What low interest rates means for property investors
With the Reserve Bank of Australia (RBA)’s cash rate (market interest rates) set at an all-time low, you might find yourself thinking whether or not now is the right time to consider buying property.
When the banks pass on interest rate cuts to consumers, a low interest rate environment is one that’s highly favorable to borrowers – allowing them the opportunity to pay down their loans faster and owe less to the banks overall.
Given a mortgage is often one of the biggest debts you’re likely to take on in your lifetime, the interest rate environment we’re currently experiencing is great for property buyers. With current rates, you can find yourself saving tens of thousands of dollars over the duration of your 30-year mortgage – but it is vital that you contemplate other costs and agendas before investing in real estate.
Property investing is generally believed to be a more comfortable asset choice (the psychology of being able to see, touch and feel the asset in the real world plays a huge role in this), and it’s not uncommon to see property purchased as an asset by investors looking to add some diversification to their portfolios. As a long-term investment, it’s often seen as less volatile undertaking; while markets do fluctuate up and down, a property will almost always go up in value, given the right amount of time.
However, while many Australian’s are comfortable with the idea of property, it is also probably one of the most expensive investments to get into upfront. Aside from your mortgage, you will always find the following upfront costs associated with buying or building a property:
- Conveyancing and legal fees
- Loan registration
- Planning and building permits
- Stamp duty
- Transfer fees
Considering these expenses (and the liability of a mortgage debt) it’s worth looking at things with a more conservative outlook when contemplating property investment. If we apply the principal of accounting conservatism (where expenses and liabilities are overstated and assets and potential revenue are understated), we need to consider the worst-case scenario.
In today’s market, interest rates may be low but economic changes during your loan period are certain, so you need to consider what a potential future increase in interest rates might mean for you. Will you be able to maintain the investment if higher interest rates means an increase in monthly repayments?
Hypothetically, if you didn’t have the means to support your investment should interest rates go up, you may have to sell the property, due to unaffordability. In many cases when the property is settled prematurely the costs associated with buying, maintaining and selling the property far outweigh the growth and the income derived (and might even leave you with negative equity). That’s why it’s imperative that you know that you meet the income feasibility test early in the property buying process.
Thankfully, there are a few checks and balances in place before a bank will lend you money. Banks and other lenders will want to know about your income and will consider whether you’ll be able to continue making repayments at a slightly higher interest rate. It’s in their (and your) best interest to confirm that you’ll be able to service a loan in the long term. It’s also worth noting that while it’s always possible for a rate increase, current market indications strongly suggest that we’re unlikely to see increases any time soon.
If you’re thinking about property investment, consulting with a professional to help you consider all the variables in the context of your personal situation is a great place to start. An adviser can help you understand your ability to borrow, guide you through setting realistic targets and make sure you get the most out of your investments. As they say financial literacy is vital, “An investment in knowledge pays the best interest”. When it comes to property investment – if you’re in a position to do something, now is a good a time as any to act. To get started, speak to The Hopkins Group today.
Residential Tenancies Act changes are coming – are you ready?
A change is coming to the way we rent, with changes to the Residential Tenancies Act passing through parliament and trickling their way into effect since September 2018. However, while some changes have already been implemented, the full suite of reforms will be in place from 1 July 2020 – so the bulk of the changes are still to come.
Some of the changes will be small – for example, there’s a very simple language shift coming that changes the terminology we use when we talk about renting. With this change tenants will be known now as “renters” and landlords are now “rental providers”.
Other changes are more aggressive, but instead of boring you with details on all 132 reforms to the Act, here are the top four key changes I believe will have the greatest impact.
1. Pets
Probably one of the most spoken about changes, the rules around keeping pets in a property are made clearer, and renters will now be given more leniency to keep pets in a property. Under the new reforms, a renter will be required to write to the rental provider/property manager advising that they would like to keep a pet at the premises. If the rental provider does not want to accept the pet into their property, an application to VCAT would need to be made and evidence provided to the tribunal as to why it is reasonable to refuse the renter’s permission to do so.
2. Repeated late rent or non-payments
Currently, when a renter is more than 14 days behind on their rental repayments, a notice to vacate may be issued and a landlord can apply to VCAT to gain possession of the property, regardless of whether a tenant “makes good” on their arrears within the 14 days. Under the new rules, the 14 days notice to vacate will be invalidated if pays their rent within the 14 days, the first four times it happens in a 12-month period. However, if the renter fails to pay rent as required on a fifth occasion in the same 12-month period, the rental provider may give a notice to vacate and apply to VCAT for a possession order. VCAT may adjourn the possession application and place renter on a payment plan to meet the outstanding arrears.
3. No specified reason notice to vacate
Currently, a rental provider can issue a 120 day no reason notice to vacate if a renter is on a periodic tenancy or if the 120 days falls on or after the day the fixed term lease agreement is set to expire. As of 1 July 2020, this type of notice will be abolished.
Rental providers (landlords) cannot issue a ‘no specified reason’ notice to vacate. To end a rental agreement, rental providers must provide a valid reason such as sale, change of use or demolition of the rental property, or if the rental provider is moving back into the rental property.
4. Renters making modifications to properties
Renters will be able to make prescribed modifications to a property, without the rental provider’s consent. There is also a list of other modifications which a rental provider cannot unreasonably refuse consent to renters making. What qualifies as a prescribed modification will be decided by April 2020 following public consultation in November 2019 through Engage Victoria.
What these changes will mean for landlords/rental providers
From my perspective working as a property manager now for almost 10 years, I believe the most important conversation we should be having around these new laws is making sure that you as a rental provider are safe guarding yourself the best way you can. The answer to that is landlord insurance. Please, please, please make sure you have a landlord insurance policy in place.
If you are unsure about your current policy or if don’t have one in place, please contact your property manager at The Hopkins Group to start having the conversation.
Please note – The Hopkins Group does not sell or provide landlord insurance policies, however we can share case studies of those who have benefited from having these policies in place and discuss options available base on our experience.
Top reasons to get a building inspector through before settling your property
If you’ve purchased a property off-the-plan which is due to settle soon, you will usually receive a phone call to book in your final inspection as a matter of course. This call can often bring up a lot of questions, like how will you prepare? What you will bring? Who you will bring? What you will need to do at the inspection? Or even, what happens after the inspection?
With so many things to consider, we find many of our clients benefit from engaging the services of a qualified building inspector to help them through the process. But before we get into the benefits of using a building inspector, let’s cover off what a final inspection is and what it entails.
What is a final inspection, and when is it conducted?
Typically conducted 7-14 days prior to the settlement, a final inspection is often the first and last opportunity you’ll have to view a property before it settles and will usually be arranged by your sales agent to occur during business hours between Monday and Friday. Sometimes these inspections will occur while parts of a project are still under construction, so the builders may set rules such as wearing flat closed shoes or safety gear when entering the building site.
These inspections are designed so you can check the property meets your expectations according to the plan and information you were provided at purchase. If there are any defects or discrepancies, you can report these to the builder to have them rectified prior to settlement.
As the purchaser, it is your right to opt to have a proxy conduct the inspection on your behalf or bring anyone along to these inspections who may assist you through the process (within reason). Engaging the services of a qualified building inspector can assist in ensuring this process goes smoothly.
What is a building inspector?
A building inspector is a qualified professional who conducts inspections. A good building inspector will have experience working within the building and construction industry. They are familiar with the BCA (Building Codes of Australia) and can quickly identify any safety hazards or non-compliant building works.
What services can a building inspector provide?
Building inspectors will generally inspect the inside of the property (including any roof spaces, that are accessible) and the exterior. By getting into the areas you might not necessarily think to look at (or may not be qualified to inspect), you can get a more comprehensive picture of your property. A building inspector can usually conduct termite and pest inspections as well.
All inspections conducted by a building inspector will come with a detailed report including pictures and descriptions, which are usually well-received by builders, so you can rest assured defects detected will be addressed and attended to appropriately.
If you have purchased a house and land package, you can arrange a building inspector to attend multiple inspections across the various construction stages to ensure construction is always compliant with the BCA.
For an aged property that may require work, a building inspector can also determine what works will be required and even investigate and provide fix price quoting and coordinating trades and services.
If any defects are detected at your initial inspection, a building inspectors may attend a follow up inspection (if needed), to ensure the original defects noted have been rectified and confirm there are no new defects in the process of having the old ones rectified.
Arranging a building inspection
While The Hopkins Group does not offer building inspection services in house, we have cultivated relationships with many building inspectors across decades guiding our clients through their off-the-plan property purchases. If you’d like to find out more about the building inspection services we recommend to our clients, or to talk to us about a future property purchase, please don’t hesitate to contact us today.