Property Markets are booming in other places outside Sydney too you know….
It’s been a while since we have written a lengthy blog post.
2020 saw us spend a lot of time ensuring our clients felt comfortable in their own financial situation and made good decisions for their future.
Who would have predicted that from March 2020 when the world shut down for a period, to then September 2020, property markets in Sydney would start to bubble out of control?
I wanted to update not just our clients, but even those who read our blog but are not yet clients, on where the opportunities are at for you as an investor if you are already in the property market.
Let’s begin with rentals.
Due to the many restrictions imposed by state governments around a moratorium on rental evictions and lease increases, what has now happened is the rules have all been reversed pretty much all at once. So now is the time to review the rent on your property.
Yes, your tenant has been great, yes, they have paid their rent during covid, but expenses still increase ie water, maintenance costs, trades etc. So, if you don’t jump onto the rental increases early, not only will you miss out on possible income, but you will fall behind market rents. Then when the time comes to increase the rent and get it up to market, the shock of a $50-$100 per week increase could well mean your tenant ups and moves out anyway due to affordability.
Here is an example. My property in Upper Coomera, it was getting $430 per week. The property manager reviewed the rent and said the rent should stay at the same level. A quick realestate.com.au search and I couldn’t find any 4 bedroom 2 bathroom houses under $460 per week – this was in April. So, I stuck to my guns, and requested an increase to $450 pw now, with a further increase to $460 pw in 6 month’s time. The tenant wasn’t happy. But, after they said that’s okay, we will find a property elsewhere, within 2 weeks, they accepted the new rent – why? Because anything else they looked at to rent was going to cost them more anyway. Now its July and the same house is worth $480-$520per week. So, guess what, when the 12 months is up, we’ll be doing the same increase again, keeping the house in line with the current market and protecting the cashflow.
Lessons from this…
- Don’t believe the appraisal your property manager gives you, question it and do your own research. Sometimes the data they’re using can be 2-6 months old.
- Your tenants are not your friends, this is a business, if they love living in your property, they will understand.
- Keep your house maintained so you can expect the highest possible rent.
- Ensure if you do increase your rent that the bond amount increases in line with it.
Selling versus keeping my current investment property?
We are seeing east coast properties selling for well over the expected price. The growth in every location has been awesome. We have had requests from clients asking, should I be selling now, eg, one of our past buying locations, Morayfield for example has jumped its median house price by over $135k in the last 12 months – is now a good time to cash in?
We plan on contacting clients by location over the coming months, as every location we have purchased in is specific in its reasoning to sell and growth potential thereafter.
But, with interest rates at low 2% and rents continuing to increase – unless you need to sell to fund either another property, repay your home mortgage in a lump sum to reduce repayments, or some other reason, why are you selling?
Don’t get me wrong, 100% selling to make a profit is the aim of the game, but you should always double check the numbers with your accountant as to the expected capital gains tax. Consider the cost to hold the property, less the income received, and if there is room to move in the future for more capital growth – or if it’s costing you nothing to hold – why sell? Imagine if you bought a house in Sydney in 1994 for $350,000 – imagine what it would be worth now? Same philosophy applies here.
Let me give you an example…
*These gross calculations are based on a sale here:
Sale Price $580,000
Less Sale Costs -$20,000_
Less Purchase Price $356,000
Profit = $204,000
To calculate the Capital Gains Tax to be paid, and if you’ve held the property for more than 12 months, you can take off your 50% concession on your $204,000 profit, so your taxable gain is only $204,000 / 2 = $102,000.
Example: If you earn income of $85,000 pa your income tax would be $19,172 for the year. But when you add the taxable gain of $102,000 you now need to look at the income tax for $187,000, which is $57,247. So, the Capital Gains Tax on the $102,000 would be ($57,247 – $19,172) $38,075.
The final net profit from the sale is ($204,000 – $38,075) $165,925 less whatever you owe on your investment loans.
But to give you a little idea, if you placed that $165,925 into your home loan, and it had an annual interest rate of 2.5% per annum, the total amount you’d save in a year would be $4,148 pa, not bad I’d say.
*This example is not based on a specific person, it doesn’t take into consideration addbacks and deductions, and it is not financial advice at all. It’s important you cross reference the figures with your own accountant to see what is best for you.
What have we been buying for our clients?
Check out an example of a property we purchased recently.. this gives you an idea of what you can purchase using the equity available in your current property/ies.
So what are we doing…?
With interest rates at historical lows, if you can afford to hold onto your property portfolio, increase the rent, and take advantage of the growth by using some of the equity to buy into another 1 or 2 investments, that makes sense for the future.
Now although a lot of Australia has Boomed, there are still locations that have only just started their Boom cycle. Meaning there are still some awesome deals to get your hands on to – but time is of the essence.
And the best part is (thanks to the low interest rates) that every house we are currently buying for clients is cash flow positive (even if you are borrowing the entire amount).
Now for those who have never invested before and are a little worried about taking on more debt. You always have the option to sell the property if things didn’t work out for any reason. But the chances of that are extremely low – so what are you waiting for?
And for those with children, here’s an idea…get into the market and buy a property now, create wealth through equity and cashflow, so that one day you can leverage off that and help your children so they too could own a home. Food for thought?
So wHat are you waiting for?