By Abby Morphett – Director and Manager WFS Melbourne, Tax Accountant and Mortgage Broker

🏠💻👩‍💼We know we are entitled to claim a deduction when you work from home, but what are the CGT implications if you do?

🔌🪑📱 If you use the actual cost method, you may be entitled to a pro-rata deduction for the following costs:

⭐electricity and gas for cooling, heating and lighting;

⭐the decline in value of home office furniture (desk, chair) and furnishings;

⭐the decline in value of phones, computers, laptops or similar devices;

⭐phone expenses;

⭐internet expenses;

⭐cleaning;

⭐computer consumables and stationery – such as ink, paper

⭐interest on your mortgage or rent.

To use this method, you must have a dedicated workspace (not just desk in the lounge room). The apportionment is based on the percentage of your workspace/whole house (i.e. your workspace is 20sqm your house is 100sqm, the apportionment is 20%).

👩‍🏫Example – Actual cost method:

Tim’s total running costs, including interest on his mortgage = $25,000. Tim’s workspace is apportioned at 20%, meaning he would be able to claim a deduction of $5,000.

✋If you use the actual cost method, you may be liable for CGT on your home (this doesn’t apply if you rent you home). This cost is pro-rated, therefore I you claimed 20% of ownership costs for half the time you were living in the house then you would pay tax on 10% of the capital gain.

👩‍🏫Example – Capital Gains:

Tim purchased his house in 2010 for $500k and sold it in 2020 $100m. There is a 50% capital gain discount that applies to assets held for longer than 12months, reducing the gain to $250k

|Tim used his house as a home office for 5years. Therefore, capital gains is halved to $125k. He only claimed 20% of expenses therefore he will be charged 20% of $25,000.

🧮 In calculating the capital gains, add the $25,000 to Tim’s income. If Tim is on the highest marginal tax rate, he would pay $11,250 in capital gains. Using the actual cost method Tim was afforded $25,000 in deductions throughout the 5 years. So is it worth it?

😕Confused? Talk to your registered tax agent today.

1.What is a credit score?

Lenders might use your credit score to decide whether or not to approve your loan.  Your credit score is based on your personal financial information. Your credit score is based on:

• The amount of money you have borrowed
• The number of credit applications or enquiries you have made
• Whether you have pay on time or default on payments

A lower credit score can affect your ability to get a loan with some lenders.

2. Are credit reports free?

Credit reports that show your credit score is free. You can obtain a credit report from the following credit report agencies:

• Equifax
• Ilion
• Experian

Other agencies that will give you a free Credit rating are:

• Credit simple
• Finder
• Canstar

3. What can you do to improve your score?

Things that you can do to improve your credit score are:

• Lower your current credit card limits
• Minimise the number of times you make credit enquiries
• Pay all your bills on time

In general, you need at least a 5% deposit and stamp duty and conveyancing costs before you can buy a home.

Some lenders do offer no deposit home loans, but the rates can be quite high.

As a first home buyer, some of the ways you can make up your 5% deposit include:

• Gifting from family.
• If you are a first home buyer, you don’t need to pay stamp duty in most states, and you might be eligible for a First Home Loan Deposit Scheme (FHLDS) with the Commonwealth government, which means you don’t need to pay for Lenders Mortgage Insurance (LMI).
• Gap funding – some lenders will accept gap funding.
• First Home Super Saver scheme – you can save your deposit inside your super with before tax contributions.
• Asking your parents to be a guarantor.

– A Strong Budget for SMSFs

As expected, this year’s Federal Budget has a strong emphasis on job growth and women’s security. From an SMSF perspective, there were some welcome surprises for SMSF trustees, the key measures that you should be aware of are outlined below.
All measures outlined below, other than the proposed changes to legacy retirement products, are expected to commence from 1 July 2022, once they have received Royal Assent.

Repealing the work test for voluntary contributions.

Individuals aged 67 to 74 (inclusive) will be able to make non-concessional (including under the bring-forward rule) or salary sacrifice contributions without meeting the work test, subject to existing contribution caps and existing total superannuation balance limits.

Reducing the eligibility age for downsizer contributions.

The eligibility age to make downsizer contributions into superannuation will be reduced from 65 to 60 years of age. All other eligibility criteria remains unchanged, allowing individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000, per person, from the proceeds of selling their home. These contributions will continue not to count towards non-concessional contribution caps.

Relaxing residency requirements for SMSFs.

SMSFs and small APRA funds will have relaxed residency requirements through the extension of the central management and control test safe harbour from two to five years. The active member test will also be removed, allowing members who are temporarily absent to continue to contribute to their SMSF.

Removing the $450 per month threshold for superannuation guarantee eligibility
The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid the superannuation guarantee by their employer.

Legacy retirement product conversions.

Individuals will be able to exit a specified range of legacy retirement products, together with any associated reserves over a two-year period. The specified range of legacy retirement products includes market-linked, life expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.

Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution cap.

Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds. Amounts commuted from reserves will be taxed as an assessable contribution but will not count towards an individual’s concessional contribution cap or give rise to excess contributions.
This measure will take effect from the first financial year after the date of Royal Assent of the enabling legislation.

How can we help?

If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2021-22 Federal Budget, please feel free to give WFS a call to arrange a time to meet so that we can discuss your particular requirements in more detail, or refer to the SMSF Association’s trustee education platform, SMSF Connect.

– Should you act now to lock in more comprehensive benefits?

Income Protection is sometimes known as known as ‘Salary Continuance Insurance’ or ‘Disability Income Insurance’, income protection provides a portion of your income, if you are unable to work due to injury or sickness for a certain period of time.

• What is income protection?

Income protection provides a portion of your income, for up to 75% of your annual salary, if you are unable to work due to sickness or injury and can be paid after a waiting period and for a certain period of time. The waiting period is the time you must wait from when you suffer an event, to the time you become eligible to start receiving payments. The payment period is the period you can be paid so long as you remain unable to work. Other terms and conditions can apply depending on the policy, with all of these factors affecting the level of premiums you pay.

• Why are changes being made?

Recently, the Australian Prudential Regulation Authority (APRA) announced their concern that life companies have been keeping premiums at unsustainably low levels thus potentially effecting the company’s long term financial sustainability. APRA have signaled their expectation life companies must review and update their product offering with a focus on long term sustainability, whilst ensuring products continue to meet the needs of consumers.

• Have any changes been made?

Yes, effective from 31 March 2020, insurance companies have stopped providing ‘agreed value’ policies that are based on the income you advise at the start of cover, regardless of any subsequent change in income. This means no more ‘agreed value’ contracts can be bought or sold after 31 March 2020.

• What other changes have APRA announced?

With effect from 1st of October 2021, APRA expects that life companies will offer new income protection contracts where:

1. The insured income is to be based on your annual income at the time you make a claim and are not able to look back more than 12 months.
2. A maximum income replacement payment of 90% can be made in the first six months and 70% thereafter, with no limit on the monthly benefit.
3. A maximum payment period of five years, with a right to renew cover.
4. Insurance providers must have adequate risk management processes in place to mitigate the risks associated with long term benefit payment periods.

• What happens to existing policies?

If you have an existing retail income protection policy which include a ‘Guarantee of Renewability’ in the policy wording, that is, the policy is automatically renewed each year, your policy will continue with no changes.

• What should I do now?

If you would like to lock in the current beneficial terms and conditions, we suggest you meet with one of our financial planners as soon as possible le to put in place a policy that.

1. Is guaranteed renewable.  
2. Ensures the full amount of income for the benefit period selected.
3. Has a payment period up to age 65 (depending on your occupation). 
4. May offer you a tax deduction this financial year if put in place before 30 June 2021 and each year thereafter.

If you have an existing policy that needs reviewing now is also the perfect time to meet with us to ensure you retain the above benefits.

If any of the above applies please contact us on trudy@wfsbrisbane.com.au to arrange an appointment with one of our qualified financial planners based in Canberra or Brisbane. Online appointments are also available for your convenience.

Prepared for Wholistic Property Investing Pty Ltd by Ryder Property Research

The Brisbane Market Is Poised To Become A National Leader On Residential Real Estate Growth.

Brisbane’s economy and property market has lagged behind Sydney and Melbourne in recent years, but its fortunes are changing dramatically – and growing numbers of credible forecasters are tipping Brisbane as a national growth leader. The 2032 Olympics announcement provides additional momentum to the city’s rising prospects.

Brisbane’s contribution to the Queensland’s economy is estimated at $171 billion, almost equal to that of the rest of the state.

Improvements in Brisbane’s economy were noted by analysts CommSec in mid- 2019. These have since been boosted by the commencement of $10 billion worth of infrastructure projects in the city. Another $27 billion is marked for road and transport upgrades. Queensland now ranks in first position on housing finance, according the State of the States report published in January 2021.

“Vacancy rates across Greater Brisbane have been trending downwards since December 2017, while rents for both houses and apartments have been rising consistently for three years.“

– SQM Research, March2021

Click the link below to read the full Property Research Report.

As an aspiring home buyer, you may have heard about various grants designed to get you into your first home. 

It can be a little confusing as there is assistance from both state and federal governments on offer. 

To add a little more confusion, where you live will also influence how much you are entitled to.

The hardest part of buying your first home is often saving enough deposit to avoid paying LMI (Lenders Mortgage Insurance). 

This means you would generally need 20% of the purchase price plus costs which include legal fees and stamp duty.

The First Home Loan Deposit Scheme (FHLDS) is a Commonwealth Government initiative for first home buyers where the government supports the home buyer by underwriting the loan with a group of selected lenders. 

This means as a first home buyer you can buy your own home with as little as 5% deposit.  You will need a little bit more than this to cover associated costs such as legal fees and stamp duty but more on that below.

In its current form you must build a new property to take advantage of the FHLDS.  Price thresholds also apply depending on which area you are looking to purchase in.

As an economic support measure, the Commonwealth Government also announced its Homebuilder initiative. 

This initiative is designed to support the construction industry by encouraging new building activity. 

A $15,000 grant is available for new builds to both first home buyers and people who have owned property before.  The grant is only available for owner occupied purposes and cost caps apply.

QLD First Home Owners Grant

In recognition of the costs associated with purchasing your first home, the Qld Government has offered different levels of support to owner occupiers for quite some time. 

For first home buyers there is a $15,000 grant available to build a new home.  There are some costs caps that apply to this grant as well. 

Stamp duty concessions apply for both first home buyers and subsequent buyers of owner-occupied properties that are already built.

How Much Do I Need?

Let’s look at what is required for a first home build of $600,000 assuming $300,000 for land and $300,000 for the build portion.

5% deposit                     $30,000

Land stamp duty           $4,959

Legal fees                       $2,500 (approx.)

Total required                $37,459

There are some special requirements for saving the deposit. 

Lenders will want to see that you have been able to save the money yourself as this shows good character. 

In some situations, a gift from parents may be accepted but different lenders have different policies that need to be adhered to.

The QLD Government First Home Owners Grant of $15,000 and the Commonwealth Government HomeBuilder Grant of $15,000 means you will get $30,000 back in your pocket. 

The QLD Government First Home Owners Grant and HomeBuilder are both paid once the slab has been completed.

With interest rates at an all time low, there has never been a better time to get into your own home. 

T’s and C’s apply.  Subject to lenders criteria and acceptance.  Eligibility criteria apply for grants and application is required.

Of course you want to pay off your home loan as efficiently as possible to build equity in your home and avoid excess interest payments.

Yet you don’t want to sacrifice your quality of life for the sake of making crippling mortgage payments each month.

There are some simple strategies to help you pay off your home loan faster, without becoming too stressed about a tight budget.

Place any lump sum payments into your mortgage account

If you receive an annual bonus or a healthy tax return, place the extra money into your mortgage account. These lump sum payments can drastically reduce your loan term.

Pay the same amount when interest rates drop

Don’t let your bank reduce your regular mortgage payment when the interest rate drops – continue paying the same amount, and this will reduce the interest, eventually cutting down your loan term.

Offset your loans with a savings account – pay wages into offset

As your savings account earns interest, this amount is subtracted from the interest payable in your loan. When you reduce the amount of interest you need to pay, you can cut down on the length of your term.

Shop around for a better rate

Always stay alert for a better rate or a loan more suited to your requirements. You can delegate this task to a mortgage broker who will let you know if another lender can offer you a better rate or who can negotiate on your behalf with your current lender to improve the terms of your loan.

Increase your repayment frequency

Simply by making payments fortnightly instead of monthly, you will be making one extra payment a year. Again, this cuts down on the interest you need to pay, shortening the length of your loan term.

Avoid additional debt

While you are working hard to reduce the amount of interest you are paying on your home loan, you don’t need to accrue additional interest payments through credit cards and car loans.

Minimize your debts so you can concentrate on paying off your home loan, as this is the asset which will appreciate in value.

Examine your budget

Have a close look at your weekly or fortnightly budget and see if you can cut down costs anywhere in order to make a small increase on your loan repayments.

You could save $50 to $100 a week through simple strategies such as grocery shopping once instead of twice a week or cutting down on takeaway meals or having a “no spend” day once a week.

That small amount of extra cash can be diverted into your mortgage payment, where it will add up to huge savings in the long term.

Property-hunting is a stressful exercise – you are embarking on one of the biggest financial investments of your life, and you know you’ll have to live with your decision every day.

Yet too many people rush into a property purchase, only to feel financially trapped in an unsuitable choice.

The problem is that many properties on the market are presented in an attractive and appealing way, prompting you to make an emotive impulse decision.

You can avoid the hazards of saying “I love it! Let’s buy…” about the first property you see, if you follow this 8-step preparation plan before starting the search to ensure you can identify the property that is exactly right for your needs.

• Residential or Investment

You probably already know the answer to this question – do you want a new home to live in, or are you planning to rent it out as an investment property?

Either way, you are making a long-term investment, so you need to plan carefully to ensure you can hold onto this property for long enough to profit from the appreciation in value.

• Setting a budget

Ask a mortgage broker or financial advisor for assistance in setting a limit for the maximum you can comfortably afford to pay for a new property.

Yes, it can be tempting to go over your budget if you find The One, but even a $50,000 increase in price can have a huge impact on your ability to comfortably cover interest payments and build equity.

If anything, set a conservative budget so you can manage the payments more easily and have some leeway for any future financial crisis.

• House or apartment

Now you can start thinking about lifestyle choices!

If you have your heart set on an apartment, remember to calculate for body corporate fees as these can be a significant additional expense.

With a house, you need to consider how much additional home maintenance you are committed to completing – do you want your weekends to revolve around maintaining the garden and the pool? If not, you can look for a more low-maintenance home.

• Location, Location, Location

Next you want to identify the suburbs that are most suitable for your needs. Choose locations where the homes are within your price range, and then narrow down your search to incorporate essentials such as proximity to schools, shops and public transport.

Before you even look at any properties, work out how you will travel to work each day – is it a long commute? Will you spend long periods stuck in traffic? Are there suitable public transport alternatives?

If you are looking for an investment property, you need to consider these questions from the perspective of your future tenant.

What kind of facilities and resources will they require? What are your “must-haves”?

Before you start looking at houses, write down a list of essentials.

If you are buying the property as a couple, you should both write your own list and compare. For example, how many bedrooms must you have to live comfortably as a family, and perhaps also to provide a spare room for visitors?

Again, you need to consider these questions on behalf of your target tenant. If you are planning to use the property for investment purposes, your “must-haves” would include the utilities and amenities (such as air conditioning) that will make life more comfortable for a potential tenant.

Where will your furniture go? One of the best indicators that you’ve found the right property is that you can mentally place your furniture in the various rooms. Even if you are not sure, try mentally “walking through” the house, to figure out where you will eat your meals, where you will place the television and the computer and how you will utilize any outdoor space. This exercise will help you identify any potential issues with the layout of the property.

• Take some time to consider

Even when you are sure you’ve found The One, take some breathing space to think about it. While a property purchase is one of the biggest financial decisions of your life, many people rush into the commitment, without taking some time to think about the pros and cons of a particular property.

Walk away from the property, check your “must-have” list and your budget, so you can consider the decision from a detached practical position. Then view the property again to see if it still surpasses all your expectations. If you are purchasing as a couple and one of you has reservations about a particular property, then it is no longer up for consideration.

• Seek expert guidance

Before purchasing the property, bring in the experts. Have the house inspected for any potential issues with structure or electricals to ensure that the house is safe and doesn’t need any costly repair or maintenance work.

If you are planning some renovations, check whether you will be permitted to make the changes – if not, you might prefer to look for a different property.

Just as importantly, seek financial advice from a mortgage broker to calculate your best options for a mortgage so you can pay off the house more comfortably and efficiently with a minimum of financial stress.

Purchasing a new home or an investment property can be a daunting prospect, and you might find it difficult to identify the first logical step.

Here we look at the process of securing a loan so you can buy the property that suits your needs and your budget.

Ask yourself what you want to achieve

The first step is to establish exactly what you are looking for.

Do you want an investment property or a family home?

If you are looking for an investment property, are you looking for a property you can fix up and “flip” or do you want something that is a low risk, long term prospect?

Is your family home intended to be a starter home, or are you planning to live there for several decades?

Talk to your broker about your financial situation, so you can establish how much money you can borrow, and which loan is right for your needs. Ascertain which lender and loan is right for you.

Apply for a pre-approved loan

Arrange a pre-approved loan so you can have a clear idea of how much you can spend and how long it will take you to pay off the loan once you purchase the property.

With a pre-approved loan, you will also stand out as a serious prospect, compared to other potential buyers who don’t have pre-approval.

Find your property

Once you have a vision for your property and you know your financial limits, you can start looking for your property.

When you find something you like, investigate the location as well as checking out the floor plan and fixtures – research the local property prices, the potential capital growth, and see if the local council has any plans for the existing infrastructure that might affect the area in the future.

Ask a registered valuer to make a full valuation of the property, so you can be sure you are getting a good deal.

Make an offer

When you are confident that you have found the property that suits your needs and your budget, you can make a written offer.

If the seller accepts your offer, you can review the contract of sale with your solicitor or conveyancer, before signing it.

Your solicitor or conveyancer will also take responsibility for any searches, and checking that all rates and taxes have been paid to date.

The contract of sale confirms the selling price as well as terms and conditions. Your lender will usually require a property valuation, building inspection report and a pest inspection before giving you full loan approval.

Pay the deposit

Once you have exchanged contracts, you will need to pay the deposit, which works as your bond until settlement, which is usually six weeks after signing. You can cancel the contract during the cooling off period which is a specified period of time that varies from state to state.

Congratulations!

Now you are a home owner!

Keep in regular contact with your lender, so you can ensure your home loan remains the best fit for your needs.

Contact us today if you wish to discuss your plans for owning a property. We can discuss the buying process and help with finding the right loan for you based on your financial situation and your individual needs.

It can be extremely disheartening to have your loan application declined, especially if you already have a property in mind.

The best response is to treat the rejection as a positive learning experience, and an opportunity to strengthen your financial position so your application will be successful next time.

Here we look at some of the more common reasons your loan application would be declined and how you can turn the situation around:

Insufficient Income

Lenders calculate your borrowing power based on the balance between your income and your financial commitments. If the balance is insufficient to pay off a potential loan, they will not approve your application.

You have two options – you can reduce your financial commitments by tightening your budget, or you can find a way to increase your income.

One or both of these strategies will create a larger balance between your income and expenditure, giving you more funds to funnel towards paying off a loan.

1. Bad credit
Your future lender wants to see that you have a good history of repaying loans promptly and responsibly. If you’ve actually been the prudent type who avoids debt, you won’t have much evidence that you are a reliable borrower – you can fix this by using a credit card to demonstrate that you will make prompt and reliable repayments.

However, it will be more difficult to prove yourself a good risk if you have a history of defaulting on loans, so you may need some time to improve your credit record before applying for a new loan.

2. Excessive debt
Lenders will look at every aspect of your financial position, and will pay particular interest to any outstanding debts you already have.

If the lender can see that your debt repayments exceed your income and assets, they will be wary about lending you more money.

The solution here is to reduce your debt before taking on more financial responsibility.

Start with the highest interest debts first and reduce any other regular outgoing payments, so you can demonstrate that you have the income to manage your loan.

3. Insufficient savings
Your savings not only provide a deposit and a buffer, they also demonstrate that you are a good risk who is committed to achieving your long-term goal. If your application is knocked back due to your lack of savings, start by putting aside a small amount from each pay, and watch it build.

Keep in mind that a sudden windfall such as an inheritance does not demonstrate your ability to save! You need to show consistency and self-discipline.

Even three months of regular savings can be enough to convince a lender that you are a good risk.

4. Irregular income
Today many people choose a more flexible approach to working than the traditional 9 to 5 job with a regular salary. If you are self-employed or do contract work, or even if you have switched jobs recently, a lender might be concerned that you will be unable to handle regular loan repayments.

However, as more people shift from traditional employment, there are lenders responding to the challenge.

Look for a lender who specializes in home loan products specifically for people with irregular income.

5. Unsuitable property
Sometimes it’s not your financial situation that causes the problem. The property you want to buy may be a bad risk, or perhaps you are proposing to pay more than it is worth. In this situation, the lender will see that you cannot redeem the value of the loan and they will turn down your application.

When a loan is declined for this reason, the lender is actually doing you a favor. You want your investment to be as profitable and manageable as possible, so listen to the lender’s advice and find a property that has more potential to be a good investment.

Overall it helps to see your lender as an astute and helpful business partner who wants to ensure you are in the best possible position to manage your loan.

When your loan is declined, look at this as an opportunity to strengthen and improve your position so you will get the right loan package for your needs, you can make repayments comfortably without any additional financial pressure, and the property will build into a good investment for you.

For most people, buying a home or an investment property are the biggest financial investments of their lives.

A mortgage broker can help streamline the costly and confusing process, while saving you valuable time and money.

Here’s how:

Simplifying the home loan process

While this is an overwhelming first-time experience for you, your mortgage broker can efficiently guide you through the entire process, from the application to the property settlement.

With their assistance, you can handle all the complexities of paperwork and legal details. They can also give you the right advice to ensure your application is approved promptly.

As a result, you have the peace of mind of delegating the process to an expert who will keep you informed every step of the way.

Fast comparisons

With so many banks and lenders offering different deals, it can be difficult to figure out which is the right loan for your situation.

While a bank will only promote their own products, your mortgage broker has the experience and the contacts to compare a wide range of lenders and products, to identify the right package for you, based on your individual situation.

They can decipher the financial jargon for you and explain the pros and cons of various home loan features, so you can confidently make an informed choice.

Direct service

As your mortgage broker regularly works with various lenders, the application process can be several days faster than going to a bank directly. Best of all, you are dealing with one point of contact, rather than whichever member of the bank’s credit team takes your call.

This gives you the benefit of securing the loan features that are best for you, based on your circumstances.

Better value from your property investment

When an expert oversees your choice of loan, you reap the long-term benefits of better interest rates and the right flexibility for your personal situation.

The right loan can take years off your mortgage while cutting down your interest payments.

In comparison to the significant savings, the cost of a mortgage broker’s fee is negligible. In the US and UK, mortgage brokers charge around 1-2% of the total loan, while in Australia, mortgage brokers are paid by lenders so there is no cost to the client.

Specialized assistance

If your situation is a little more complex than a standard home purchase, a specialized mortgage broker can help you through the process.

Whether you need assistance with property investing, commercial properties or a hobby farm, there is a mortgage broker who knows exactly how to help you.

There are also mortgage brokers who specialize in assisting people with individual challenges that might deter lenders, such as bad credit, non-residential status or contract employment.

Do you know when your fixed rate term is coming to an end?

Once it finishes, the bank is free to quietly switch you to a higher interest rate – unless you act fast!

Think of how costly it could be if you simply let the bank choose your interest rate.

If your bank charges you just 0.5% more than the competitive interest rates, this adds up to a significant amount over the term of your loan.

You can save yourself a great deal of money and perhaps even cut years of your loan, if you are proactive about monitoring your interest rates and choosing the right option for you.

Switching to a variable rate

A variable rate can be a great option if you want to take advantage of low interest rates, or if you want the flexibility to redraw or make extra payments.

When your fixed rate term expires, the bank will automatically switch your loan to the Bank Standard Variable Rate (BSVR).

Do some research to find out whether this is a competitive rate; if not, you can talk to your bank and try negotiating a better deal. And if they do not offer you a competitive rate, you can switch lenders.

Lenders generally prefer to negotiate rather than lose a customer, while they don’t generally make their best offers to customers with a proven history of loyalty.

So when it comes to your interest rate, stay alert and ask questions – keep your lender busy, trying to keep you happy!

Extend your fixed rate

One option is to ask the bank to refix your home loan, extending it for another one, three, five to ten years.

The fixed rate is a good option for you, if you are planning to pay off your loan steadily over a long period of time, and you want each mortgage payment to be a regular amount so you can budget your money precisely.

Fixed rate protects you from rate rises and you could be paying less than the variable rate.

However, there is also the risk that you could end up paying higher than the market rate if you are locked into an outdated fixed interest term.

There may also be a break fee if you change or pay off your loan within the fixed period; this means the fixed rate is not a good option for anyone planning to sell their home.

According to numerous media sources QUEENSLAND is on the cusp of a property boom that could lead prices to skyrocket by more than 20 per cent in some areas and last for years to come.

Fears of a real estate Armageddon in the wake of the pandemic have been replaced with a surge in confidence in the Brisbane and Sunshine Coast’s housing market, driven by an exodus to lifestyle and affordability, infrastructure spending and cheap money.

Buyer demand is at an all-time high and suburb sale-price records have been smashed since COVID-19 took hold in March, while the state’s southern counterparts are languishing. 

Interstate migration from southern states is ramping up.

New data from CoreLogic, analyzed by Finder, has found the number of house sales in Brisbane jumped 21 per cent in just one month in July, and rose in value by nearly 23 per cent to a staggering $1.4 billion — a bigger rise than in any other capital city.

Low interest rates, government stimulus and a bounce in confidence are expected to mitigate the risks imposed by higher unemployment.

Economists at Westpac who were forecasting price falls of 10 per cent at the start of the year are now predicting a 20 per cent rise in Brisbane property prices over the next two years — the highest of any capital city.

ANZ has also reversed its negative COVID predictions and is predicting growth 9% pa growth for Brisbane.

Catherine is visiting Brisbane this week looking for good options for WFS clients.  If you want to find out more about some great investment opportunities email her catherine@wfscanberra.com.au

Read more via the link below.

https://www.realestate.com.au/news/brisbane-house-prices-to-jump-95pc-in-2021-anz/?rsf=syn:news:nca:news:spa

This article is written by our WFS Melbourne Director, Tax Accountant and Mortgage Broker – Abby Morphett.

abby@wfsmelbourne.com.au

You’ve heard the term PSI, but you’re unsure whether it applies to you or what it actually is?

In a nutshell, PSI or Personal Services Income is income you derived from your personal efforts and skills.

An example would be IT Consultants and plumbers. An example of what is not PSI is someone who sells goods.

If you provide personal services but you have decided to structure your business as a company for the tax benefits, the ATO has a number of test you have to satisfy in order to be able to take advantage of this structure.

This is where is can get a bit tricky.

Structuring your business as a company might seem like the best way to go so you pay less tax at the small business tax rate where the personal tax rate could be up to 46.5%. 

An example of this is if you derived $200,000 income as an employee you pay $64,667.00 in marginal tax* and as a company you pay $55,000.00 in tax*.

But if the PSI rules apply, you would be treated as an employee in the eyes of the ATO, company or not.

Meaning you pay the higher tax rate (if applicable) and you are unable to benefit from the deductions (such as; immediate write off).

However, there are some tests that the ATO recognizes that enables you to take advantage of the different business structures.

Results Test

The results test is where 75% of your income comes from producing a result, with your own equipment or tools and you are responsible for rectifying any defect in your work.

What does a “result” mean?

If you were an IT Contractor and the government gave you a contract to complete a “job” for a set rate. Such as; designing a new security system for internal processors for $150,000K – that would be your result.

If you are on a pay by the hour contract you likely won’t satisfy this test, even if you are working towards a result and you still need to satisfy the remaining 25%.

The 80% Rule    

If 80% of your income comes from one client, you will not satisfy this test, and the PSI rules apply (meaning you can’t take advantage of the company tax rate or immediate write off).

Therefore, even if you work for a labour hire company you will not pass this test.

If you satisfy this rule, there are additional rules to check the unrelated clients test, the employment test, and the business premises test.

These rules can be somewhat confusing, and the best option is to talk to your accountant.

HR professionals and business leaders find themselves in uncharted waters as they navigate the changes that COVID-19 has forced upon organizations around the world.

Their key priority is to look after employees.

Today, this mission involves a new challenge: honoring workplace compliance laws that are constantly shifting amidst the global turbulence.

Unfortunately, many Australian organizations struggle to abide by workplace regulations – even at the best of times.

In March 2020, the Fair Work Ombudsman released findings from its national audit of 1,217 businesses.

Surprisingly, nearly half of all respondents failed to adhere to the basics of workplace compliance laws (such as paying staff correctly).

Fair Work inspectors issued: 24 on-the-spot fines totaling $32,980 in penalties; 457 contravention letters; 56 formal cautions; and 47 compliance notices. Organizations that breach HR compliance regulations – whether deliberately or inadvertently – face fines, legal expenses, increased employee turnover and brand damage.

Throw a health pandemic into the mix, and the job for HR professionals becomes notably more challenging.

However, while staying on top of regulation changes is difficult, there’s no excuse for non-compliance.

This checklist is for business leaders who want to protect their employees and avoid penalties by meeting all compliance obligations.

For ease of use, we’ve broken this checklist into several key sections, each of which addresses a specific focus area.

 Below is a summary of these sections:

1. Employment laws in Australia

2. Returning to the workplace

3. Working from home (when possible to do so)

4. Payment and leave entitlements

5. Changes to working hours, location or duties

6. Standing down employees or ending employment

If you would like to know more about HR compliance and/or receive a detailed checklist for the above categories please contact our Tax Team Manager – Chris McGuigan at WFS.

chris@wfscanberra.com.au

There are a bewildering variety of home loans available, and it can be confusing to figure out which type of home loan is the best for your circumstances.

However, when you know the pros and cons of each type of loan, you can make a decision that will fit best with your financial situation.

Fixed Rate Home Loan

A fixed home loan offers an interest rate that is fixed for a set period of time – usually 1, 3 or 5 or 10 years.

The key benefit is the ability to budget, knowing exactly how much your repayments will cost each time.

However, a fixed loan doesn’t have the same flexibility as other loans – you will encounter restrictions if you want to make additional repayments, such as fees or capping to a low amount.

You might also be disappointed if interest rates drop dramatically and you are still paying the same fixed rate.

This is a good option if you want to make steady regular payments and you intend to stay in your current home throughout the term of the loan.

It is not such a good option for someone who wants to move to another property in the foreseeable future, or who wants to cut down on the term of their loan.

Variable Rate Home Loan

A variable home loan is far more versatile, with the option of making extra payments at no extra cost, enabling you to pay the loan off sooner.

Your loan might also offer unlimited redraws, so you can access money in an emergency. Another positive feature is the offset account, a transaction account linked to your mortgage account which reduces your interest payable.

This is a good option if you want to invest the maximum into your mortgage, with the freedom to redraw in an emergency.

However, as the interest rates will vary from payment to payment, it is not such a good option if you struggle to budget for unpredictable changes in the loan repayments.

Split Loan

The split loan offers the advantages of both fixed and variable loans.

You can split your loan into any proportion you wish – 50/50 or 80/20.

One of the benefits of the split loan is that payments will gradually decrease, as the steady fixed rate payments lower the amount of the loan, so that the variable payment is proportionally lower at times when interest rates rise.

Interest Only Loan

With an interest only loan, you pay only the interest on the loan for the initial term, usually from one to five years.

Your monthly repayments are considerably lower, although this is because you are not reducing the principal of the loan.

At the end of the interest only term, your repayments will rise as you must start paying both interest and principal.

This can end up being an extremely expensive option if you are not sure what you are doing.

However, investors tend to choose interest free loans, as they can take advantage of low repayments over a set period, before they resell the investment property.

Low Doc

The low doc loan has lower requirements for proof of income and credit rating, yet they also require a higher deposit and charge higher interest rates.

For someone with a unstable credit history or employment background, the low doc loan will be difficult to pay off.

While this option can be popular with self-employed people, who don’t have the same level of documentation to prove their income, the excessively high interest rate generally makes it a bad long term choice.

If this is your only option for a loan, your best alternative might be to wait until you can be approved for a different type of loan.

If you are struggling to keep up with multiple credit repayments – credit card, car loan and mortgage – one option for simplifying the issue is to consolidate all the debts into your mortgage.

However, there are also potential negative consequences for consolidating all your other debts with your home loan, so you should consider this strategy carefully and ask for independent advice before making a decision.

So what are the pros and cons of debt consolidation with your mortgage?

Pros: Shifting from multiple payments to one payment

When you consolidate your debt, you only need to make one regular payment, so your finances are more organized and you don’t have the stress of doling out minimum payments to multiple lenders.

Once you have streamlined your repayment plan, you may even be able to increase the amount of that one repayment.

Lower interest rate

Multiple debts is equivalent to multiple interest rates, yet when you consolidate all these debts, you are only paying interest on one loan, which is generally at a lower rate than before.

This is an automatic saving.

With one interest rate and one regular payment, your monthly payment will probably be much lower than usual, giving you the option of increasing the amount of your regular repayment to get on top of the loan faster.

Cons: Reduces the equity in your home

Unlike your car and the items you purchase with your credit card, your home is an investment which will appreciate in value.

Your goal is to increase the equity in this asset for your own financial security. Yet when you combine your home loan with your other debts, you are reducing your equity without any increased value of assets to balance it out.

Risking your secured loan

Another difference between a mortgage and your other debts is that a mortgage is a secured debt – if you can’t pay it, the lender can take something from you in lieu of the debt.

In contrast, if you cannot make your credit card payments, it will affect your credit rating and your ability to get another credit card but it won’t have a significant impact on your overall security.

Consolidation loans are also secured loans. When you consolidate all your debts into your home loan and then cannot manage to make the repayments, your home is at risk.

More costly in the long term

While your minimum monthly repayments may be reduced in the short term, your long term debt may be increased.

For example, if your car loan was taken over a five year term and then consolidated into your 30 year home loan term, then the interest on the original car loan will actually be increased so you are ultimately paying more for your car.

Debt consolidation can be a valuable tool for some borrowers, but can be difficult for others.

If you are new to Australia and looking to establish a comfortable, settled life here, then sooner or later, you will naturally consider buying property, either as an investment or a home for your family.

So there are a few things you need to do in preparation for your first property purchase.

1. Find steady employment

When you eventually want to apply for a loan, the first thing the bank or lender will investigate is your employment history. They want to see that you have are securely settled in a job with regular pay. From the financial point of view, of course, this is also the best way to start saving!

2. Start saving

It’s never too soon to start building up your savings towards your property. Set a firm, yet realistic budget and create a steady savings routine. This will not only build up your funds for a deposit and all the additional costs, it will also demonstrate to lenders that you are committed to the financial responsibility of buying a property.

3. Apply to Foreign Investment Review Board for approval

Your visa and citizenship status may affect whether you are eligible to purchase property in Australia. So if you are keen to own a home, contact the FIRB to learn whether you have permission to purchase real estate.

4. Research all your expenses

There are numerous one-off costs involved in buying a property, such as conveyancing fees, stamp duty and inspection fees. Calculate all these fees into your budget, so you are not overloaded with unexpected expenses when you are finally ready to buy.

5. Reduce your debt

While you are paying off debts, it can be difficult to concentrate on saving for a deposit, and lenders may be less keen to approve your loan. Your best option is to reduce all your debts as much as possible, so you can concentrate on the important task of building your savings. When you are shopping for a loan, declare your debt, including any foreign debt, so you secure a loan you can pay off.

6. Secure pre-approval

Pre-approval is when a bank or other lender says they are willing to approve you for a loan at a later date. This is useful if you want to show sellers that you are serious about buying their property and that you can secure payment. It also gives you a clear idea of exactly how much you can spend on a property and how much you will need to borrow, based on the amount of your pre-approval. You can apply for pre-approval from a lender, or you may receive an unsolicited offer.

7. Get to know your mortgage broker

A mortgage broker acts as an intermediary between you and the lenders, helping you fill in paperwork and secure the best deal for your circumstances. Your mortgage broker can answer all your questions, and help you evaluate all your options.

8. Find your dream property!

Finally, you reach the fun part – you have the funds and the support team to make your dream a reality. Now you can start searching for your perfect home. Make a list of the most important attributes of your dream home – number of bedrooms, house or unit, proximity to public transport or schools – so you can recognize it when you see it.

If yes, do you know what expenses can you claim as tax deductions?

If yes, do you know how much ?

We know that tracking these expenses can be challenging, so from 1 March to 30 June 2020, the ATO has introduced a temporary shortcut method to make our life easier.

It’s a simple way to calculate these expenses with minimal record keeping requirements.

In most cases, if you are working from home as an employee, there will be NO capital gains tax CGT implications for your home.

There are 3 ways of calculating home office expenses depending on your circumstances.

The methods are the:

Shortcut Method (80 cents) – Only available 1 March to 30 June 2020

Fixed Rate Method (52 cents)

Actual Cost Method

For the shortcut method, you can choose to use this rate if you are working from home to fulfil your employment duties and you have incurred additional running expenses as a result of working from home.

The shortcut method covers all your work from home expenses, such as:

Phone Expenses.

Internet Expenses.

The Decline in Value of Equipment and Furniture.

Electricity and Gas for Heating, Cooling and Lighting.

If you use this method, you can’t claim any other expenses for working from home.

You don’t need to have a dedicated work area to use this method. However, you must keep a record of the number of hours you have worked from home.

This could be a timesheet, roster, a diary or documents that set out the hours you worked from home.

Stay tuned for more information on the other two methods.

DID YOU KNOW that if you are earning more than $90,000 (single) or $180,000 (couple) and do not hold an appropriate level of private patient hospital cover, you might be liable for an extra tax of up to 1.5% of your income?

This is called the Medicare Levy Surcharge (MLS).

The MLS is designed to encourage these people to take out private patient hospital cover and use the private hospital system to reduce demand on the public Medicare system.

Contact us today to find out how you can avoid paying the Medicare Levy Surcharge or to compare your private health cover to see if it remains competitive in terms of pricing and service offering.

6162 4546

Taking out a home loan is a huge financial commitment and it is particularly important to choose a loan that suits your needs, so you can make repayments on your terms without worrying about hidden fees or excessive interest.

Yet it can be bewildering to navigate all the different loan options available and pinpoint the loan that is best for you.

It is important to keep in mind that lenders are determined to minimize their risk so for every benefit they offer to make the loan seem enticing, there is always another fact protecting their investment.

So you need to look at the loan package as a whole rather than being drawn to one particular feature.

Choose the right structure for your circumstances

You need to consider your financial needs and your plans for the property as you want the loan’s features to cater to your circumstances. For example, you will require different features and flexibility from your loan if the property is to be a family home rather than an investment, your first home or second home, or if you are planning to renovate. You also want a loan that is compatible with the size of deposit you can afford. Most lenders will only agree to lend 80% of the value of the property unless you agree to pay lender’s mortgage insurance (LMI) which can be expensive.

Additional payments without fees

One key feature to look out for is the ability to make additional payments at no extra cost. This enables you to make faster progress on your mortgage, and gives you the flexibility to pay more if you happen to have extra funds, such as an annual bonus from work. A home loan that penalizes you for making extra payments is apt to be more costly in the long term.

Flexibility to adjust interest rate

It is also useful to know that you can adjust your interest rate or split your loan at no extra cost if your situation or the market changes. You don’t want to be penalized financially for seeking out a more suitable loan structure.

Communication

Ultimately, you need strong communication and a trustworthy relationship with your lender to ensure your home loan matches your needs, and that you can change your options as your circumstances change. Alternately, you can discuss your loan requirements with a mortgage broker who will stay one step ahead of the market and help you find the home loan that is the best fit for you.

An offset account is a bank account linked to your home loan.

Rather than accumulating interest within the account, the money in the offset account is offset daily against your mortgage, reducing the interest payable on your mortgage.

For example, if you have $20,000 in your offset account and a mortgage of $400,000, you will only be charged interest on $380,000 rather than the full $400,000.

This can drastically reduce the length of your mortgage and the amount you need to pay in the long term.

Tax free interest

As you are not earning compound interest from the money in the offset account, you are not liable to pay tax on that money. Instead you are increasing the equity in your property.

Flexibility

As the mortgage account is like any other transaction account, you can deposit and withdraw funds such as your salary without incurring access fees. As the offset amount is calculated daily, you can keep a lump sum in the account for emergencies while reducing interest on your loan.

However, some lenders do place restrictions such as minimum transaction amounts and withdrawal fees which could end up costing more than the interest you save.

Is the offset account for you?

The people who benefit most from offset accounts are those who can keep a significant sum of money in an accessible account over the long term. If you are instinctively a saver, an offset account is preferable to having to pay tax on interest, as you are making significant gains through equity.

It also gives you a flexible alternative to paying extra money directly into the mortgage, as you can still access the funds quickly and without penalty in case of emergency.

Even having your salary deposited into your offset account ensures that for one day at least you will reduce the interest payable on your mortgage for that day.

However, if you are only keeping a small minimum balance in the offset account, the interest savings will not be so significant.

Do your own research

Talk to your mortgage broker or financial advisor about whether an offset account would be suited to your current circumstances. And before opening an offset account, make sure you are fully aware of any fees or conditions that may have a negative impact on the long term benefits.

You are established in your home and ready to dabble in some investments, yet you are a little daunted by the responsibility of owning two properties.

How do you know when conditions are right for you to purchase a second property?

If you are like most one-property owners, you might visualize a few obstacles preventing you from purchasing a second property.

So let’s look at some of these obstacles and see if there is a way around them.

Don’t let market conditions dictate your decision

Many buyers find themselves in limbo waiting until interest rates and housing prices are “just right.” While this is a positive opportunity to continue saving and build equity in your existing property, it can also be counter-productive if the ideal conditions never eventuate.

Property investment is about long term capital growth, and you can only start that growth process once you make the purchase.

An alternative to paying off existing property

Property owners can also be inhibited from buying a second property because they are focused on paying off their existing home first. However, if you are looking at your property portfolio from the investment perspective, it is worth calculating your options here, as a second property can considerably increase your overall equity.

While paying off your first home first may seem like the more secure option, investing that money into a second property can be more profitable, thereby increasing your financial security.

Your own financial situation

Ultimately, the best time to purchase your next property is when you are financially capable of managing a second mortgage. Ideally, you should have at least a 10% deposit available (plus closing costs), through cash or equity or a combination of both, with additional capital to cover any rise in interest rates, emergency maintenance or loss of income in between tenants.

Talk to your mortgage broker to assess your options, so you know how to make best use of your equity, what sort of loan you can apply for, and how much the repayments should be to fit your budget and achieve your investment goals.

A property with profit potential Besides capital, the other factor that signals the best time to buy is when you find a property within your budget with high and safe returns. Look for a property with great rental potential for its area, so you can be confident of a regular rental income.

Property investment is never an impulsive decision – it will take intensive research and budget calculation to find the property that covers all your bases.

When you find that property and have the capital to cover your investment expenses, then you have narrowed down the right time to purchase your second property.

A bit of extra cash is always welcome, and chances are, refinancing your home loan can be a way to pocket serious savings.

Not only it could save you tens of thousands of dollars over the life of your loan, but it could also help you pay off your home loan sooner.

Especially at the time when the interest rate is at its historical low, and banks are offering cashback to help you to refinance, there is no better time to refinance. We are also offering a $500 cashback for refinance.

Switching to a loan that’s better for you should be simple, not stressful.

Also, see below the rates offered by our lenders

Contact us to see how we can help you refinance your home loan.

When you are choosing your home loan, there are a wide range of optional features to improve the value of your loan. However, it is important to ensure you choose features which contribute to your overall goals. Your mortgage broker or financial advisor can help you select the right goals for your needs, but it helps to do some research so you know which features are most suited for your circumstances.

Interest Only Repayments

With this feature, you only pay the interest on the loan rather than the principal for a set term at the beginning of the loan. This term could be from one to five years although it could be longer. This feature keeps your repayments low, and is suited to investors who intend to sell the property once it increases in value.

Extra Repayments

This feature enables you to make additional repayments, so you can reduce the principal of the loan more quickly, reducing the amount of interest you need to pay over the life of the loan. This is a good option for someone paying off a primary residence, as you want to pay off the loan as efficiently as possible, and save money by lowering interest payments.

Weekly or Fortnightly Repayments

While most loans are based on monthly repayments, you can choose the option of making weekly or fortnightly repayments. This feature is suited to people who are paid on a weekly/ fortnightly basis. As you are making more regular repayments, you will reduce the loan more efficiently, reducing interest.

Redraw facility

This feature provides access to the funds from any extra repayments you have made. However, you do need to ensure that this feature often includes restrictions such as a redraw fee and a minimum redraw amount.

Salary crediting

With this feature, you can deposit your salary directly into the mortgage account. This is a good option for someone who is not disciplined at making repayments independently.

Repayment holiday

This feature enables you to take a “holiday” from your mortgage responsibilities by either reducing or stopping repayments for a set period. This is a useful feature if you anticipate an interruption to your income, such as a change of job, illness or maternity leave. However, interest will accumulate during your “holiday” adding to the overall cost of your loan, so this feature should only be used in times of real need.  

Offset account

An offset account is a bank account connected to your home loan. The funds in the account will offset the interest calculation against your overall loan, reducing the interest you need to pay.

Direct debit

This feature gives you the convenience of automatic withdrawal of your repayments from a nominated bank account. You only need to monitor the balance of your bank account to ensure you can cover the repayments. 

All in one home loan

An all-in-one home loan is combined with a cheque, savings and credit card account. This gives you the option of having your salary paid directly into the account, and the available cash in your account offsets your mortgage, reducing your interest charges. However, this option requires a great deal of financial discipline to ensure you continue to make the required mortgage payments.

Loan Portability

Once you find the right home loan package, you might want to keep all the same features and benefits. The loan portability feature enables you to sell a property and then transfer the loan to another property. This will also save you set up fees, as well as saving you the time and effort of setting up a new loan, although there may be other fees.

Choosing the right loan features for your circumstances can make a huge difference to how quickly you pay off your home loan. Ask your mortgage broker what other loan features might be right for your real estate goals.

Research the loan market

By researching the market, you will be able to make informed decisions based on the broker’s recommendations. A mortgage broker has access to a panel of lenders, so they can draw your attention to loan options that might not be available to you directly.  However, you are better equipped to assess a mortgage broker’s recommendations if you have done your own research into the market. When you can assess a broker’s recommendations independently, you can work out from the beginning whether these recommendations are well suited for your circumstances in comparison to other options on the market.

Research a range of mortgage brokers

Mortgage brokers having varying areas of expertise and they can also charge clients in various ways. You need to find a mortgage broker with the expertise to give you valid advice, and you also need to understand how the broker will be paid for his services. Explain your personal situation, including your financial standing and your investment goals.  Find out whether you need to pay any fees or whether the broker is paid wholly by commissions. If the broker is paid by commission, you need to assess whether this will influence their recommendations.

Check their qualifications and experience

Look up the qualification requirements for mortgage brokers in your area, and make sure your mortgage broker has the correct credentials. Unfortunately, you will find that some mortgage brokers set up business without the appropriate qualifications. Find out how long the broker has been in business, and ask to look at their lender panel – these are the lenders on the broker’s list and this will give you an idea of.

Explain your needs

Ask each mortgage broker about their experience in relation to your specific type of loan. Different mortgage brokers specialize in different financial situations, such as home loans or investment loans. Also, if your financial situation raises red flags with lenders – for example, if you are self-employed or a contractor – you need a mortgage broker with the expertise and the network to help you find a lender who accepts these financial circumstances. 

Ask for written confirmation

Your mortgage broker should give you a written report, outlining recommendations, and the reasoning behind each option, along with details of fees, products and commission. This way, you can take your time to assess each recommendation, and you have a written record of what you were promised.

Check their complaints process

It doesn’t hurt to think ahead! Just in case you later have a complaint about your broker, check out their complaints procedure to see if they are connected to an approved external dispute resolution scheme. This connection demonstrates that they will be held accountable for any poor service, giving you extra peace of mind that a potential dispute will be handled professionally.

Communication and Rapport

You need to feel comfortable talking to your mortgage broker, and maintain the confidence to ask questions and follow up if you still don’t understand something. If you feel awkward or confused, or if you aren’t comfortable asking questions, then this mortgage broker might not be the right fit for you. When you are making major financial decisions, you want to feel confident that you are fully informed and when you ask questions, you will receive prompt and detailed answers.  

An essential element of property investment is finding the loan that will support your investment goals. Here we look at some strategies that can be particularly beneficial for property investors.

Research a wide range of lenders

You don’t need to limit yourself to your local bank’s latest deal. Research as many lenders as possible to learn more about their loan products. A mortgage broker can simplify the search process for you, and make recommendations based on your financial situation and investment goals.

Choose the loan features that support your investment strategy

Different loan features support different strategies. If you are setting up a rental income, you will look for different features than someone looking for capital gain.  Interest-only loan repayments can reduce the amount you need to spend on your investment, while an offset account can be used to save up for the next investment property. Your mortgage broker can help you work out which loan features are best for your goals, so you can find the loan right package.   

Fixed or variable interest rate

A fixed rate can simplify your budget, as you won’t have fluctuating repayments as interest rises and falls. However, if you plan to sell the property, keep in mind that selling it during a fixed term can incur costs. A variable rate can give you access to 100% offset facilities. If you want to protect yourself from excessive rate rises, yet keep the advantages of a variable rate, you can opt for a split rate which combines a portion of both.

Revaluation options

Your property will keep appreciating in value, and regular valuations gives you access to the increased equity, which you can use to expand your portfolio further. Before choosing a loan, ask if the lender will allow you to do this, as not all loan agreements permit this practice.     

Credit facility

If you are planning to renovate and resell the latest investment purchase, you could benefit from a credit facility feature with your loan, as this will provide the funds to pay for your renovations.    

Still not sure?

With so many loan options available, it can be overwhelming to figure out the right loan features for your specific needs. Speak to your mortgage broker and financial advisor to figure out which features will help you achieve your investment goals.

Generally, when we refer to investing, we see this as putting time or effort into something that will provide a long-term benefit, such as an education or developing skills in some way.  

When we talk about financially it’s more often with the view of investing money and often comes with the expectation of generating an income or profit with a long-term benefit.

The long-term benefits of investing are often with the goal of achieving the lifestyle you want to live. As advisers, it’s our hope that for most investors, growing their investments and savings isn’t about getting rich quick but about creating financial security and freedom to choose the life they want to lead – to put them in control.

With all the turmoil and uncertainty, we’ve experienced in the world in 2020 we thought it may be a great time to revisit the basics on different types of investments.

Share markets are moving constantly, there is much in the media around property prices dropping and cash rates are certainly not attractive in the long term. But all investments can have their place on your long- term wealth plans. 

Shares

One of the most well-known types of investments are shares. Put simply, when you buy a share you are acquiring a small piece of ownership in a company.

You may have also heard shares referred to as stocks, and although they are often used interchangeably, there is a small difference.

When a company sells a portion of its ownership, it does so by issuing stock. The stock in a company is then divided into shares.

As you own part of the company, you are also entitled to part of the earnings of that company.

Profitable companies may therefore pay dividends, which is a way of distributing the earnings of the company to its shareholders.

In Australia companies pay a large proportion of their earnings out in dividends compared to many other countries in the world.

You can purchase shares through a share market, which is essentially one big auction house, where buyers and sellers list their respective buying and selling price, and when agreed upon pass on ownership of shares.

In Australia the main exchange is the Australian Securities Exchange (ASX).

Just to confuse you, the share market can be referred to as both the stock market and stock exchange, but this is just finance people enjoying having different names for the same thing.

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Bonds

Put simply, a bond is a loan.

When a company or government needs funds, they may issue bonds to borrow money.

When you buy a corporate bond, you are lending money to that company for a set amount of time in return for regular interest payments. As well as the interest payments, your initial investment will be repaid to you on a pre-determined date, known as the maturity date.

Think of it like taking out a loan from the bank, except the roles are flipped, with you paying the principal upfront and then receiving the interest payments.

Bonds, like cash, are considered a more defensive investment since they provide you with a predictable income.

Because there is more risk involved, bonds typically pay a higher interest rate than cash investments like term deposits. For example, if the company or government that issues the bond runs out of money and defaults on the loan, it’s possible you won’t get back the full amount you invested.

Lending money to governments is safer than lending money to a company, and as such government bonds generally pay lower interest than corporate bonds.

Some bonds can be traded on the share market, and there are even ETFs that track bond markets.

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ETFs

ETF stands for an Exchange Traded Fund.

An ETF is essentially just a basket of different shares that are pooled together into a single financial product that can be traded on the share market.

ETFs often track an underlying well-known index. An index is a hypothetical portfolio of shares that tracks a segment of the financial market.

The S&P/ASX 200, for example, tracks the performance of the 200 biggest company stocks in Australia.

So, an ETF that tracks the ASX 200 index will comprise the shares from those 200 companies and change in value in line with the index.

One of the main advantages of ETFs is that for a low cost they give you exposure to many different companies, diversifying your investment.

ETFs aren’t limited to tracking just the share market, and are available for many different types of assets, such as bonds, cash and commodities.

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Property

Investing in real estate has a unique position in the investment field.

Unlike the above investments, property is a physical, tangible object that you can see and touch.

Demand and supply for property is the main driver of real estate prices. There are many factors which influence the demand for property, but location is the main one. The main factor that affects the supply of property is unemployment.

Property investing is well understood by many. In Australia and many parts of the world there is a belief that property prices always rise. However, this may not be true and because there is no exchange where properties trade daily, their price is less transparent.

The downfall of property is the high entry and exit costs and having to pay interest if you need a loan to acquire the property.

The other downfall is the cost of maintaining the property. These costs create the possibility to lose money if your interest payments and maintenance costs are less than the income you earn from the rent and capital appreciation of the property. Property is also a highly illiquid asset, which means it’s difficult to convert the assets you own into cash.

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Cash

Cash is what you keep in your bank account.

It represents the low risk, low reward option of the investment world.

In Australia, many cash deposits are guaranteed by the government, so they are very low risk.

When we talk about cash as investments, we focus on high interest savings accounts and term deposits. Term deposits are bank accounts where you cannot touch your cash for a specified number of months and usually receive a higher rate of interest.

The advantage of keeping money in cash is that it provides certainty (as long as the Australia government can pay) that you will get your money back when you need it, however this comes at the cost of low returns, which can be very low.

Currently we are living in a record low interest rate environment, with most of the interest earned from cash investments being wiped out by the increasing cost of living.

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Where To From Here?

If you’re uncertain about where any of these investments fit within a well-diversified portfolio or you simply want to review your current holding we invite you to meet with our financial planning team to make sure that in looking at your assets the following are considered.

1. Your tolerance to risk
2. Your time frame for investing
3. Your goals when investing
4. Any income required from your investment
5. Any tax issues

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When you are searching for the perfect property, it can be challenging to work out exactly how much you should be paying. Rather than relying completely on the word of others, you can develop your own strategy for valuing a property, so you have a better independent idea of how much it is really worth.

1. Make a comparison search

Property sales are in the public domain, so you can research your chosen area and make a list of five comparable properties that have sold within the last six months. To ensure the properties are comparable, make sure they are within a kilometre of your target property, and that they have similar features, such as the same number of bedrooms, bathrooms and car spaces, and a similar land size. Also make a note if any property has additional features such as a pool, or whether it is more conveniently located in relation to amenities such as schools and transport. Do not include properties that have not yet sold, as the advertised price is not a true indication of how it will sell.

2. Rank your list

Once you have a short list of comparable properties including the one you are planning to sell or buy, rank each property in order from “Most Desirable” to “Least Desirable.” Try to be objective in this exercise, looking at the land size and location, rather than whether you prefer one garden to another. Proximity to schools is a plus if you are valuing a three or four bedroom home, but less of a concern for a one or two bedroom home. Buyers tend to be drawn to properties with newly renovated kitchens and bathrooms, so keep this in mind when ranking your properties. Your ranking from most to least desirable might not tally with the ranking from most to least expensive – this will give you an idea of what features are important to people buying into the area.

3. Adjust for market movements

Now you have placed your target property within a list of five comparable properties so you can see where it stands in the price range between the most expensive and least expensive properties. However, the market may have shifted within the last six months from hot to cold or back again, since the first property was sold, so you will need to adjust for current market conditions. Once you have adjusted, you should have a clear idea of how much your target property is currently worth, based on its place in your ranking list.

4. Check your figures

You can back up your research by checking the median house price for the suburb in question. The Domain real estate website will also show the discounting percentage for a specific area, which is the average discount below the agreed listing price. For example if a house listed at $1 million sold for $900,000, then the discounting percentage is 10%.

Contact us today if you need assistance assessing the value of a particular property.

+61 2 6162 4546