Off-plan property investment is a great investment strategy for all lifestyle goals, provided you buy in the best places to invest in property UK. Our research tells us that Leeds is one of those places. It is regularly rated as one of the UK’s best lifestyle cities, with a relatively low cost of living and a growing local economy. As if this isn’t enough to make Leeds one of the UK’s happiest places to live, the city is home to some amazing leisure, shopping and cultural amenities for residents to enjoy.
Damian Collins, president of the REIWA, said the overall regional median rose by 7.8 per cent to $345,000 and overall sales were up 1.2 per cent.
“It’s the first time this year we’ve seen overall sales activity and median house price improve simultaneously in regional WA,” Mr Collins said,
“The results of the September quarter are very promising and suggest a recovery is not too far away.
“Although regional WA continues to feel the effects of the market slowdown, the results of the September 2018 quarter suggest the worst is over, with a number of regional centres starting to find their feet.”
Out of WA’s 11 regional centres, five did not record any declines, REIWA analysis showed.
The top performer, according to Mr Collins, was the Albany region, with its median price rising by 26.8 per cent to $430,000.
“It also experienced an improvement on an annual basis, with its median price now 17.5 per cent higher than last year’s September quarter median,” the REIWA president said.
“There was a shift in the composition of sales in Albany during the September 2018 quarter, with significantly more activity occurring above $350,000 than there previously has been, and fewer sales occurring below $350,000, which is where the bulk of activity has typically occurred in this region.”
Other improving regional centres for median price rises included Bussleton with a rise of 9.8 per cent, Bunbury with a rise of 1.9 per cent, Geraldton/Greenough with a rise of 1.8 per cent and Broome which held steady.
Sales activity in regional WA fared slightly better than price rises, with six out of 11 regional centres seeing a rise in sales.
The largest increase, Mr Collins said was in Broome, which experienced a 90 per cent rise of sales up to 38 over the quarter.
Following this was Port Hedland, up 51.7 per cent to 91 sales, and then Karratha, up 23 per cent to also 91 sales.
“The Pilbara region remains one to watch, with the announcement of three new mining projects in the region by BHP, Rio Tinto and FMG going a long way to restoring confidence in the area,” Mr Collins said.
“With 20,000 new local jobs expected to be created as a result of these projects, this should support population growth in the region, improve demand for housing in the area and aid recovery.”
Other improving regional centres for sales included Geraldtown/Greenough by 31.8 per cent, Kalgoorlie/Boulder by 26.8 per cent and Mandurah/Murray by 8.5 per cent and Albany, which held steady.
21 questions to ask yourself before investing in UK property
Successful property investors all have one thing in common: they have a plan, and simply don’t make it up as they go along. They read investment blogs and digest all the property investment education they can get their hands on before investing.
A good friend of mine is a project manager and controls projects worth multiple millions. The services are in constant demand. When I asked my friend to explain the secret of his success, he simply said, “Advance planning”. He told me that with every project he works through a list of questions with the client. These include questions about objectives, budget, maintenance, plans for the future, and so on. Armed with this knowledge, he then plans a project to the nth degree – especially when it comes to allowing for the unexpected.
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.
The profit potential and tax advantages of a brick-and-mortar staycation investment
A booming economy, high population growth and much more spells huge potential
Leeds is attracting the money of clued-up property investors, and for good reasons. Leeds is the UK’s second-largest employment centre outside London, with another 25,000 new jobs forecast to be added to the local market over the next 10 years. This will build further on the 6.1% growth in private sector jobs between 2007 and 2017 (Leeds.gov.uk), with the highest jobs growth expected in:
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.
Just as you can claim wear and tear on a car purchased for income-producing purposes, you can also claim the depreciation of your investment property against your taxable income.
Seasoned property investors know all about this one. In fact, some will take depreciation into account before purchasing their next investment. But it’s not just for the pros. Anyone who purchases a property for income-producing purposes is entitled to depreciate the building and the items within it against their assessable income.
Seasoned property investors will take depreciation into account before purchasing their next investment.
But others are none the wiser, which means that, every year, thousands of dollars go unclaimed.
To make substantial savings, all property investors need to do is arrange a qualified quantity surveyor to inspect their home and prepare a report for their accountant.
So for anyone who’s unfamiliar with the process: it pays to learn.
Here’s a basic guide to lead the way. Let’s call it Deprecation 101.
1. What is property depreciation?
There are two types of allowances available:
depreciation on Plant and Equipment;
and depreciation on Building Allowance.
Plant and Equipment refers to items within the building such as ovens, dishwashers, carpet and blinds.
Building Allowance refers to construction costs of the building itself, such as concrete and brickwork.
Both these costs can be offset against your assessable income.
2. So how does a depreciation schedule help me?
Simple. A depreciation schedule will help you pay less tax. The amount the depreciation schedule says you claim effectively reduces your taxable income.
A depreciation schedule will help you pay less tax.
Depreciation is known as a “non-cash deduction” because it’s the only deduction that you don’t have to pay for on an ongoing basis; the deductions are in-built within the purchase price of your property. All other deductions, such as interest levies, will hurt your hip pocket on an ongoing basis.
3. Is my property too old to claim depreciation?
The simple answer is no. If your residential property was built after July 1985, you will be able to claim both Building Allowance and Plant and Equipment. If construction on your property commenced prior to this date, you can only claim depreciation on Plant and Equipment. But it will still be worthwhile.
Commercial and industrial properties are subject to varying cut-off dates.
Here is a chart showing the relevant timelines for differing types of construction.
4. Shouldn’t my accountant prepare this report?
If your residential property was built after 1985, your accountant is not allowed to estimate the construction costs, nor are real estate agents, valuers or solicitors.
According to Tax Ruling 97/25, issued by the Australian Taxation Office (ATO), quantity surveyors are appropriately qualified to estimate the construction costs, when those costs are unknown.
According to Terry Aulich, Chief Executive Officer of the Australian Institute of Quantity Surveyors (AIQS), while accountants can offer general advice on other aspects of tax depreciation, construction costs and property depreciation are domains that require highly technical expertise.
“Quantity surveyors are specialists in the accurate measurement of construction costs with a view to maximising a client’s financial position in relation to their property assets. Only a fully-qualified quantity surveyor brings the appropriate education, experience and training to provide reliable figures upon which to base a property tax depreciation schedule,” says Terry.
“One doesn’t want to rely on best guesses when dealing with the ATO – especially when there is professional help available.”
Terry also suggests that clients should check the credentials of anyone claiming to be a quantity surveyor. He recommends that the first question clients should ask their quantity surveyor is whether they are a member of the AIQS, as membership indicates that a quantity surveyor has completed an accredited qualification.
5. Will you need to inspect my property?
The Australian Institute of Quantity Surveyors (AIQS) Code of Practice stipulates that site inspections are necessary to satisfy ATO requirements.
A trained quantity surveyor will ensure all depreciable items are noted and photographed. This guarantees you won’t miss out on any deductions. The documentation can then be used as evidence in the event of an audit.
It’s very common for quantity surveyors to liaise directly with the tenant or property manager in order to cause minimal disruption to the tenant. The best time to get a quantity surveyor to inspect your property is immediately after settlement and hopefully just before the tenant has moved in.
6. My property is renovated. Can I still claim?
Yes, but you will need to know how much you spent on renovations. Providing this information is an ATO obligation.
If the previous owner completed the renovations, you are still entitled to claim depreciation.
In either case, where the cost of renovation is unknown, a quantity surveyor has been identified by the ATO as appropriately qualified to make that estimation.
7. How much will my depreciation schedule cost?
The cost of preparing a tax depreciation schedule varies according to a number of factors, including the type of property you’ve purchased, its location and size.
Most of the leading quantity surveyors offer a money back guarantee to save you twice your fee in the first year, or they give you the report for free.
So you have absolutely nothing to lose – and many deducations to gain.
To sweeten the deal further, quantity surveyor fees are 100% tax deductible.
8. How much will I save?
Each property is different and many factors must be considered when preparing a property depreciation schedule. There are several depreciation calculators on the market, many of which can be found easily through a Google search for “depreciation calculator”.
Don’t pay for a property depreciation estimate; in my opinion, the best ones are free.
9. How long will it take to complete my schedule?
Your depreciation schedule will take approximately 2-3 weeks to complete, as long as the quantity surveyor can inspect your property without delay.
10. I bought my property 3 years ago. Can I still make a claim?
Yes, you can. Your accountant can amend your previous tax returns as far back as two years ago. There are some exceptions, so contact your tax agent or the ATO for clarification.