Irish Company, MFO The Property Professionals, held a Client Appreciation Event on Friday 28th September in the Fitzwilliam Lawn Tennis Club, Ranelagh, Dublin 6 to celebrate 10 years in business.
Close to 150 clients and guests joined business partners Mr. Marcus O’Connor (Managing Director of MFO The Property Professionals) and Mr. Paul Huberman (Owner of H&H Property Management and Consultants LTD) for an afternoon and evening of celebration.
Distinguished guests and speakers included the Minister of Housing, Planning & Local Government, Mr. Eoghan Murphy and Rugby Legend Malcolm O’Kelly who capped 92 times for Ireland as well as being selected twice for the British & Irish Lions tours, was part of the Grand Slam winning team and 5 Triple Crowns.
The landmark event marked the culmination of 10 years hard work at MFO The Property Professionals. Managing Director, Marcus O’Connor said “We are enormously proud of what we’ve achieved over the last 10 years. Since our conception in 2008 at the peak of the recession we have understood that in today’s market things happen quickly and our systems, people and levels of service have to be better than our competition and we strive to listen and react more rapidly to our clients’ feedback.”
“We have enjoyed the support of some amazing and loyal clients through the years, be that in residential lettings, management, sales and commercial sales and lettings. We set up, survived and succeeded and this event was a way to thank our clients for their continued support and demonstrate our gratitude and appreciation.”
“At MFO The Property Professionals we provide total peace of mind for our clients who rest confident in the fact that we only employ excellently trained staff who carry out tasks for our clients with a sense of urgency and get the job done every time”. We continue to set the standards for the future and are very passionate about people and their property.
If you would like to hear more about how MFO The Property Professionals can transform your letting, management or sales experience, and deliver every time for all our customers, email firstname.lastname@example.org or phone 01-4979050 or visit our website www.mfo.ie
If you’re not familiar with Charlie Munger, he’s Vice Chairman of Warren Buffet’s Berkshire Hathaway.
Munger is probably the most quotable investor of all time. Sometimes what he says is hilarious. Sometimes it’s serious. But it always gets you thinking.
At the 2008 shareholder meeting, Charlie Munger criticized his physique, said ethanol was “one of the dumbest ideas in the history of the world” and then fell asleep on stage. In front of 40,000 people.
This is why people love him.
Mogran Housell of Motley Fool shared 30 awesome things he’s has said over the years.
Here are a few:
Munger’s rule of investing: “When any guy offers you a chance to earn lots of money without risk, don’t listen to the rest of his sentence. Follow this, and you’ll save yourself a lot of misery.”
On patience: “Almost all good businesses engage in ‘pain today, gain tomorrow’ activities.”
On derivatives: “The world of derivatives is full of holes that very few people are really aware of. It’s like hydrogen and oxygen sitting on the corner waiting for a little flame.”
On reality: “I think that one should recognize reality even when one doesn’t like it; indeed, especially when one doesn’t like it.”
On trusting others: “If you don’t allow for self-serving bias in the conduct of others, you are, again, a fool.”
On legacy: “To the extent that all I’ve done is pick stocks that have gone up and sat on my [behind] as my family got richer, I haven’t left much contribution to society. I guess it’s a lot like Wall Street. The difference is, I feel ashamed of it. I try to make up for it with philanthropy and meetings like this one today. This meeting is not out of kindness. This is atonement.”
On pundits: “People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts.”
On accounting: “To say accounting for derivatives in America is a sewer is an insult to sewage.”
On math: “Mankind invented a system to cope with the fact that we are so intrinsically lousy at manipulating numbers. It’s call the graph.”
On finance as a career: “A big percentage of Cal-Tech grads are going into finance. I regard this as a regretfully bad outcome. They’ll make a lot of money by clobbering customers who aren’t as smart as them.”
Linda Barker – the interior designer known as one of the stars of Changing Rooms – has her wonderful home listed for sale on Rightmove.
The British TV presenter is selling Stradbroke Villa, the place she has called home for 15 years.
The country cottage boasts four bedrooms and three bathrooms in total, all designed and renovated by the celebrity designer herself.
Situated in Ellerton, East Yorkshire, the property has received two extensions over the years on both the kitchen and dining room.
While seemingly grand, it’s notable that the property still retains a cosy, countryside charm to it thanks to wonderful additions like a snug room with its own log burner.
The kitchen area looks out onto beautiful Yorkshire countryside while the gardens have been landscaped and include a relaxing decking area for those warm summer evenings.
Stradbroke villa is on the market through Savills for £465,000.
We put in place insurance for our homes, our furniture, our car, our holidays, and even our pets, but many of us ignore what funds these policies – which is our ability to work to generate income.
So, how do you protect your ability to work should unforeseen circumstances like a major illness or injury occurs?
Well, there are various types of cover that can be put in place to manage this risk, including life Insurance, total and permanent disability, trauma and income protection.
Like all things, policies are not the same, with the difference usually in the detail.
Some common mistakes.
1. Life Insurance policy – paid out on death
When you buy a policy where you are one of many, the pricing is very competitive and sometimes no upfront medicals are even required.
Everyone is accepted based on high-level data collection.
At the time of a claim, however, the policy issuer will normally require the completion of a much more detailed questionnaire.
At that point, if it is considered by them that there were potential issues at the time of issue that would have allowed the insurer to decline the application, they are at liberty to decline the payment when a claim is made.
And that is why it always pays to read the fine print before taking out any life insurance – or any other – policy.
2. Total and Permanent Disability (TPD) – own profession or any profession
A policy which covers any profession is cheaper, but for many people their capacity to earn a higher income is based on their speciality.
Being able to perform any work will not be either meaningful or financially rewarding for many people.
The payout for an “own profession” policy, on the other hand, at least goes some way to financial compensation if you are severely injured.
3. Income Protection – paid out when you are not receiving your normal wage or income due to an accident
With an income protection policy, there are two basic types being guaranteed, which are sum insured or secondly, based on income prior to the claim.
If you have the latter policy, the amount of payment can significantly fluctuate if you undertake seasonal work or your work load temporarily changes.
Costs can dramatically decrease the longer you are prepared to cover yourself without an insurance payout – that is, when the policy starts to pay.
Ask yourself how long could you survive without a steady pay-packet?
Unfortunately, for many Australians, this is measured in weeks rather than months.
Secondly, you must ask yourself what you want for your family if you are unable to work for a prolonged period of time.
When it comes to trauma policies, most insurers have materially different definitions for what constitutes an event that will allow a claim.
Unfortunately, even common words like heart attack do not have a common meaning so, under some trauma cover, a policy would be paid out, but unfortunately in others no payout would be made.
4. Tax deductibility
Life and TPD insurances would be tax deductible if the policies are within your superannuation – even if an SMSF – whereas they are not deductible if they are held outside of super.
For TPD to be deductible it must be for “any occupation”.
Income protection is deductible, whether in super or outside, but inside super the deduction is at 15 per cent and not your marginal tax rate if held outside – so clearly it is important to understand the impact of the deduction.
5. What is being insured?
Many people insure to a specific value to cover their debt.
There is not even a consideration for their biggest asset, which is their ongoing income.
Unfortunately, having no debt on the family home does not provide your family with income to live on and a government pension payment may not be enough for school fees, vacations and life’s little pleasures.
If insurance is paid for debt reduction on, say, investment properties, then your family could miss out on any Centrelink benefits due to the asset values.
When looking at the level of cover, therefore, you must consider both debt and lifestyle needs.
In many cases, it would be beneficial for the surviving spouse to either remain at home to raise children or to have the ability to hire in-home care if required.
Their need is to have choice over the longer term and, of course, while we do not want to financially gain from the death of a loved one or from a serious injury, money at least will help them get on with life.
We should all periodically review our insurance needs as our needs are not static and for most people, costs such as education and a growing family increase by much more than inflation.
So, when reviewing or considering insurance policies, you should consider the following checklist:
What do I need to maintain a quality of life for me or my family?
Do you understand the quality of cover (what is included and what is not included?)
Do you know the amount of cover (the amount of benefit insured)?
What is the cost of cover?
With this checklist, you will notice that cost (within reason) is last and quality is at the top.
It’s important that you talk to a good insurance strategist to determine the quality and value of the various insurance providers and to then match your needs.
Make sure this person is independent, so they are considering all policies, instead of ones which they may either be only allowed to offer or be receiving a disproportionate commission to recommend to you.
This article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.
Have you wondered what is depreciation and how a depreciation schedule can save you money?
Depreciation is a powerful tool to help investors maximise their cashflow, minimise the holding costs associated with investing and minimise their tax.
A lot has been written about various nuances within tax legislation and construction estimating.
So I wanted to take a moment to get back to the basics and things that everyone should know about a depreciation schedule, so here goes.
1. WHAT IS DEPRECIATION?
In essence depreciation is a reduction in value of an asset over time.
Under income tax law, you are allowed to claim certain deductions for expenditure incurred in gaining or producing assessable income, for example, in carrying on a business such as property investment.
Since the value of some assets decline over their effective life you may be able to claim a deduction for the depreciating cost of that asset.
Just like you claim wear and tear on a car purchased for income producing purposes, or for a computer used for business, you can also claim the depreciation of your investment property against your taxable income.
2. WHAT IS A DEPRECIATION SCHEDULE?
A depreciation schedule is simply a report that shows you the deductions you’re able to claim on your investment property each year, based on the decline in value of the structure and assets within (where they qualify).
Depreciation is not available to your principal place of residence; remember the property must be income producing.
3. WHAT IS A DEPRECIATION SCHEDULE FOR?
Its only real job is to save you paying extra tax.
The way it works is like any other tax deduction you might be familiar with.
Say you are a Doctor and you need to pay membership fees to your institute, that is normally a tax-deductible payment.
To put this another way, if you earn $100,000 a year and you have $10,000 worth of deductions in that year, the tax office now sees you as only earning $90,000 a year and that’s what you’re paying tax on.
4. WHAT SORT OF DEDUCTIONS CAN I GET?
Unfortunately, that question isn’t as easy to answer as it once was.
With the depreciation rules being changed in May 2017, it depends a lot on when you purchased, whether you ever occupied the property, whether it’s new or old and several other issues.
In general there are two types of allowances available:
Depreciation on Plant and Equipment, which refers to items within the building
Depreciation on Building, which refers to construction costs of the building itself.
Both these costs can be offset against your assessable income.
5. WHAT ARE THE NEW DEPRECIATION RULES?
This could get messy, but I’ll try keep it short.
Essentially if you purchase after the 9 th of May 2017 you can only claim plant and equipment items if you bought the property brand new, or installed those assets yourself, such as adding new carpet.
Plant and equipment items are generally the internal assets like blinds, kitchen appliances, air conditioning etc.
What hasn’t changed is the division 43 deductions, which consists of the structure of the building including timber, concrete, tiling, kitchen cupboards an the like.
You can still claim those deductions as per the old rules.
6. WHAT ABOUT QUALIFICATION DATES?
The property needs to have been constructed after the 16th of September 1987 to qualify for depreciation claims on the original building structure.
If it’s built prior to that date, then only the renovations or improvements will attract deductions.
This might be things like extensions, kitchen and bathroom renovations, painting and the like.
There’s no simple rule that guarantees a report won’t be worthwhile based on the date of construction because of these renovations creating deductions.
However, if the property was built after the 16th of September 1987, the report is going to be worthwhile under normal circumstances.
7. SHOULD I GET A DEPRECIATION SCHEDULE AND HOW MUCH DOES IT COST?
Depreciation schedule costs are around the $600-$800 mark and I wouldn’t consider going any cheaper, though cheaper options are available.
Any less than that range will necessarily involve corner cutting on the inspection or the time taken to fully maximise and tailor a schedule to the client.
As for whether you should get one, quantity surveyors should be analysing that for you.
Simply give one a call or share an online link to photos and some basic information like the age, history, purchase date and they will tell you whether the report is worthwhile.
Worthwhile normally means they’ll find at least double their fee worth of deductions within the first full year of claim.
Personally, if there’s no value to the client, we’ll never recommend having a schedule done.
I hope that helps to give an executive summary on what depreciation is and how it works.
Redrow Homes tell us the home trends likely to rule next year.
There’s a new season beginning in the world of interiors following the major design weeks in both London and Paris. Emma Brindley, Redrow’s head of interior design, brings us her annual round-up of the hottest home trends for 2019.
Emma has produced us with advice on how to really introduce these trends into your own home – from colours and materials to furniture and accessories. Just remember – you heard them here first!
Whether you’re looking to add richness and depth or keep your palette minimal and contemporary, there are new colours emerging across the spectrum.
Matte black will be 2019’s key colour and this will be reflected across all interiors trends while rich, earthy tones will also be prominent with baked reds, dusty orange and terracotta creating a beacon-like glow in your home.
A spectrum of colours from violet to maroon also add warmth, while shades of pink are a great perennial choice from brighter millennial pinks to apricot tints and blush hues.
Yellow is continuing to trend with tones as diverse as mustard and acid, while blues in many shades from vibrant cobalt to pastel blue are also popular choices.
Bright or unusual colour pairings are also coming to the forefront, favoured by designers in the form of bold geometric patterns.
Once you’ve chosen your colour scheme, it’s time to look at the key furniture and accessory trends that will take you into the new season and beyond.
Materials and textures range from raw and rustic to smooth and refined, although most are still heavily influenced by the beauty of the natural world.
If you’re a fan of using sustainable materials then you’ll enjoy the continuing trend for natural fibres and woods.
We’re seeing bamboo leaves and mango wood in tabletops and other decorative pieces, while cork, wicker and woven plant fibres such as seagrass will be everywhere from kitchens, chairs and room dividers to planters and lighting.
Natural greenery will continue to be a key trend and the emphasis will be on patterned foliage.
Careful craftsmanship is very important to 2019 interiors and the exquisite imperfections of raw wood should be celebrated in both large items of furniture and smaller accessories.
You could also look to introduce textured and tactile elements with organic folds, creases and curved edges – think accessories made with folded paper, card or wood.
Continuing the theme of rich texture, velvet is here to stay and an ever popular choice for chairs, stools and cushions.
Stone and crystals will come through in a range of surprising pieces, while frosted, opaque, ombré and ‘oily’ effect surfaces will also provide a soothing mood for interiors.
For example, milky glass and frosting will be seen in accessories such as vases and bowls.
Terrazzo, a composite material created through setting marble, quartz, granite or glass chips within concrete, is going to be hugely popular for flooring and wall treatments, particularly using colourful speckles.
Likely to be similarly popular is the trend for marbling and moulded recycled plastics that are playful in style, with flecks of colour being layered together in bold, simple forms.
Metallics are here to stay with brass and gold remaining prominent, while soft silver also emerges to create a look that’s fresh and sleek.
For more interiors and trends advice, follow @redrowhomes on Instagram or Redrow Homes on Pinterest. Redrow is creating new homes at more than 130 locations across England and Wales. To find your nearest development visit Redrow.
The world of real estate has changed drastically since the turn of the century.
Back then, property investment as a wealth creation strategy was really only in its infancy. Today more and more Australians are interested in property.
Over that time the role of real estate agents has changed.
In the past, agents held much more power.
They have access to data such as past property sales and local values, as well as details of properties for sale.
Remember back then agents usually just advertised listings in newspapers and their shop windows.
Within a few short years, property listing portals became common place and that meant the balance of power changed with buyers having easy access to data.
Also, the days of agents driving prospective buyers to properties soon came to be a relic of a bygone era.
So, with so much change in such a short period of time, what does the next decade herald for the real estate sector?
1. Agent value
While there is no doubt that the role of sales agents has changed dramatically that doesn’t mean that an agent’s intrinsic value in a transaction has disappeared.
You see, the main value that selling agents have always brought to the table is their ability to negotiate between the seller and the buyer.
Because they are not emotionally attached to the property like sellers are, they are able to suggest a price that both parties are happy with and bring a protracted negotiation to a conclusion.
Whereas, left to their own devices, private sellers generally struggle to accept that buyers don’t view their property as a castle like they do.
While agents will communicate with both buyers and sellers differently in the future, for example social media, videos and virtual tours, I believe a good agent will continue to help both buyers and sellers achieve the results they desire.
2. Cut-price commissions
Over the past decade or more, the era of cut-price sales commissions has entered the real estate industry.
We’ve seen agencies like Go Gecko and now Purple Bricks set up shop offering a reduced sales commission for a reduced level of service.
There will always be sellers who are motivated by price and this means these types of agencies will likely always be around.
But remember the old saying: prices what you pay – value is what you get!
You see…the cheapest agent is the one who gets you the best price, not the one with the lowest commission and who likely works on a quantity over quality model.
Sellers loose out in a number of ways.
I’ve found these cut-price agents are less motivated to get their vendors the top price.
And many of these cut-price fees include a non-refundable levy that must be paid regardless of whether they sell the property or not.
That is contrary to the standard commission structure that is only paid when a successful sale has been completed.
At the end of the day, while cut-price agencies might grow in number because of technological advances, most vendors that use them will probably end up with a cut-price result.
3. Free data
One of the biggest changes in the property investment space in the past 20 years has been the rise and rise of data.
When I first started out, there was very little available to help investors research the various property markets.
Today, there is more “free” online data than you can poke a stick at, but much of it is inaccurate.
It’s too easy to stumble into the wrong information.
Take the online property “valuation” reports – these are generally inaccurate (as often on the upside as on they are on the downside) as they have no idea of the condition of the property in question.
Similarly, sellers can be misled by those “find the best agent in your area” websites, which make their money, and therefore we can assume their recommendations, based on commissions paid to them by agents looking for listings.
While the volume of available free data has skyrocketed one thing that hasn’t changed much is the ability to analyse it correctly.
Most buyers lack the expertise to understand what the numbers in front of them are really saying and how best to interpret them.
To be blunt: they lack the perspective to know what’s important and what’s not.
This is most obvious when lists of “best performing” suburbs are released, which some people confuse with signposts of where they should invest next.
My strategy is about buying investment-grade properties that will continually outperform the averages, that doesn’t change to suit the short-term changes of the market.
I only invest in the type of property and location that has “ always worked” rather than looking for what “works now” – you know the next hotspot or get rich quick scheme.
My research and that of our team at Metropole involves analysing leading indicators- signs of what will happen in the future, rather than the type of content freely available on the internet which tend to be lagging indicators – a record of what’s already happened.
So what’s ahead…
It is no secret that we’re in an age of rapid technological change that is having a significant impact on the types of jobs that people do.
The continual evolution of the internet, social media and technology will clearly cause disruption in many industries, including the property industry.
Buyers will have more power being have to search and research properties and loans online.
More buyers will use buyers agents to protect their interests, just like vendors have selling agents on their side
Electronic conveyancing is now happening through the Pexa portal with close to 1,700,000 property transactions having now been completed through this E-conveyancing network.
How we handle our money and online banking is going to evolve. The day of cheques being written for deposits will soon disappear and it is possible that Bitcoin will play a role in future property transactions
However I don’t see real estate agents jobs being replaced by artificial intelligence any time soon.
And I’m not even going to go down the route of making a joke about the level of real estate agents intelligence!
You see…when it comes to real estate I believe that the sector will evolve and change but that the buying and selling of property will always remain a skillset that requires the expertise and knowledge of experienced professionals.
WHAT CAN YOU DO TO STAY AHEAD?
As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
What goes up must come down, which seems to be true of our property markets at present.
Now that doesn’t mean that they’ll come down with a bang – but rather a whimper in some locations and just changing down a gear in others.
With the Sydney and Melbourne property markets having experienced significant price growth over the past five years, property investors are not guaranteed of ongoing strong growth in the next few years.
But that’s not necessary a bad thing.
Why do I say that?
Well, a rising tide lifts all ships – and one of the worst things that can happen to a beginning investor is to get it right first time – it gives uneducated investors an over-inflated sense of their own ability.
Some will get caught out over the next few years, while those following a sound investment strategy will win the day and will also produce solid results regardless of the state of the market.
In fact, there are multiple property markets around Australia, defined by geographic location, price point and type of property, which are all currently at different stages of the property cycle.
So let’s look at 9 ways you can outperform a slow or mediocre market.
1. Outperform the averages
Here’s the thing: you are not buying the market, but a particular property in the market.
When I say that I mean that sophisticated investors buy properties that will outperform the averages.
You know…the ones that offer a level of scarcity, in locations with multiple growth drivers and that will always be in strong demand from owner-occupiers, who drive up prices because they buy emotionally.
2. Don’t try to outsmart the market
Too many novice investors try to outsmart the market by buying in areas they “believe” will perform well at some stage in the future.
In my mind this is speculation, not investment.
That’s because these locations are often the more affordable ones on the outskirts of the city, which they mistakenly think will one day be worth millions.
But they’re wrong.
While all segments of the market tend to do well in an upswing – unless there’s an oversupply – during softer market conditions it is these more affordable areas that are most likely to suffer, especially as interest rates increase.
That’s because these are likely to be first home buyer or blue collar suburbs which are more inters rate sensitive and where wages are going up by less than the CPI, if at all.
3. Inner- and middle-ring wins the race
In my experience, it is the inner- and middle-ring suburbs of our major capital cities that remain resilient in the face of soft market conditions.
That’s because there is always strong demand to live in these areas by people who have the financial means to do so.
As long as they have good jobs, and there’s no sign that our employment sector is wavering, they will desire to upgrade to a more premier or gentrifying suburb that usually have many lifestyle attributes.
And they’re prepared to pay to achieve their property goals.
4. Free advice isn’t free
Everyone likes free stuff, don’t they?
But free investment advice is normally never free – in fact, it often comes with a hefty learning fee.
In a market upswing, you’ll see many such “advisers” offering insider intel on particular properties.
What they don’t tell you is that they’re usually getting paid a commission to spruik it to you.
When a market is flat, that is the time to get good solid advice from people who have invested successfully in multiple market cycles.
Not someone who happened to make some money during the latest Sydney boom because everyone did, including the investors who didn’t know what they were doing.
5. The horizon matters
I’ve said it before, growth financial independence though property investment takes time – a long time.
In fact, the power of compounding only really starts to show its true colours after about 10 or more years.
That’s why it’s so important to keep a long-term perspective and follow a long term investment strategy that will help you reach your goals.
It’s equally important that you develop the ability to ignore short-term market fluctuations.
Just because a market is experiencing a fallow patch doesn’t mean you should sell up before you “lose it all”.
No – what you should do is ignore it and keep your eyes firmly on the horizon, which evens almost everything out in the end.
6. How do you select an investment grade property?
Over my decades of investing successfully, I’ve developed and fine tuned strategies which ensure that I only buy investment grade properties for myself and we use the same strategies for our clients at Metropole.
These are called my top-down and 6 Stranded Strategic approaches and follows a series of steps that include:
1. Buying at the right stage of the property cycle. I look at the big picture – how the economy is performing and where we are in the property cycle.
2. Then I look for the right state in which to invest – one that will deliver future economic growth which will lead to jobs growth and population growth .
3. Then within that state, I look for the right suburb – one that has a long history of outperforming the averages. I’ve found some suburbs have 50 to 100 per cent more capital growth than others over a 10-year period. And one that is likely to continue to outperform because of multiple growth drivers. Obviously those are the suburbs I target.
4. Once my research shows me the suburb to explore, I then look for the right location within that suburb.
5. Then within that location I look for the right property, using my 6 Stranded Strategic Approach. And finally I look for …
6. The right price. I’m not looking for a “cheap” property (there will always be cheap properties around in secondary locations). I’m looking for the right property at a good price.
To ensure I buy a property that will outperform the market averages I also use a 6 Stranded Strategic Approach, which is a property that:
1. Appeals to owner occupiers. Not that they should plan to sell their property, but because owner occupiers will buy similar properties pushing up local real estate values. This will be particularly important in the future as the percentage of investors in the market is likely to diminish.
2. Below intrinsic value – that’s why I would avoid new and off-the-plan properties which come at a premium price.
3. With a high land to asset ratio – that doesn’t necessarily mean a large block of land, but one where the land component makes up a significant part of the asset value.
4. In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area as mentioned above.
5. With a twist – something unique, or special, different or scarce about the property, and finally;
6. Where you can manufacture capital growth through refurbishment, renovations or redevelopment rather than waiting for the market to deliver me capital growth.
7. Location is non-negotiable
One of the most interesting things about successful property investment is that it doesn’t have to be exciting.
What I mean by that is that there are fundamentals that are tried, true and tested and that you can rely on to deliver capital growth.
One of the most important factors is location because it will have a major influence on your property’s performance.
As up to 80% of your property’s performance will be determined by its location , why would you even try to pick the hotspot the “next” up and coming hot spot, when there are a large number of capital city suburbs that continue to outperform the averages?
Never compromise on location – it really is as simple as that.
8. Know your finances
Far too many Australians become investors by chance and don’t have the correct ownership or finance structures to underpin their portfolios.
Instead, smart investors begin their investment journey with their eyes open and with a clear financial structure to see them through the ups and downs of market cycles.
One of their most important tools is a financial buffer, perhaps via a line of credit, which can keep their cash flow flowing during any rainy days they may encounter during their journey.
9. Never set and forget
Another bugbear that I have is the term “set and forget”.
Successful property investment is never something that you should just forget about.
In fact, the very best investors regularly review and assess their portfolios annually to evaluate its financial performance.
One question that I regularly suggest you ask yourself is: “If I knew then what I know now, would I have bought that property?”
If the answer is no then it may be time to jettison any under-performing assets so you can buy investment grade ones instead.
There’s no point hanging on to a property that is dragging your financial future down.
The bottom line
By now I hope you’ve realised that successful property investment doesn’t really have much to do with the market at all.
By following a proven strategy that helps you identify investment grade properties in inner- and middle-ring city suburbs you can regularly outperform the averages.
That way you’re not relying on a market upswing to make money because your well-selected properties will be doing that for you – even when the wider market is struggling.
Banks need to be thoroughly prepared for AASB 9, with proposed changes to negative gearing set to have a material impact on loss provisioning and profitability, according to RiskWise Property Research.
Under the new financial instruments, accounting standard banks will need to make provisions under an ‘expected credit loss’ (ECL) model, rather than the incurred loss models used previously.
Where banks identified an increase in credit risk, a loss allowance must be recognised in respect of a residential mortgage before it became past due.
The ECL impairment model must incorporate detailed macro-economic modelling and consideration of multiple forward-looking scenarios.
For residential lending, mortgage books need to be better analysed and in more detail across each portfolio.
Changes in tax legislation to create further challenges.
Wargent Advisory CEO Pete Wargent highlighted the potential impact of changes to negative gearing and capital gains tax legislation, if the ALP succeeds at the next Federal election, as one possible challenge for loss provisioning.
“Extensive RiskWise modelling shows that, nationally, dwelling prices would fall by 9 to 12 per cent should the proposed changes to tax legislation be voted through and, under AASB 9, banks will need to consider such forward-looking information in their models,” Mr Wargent said.
“This could soon become the base-case scenario as the Federal election approaches and banks need to prepare accordingly.
In addition to the obvious impact on each of the loan portfolios, banks will need to accurately assess the risks associated with future lending decisions.”
Regional modelling essential
Mr Wargent said although the proposed changes to tax legislation would be applied nationally, there would be meaningful variations in performance at the regional level.
“RiskWise models show that, by SA4 region and dwelling type, there will be significantly different impacts, and banks must use similarly detailed models or risk failing to comply with the standard,” he said.
“Even at the regional level the findings were often markedly different for houses and units, with material impacts in certain areas of highly concentrated rental stock that isn’t family-appropriate.”
Weaker housing market conditions already reflected a deterioration in buyer sentiment.
Our models have also assessed potential impacts on the price of new dwellings and consequently loss provisioning for construction loans needs to be updated where the risk of default increases.
All these changes require lenders to manage this process in a thorough and timely manner to assess the impact on each of the SA4s regions.
External auditors will need to review ECL models and should work jointly with independent property research companies to ensure that bank models meet the requirements of AASB 9.
Due to the complexity and inherent uncertainties, the impacts should be reviewed regularly, potentially leading to significant adjustments.
Banks may not have adequate internal models for this complex scenario analysis.
If they don’t act now the impact could potentially be material to financial reporting and, in turn, to share prices.
Since the introduction of the General Permitted Development Order (GPDO) in 2015, the popularity of commercial to residential conversions has increased dramatically and with parliament granting permissions, meaning that more and more offices (and warehouses up to 500M2) can be repurposed in this way, it’s imperative that those carrying out the works know exactly what’s involved before commencing.
So, let’s have a look at the subject in more detail.
How are commercial to residential conversions funded?
When considering the financial clout needed to fund this kind of building work, it is most prudent to go heavy on the cost in your appraisal, as conversions of this kind can often come with unexpected issues. This is a particularly important aspect to focus on, as the way development conversions are funded has witnessed a changed since the amendment to the statutory planning laws was made some three years ago.
Before its implementation, the overwhelming majority of projects of this kind were funded by straight short-term development finance on vacant commercial properties where work commenced immediately. However, post GPDO 2015 some developers are choosing a hybrid of traditional commercial finance and development finance, all wrapped up as one arrangement.
So prevalent is this kind of proposal now, that development brokers have specific financial products that address this very specific kind of need, allowing many more developers to take on this kind of project.
What are the resale yields of commercial to residential conversions?
The viability of an office or warehouse to residential conversion should most certainly not be taken as a given and there are a number of variables that will determine whether it is a prudent job to take or not. The locality of project is one important aspect, as well as the state of the local buy to let market, so having in depth knowledge of both is key to making an informed decision.
Sure, homes designed for multiple occupancy do provide higher yields, but homework must be done to ensure that the numbers add up.
Do ‘permitted development’ commercial to residential conversions need planning permission?
One of the beauties of the current permitted development laws is that, as the title would suggest, planning permission is not required. However, this will not always apply in some local authorities that are focussed on the protection of the availability of office space, so it’s important to check the facts surround the particular property with a planning consultant you’re proposing to develop before diving in.
Many Agricultural buildings also don’t require planning permission for residential conversions, but considerations such as site contamination that can occur in certain commercial operations must be determined to ensure suitability for development.
Also important to note is that planning permission is required to changing the style of windows, move doorways and apply cladding. Complying with maximum local acoustic levels during the development is also important.
Another important consideration which planners will look is flood risk. If the Property is at risk your permitted development rights may not translate into a prior approval which is necessary to obtain from planners.
Why do commercial properties make such good investment opportunities?
Despite the complex nature of determining viability for certain commercial properties to be converted for residential use, this kind of project can potentially offer extremely high yields for investors and there are a number reasons for that:
The commercial property market is quite saturated and as a result, values tend to be lower than residential ones
The majority of commercial sites tend to be in desirable areas that link well with transport and local amenities – a great selling point for residential homes
Commercial properties are often left vacant, meaning that the owner is not earning from it and is sometimes more willing to offer it at more reasonable price to get it sold quickly
Business premises will invariably need to be completely refitted on the inside, offering the freedom to convert into high quality homes with a higher ROI
Source: Royal Institution of Chartered Surveyors, “Q4 2017: UK Commercial Property Market Survey”, 2018.
Exactly how do ‘Permitted Development’ rights apply?
Firstly, it’s important to understand that legislation of this kind is regularly amended and keeping yourself abreast of the amendments is a shrewd move for any would be developer.
Secondly, it’s so important to grasp that a permitted development property only ‘permits’ for a change of use and not for the actually conversion itself, which will have to be applied for separately. So, don’t enter into a project until you’re absolutely sure that all permissions have been granted or you could end up in a very smart, purpose built residential property that no one is allowed to live in.
What this article set out to do wasn’t to put developers off of the idea of commercial to residential conversions, rather it was to highlight the factors that many miss when making their grand plans. What might seem like doom mongering now, would seem like very valuable and insightful advice for someone who is in the midst of a job they are invested in, but can’t proceed with because of a lack of due consideration when they started.
We hope that we have helped in some way to fill in any blanks you might have had on the subject and that your commercial to residential project goes completely as planned!