global Financial Crisis," Mr Smith told ninemsn.

"This cut will help thousands of households, with people on a $300,000 mortgage potentially saving around $1000 per year."

But he warns that some banks may be unwilling to pass on the rate cut in full.

"It’s unlikely that all lenders will pass on the full rate cut," Mr Smith said.

"The signals from the big four banks suggest that they will try to hold on to part of this rate cut."

Mr Smith points out that while the central bank has lowered the cash rate by 50 basis points since November, "the big four banks have only passed on around 40 basis points to variable rate home loan customers".

It is the largest cut to the cash rate since a 100 basis point reduction in February 2009, and the first time the RBA has lowered the cash rate since it cut it by 25 basis points at its December board meeting.

Business lobby groups, trade unionists and some economists had called for the board of the RBA to cut rates by 50 basis points to help ailing retailers, manufacturers and the stubborn housing market.

Story source: www.ninemsn.com.au

Australia’s housing sector has called on the reserve bank to deliver a 50 basis point interest rate cut after a survey showed new home sales have fallen to their lowest level in more than a decade.

The Housing Industry Association (HIA), which represents the residential building industry, says new home sales dropped 9.4 per cent, seasonally adjusted, in March 2012, their lowest level in more than 10 years.

Multi-unit sales slumped 6.4 per cent over the same period.

HIA chief economist Harley Dale called on the Reserve Bank of Australia (RBA) to deliver a 50 basis point interest rate cut at its board meeting on Tuesday.

An AAP survey of 16 economists on Friday showed all expected the RBA to cut the cash rate 25 basis points, to 4.00 per cent, this week.

However, Mr Dale said a larger cut was needed to revive the housing sector.

"The bank needs to send a clear signal that it is back on the case of assisting an economy that is clearly weaker than it anticipated in 2012," said Harley Dale.

"It is not too late to turn the situation around and prevent new housing from revisiting a GFC (global financial crisis) low.

"Interest rate cuts, while no panacea, can provide substantial assistance in restoring confidence and activity."

The survey of Australia’s 100 largest builders found Queensland suffered the biggest decline with new home sales down 15.3 per cent, followed by Western Australia, down 12 per cent, and New South Wales, down 9.7 per cent.

Story source: http://finance.ninemsn.com.au

Foreign investors have “very odd” views about Australian property and fret that housing prices may yet collapse, according to a senior Australian banking executive.

“Overseas investors have a very odd set of views about Australian property prices,” Phil Chronican, ANZ’s chief executive of its Australian operations, said today.

“They on one hand look at the stability and take a lot of comfort from it. The other is they cannot believe Australia was able to not have a property price collapse.”
Questions about the health of Australia’s property market continue to surface in talks ANZ has with investors overseas more than four years after the financial crisis battered real estate markets in the US and UK, Mr Chronican told the American Chamber of Commerce in Melbourne.
Australia’s capital city home prices have lost 4.4 per cent in the year to March, and the outlook remains subdued.

While home prices have turned positive in the past two months, building approvals and dwelling starts have plunged and a shortage of affordable homes remains.
In the wide-ranging speech, the executive in charge of ANZ’s domestic market said the mining boom was passing many Australians by, contributing to a drop off in consumer activity in recent years.
“Despite our strong economy, many Australians feel worried about our prospects in the face of uncertainty in Europe and many, particularly outside the fast lane of the mining and resource sector, feel they’re not seeing the benefits,” Mr Chronican said.

Story by Chris Zappone, www.domain.com.au

The board of the Reserve Bank of Australia has left the official cash rate at 4.25 percent for the second month in a row.

The move was widely expected with inflation at the bottom of the RBA’s target band of 2-3 percent and global economic conditions improving.

However, the news may not be met with the rapturous receptions of the past with many lenders now lifting their rates independently of the RBA.

"The rates that borrowers pay have been creeping away from the Reserve Bank’s cash rate movements since the global financial crisis," RateCity CEO Damian Smith said.

"Last month proves that all variable rate mortgage holders are vulnerable to rate hikes, regardless of what the RBA does."

The central bank left rates on hold last month but that didn’t stop the big four, ANZ, Commonwealth Bank, NAB and Westpac from lifting their standard variable mortgage rates between 0.06 and 0.10 percent.

Westpac-owned St George went even further by hiking their rates by 0.12 percent.

The RBA was expected to ease rates last month but shocked observers when it left the rate unchanged, citing the resilient domestic economy and improved global outlook.

The decision not to move rates suggested the RBA had confidence in the local economy, buoyed by low unemployment and continued demand for labour.

However, the new dynamic the banks have set up by raising rates independently of the RBA mean borrowers could be hit by a rate rise at any time.

"Borrowers should expect frequent small changes in rates, perhaps as often as every month," Mr Smith said.

Source: www.ninemsn.com.au

When it comes to planning for retirement, paying off a mortgage should be the cornerstone of security.

Question

I am a 49-year-old single female earning $61,317 a year. I pay a compulsory members contribution of 2 per cent to the Public Servants Superannuation Fund.

I have $96,000 in super and another $11,000 in a rollover fund. I have a $232,000 mortgage on a house in the outer suburbs of Melbourne with repayments of $910 a fortnight.

My preservation age is 58 and my Centrelink age pension age is 67. I was hoping to retire well before 67 as I am barely capable of working full time now.

I realise my super balance is inadequate to enable early retirement. In one year I will attain 10 years service and my employer will match my personal super contributions up to 10 per cent.

I receive $911 a fortnight net wages after mortgage, tax and super deductions, so I struggle financially.

If I increase my super contributions it will create even more hardship.

Should I increase my mortgage repayments instead of increasing the super, or a combination of both?

Should I get income-protection insurance and trauma insurance (reducing my net income further), to avoid calamity if I were to get sick? S.M.

Answer

Yes, you can’t go past the offer to match contributions up to 10 per cent and you need to take this up to the full.

However, you also have to put priority on being able to retire in a mortgage-free home and thus avoid a drain on your retirement income. At least you can then rely on the full-age pension to meet your daily needs.

At your current rate of repayment, it will take you some 17 years to pay off your mortgage, assuming an interest rate of 7.3 per cent. Alternatively, you could pay off a loan of about $155,000 over nine years or $130,000 over seven years.

You need to decide whether you can afford this property or whether you are better off relocating to a smaller unit. Or wait until retirement to sell and then buy what you can then afford without a mortgage, but you’ll pay bigger repayments into a bigger mortgage until then.

For now, open a mortgage offset and use it as your main deposit account so that, by using a 55-day credit card, you can keep as much money in there for as long as possible. It’s the most tax-efficient way to handle your money.

Some people suggest salary sacrificing to the maximum and thus getting a tax deduction, then withdrawing a lump sum at retirement and paying off the mortgage.

This may suit those in high tax brackets, depending on whether their super investments make or lose money, but you are already struggling and will be struggling more.

Rollover the benefit from your rollover fund into, say, the AGEST super fund and buy salary continuance insurance through super so as not to reduce the amount you can put into your mortgage offset account.

That, plus your sick pay entitlements will, hopefully, insure against any trauma.

If you have a question for George Cochrane, send it to
Personal Investment
PO Box 3001
Tamarama, NSW, 2026

Helplines

Banking Ombudsman, 1300 780 808
pensions, 13 23 00

Story source: www.domain.com.au, story by George Cochrane

The Reserve Bank of Australia board has kept interest rates on hold, leaving the official cash rate at 4.25 percent.

The shock move comes as many parts of the economy continue to struggle with the side effects of the mining boom.

Data published yesterday showed retail trade contracted 0.1 percent in December, traditionally the sector’s strongest month.

In anticipation of a rate cut, the Prime Minister and Treasurer earlier urged banks to pass on the cut in full.

But the board’s decision means mortgage holders and borrowers will have to wait another month in hope of further interest rate relief.

The CEO of mortgage comparison company RateCity, Damian Smith, told ninemsn the surprise announcement does not spell impending doom for mortgagees.

"Borrowers shouldn’t be disheartened that the Reserve Bank kept the cash rate at 4.25 percent today because the sluggish home loans market means the ball is in your court," Mr Smith said.

"We’re seeing lenders offering discounts of up to one percent off their standard variable rates for basic home loans and many lenders — including the big four banks — have said they are willing to negotiate to retain their share of the home loan market."

The Australian dollar rose sharply immediately after the news, up more than 0.7 of a US cent.

At 1432 (AEDT), the currency was at 107.79 US cents, compared with 107.06 US cents just before the RBA announced its decision at 1430 (AEST) today.

Source: www.ninemsn.com.au

The Board of the Reserve Bank meets on February 7 next week. In July last year Westpac forecast that the next easing cycle would

total 100bps beginning near year’s end. Subsequently, the Board decided to ease the overnight cash rate by 25bps in both November and December. Based on current information, we continue to expect a further 50bps of easings in this cycle with the next move at the February 7 meeting and another to follow in May.

The case supporting a rate cut next week is strong. Market pricing is certainly arguing for a move: current pricing puts an 85% probability on a 25bp cut.

Clearly, a key factor used by the Board to justify the decision to cut rates in December hinged around Europe and funding conditions.

The RBA Governor on December 6 noted, "Financial markets have experienced considerable turbulence and financing conditions have become much more difficult".

It is reasonable to argue that financial market conditions have improved since the December meeting. In the Board minutes it was noted, "Australian banks had found long–term debt markets dislocated" and "wholesale debt markets appeared to be closed to many financial institutions".

Bill Evans, Chief Economist

Westpac Bank

Ongoing discount loans lose momentum

Borrowers’ preference for fixed rate home loans is continuing at an unrelenting pace regardless of recent cash rate cuts, national loan approval data from Mortgage Choice has revealed.

Fixed rate loans accounted for 24% of all new home loan approvals during December 2011, up from 21% in November and well above the 12-month average of 15%. Demand for this loan type has risen for seven consecutive months, increasing 13 percentage points since May 2011.

Company spokesperson Belinda Williamson said, “Consecutive cash rate cuts in November and December 2011 have not swayed Australian borrowers’ desire for fixed rate loans.”

“It is possible borrowers’ need for certainty around their home loan repayments, coupled with the affordability of fixed rate loans are the driving forces behind demand for this loan type.

“During December fixed rates were significantly lower than variable rates, in some cases the difference was one percentage point or more.

“Our loan data shows fixed rates are now more in demand than they have been in over three and a half years at the expense of variable rates, which have lost popularity among new borrowers.

“Customer demand for variable rate loans fell from 79% to 76%, well down on the 12-month average of 85%. The most popular variable rate home loan with new borrowers, ongoing discount rate loans, slipped from 44% to 41%, also well below the 12-month average of 35%.”

Basic variable loan demand rose marginally to 15% of all approvals in December, up from 14% in November while standard variable loan demand fell slightly to 16% from 17%. Interest in line of credit loans dropped to 3% from 4% and the uptake of introductory rate loans was steady at 1%.

For more information visit: www.mortgagechoice.com.au

Home loans by value fell in October and remained flat over the year, suggesting the housing sector remains stagnant.

The Australian Bureau of Statistics (ABS) said on Monday that total housing finance by value fell 2.5 per cent in October, seasonally adjusted, to $20.458 billion.

The ABS data also showed that the value of home loans was largely unchanged from October 2010, when it was reported at $20.593 billion.

The number of home loans approved in October 2011 rose 0.7 per cent.

National Australia Bank chief economist Robert Henderson said Monday’s data showed the housing market was still deteriorating.

Mr Henderson said it was a fairly dismal report on the housing market, with falling lending in value terms and construction and investment lending both weak.

Recent data, including the national accounts figures released last week, have highlighted the weakness of the housing sector.

"It is clear that over the foreseeable future Australia will fall well short of building the number of new homes required for both owner-occupiers and renters," Housing Industry Association chief economist Harley Dale said.

"Amidst the growing risks to our economy from the situation in Europe, now is the time to be providing stimulus to the new home building sector while at the same time reinvigorating the housing supply reform process, which currently lies dormant."

Commonwealth Bank of Australia senior economist Michael Workman said Monday’s ABS figures were a little softer than he expected.

"If you go back and look at the data over the last 15 years or so, housing credit growth still remains exceptionally weak.

"So, for the housing market, it’s strongly biased towards the buyers rather than sellers and it looks like it’s going to stay that way."

Mr Workman said the Australian dollar and local bond futures were largely unaffected by the data.

RBC Capital Markets fixed income and currency strategist Michael Turner said the October housing figures were a little dated.

"China has already reported trade data for November, and the finance data do not reflect the November and December (monetary) policy easing (in Australia)," he said.

"As such, there are limited implications for markets.

"We expect more timely domestic data to better reflect the softening in global growth in coming months, which should justify further easing (of interest rates) and a move to accommodative territory in 2012."

ICAP senior economist Adam Carr said the housing data showed the Australian lending market was recovering even before the Reserve Bank of Australia (RBA) cut interest rates.

The cash rate is now at 4.25 per cent after two consecutive 25-basis point cuts in November and December.

"The 50-basis points worth of cuts we’ve seen will likely see lending growth accelerate over coming months, which will start to add to the strong private demand numbers we’ve seen to date," Mr Carr said.

Story source: www.ninemsn.com.au

The Reserve Bank of Australia board has cut the official interest rate by 25 basis points to 4.25 per cent, giving mortgage holders and borrowers a pre-Christmas reprieve.

The RBA announced the rate cut at 2.30pm AEDT today following the board’s final meeting for the year.

It’s the second interest rate cut in as many months after the RBA lowered the cash rate on Melbourne Cup day in November.

In a statement issued with the announcement, RBA Governor Glenn Stevens said there had been "considerable turbulence" in financial markets and said financing conditions had become more difficult.

"This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased," Mr Stevens said in a statement accompanying the decision on Tuesday.

Economics analyst Ross Greenwood said Europe’s debt crisis would have been a significant factor in the RBA’s decision.

"The Reserve Bank indicated that it is still concerned about the European economic situation and the prospects of a global slowdown hurting Australia and its export markets," Greenwood told ninemsn.

While it’s good news for mortgage holders and borrowers, Greenwood cautioned consumers not to expect the banks to pass on the full interest rate.

Analysts were divided about whether the RBA would cut the rate today, with a survey of 14 economists conducted by AAP revealing seven tipping a cut, and seven predicting rates would stay on hold for another month.

Story source: www.ninemsn.com.au

Economists are divided on whether borrowers will get a second interest rate cut in as many months on Tuesday.

Seven of the 14 economists surveyed by AAP say the RBA will cut the cash rate to 4.25 per cent from 4.5 per cent on December 6.

On Melbourne Cup day, the Reserve Bank of Australia (RBA) cut the cash rate from 4.75 per cent, saying that recent information suggested inflation had been contained.

With inflation no longer a problem, the bias for the RBA is now firmly leaning towards rate cuts, with 10 of the 14 economists forecasting rate cuts by the middle of 2012.

Citigroup head of economics Paul Brennan is expecting the RBA to cut rates on Tuesday, despite expectations of strong economic growth in the September quarter.

"We see this as a policy of least regret given that the outlook for global growth has continued to weaken in the past month to well below trend," Mr Brennan said.

"We see scope to lower the cash rate to the bottom of the neutral range over the next few months, which would imply a cash rate of four per cent over the next three months."

The biggest risk to economic growth comes from Europe, which may well go into recession, or start another financial crisis, as several members of the euro struggle to meet debt repayments.

There are also local risks to economic growth.

In the past month the RBA, Treasury and the Organisation for Economic Co-operation and Development (OECD) have cut economic growth forecasts for 2012.

In addition to that, official figures for October showed a 10.7 per cent fall in building approvals and retail spending only rising 0.2 per cent.

On the other hand Australia’s mining boom is still going strong, with the sector making its biggest ever contribution to economic growth.

Nomura Australia chief economist Stephen Roberts said he doesn’t expect the cash rate to move for the foreseeable future unless something bad happens overseas.

"My forecast is that they are going to leave it at 4.5 per cent," he said.

"I’m assuming they will hold it neutral all the way through to the end of 2012 but my proviso is if Europe generally does go to hell in a handbasket, then they can drop interest rates a long way."

NAB senior economist Spiros Papadopoulos said the RBA won’t cut on Tuesday but by early next year the pressure will build for another rate cut.

"Obviously there’s a risk that they might cut interest rates next week, given everything that’s been happening offshore in the last couple of weeks," he said.

"On balance, given the fact that the domestic economy has been holding up okay we don’t think they need to rush in to cutting rates."

Story source: www.ninemsn.com.au

What do you do if you are young and thinking about investing in property?

A 19-year-old I know has plans to save up to buy his first property, and mentioned that he’s not too sure where to start. Should he do a property course, he wondered? And how do you know where is a good place to buy? Let alone what you should pay.

He’s thinking not of giddily purchasing his first property to live in, but of buying an investment property and slowly, over his lifetime, purchasing some others.

What do you do if you are young and thinking about investing in property?

A 19-year-old I know has plans to save up to buy his first property, and mentioned that he’s not too sure where to start. Should he do a property course, he wondered? And how do you know where is a good place to buy? Let alone what you should pay.

He’s thinking not of giddily purchasing his first property to live in, but of buying an investment property and slowly, over his lifetime, purchasing some others.

We’ve been hearing for a little while now how this is a trend among 20-somethings, and those into their 30s. Buy a place as an investment, often a cheaper unit in a less desirable area, and then tap into the tax advantages of negative gearing (by keeping your outgoings on the property higher than the rent coming in) and either rent yourself in an area you want to live, or stay at home with the baby boomer parents where the board is minimal and the washing comes for free.

So for Jake, and any other young people wondering which way to go, here’s a few tips. And I’m sure readers will offer up plenty more in the comments space below.

1. Ask yourself, should I be investing in property at all, and what do I expect to get from it?

If it’s a road to quick riches you want, then this is not the path to take. Yes, we have seen some huge run-ups in prices over the years, and it’s true that property prices, like the economy, tend to run in cycles, so we will obviously see increases in years to come, even despite the current negativity enveloping much of the globe.

Because property buyers are human, and love to follow a trend, and for some bizarre reason feel more comfortable buying when prices are running hot, there is no doubt there will be price rises once again in the future.

There are a whole bunch of other factors pointing to future price increases too – in some cities the lack of building will keep the supply lower than it should be, the population continues to grow meaning so does demand, and in Australia at least, we remain a wealthy country still experiencing household income growth.

However, don’t bet everything on this happening and by how much prices will go up – instead expect to see, over a longer period of time, steady increases with plenty of troughs along the way as the economic cycle rises and falls.

And now, here’s the cue for all the readers who argue the market is about to tank and that now is not the time to buy property. And with Europe perched on a precipice and the US still in an uncertain state, you do have to question whether the bottom of the market has been reached yet despite the pretty strong fundamentals underpinning the Australian economy at the moment.

However, if you are a young person just starting to save for your first property, you have a bit of time to sit back and watch the market while you save anyway, so don’t fret too much at this juncture.

2. Educate yourself

The mere mention of "property course" sends shivers down my spine. Often it’s run by property spruikers taking hundreds or thousands of dollars off gullible people who are then, at best, fed information they could find themselves by reading widely, or at worst, the poor souls are flogged the company’s own products or services, all with the shiny promise of sky-high returns.

There has never been an easier time to learn the whys and wherefores yourself. The internet has opened up a world of information, and young people wanting to learn a bit more about property should be heading there (to reputable sources) as well as to the property lift outs in newspapers, and better quality magazines.

Want prices? Find them on websites like Domain.com.au or Australian Property Monitors (both owned by Fairfax Media). Want to find the best loan? Check out a loan websites such as ratecity.com.au. And need to know where the market is headed? Read plenty of stories and opinion pieces and rather than taking just one as gospel, glean the general themes from what all have to say.

If there’s a few property terms you don’t understand – such as negative gearing – look them up and get your head around what they mean. That won’t unlock a magical key to property investment for you and land a bag of gold at your feet, but it will stop spruikers taking advantage of your youth and naivety.

3. Take a balanced approach

Property holds a certain glimmer for some young people – perhaps under the encouragement of their parents who prefer a bricks-and-mortar approach. And also because everyone has lived in a house or a unit, but not everyone has held shares or gold or even superannuation.

But if you are young and have the advantage of having your head screwed on the right way and are already thinking about investing, you should be looking at all investment classes impartially. Sure, consider property, but look at it as part of building a balanced portfolio.

Even at 18, 19, you’re not too young to start putting a few extra dollars into super, keeping some of your money in cash in the highest-paying account you can find, and also thinking about a small parcel of blue chip shares to start you off, all while saving to buy your first property. Education, it must be said, can also be considered an investment class in the fact that you are boosting your own potential earning capacity.

And when I say dollars, I really do mean just a few dollars. Even small amounts each week from a meagre income are better than nothing.

This is a smart approach because it lets you spread your risk, and not put everything into the one basket. Sure, this mean it will take you a little longer to save for the first property, but time is on your side if you are young, and to use a cliché, Rome wasn’t built in a day.

4. Save as much as you can before buying

If you plan on being a landlord, you will need to have some extra cash available to cover the loan in between tenants, and also to pay for any repairs to the property. If you are buying into an apartment block or townhouse, you may need also extra money to pay for special levies such as building repairs not covered by the sinking fund (the general fund amassed by the body corporate from strata levies).

So the smart thing to do is to save a good amount of money before purchasing so you’re not taking an uncomfortable risk.

5. Research where to buy

The old adage is buy as close to the city as you can and look for properties that don’t have huge outgoings due to lifts and fancy add-ons such as gyms and pools, but do have the advantage of being near good infrastructure.

Closeness to the city can be good but I would also focus on the infrastructure side of things, and whether or not the suburb has the potential to develop over time.

Buying near rail (heavy or light) infrastructure is always a good bet as the infrastructure will stay there for a long time, and as populations continue to grow and further congest areas, the infrastructure will become even more important.

Do carefully think before buying in areas with inherent negatives, such as heavy flight paths or a lot of noise. Also very busy roads can be a problem – it can be smarter to buy just off them.

Keep your tenant in mind – what type of person would like to rent this and do those people generally live in this area?

Do try to buy something that would be easy to sell again in a hurry if you needed to, should your circumstances change. If a property you are buying has sat on the market for months and months, be sure to find out why and be realistic about encountering the same selling problems if you should buy it.

For that same reason it is good to try to buy something that is around the median price for a suburb, as it should have a larger pool of potential buyers.

6. Keep some cash aside after buying

When you buy the property, don’t sink all your money into the loan if you can help it, keep a good chunk in a flexible high-interest earning account (not a term deposit, as you may need to access it at short notice).

Use this as your maintenance fund, and to top up the property loan if you need to (and for many properties, in the early years at least, the rent won’t cover the mortgage, council rates, strata and water supply charges, so you need to be in a position to pay for the gap yourself).

The cash you keep, though, must strictly be for investment and as a reserve for maintenance and loan top-ups, not for holidays or random spending, as you always need a buffer so you aren’t forced to sell at the worst possible time.

7. After you buy, keep saving

Direct any spare cash to your savings account, not your investment loan. Or if you decide to buy a property to live in, use the cash to pay down your own home loan as fast as you can, rather than the investment loan.

By doing this, you make negative gearing work for you because, by keeping the loan against the property larger, you are paying the highest amount of interest you can, while earning interest off your other money you are keeping in cash.

Or in the case of living in your own property you do want to pay that off as soon as possible to get rid of non-tax-deductible debt.

While I’m advocating not dumping all of your extra cash into your investment loan, it is prudent to pay the property off over time to gradually reduce your liabilities, rather than remain solely focussed on negative gearing.

For that reason, interest-only loans on investment properties may not be wise in the longer term, as you are basically betting on price increases to cover you. Yes, price hikes will probably happen over the longer period but you don’t want to bank your entire savings on them.

8. Get your hands dirty

If you buy a property that needs to be fixed up, and you have time on your side, get in and do it. Many things such as pulling up carpets and painting can be achieved with little experience – you just need to have a go.

You might be surprised at just how much painting kitchen cupboards, tired tiles and old baths can rejuvenate a property.

Do be aware of any dangers that lurk in the property though, such as asbestos, and treat them appropriately. And do call in trades for jobs that are beyond you, such as electrics, plumbing and larger tiling jobs.

9. Be a good landlord

Be prepared to spend on maintenance over time and keep your property up to scratch. You’ll attract better tenants, and your property will also hold its value better. Rundown rentals look shabby and often don’t command a good price come sales time.

10. Take your time before buying again

If you have your sights set on owning more than one property, don’t be in too much of a rush. Keep your investing balanced, putting some funds into other classes such as cash, shares and super.

And when you have built enough equity you can then consider buying a second property. Balance your risk though and don’t get yourself in over your head. You want the power to hold each property for as long as you see fit, rather than be forced to sell should disaster strike.

Story by Carolyn Boyd, a property journalist and keen follower of Australia’s housing market.

Source: www.domain.com.au

House hunters who are pre-approved plan for a happier New Year

Future first homebuyers considering making their property move in the New Year have strong awareness of the importance of seeking loan pre-approval before house hunting, based on insights from national mortgage broker, Mortgage Choice.

A Mortgage Choice survey of first homebuyers looking to purchase before February 2013 found two-thirds of respondents intend to apply for loan pre-approval*.

According to Acting Head of Corporate Affairs, Belinda Williamson, first homebuyers are seeking assurance about their borrowing capacity before starting their property search.

“Our survey showed primed first homebuyers are making the wise choice to get their property finance pre-approved by a lender. This step helps buyers hone their property search and shop with confidence when negotiating a purchase or bidding at auction,” Ms Williamson said.

“Loan pre-approval provides a conditional approval of a loan amount and is usually based on an assessment of potential borrowers’ individual circumstances, needs and ability to repay the loan.

“Keep in mind it’s usually a limited time offer, for a period of three to six months and can be sourced through a mortgage broker. Once pre-approved, it’s important to keep your broker up to speed with any changes in your financial situation as this may void the agreement.

“It pays to shop around. Not all lenders offer loan pre-approval and some don’t conduct individual assessments, meaning you may get a different loan limit upon applying for unconditional approval and, like those without pre-approval, you could miss out on a property if it’s above your loan limit.

“If you are looking to purchase in the New Year now is a good time get pre-approved so you don’t miss out on potential property purchases over the holiday period.”

Mortgage Choice has compiled three top tips to help potential borrowers prepare for home loan pre-approval:

Organise your deposit and evidence of savings – You generally need a deposit of at least 5% of the purchase price, plus upfront costs. However, you will need to show evidence of a genuine savings plan, such as bank statements that illustrate a savings strategy for at least three and up to six consecutive months. Note some lenders now consider rent payments as savings evidence.

Check your credit history – Grey areas in your credit history, such as bill defaults and/or prior loan/credit applications can affect your loan pre-approval application. Resolve any issues with the relevant debt provider before you apply. For a copy of your credit file from mycreditfile.com.au you must provide personal details including your address, employment and driver’s licence number.

Prepare your paperwork – Gather evidence of your employment, income, assets, liabilities and expenses. You will also need to provide your driver’s licence or other ID, recent pay slips, tax returns and bank statements. Having everything at arm’s reach will streamline this process.

Story source: www.mortgagechoice.com.au