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Hello,
Welcome to our latest newsletter. As a another financial year comes to a close and another one begins, over the last 6 months we have seen some incredible prices being achieved with Auction clearance rates in Victoria peaking at just over 80% in recent months. This is contrary to the same time last when we were seeing a significant slowdown in residential property in the eastern states. So whats changed?
There are a number of factors driving growth for property in the eastern states currently; these include low vacancy rates, rapidly rising rental yields and a genuine lack of quality real estate. This is particularly prominent in blue chip areas where many buyers are 'cashed up from high share prices and some record company profits. We see this trend continuing for some time creating a two tier market effect between the various demographic property segments in the eastern states.
Here are Red Rock Mortgages we have had a record year end this financial year and as our business continues to grow we would like to thankyou for your referrals and look forward to continuing to support you with intelligent property finance products and advice.
If you have any questions about your current finance structure or would like to talk to one our expert advisors about borrowing strategies to accelerate your property investment returns, feel free to contact us today.
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St Kilda Rd Towers
Level 4, 1 Queens Rd
Melbourne VIC 3004| Tel: | 1300 667 694 | | Fax: | 1300 667 594 |
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In the Swim
Thinking of filling in the pool? Previously the demolishers came in when a pool had structural or other problems that were going to be too expensive to fix. However, pool demolishers are increasingly brought in to get rid of perfectly functioning swimming pools... Why?
Having a swimming pool may affect the property's sales potential by ruling out some groups of buyers. Older buyers may not want the maintenance work and those with very young children may think it a safety hazard. Buyers with most potential are probably people with teenage children or those who simply want to be able to swim at home. Houses in very expensive areas may not attract those buyers anyway.
There may also be potential environmental factors. Pools lose water through evaporation needing expensive pool blankets and the like. The pumps and filtration systems use increasingly costly energy to run them producing lots of greenhouse gas to generate that power. Environmentally sensitive purchasers looking at your home may not want that hole in the ground filled with water any more either.
The cost of getting rid of a pool is approximately $5,000 to $10,000 depending on Council requirements, site access and the size of the pool. On the other hand you may get some of that cost back by selling the pool filtration equipment.
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Comparing apples with apples
How do you compare apples with apples when assessing the interest rates advertised by lenders?
If it were a level playing field, all you would have to do would be to take the interest rate of one, compare it with another and that would be that. But it's not a level playing field! An interest rate may appear low but the existence of a front end charge, or other monthly fees and charges must be taken into account when calculating how much this loan is going to cost you in all forms of payment ie total fees and charges as well as interest.
Some years ago the concept of the comparison rate was legislated to enable you to do this. The comparison rate grosses up all the additional fees and costs (that are definitely payable under the Contract with the lender) and amortises these across the life of the loan as if they were to be paid monthly instead of as a lump sum. This gives the comparison rate.
For example, and without citing the lenders involved, recently published information for a standard variable loan of $250,000 indicated one lender's initial interest rate as being 7.24%. Another lender was quoted at 7.42%. Which is the best loan?
The answer may seem obvious but it is deceptive. When the $770 establishment fee for the loan with the lower rate is taken into account, it lifts the comparison rate to 7.42%. The loan with the apparently higher initial rate has no establishment fee and its comparison rate is the same as its initial rate - 7.42%. The effective interest rate under both products is actually the same.
In recent years the concept of the comparison rate has come under opposition from certain parts of the finance industry. The opponents of the comparison rate argue that it is complicated and hard to understand. They also point out that there are shortcomings in the way it is calculated - for example, if the loan contains Mortgage Insurance the cost of this benefit is not included in the formula. The premium for Mortgage Insurance can differ significantly between loans and this is definitely a component of the overall cost. In the same way any exit penalty fees for early discharge are not included in the comparison rate.
Properly explained and understood, the continued use of the comparison rate in the mortgage industry is a feature which can help empower you, the consumer. Please call me if you require further information about how to use the comparison rate.
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Did you Know
The Melbourne Institute Household Survey is out and it makes for scary reading. Apparently we're saving less and less.
The telephone survey of 1,200 households found that there has been an overall fall in the number of households saving from 54% to 52% and at the same time more families than ever are running into debt.
According to the survey the Western Australians are the best savers while those in New South Wales are stated to be by far the worst.
Most of us apparently save for holidays and travel, followed by that rainy day, retirement, bills, and finally renovating the family home.
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Water, Water Everywhere?
In many parts of Australia today people have their eyes fixed squarely on their dams. We've never been this concerned about water, or more correctly the general lack of it. Given the worst drought most Australians alive today have ever experienced and the harsh water restrictions that have resulted, it's about time we all became more water wise.
Governments at state and local level all seem to be pushing the idea that we have to make our houses more water efficient for the benefit of our communities and for our long term survival generally. There's no doubt they are all absolutely right.
Fitting water tanks, drilling bores, installing efficient shower heads and taps, and fixing leaks and leaky taps inside and outside are all things that all of us can do and depending on where you live in Australia there may be government subsidies and incentives to do just that.
Now the future survival argument is about as strong an argument as you can get, but you know, there's another reason to do all of this. That reason is financial; it's to do with the saleability and the re-sale value of your property. In any tight real estate market it pays to make the most of any advantage you have.
Green grass and healthy flowering gardens attract buyers compared to gardens that are definitely dead or dying. So, tank or bore water to keep the garden green and growing through even the tightest water restrictions also makes good financial sense.
Environmentally aware prospective buyers are actively looking for these features. Even if they are buyers who don't care about the water problem, when they see a home that's water wise they know that's one less thing they have to do with their precious leisure time and money. A water-wise home compared to a similar not water-wise property on offer might affect a purchaser's desire to buy one home over another.
Even if you're not selling at present the cost of water conservation measures now may have a positive affect on property values into the future.
If it's an investment home or unit, there might be another advantage. Check with your accountant but it may well be that any money spent on these water conservation measures is, at some point, tax deductible as well.
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Book Review
The age of cheap energy is over. Energy-saving measures in the home will, therefore, become ever more cost-effective.
This non-technical book covers the efficient consumption of energy in the home including: the position of the dwelling, its method of construction and the materials used; energy rating and the legal framework; insulation and U-values; windows and doors; conservatories, sunrooms and loft conversions; heating and hot-water systems; lighting and making the best use of daylight; ventilation; renewable energy technologies; appliances, gadgets and housekeeping; and the wider environmental issues including water economy and recycling.
Energy Efficient Home by Patrick Waterfield. Publisher: The Crowood Press Ltd
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Share Market on a high!
The Australian love affair with shares seems to be growing as fast as the Australian share market.
Estimates vary, but if you include the fact that we own shares because most have money tied up in superannuation that is invested in shares, then around 65% of the population hold shares directly or indirectly. Share ownership has also happened in recent years when organisations like the AMP demutualised and handed shares over to their former members.
One of the easiest ways to see how important the share market has become to ordinary people is the way share market information now invades every day life. It's impossible to watch a news broadcast without being told what shares did that day, broadcast live from some share broker's office. At the very least, two or three minutes of news time is given over to the share market each day.
So what's important information for the average share market investor?
Investing in shares should be a long term process for most of us who can't spend the day in front of a computer screen buying and selling shares. Indeed most of us would never have the time or expertise to do so anyway.
To illustrate a long-term investment approach to shares, let's say you bought $10,000 worth of quality shares at the end of April 2002 when the All Ordinaries Index was 3,300 points. If you did nothing but left those shares in the bottom draw until April 2007 when the All Ordinaries index stood at 6,100 points they would be worth approximately $18,500.00. That's a capital growth of $8,500 in 5 years or an average rate of return of 17% per year. Most of these shares would have paid a dividend or two along the way as well.
Will the share market always rise? Or will your shares always follow the index? Clearly history says a loud NO! History also says that when the share market has come crashing down it then goes back up again usually regaining any losses made and going even higher again, hence the long-term approach rather than short-term speculation.
As with all investments, you should take financial and tax advice before purchasing shares and / or financing the purchase of shares with a loan.
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Our Partners
Red Rock Mortgage Group is a Full Corporate Member of the Finance Brokers Association of Australia.
All members are bound by a strict code of ethics to ensure the highest levels of service, integrity and professionalism.
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About Us
Red Rock Mortgages specialise in mortgage finance for property Investors & Developers. Whether you're a novice or an experienced investor looking for a flexible finance solution to create wealth. Red Rock offers a mortgage to suit your needs.
Our aim is to assist investors in creating wealth through property by utilising innovative and flexible mortgage finance solutions.
Our boutique approach, experience and expertise means you'll be able to source the right finance facility to build a diverse property portfolio. We not only look at investment finance strategically, but also understand the needs and requirements for a successful property investor.
Red Rock Mortgages provides you with choice & flexibility from a diverse lender panel including the major banks and other lenders. In addition our own unique range of lending products can provide you with cutting edge innovation and additional leverage where others cannot.
As investors and self employed business people we understand the needs of self employed borrowers and property investors. You can be assured of receiving expert advice and prompt assistance, with the added comfort of knowing we are both speaking the 'same language'.
For professional intelligent finance advice, contact us today.
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Disclaimer: This newsletter is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this newsletter as a substitute for specific legal or financial advice. All material is copyright 2010.
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