Information goes a long way when you’re buying an investment property in Australia. Without information, you can’t prepare for the negotiations. This is when you sit down with the seller to try and find the right price for your investment property in Australia.
However, the information you have isn’t the only weapon in your arsenal. There are plenty of other tactics that you can employ to get a good deal. With that in mind, we’ve come up with five hot investment property tips for beginner negotiators.
Tip #1 – Learn as Much as You Can About the Seller
You may think the state of the property market would make it impossible to negotiate a good deal. If property prices are going up, it’s easy to assume that all sellers you meet will ask for more money.
However, this line of thought doesn’t take the seller’s situation into account. You need to find out everything you can about the seller when buying an investment property in Australia. For example, do you know the reason why the seller is getting rid of the property? If not, then you need to find out.
Many people sell because they’re in distressed situations. They may be in financial difficulties, or need to sell quickly to fund a new purchase. You can use this to your advantage and negotiate a better deal. After all, a motivated seller is one who will listen to lower offers.
Tip #2 – Sweeten the Deal
This ties into our first tip. Sometimes, a seller wants something really specific, which will make your bid for their investment property in Australia more attractive.
Consider the following example. The seller is currently going through a divorce. It’s a heartbreaking and emotional situation, but they really need to sell their property before the divorce is settled. As a result, that seller may be looking for a buyer who can help them settle the sale quickly, so they can get on with the rest of their life.
That’s where you come in. If you limit the terms attached to the transaction, you can speed up the process. That gives you some leeway to negotiate a lower price with a seller who wants to get rid of a property quickly.
Tip #3 – Get Pre-Approval on a Home Loan
Sellers love serious buyers. If you enter negotiations knowing that you don’t yet have the money to make the purchase, you’re going to sour the seller to any offers you might make.
This means it’s best to get pre-approval on a home loan before you try to buy an investment property in Australia. Lodge your application and ask your lender to provide proof of the pre-approval.
You can then take this into your negotiations. Having pre-approval shows that you’re a serious buyer who wants to move forward. This will make the seller more willing to negotiate terms with you, which could be your pathway toward making a lower offer that saves you some money.
Tip #4 – Make the Right First Offer
The first offer you make on your investment property in Australia is crucial. Go too low, and you may insult the seller so much that he or she stops taking you seriously. Make a high offer, and you may end up spending more than you need to.
This is where your research is going to help. Find out how much similar properties in the same area are selling for. You can use this to get an approximate figure for the value of the property. Compare this to the seller’s valuation to ensure you’re both on the same page.
From there, you need to make your offer. It’s usually best to offer somewhere between 5 and 10% less than the seller’s valuation. This shows you’re a serious buyer, while giving yourself some wiggle room if the seller comes back to you with a higher figure.
Tip #5 – Don’t Mention Your Budget
Remember that your seller’s agent is going to try and extract as much information as they can from you. After all, they want to secure the highest possible price for their clients.
Talking to the seller’s real estate agent can offer you more information. However, it can lead to you giving away information that the seller could use against you.
The key is to not let the seller know how much you’re willing to spend. If they have that figure, negotiations are going to start at a much higher price than you had hoped for. Play your cards close to your chest, while still making offers that show you’re a serious buyer.
You can use a SMSF (self-managed superannuation fund) to buy an investment property in Australia. However, this has previously been quite difficult. Many lenders would not allow SMSFs to borrow money, which means they had to fund the full purchase themselves.
However, that changed after the 2017 Budget. Now, a self-managed super fund can borrow the money needed to fund the purchase of an investment property in Australia. As a result, those who previously couldn’t afford to use their SMSFs to buy an investment property in Australia now have a pathway to do so.
The first thing to remember is that you shouldn’t set up a SMSF solely to buy a property. However, having it available makes sense for a lot of small business owners. After all, a business owner can occupy the SMSF’s investment property in Australia, as long as they use it for business purposes.
However, managing an SMSF takes a lot of time and hard work. To help you along, we’re going to show you some of the secrets of using an SMSF for property investment.
You’ll need some money in your SMSF before you can use it to buy an investment property in Australia. How much will depend on your situation, but as a rough guide you should aim to have $200,000 available.
This will help you to cover the deposit and the fees associated with taking out a home loan. Furthermore, you’ll probably have some money left over for diversification. This is important, as investing only in property could come back to bite you if the market crashes.
The funds should come from every SMSF member. You don’t have to fund the entire thing yourself.
Know How Much You Can Borrow
Most lenders are still quite wary of lending to SMSFs. That shouldn’t come as a surprise, as many have only just started doing so following the 2017 budget. As a result, it’s unlikely that you’ll be able to secure a home loan with a loan to value ratio (LVR) above 80% of the home value.
In fact, most lenders prefer to offer 50% LVR on SMSF loans. Having a 50% deposit available for your investment property in Australia increases the lender’s confidence and puts the property closer to being positively geared.
Of course, you need to make repayments on the home loan once you’ve secured it. This is where the self managed super fund can really help an investor. You can use your super contributions, which you can deduct from your taxes, to make the repayments. The same goes for any rent or other payments that the SMSF receives.
As a result, you often won’t need to spend any of your own money to repay the home loan. Better yet, you can deduct quite a large portion of the repayments from your tax bill. Of course, it’s best to work with a tax professional to ensure you set up the correct structure for this.
The Tax Benefits
Let’s look at the tax benefits of buying an investment property in Australia using an SMSF in more detail. For one, the fund only has to pay a maximum tax rate of 15% on any income the property generates.
However, the bigger benefits come if you choose to sell the property. Assuming the SMSF has held the property for at least one year, you only have two-thirds of the capital gains tax (CGT) you would have paid on a property you personally own.
Better yet, both of these tax contributions disappear if the SMSF keeps the property until its members start claiming their retirement pensions. As a result, retired SMSF members can benefit from the property’s income, without having to pay any tax. They also receive larger lump sums if the SMSF sells the property because they don’t have to pay CGT.
Can Everybody Do It?
Property investing using an SMSF sounds appealing, and it can provide you with a lot of benefits. However, it’s not for everybody.
As mentioned earlier, you should avoid using your SMSF to invest in property if it doesn’t have a large sum of cash available. Diversification is crucial when investing, so you don’t want to be in a situation where your SMSF relies only on the property’s income. A lost tenant or property market crash could cause major problems.
Furthermore, those on low incomes should think twice about investing using an SMSF. Remember that you have to make regular SMSF contributions. These contributions benefit you when it comes to your taxes, but they’re also long-term benefits. You may struggle in the short term if you don’t have the money to make regular SMSF contributions.
You Could Bag a Great Investment Property in Australia at Auction
Trying to buy an investment property in Australia at an auction is something of a mixed bag. On one hand, you have the chance to snap up a bargain. A lot of sellers use auctions as their last resort. As a result, they may ask for less than the value of their property. As long as you don’t get caught up in the heat of the moment, you may get a great investment property in Australia at auction.
However, you also have to consider the other possibility. Auctions are emotional places. If you get caught up in a bidding war, you could end up spending more than you intended. That makes it much more difficult to generate a good return on your investment property in Australia.
So how do you get the most out of your visit to a property auction? We have a few tips that should help you.
Tip #1 – Prepare Your Finances
Did you know that you have to pay the deposit for any properties you win on the same day as the auction? There’s no cooling down period, which means you need to be prepared financially.
This means you need to prepare yourself financially for the auction. Firstly, make sure you have a budget, and enough cash available to pay the deposit relevant to that budget.
You also need to consider how you’ll buy the investment property in Australia. If you’re buying using a trust or self-managed superannuation fund (SMSF), you need to make sure it’s organised for the purchase.
Finally, lodge a home loan application and get it through to the pre-approval stage. This means the lender is confident that they’ll approve your loan, barring a couple of extra checks. Having pre-approval means you can feel more confident in your bidding. It also places you in a good position to negotiate if the property doesn’t meet its reserve price, and you’re the highest bidder. The seller will see that you’re serious about buying if you have pre-approval, which may help you pull the price down.
Tip #2 – Look the Part
Impressions play a bigger role than you might realise at an auction. There are going to be all sorts of people there, so you need to play to the crowd a little bit.
Make sure you look the part. Ideally, you should arrive in business wear, so you look like the investment professional that you are. Bring a small notebook to jot things down. You may not need to write anything important, but it’s a little thing that could make inexperienced bidders wary of you.
The key is that you need to look confident, so people think you’re an experienced auction-goer. If you look like you have money to burn, a lot of people will refuse to bid against you. This gives you a distinct advantage, so you may secure an investment property in Australia for less than it’s worth.
Tip #3 – Bid Early
Many people try to lodge late bids when buying an investment property in Australia at auction. This tactic seems to make sense. You wait until the last second before making your bid. You rattle the other bidder, which lends you an advantage.
That tactic can work, but it has some risks attached. If you leave it too late, you may miss your bid. The auctioneer will bang the gavel, and you’ve lost out on a great property.
It’s much safer to bid early. This puts you in the running straight away, plus the auctioneer will start paying attention to you. As a result, you may get a touch more time to make that last bid count. Furthermore, jumping straight in with a strong bid can unnerve your opposition. This can reduce the bidding pool, so you face less competition.
Tip #4 – Don’t be Afraid to Walk Away
Walking away from a property you want is one of the hardest things you may have to do. However, it’s sometimes necessary.
Remember that you have a budget, and that every property you buy has to offer a good return on your investment. The bidding may get heated, and there may be people who can top every bid you make. It happens. You just have to make sure to react in the right way.
Stay calm and walk away if it looks like you’re going to spend more than you’re comfortable with. This protects you financially and ensures you have more money left over for any other properties you may be interested in.
You can make a lot of great purchases at property auctions. However, you need to avoid getting caught up in the emotion of the event.
If you follow these tips, you’re sure to bag some bargains eventually.
Are there still growth areas in Australia’s two major capitals, Sydney and Melbourne? If so, where can they be found?
Sydney and Melbourne were the star performers of the property market last year. Recording significant growth in dwelling values of more than 11%.
In comparison many of the other capitals saw price declines, according to CoreLogic RP Data figures. With only a moderate increase of around 4% recorded for Brisbane and Canberra.
Experts have predicted the Sydney and Melbourne markets will cool this year, and indeed this seems to be the case, with dwelling values having grown by only around 2% over the first quarter.
These cities are still holding relatively strong however with only Hobart (6.5%), Darwin (2.4%) and Adelaide (2.4%) seeing greater growth so far.
Melbourne appears to have a slight edge over Sydney. With dwelling values rising by 2.2% this year and 9.8% over the past 12 months. Compared to 2% and 7.4% in the New South Wales’ capital.
Anecdotal reports suggest investors are now turning away from the major capitals. Looking for more affordable markets with not only cheaper housing but better rental yields than the 3% to 4% on offer in Sydney and Melbourne.
There clearly isn’t a great deal for investors to get excited about when it comes to these two cities. However, there are always growth areas to be found. We asked some of the experts to tell us where those might be.
The west dominates in Sydney
Since the property boom in Sydney has “run out of steam”, property lecturer and author Peter Koulizos says the key to investment success will be location selection.
“It’s not like last year where you could buy wherever you wanted to and make money,” he elaborates.
Koulizos’ top picks are the inner southwestern suburbs of Tempe, St Peters and Marrickville. Situated between five and seven kilometres from the CBD.
“They’re close to town, they have nice character homes that can be renovated to add further value and they’re close to the airport, which is a big hub of employment activity,” he says.
He adds that there are infrastructure projects in the area, which is fantastic for the local economy. And the suburbs have been experiencing gentrification.
Buyers’ agent and CEO of www.propertybuyer.com.au Rich Harvey believes the inner city will remain in demand in Sydney, and there’ll be capital growth in areas where demand is exceeding supply.
He also likes western Sydney, where he notes there’s strong demand in the right areas.
Harvey says a buyers’ agent on the ground can pinpoint exact locations for growth. He names some of the key areas as Parramatta in central western Sydney, as well as Liverpool and Bankstown. He also picks Campbelltown and Camden in the southwest and areas around Castle Hill in the northwest as good potential locations for investors.
There are several areas earmarked for higher density, Harvey says. These are typically connected with transport hubs, which will lead to growth.
Harvey adds there are several transport infrastructure projects in western Sydney that will drive growth by improving access to and from many of the suburbs. These projects include the North West Rail Link and the South West Rail Link. The NorthConnex tunnel linking the M1 Pacific Motorway at Wahroonga to the Hills M2 Motorway at West Pennant Hills, and the M5 East extension.
He adds that the construction of the Western Sydney Airport at Badgerys Creek will also provide a boost to surrounding suburbs.
Where to look in Melbourne
Not only has the Garden State’s capital performed better than Sydney this year. It was also recently revealed as having the fastest and largest population growth of all the capitals, with more than 1700 people arriving each week.
This should come as no surprise since it has been named the world’s most liveable city for the past five years running by The Economist.
Koulizos’ top picks for investors looking to buy in Melbourne are the inner-city suburbs of Flemington, Brunswick, Coburg and Footscray.
“Traditionally the inner city is where the majority of capital growth happens,” he says. “When a market is booming you can make money anywhere but when it’s not focus on being close to town.”
Koulizos says these suburbs have character housing, are well serviced by public transport and are being gentrified.
Harvey says investors in Melbourne should focus on areas with good transport links. Naming Coburg North and Campbellfield, between 10 and 16 kilometres north of the CBD, as good spots to consider.
Coburg is set for a major building boom. With plenty of development in the pipeline including a $1 billion residential project at the former Pentridge Prison.
Hotspotting.com.au founder Terry Ryder, meanwhile, believes the areas with the greatest momentum in Melbourne at the moment are the outlying areas. He says locations closest to the city always see growth first, with that growth then rippling out to outer suburbs.
Those areas, says Ryder, include Epping in the north and Sunshine in the west. And in the far southeast he suggests investors look at the City of Casey.
“These are affordable areas with good transport links, job nodes and are within easy reach,” he says.
Is there anywhere to avoid?
As with most cities, the experts warn investors to stay away from oversupplied apartment markets – particularly those with high rises.
In Melbourne this largely refers to the inner city and Southbank. In Sydney Green Square is one such area to avoid.
What about the regions?
Outside of Sydney, Harvey believes other parts of NSW have good potential for investors. In particular, he names Newcastle as being one of his top areas to buy for both capital growth and strong yields.
He says the city, around 120 kilometres north of the state’s capital, is a significant metropolitan town that provides excellent value compared to Sydney.
Newcastle has plenty of fundamentals driving growth, adds Harvey, with one being substantial redevelopment planned for the area.
WHO doesn’t love a bargain? We all pat ourselves on the back when we purchase something for less than its true worth. Yes, I can see that smile of satisfaction!
While it’s easy to pick up a new shirt or pants for half price at the latest sales or find a barely used item on Gumtree for a fraction of the cost at the shops, what’s not so easy is buying a property at a price below market value.
Beware of the distinction between cheap property and property under market value. The former is likely discounted for a reason, while the latter is one that is actually worth more than what you pay, and has all the growth fundamentals required for a good investment.
Sounds good right? We all want equity NOW, and what better way to get it immediately than to buy under market value. But exactly how do you do it?
Negotiating is a skill that takes time to perfect. But if you can master the art you’ll likely be able to snag a property for below market value. The key is to keep your emotions out of it and don’t pay a cent over your budget. Use bargaining tools such as flaws you’ve identified in the property to get the price down and favourable contract conditions. Also, be prepared to walk away if you don’t get what you want.
It’s all about the contract
When it comes to making an offer, ensure the contract conditions are favourable to the vendor, which might make your offer more appealing than another higher offer. This might involve giving the seller the settlement date they desire, or offering a leaseback. Put a deadline on your offer though so there’s pressure for them to accept quickly.
Buy ‘off market’
Buyer competition drives up prices, so it stands to reason that if you eliminate competition, and snag a property before it has a chance to go the market, there’s a great chance you’ll be buy it for less than market value. That is, what someone else would be wiling to pay for it. These opportunities won’t be plentiful, but they are around; you just have to know how to find them. In addition to getting ‘in the know’ with local agents, try doing a letterbox drop or knocking on doors, or even asking friends or family if they’re interested in selling. If you do a deal direct with the vendor you’ll also save them paying an agent’s commission, which means you might even pay less for the property.
Find a hidden gem
Presentation is huge when it comes to selling a property. If a property isn’t presented most people will look is over and never give it a second thought. It’s these diamonds in the rough that provide opportunities for discerning investors to purchase below market value. If the property has all the right fundamentals for growth and can be improved through a clean up and some renovations, you might have a goldmine on your hands. It takes skill to be able to identify these properties. But if you can it’s a way to create instant equity.
No one enjoys profiting from someone else’s misfortune. But the reality is that there are distressed sellers out there – including those going through a divorce or financial hardship – that need to sell, and quickly, and will take all offers seriously. Deceased estates are also motivated sellers, and mortgagee auctions are another avenue. If you make a decent offer to these types of vendors, and show you’re serious by putting it on paper and accompanying it with a deposit, as well as proving you’ve got finance approval and are ready to act, you’re more likely to have your offer accepted, even if it is below what someone else might be willing to pay on the same day.
Properties lingering on the market
There’s a tendency for many buyers to gloss over a property that’s been sitting on the market for a long time. There must be something wrong with it if it hasn’t sold yet, right? Not necessarily. It might just be lingering on the market because the vendor had unrealistic price expectations. After a certain period of time they often decide – or are forced – to sell and with buyer competition having waned long ago they are often compelled to agree to almost any offer that comes their way. Herein lies the opportunity to purchase for below market value. Just do your research and make sure there isn’t a good reason the property hasn’t sold earlier.
Buy a property before it’s rezoned
If you’ve done your research you’ll know which areas are about to be rezoned – to allow higher density, for instance – and you can use this to your advantage. Properties will likely be more valuable after the rezoning. But if you can get in before it happens, or before it’s common knowledge, you’ll have essentially bought below market value. And you’ll have instant equity once the changes are in place.
Do your due diligence
Once you’ve decided on an area to buy in, do thorough research to understand what the properties in that area are worth. Then always be on the look out for properties coming onto the market. Have the ability to recognize an opportunity to buy under market value. Also, have finance pre-approval so you’re in a position to act immediately.
You see, everything that looks half interesting at the moment is being promoted as an “off-market” transaction.
Here’s what I’m thinking
If I receive an email from an agent where I’m part of a big group database and I’ve received it as a BCC – it’s pretty much ON the market.
If the agent has signed an agreement with the vendor to sell the property, it’s ON the market.
The other day I even received an email from an agent in Queensland trying to sell units off-the-plan on the basis they were Off Market.
So I queried an agent the other day, as nicely as I could, asking how it can be “off market” when the I’m receiving a group email promoting the property.
The answer was that the vendor didn’t want loads of people inspecting his house in Bondi.
“Oh nooooo I’m selling a house in Bondi please don’t let all those pesky buyers come to my house and drive my price up”
Now before every real estate agent gets stuck into me….I’m sure there are legitimate “off market” deals…BUT I think the term is becoming about as overused as a waiter saying “enjoy” every time they bring me my food!
I suspect the real estate agents saw that buyers agents were making money using this term and thought “we can do that too”.
So they go to there database with an “off market” email, create interest – then put it up on realestate.com.au and hey presto… Boom!!
Suddenly the vendor doesn’t mind those pesky purchasers, they are even leaving the scent of coffee or perhaps some incense wafting through the house just before the open.
Property depreciation schedules refer to an accounting process used to calculate the value left in any given property or equipment. These are procedures that any property investor should look into if you seek to maximise the return of your property at the end of each financial year. You’ve may wonder – how does it actually work though and how can you benefit from a so called property depreciation schedule?
Preparing an investment property depreciation schedule
Capital works refer to the “building write-off”; tax deduction benefits that you can claim based on the structural condition of the property itself and the permanent assets contained within. Owners of a property built after 1987 are eligible for such a tax deduction which can be as high as 2.5 percent based on the age of the property in question. Plant and Equipment on the other hand pertain to tax deductions for all removable assets found within the property as these items have limited service life and naturally decrease in value over time.
How much of a tax benefit can you expect from property depreciation schedules?
Well that depends – what type of property do you have, the age of the property and its manner of use. Properties, whether residential or commercial, are eligible for claim depreciation which is surely of great help to an investor come tax time.
Obtaining the maximum tax benefit from an investment property depreciation schedule requires extensive knowledge and skills in areas dealing with construction costs and the applicable tax legislation’s. To this end, you’d want to consult with a qualified quantity surveyor who can help you prepare a depreciation schedule to better secure your interest at the end of the financial year.
Looking to get started with some of the best quantity surveyors in the country? You can expect nothing less out of Washington Brown! Call us today on 1300 990 612 and arrange a consultation with a skilled and highly reputable expert when it comes to property depreciation schedules.
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