What is equity? How does it work? What am I talking about? Why do you want? These are all questions that people will ask and they’re fundamentally important. So what is equity? I’ll give you a quick example. We buy a house for 400,000 and then over time this property increases in value. So let’s say it’s now worth 500,000. This gap here of a 100K is equity. So how do we build equity? We build it through this mechanism here, growth, which would be supply and demand. So the demand for a suburb is greater than the supply of stock in that suburb and that causes prices to go up. Or if we’re here, we start with 400,000 we can get this going down. And how do we do that? We do that by paying off our mortgage. And so reducing this 400,000 and let’s say we get it to 300,000 then creates more equity in our property.

So in this example their $400,000 property has now got 200,000 in equity through growth in the market and paying down our home loan. So how can we accelerate that and what are we doing with this? So if we want to accelerate it we either need to find a fantastic growth market and what would we be looking for? We’re looking for suburbs that are in demand, but we’re also looking for cities that are in demand. So Melbourne’s a great example. It’s forecast to be the biggest capital city in Australia by the mid 2020s. It’s going to surpass Sydney. So what does that mean? It means people are migrating to Melbourne so that means the prices of property in Melbourne are going to go up because they’re not going to be able to build as fast as what the supply demands. For investors that’s great news because that means there’s going to be more tenants that are looking to rent while they’re trying to buy property as well.

So we’re either looking for high growth locations or we do what we can do here and actually make additional repayments. One of the biggest tricks that we make is we get told by the bank, “Here’s your 25 or 30 year loan turn. Your repayments are $300 a week. We’re on $150,000 a year.” So instead of looking at our $300 a week repayments and going, “Hey, well why don’t we make it $600 a week or $700 a week,” which is putting in 20 to $30,000 extra into our mortgage each year, we go, “Hey, why don’t we buy a new car?” I would’ve said commodore but commodore’s aren’t here anymore let’s buy a BMW or let’s buy a Ford Titan or whatever.

And so we had other luxury costs instead of putting additional money into our mortgage. The benefit of building equity is then we can start bolting on other properties to our portfolio. With the same premise that we’re trying to buy properties in a portfolio where they’re going to go up in value. And so in this example here, we’ve paid down their mortgage, let’s say we’ve done it in five years, be conservative. We’ve knocked got $100,000 off our mortgage and the property is growing by 100,000, it’s in a good market and so we’ve got $200,000 in equity. So we’ve got property number one and all we need is 10 or 20% depending on our strategy to buy property number two. Now what do we do? Do we start funneling money into this investment property or do we funnel money into the owner occupied properties? Always, tip number one, own an occupied property because that property doesn’t have tax deductible debt.

Okay so we want to keep building equity in this property not in this property. We’re happy to take equity through growth, but we don’t really want to take equity through reducing the mortgage because our strategy is to knock this loan off first as fast as possible. Then once we’ve done that, we can start funneling our wage income into this to start helping that dip. So as we start building our equity here or here, we can start looking at bolting multiple houses into our portfolio. So if we’re looking at this example here, if we want a 20% deposit and we’re buying an investment property for 400,000 well that means we need $80,000 in equity. We’re not drawing that money out. What we’re doing is that this is 400, we’re just is limiting the loan balance on this property that’s available to us, right?

So in this example here where it’s worth 500 and not 400, if we’re taking 80% or 20% and let’s say by cost, this aside we’re using 100,000. That means we’ve still got here another 100,000 in equity available to us with this property, which means if we keep paying this down, we can then start looking at another property, investment property number two. How do we manage our money in this example? Multiple offset accounts is fantastic and offset accounts gives us an ability to play with our money more agile than what we can do if we only use a redraw facility. So what I would do is managing our loans. I would have a loan offset account for investment property one, investment property two and investment properties three and then I would also have our everyday living, you probably can’t read, that offset account.

Okay. With the beauty with the offset accounts, we can pull the money out if we need to to just go into another investment property. So it allows more maneuverability. And again, if we start getting growth in these properties here, the beauty of what happens is we can then have more equity, which technically you could hypothetically bolt onto this to allow us to purchase more properties. However, we have to remember there’s two components to getting a loan. One is the deposit, which is either cash or equity in our property and the other is income. And with modern banking it’s a lot more difficult to get loans because they’re more onerous now on our income and our everyday expenditure. So even though we have a lot of equity, it may be difficult, depending on our income situation to get loans from multiple investment properties.

The post What Is Equity & How To Use Equity To Build Wealth appeared first on Nieuvision.

We need to determine why we are investing? How does money assist in our process of being happy? Is knowing our “why” based around retiring earlier? Or is it to protect our family? Going on holidays more often? Being super rich?

Everyone has a different “why” reason! Not everyone wants all of the above, some even don’t want the above and have different reasons. However, knowing your “why” will give you a financial purpose and a greater goal to achieving success.

MORE INFO:
Rick Nieuwenhoven
CEO
e: rick@nieuvision.com.au

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Knowing the “Why” to Your Investing Will Make Your Money Choices Simpler appeared first on Nieuvision.

What you may not realise is that not only is Landlords Insurance quite specific to property investors, but also that not all policies offer the same benefits because the cover options are so broad.

When you own a rental property, there are a range of things that can impact your ability to keep generating rental income. If you rely on that continued rental income to cover your costs and expenses, it’s critical that you have the right type of coverage to protect your interests.

What to look for in a Landlords Insurance policy

While most tenants are generally respectful of rental properties, there are occasions when things don’t always go your way.

Before you choose a Landlords Insurance policy to protect your investment, take the time to ensure you have the right policy that gives you plenty of cover for a range of situations.

Some of the things to look for in a good Landlords Insurance policy include:

• Accidental loss or damage to contents caused by the tenant
• Malicious damage or theft caused by the tenant
• Loss of rent while the property is uninhabitable
• Damage caused by pets
• Legal liability to protect against the possibility of injury due to landlord’s negligence
• Tax audit
• Prevention of access to the property
• Default of rent.

Other considerations to explore and compare before signing up for a Landlords Insurance policy include:

• What are the excess charges?
• How many weeks’ rent are covered if your tenant defaults or absconds?
• Does the policy cover any legal expenses?
• Have you compared the premiums as well as the summary of benefits?

Landlord’s contents coverage

Always check your policy to ensure any contents that belong to the property are covered adequately. Most landlords automatically assume they don’t need to cover contents, as any furniture within the property belongs to the tenant.

In reality, your property contents also include items such as:

• Carpets
• Curtains
• Internal blinds or window coverings
• Light fittings
• Fixed appliances (such as dishwashers).

Be sure your Landlords Insurance policy covers you for damage or loss of your contents too.

Extras coverage

Damage to the property caused by pets or legal liability cover might be listed as extras, but they’re both valid areas of coverage to include in any Landlords Insurance policy.

Protect your investment

Whether you are reviewing your existing Landlords Insurance policy or taking out cover for the first time, it’s worth shopping around and comparing the premiums and summary of benefits for several policies to find the one that’s right for you.  When it comes to protecting your investment property, doing your due diligence before signing up can save you time, money and heartache down the track.

MORE INFO:
Rosanna Russo
Property Manager
e: rrusso@nieuvision.com.au

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Importance of Having Good Landlords Insurance appeared first on Nieuvision.

Property investment loans

In the second week of February, the Australian Prudential and Regulation Authority (APRA) issued a warning to Australian banks about the increase in lending for the purpose of property investment across the country.

Throughout 2016, APRA tried to slow the rate of investor lending across the country. APRA set annual lending growth limits and benchmarks that the banks were forced to adhere to. The result led most banks to increase interest rates for investment home loans in an effort to slow investor demand.

In response to APRA’s announcement, the Commonwealth Bank (CBA) has stopped accepting refinancing applications for investment mortgages beginning mid-February. The CBA issued correspondence to mortgage brokers on the 8^th February to advise them that the suspension would take effect on the following Monday.

Of course, the CBA promised to honour and process existing loan applications that were submitted before the February 13 cut-off date, but new applications will be denied, even from existing customers.

CommBank also announced that investors would also face an interest rate hike of 0.12% on interest only home loans that would take effect on the 3^rd April.

In a similar move, Bankwest also made a move to make changes to eligibility criteria for investors applying for investment home loans. Bankwest customers using negative gearing tax benefits would no longer be able to use those losses in applications for investment loans, effectively reducing the borrowing capacity for those customers.

Also in response to APRA’s warning, AMP announced it would stop accepting new investor refinance applications. In the same announcement, AMP also made it clear that investors would face an interest rate rise of .30% for interest only property investment loans, along with limiting investors to a 70% loan-to-value ratio (LVR), increase of the previous 90% LVR.

Yet not all banks have responded the same way. There are still some banks in the market encouraging applications from property investors.

ANZ Bank recently announced to mortgage brokers across the country that they would offer a cash rebate of $1,200 as an incentive to customers for submitting applications for new residential investment loans.

Likewise, BankSA announced a cash rebate of $1,500 to customers for submitting applications for new residential investment loans received before 31^st May 2017.

What does this mean for investors?

While some banks and financial institutions in the Australian market may be restricting applications from investors or penalizing existing customers by raising interest rates, there are certainly some banks out there willing to negotiate for great discounts.

Since the beginning of December 2016, 39 of the 84 lenders in Australia have increased variable interest rates on property investment loans. Plenty of other banks made their move on investment interest rates earlier in the year.  Overall, around 90% of banks charge higher interest rates on investment loans than the rates charged for an owner-occupied loan.

Yet research indicates that customers are still able to obtain competitive interest rates and loan terms by shopping around. A good mortgage broker has access to a broad panel of lenders and financial institutions, so it’s possible to discover deals you might otherwise have missed by staying with your existing bank.

In light of changes being made in the investment mortgage market, it makes sense to ditch the loyalty to one bank and start searching for the right home loan to suit your investment goals.

Happy hunting in an exciting market!

MORE INFO:
Rick Nieuwenhoven
CEO
e: rick@nieuvision.com.au

– – – – – –

Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Is It Worth Staying Loyal to Your Bank? appeared first on Nieuvision.

• Credit Guide

The post Credit Guide appeared first on Nieuvision.

• Which Home Loan

The post Choosing a Home Loan appeared first on Nieuvision.

We approached Nieuvision 4 years ago after making the decision to invest in property. We needed help and had heard great things about the company.

My wife and I had 4 young children (2, 3, 6, 8) and were living in the family home we had bought 6 years earlier, before the property boom. Our house cost us $370,000 and after carrying out some fairly extensive renovations we were surprised and thrilled to realise we had just over $220,000 worth of equity available to us.

Our first inclination was to go out and buy a property we liked. After sitting with the Nieuvision team, we realised we needed to have a long term plan – after all, we have 4 kids to put through school.

Rick encouraged us to ‘dream big’. We wrote a ten year plan, ending with us owning 7 investment properties that would accrue enough equity to draw on and send all our kids to private high schools. It was a big dream, an impossible dream. Or so we thought.

We bought our first house, a 3×2, neatly presented, with tidy gardens and neutral décor within 3 weeks of meeting with Nieuvision. The sellers were building their dream house and part of the sale agreement was that they would rent back the property for a year. Talk about a perfect arrangement! As the previous owners, they were emotionally attached to the house and were committed to the continued upkeep of the property.

Seven months later we approached Nieuvision again. After seeing how easy the investment process was, we wanted to repeat the experience, using a little more of the equity in our home as the deposit on our next property. Once again, Nieuvision delivered a highly desirable investment property. This one was a 4×2, near a train station. It was a little dated inside, but the layout was nice and the gardens were low maintenance.

The Nieuvision property management team sourced and screened tenants for us, which gave us great peace of mind. We could hardly believe that we were now the owners of two investment properties – at a very small weekly out of pocket expense.

The pressures of getting the kids to and from school, homework and music lessons took our minds of furthering our investment portfolio for almost a year – life happens! But, not long after the following Christmas we sat down with Nieuvision again, determined to pursue our big dream.

We used some more of the equity in our house to buy property number 3. A small 3×2 on a huge block, the initial rental income wasn’t much, but the land had just been rezoned, allowing for multiple dwellings. We decided to keep the house for 18 months (as Nieuvision had already found us tenants) and then we would redevelop. That would give us 4 rental incomes – one for each of the children. Our goal of achieving a property portfolio that would cover the costs of private school was within reach.

I can say with all honesty that without Nieuvision’s help, we would not be in the fantastic financial position we are now in. My wife and I are thrilled to know that we will be able to provide our kids with a private education – something we thought was out of our reach.

Our property investment journey continues, with each month that passes we get closer to our dream goal of 7 properties in 10 years.

Thanks Nieuvision.

John Denby, Adelaide.

The post How investing in property paid for my child to attend private school appeared first on Nieuvision.

Building a successful property portfolio is not a simple process. The process is ongoing, requires solid planning and time critical decision making. Purchasing numerous properties without proper planning is unlikely to achieve above average returns in the long term – which is one of the only reasons you’d want to own multiple properties in the first place!

Investors should aspire to create a property portfolio that is appropriate for your individual level of risk tolerance and achieves your financial goals and objectives. Through doing this, the appropriate portfolio should contain properties that reduce volatility through diversification and work to maximise the tax advantages available (through specific financing arrangements and differing ownership structures).

If you seek to achieve sustainable and long term returns from property then you should take into account the following tips – they are absolute crucial to consider when building a portfolio.

Time Until Retirement

The stage of life that you’ve reached and your financial situation will determine the best type of portfolio strategy for you. Investors at the beginning of their career should scale down their exposure to risk until they have the capacity to take on greater debts. This is done to protect their already existing capital and wealth.

Similarly if you’re thinking about retirement in the next few years and are in a comfortable financial situation (relative to your objectives) then you should also scale down exposure to risk. Again, this is to protect built up and existing capital and wealth.

If you fall in-between this spectrum you should look to actively build your wealth by seeking high-risk investments in return for higher returns (hopefully).

Location

Diversifying through location is a form of risk management undertaken by investors. When adopting this approach it is vital that land value is properly assessed. Land value is driven by scarcity, proximity to infrastructure or areas of attraction and convenience to transport options. Seeking appropriate combinations of these factors will enable investors to find good land value.

Some suburbs may be potential growth havens in the future – and therefore seem very attractive. This type of speculation can however be costly – investment decision such as this should only be undertaken if they are based on significant and justifiable reasons in conjunction with advice from your property advisor.

Property Types

The Australian dream to own (a minimum) three bedroom home with an open adaptable living area is very much alive and is very desirable for the majority of tenants and future buyers. When considering property investment it is important to focus on properties that will attract high proportions of the population the majority of the time.

Newly built houses are in some ways more advantageous for investors when compared with older houses. They can be more easily designed and landscaped to an appropriate standard for a rental property, and they receive the maximum depreciation allowance from the ATO.

Older properties can still however be very valuable investments in the right circumstances. Certain housing styles (such as Art Deco) are in limited supply however may go through periods of time where they become quite trendy amongst buyers and therefore more valuable.

Caution should be taken if investing in apartments – in certain suburbs they may present unique yield and growth opportunities however quite a lot of the time they can be quite risky. Often there is a lack of scarcity for apartments and therefore they can be of lower inherent value. There is also the risk that a newer and more appealing building will be established nearby.

Cash Flow

It has been suggested that cash flows can be used to diversify against property risk. This is done by including a mix or positive or neutral cash flow properties alongside negatively geared properties.

There has been quite a lot of discussion recently about negative gearing in Australia. Many don’t actually understand what the concept entails. Negative Gearing is when the interest repayments on a property are greater than the returns in the same period. Of course this means investors are making a loss, however there are taxation advantages. There is also the strong belief that the property value will increase over time to an amount that at the time of sale, offsets all the losses incurred through the interest rate losses.

Combining positively or neutrally geared and negatively geared investments provides an additional diversification of your rental yield.

A positive or neutrally geared property will assist with loan repayments, and reduce the sole reliance on capital growth to produce returns in the long run (negative gearing). This approach can be somewhat problematic, because seeking high rental yield often occurs at the expense of long term capital growth. Thus investments in poor quality assets often occurs, assets that won’t deliver appropriate capital growth in the long term required to achieve your financial objectives.

If you are really in need of additional cash flow through high rental yield, your investment should be made within the bounds of good value and sound diversification.

The best approach is to seek properties that have good overall value and which are well diversified through building type and location.

Renovating and Developing

As previously mentioned older houses can at times offer unique investment opportunities. This is due to fluctuating popularity, but also due to the opportunities they can offer for renovation and development. Development or renovation is often quite common for investors however can be a very risky process and needs to be properly managed.

It can be a very effective short-term strategy to deliver increased capital growth and rental yield.
Low cost options such as renovating a key room, adding a storage space and undertaking a cosmetic renovation are all options that can be completed quite quickly and add reasonable amounts of value to properties.

In conclusion, a wide and diverse property market analysis should be undertaken when considering property types. Consideration of the current market, alongside with forecasts is very important and should be incorporated into any decision.

The process of building a portfolio in property is not a simple task. Articles like this only touch the tip of the iceberg in regards to variables to consider when choosing appropriate properties to build a portfolio. If you’re thinking that perhaps property investment may be for you but don’t know where to start Nieuvision is here to help you. For many years now we have helped clients who’ve found the property market scary initially, and built their wealth and confidence up to a level they never could have imagined. Remember, you don’t have to take this big step all by yourself! Nieuvision is here to guide you on your journey. Contact us today!

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