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John McGrath
Property Expert
+ About John McGrath
About John McGrath - Founder and Executive Director, McGrath Limited

John McGrath is considered one of the most influential figures in the Australian property industry. As Founder and Executive Director of McGrath Limited, , he took McGrath Estate Agents from a lounge room start-up in 1988 to one of Australia's most successful residential real estate groups, listing McGrath Limited on the Australian Stock Exchange in November 2015.

An integrated real estate services business, McGrath today is one of the fastest growing real estate companies in Australia with a strong market presence in NSW, the ACT & Queensland, and a growing presence in Victoria.

In October 2008, John was honoured by the Real Estate Institute of NSW with the Woodrow Weight OBE Award, a lifetime achievement award for his outstanding contribution to the real estate industry.

John himself has become a spokesperson for the industry both in Australia and internationally. John has five books that have reached bestseller status including “You Don’t Have To Be Born Brilliant” and “You Inc.”. In “The Ultimate Guide to Real Estate”, John shares with the reader his invaluable knowledge on the Australian property market.

John is a Director of REA Group and also the South Sydney “Rabbitohs,” which is one of his great passions.

Why is off-market selling on the rise?

Tuesday, August 30, 2016

By John McGrath

You might have heard about off-market selling, where a property is sold without any public advertising. This only happens with a very small percentage of properties overall, but we’re definitely seeing it a bit more often in major metro markets these days. 

There are significant risks for vendors who choose to go this way, because without going on the open market, there’s no way to ensure every possible buyer has seen your property. And you need competition to flush out the maximum price that your home is worth. 

But for some vendors, this risk is worth it. There are some circumstances where the importance of getting a deal done quickly for a reasonable price outweighs the alternative of going to the open market and negotiating with buyers over several weeks for the best price. Such circumstances include relationship breakdown and financial stress. 

Other vendors like off-market selling because it enables privacy. This is often the main priority for prestige clients. They typically don’t need a quick deal and are happy to wait for a good offer while avoiding public advertising campaigns and the intrusion of opens. They will list with an agent who will then work their database to find suitable buyers. 

Some clients list off-market just to test the waters, in the hope their dream price will be offered. In the lower- to middle-market, some vendors go off-market because their property is tenanted and they can’t get access to style and prepare the property for a photo shoot.

Others do it purely to avoid the cost of a marketing campaign, but ultimately, I think sellers pay for this strategy with a reduced sale price due to reduced competition. 

So why is off-market selling on the rise? 

The primary reason is that agents have created the ability to sell without advertising through database marketing. 

The old way – placing ads in the paper and waiting for buyers to come to you, is over. The best agents are going after buyers themselves and dedicating more time to developing personal relationships with the purchasers they meet at opens and online. 

Another reason is the growth of the buyers’ agent industry. They were once only used by prestige buyers, but today, they are also very popular with time-poor families, couples, and executive singles purchasing in the lower to middle price brackets too. 

Smart selling agents love buyers’ agents because they’re a direct avenue to highly motivated purchasers ready to buy now. That’s helpful when your vendor needs to sell quickly, for example. 

Buyers’ agents are also being increasingly proactive in approaching home owners directly to see if they’re interested in selling – especially in markets that are undersupplied. This often occurs when a client wants to live on a particular street, or they have identified specific houses that they are interested in.

Owners are often open to selling in such circumstances if the buyer is willing to pay big. There’s also the ‘bonus’, as the seller might perceive it, of no selling agents’ fees. However, this scenario only works if they get a true premium price above market value. 

My general advice to sellers is to look carefully at the pros and cons if you’re considering selling off-market. In my opinion, there are more cons, as you’re highly likely not to get the best price for your property. 

There is no doubt that putting your home on the open market, with appropriate print and online marketing, is the best way to achieve the best price.  

If you do go off-market, select your agent carefully. Make sure you’re investing in someone who is going to put in the time and energy to match your property to suitable buyers and call them individually to discuss your home – not just send a group email with a brochure attached. 

Lastly, buyers can get access to off-market opportunities by engaging with selling agents and having their criteria registered on their databases; or by employing a buyers’ agent. 

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Suburbs with million-dollar medians

Tuesday, August 23, 2016

By John McGrath 

During my 30 years in real estate, I’ve seen a lot of changes in the marketplace.

As a young agent in Sydney back in the 1980s, if I was dealing with a millionaire client, I was dealing with someone from the upper echelon of society. Some type of high-profile businessperson, investor, or someone with family money.

Today, in most cases, one million dollars is the typical budget for a family home. And according to new statistics, it’s also the median price in 613 suburbs nationwide.

Independent analysts, CoreLogic, have just released their latest stats on suburbs with million-dollar medians.

They looked at the median sale price of every suburb across Australia and found that there were 613 suburbs with a median value of at least $1m – more than double the number of suburbs in 2013 and 29% more than last year.

Among the 613 suburbs, 570 had a median house price above $1m and 43 had a median apartment price above $1m. (By the way, to keep things accurate, CoreLogic only included suburbs that had recorded at least 100 sales.)

What happened? Well, a boom happened. A massive one. In fact, the latest numbers put the increase in property values over the past four years since this current growth cycle began at 61.3% for Sydney, and 42% for Melbourne.

Tasmania remains the only state with not a single suburb median above $1m. No wonder they’re getting more enquiries down there from Sydney and Melbourne downsizers who are keen to escape the expensive capital cities for gorgeous scenery and a cooler climate.

In terms of the states with the highest number of $1m suburbs, of course New South Wales leads with 418, followed by 102 in Victoria, 44 in Western Australia, 19 in Queensland, 15 in South Australia, 12 in the Australian Capital Territory and three in the Northern Territory.

Let’s take a look at the Top 25 suburbs with the highest median prices in Australia. Only two are outside Sydney – Toorak in Victoria and Peppermint Grove in Western Australia.

Top 25 most expensive suburbs

To round out the national picture:

  • The most expensive suburb in Queensland is Teneriffe (median $1.645m for houses)
  • The most expensive suburb in South Australia is Springfield (median $1.737m for houses)
  • The most expensive suburb in the Northern Territory is Larrakeyah (median $1.197m for houses)
  • The most expensive suburb in the Australian Capital Territory is Forrest (median $2.068m for houses)

CoreLogic also tells us that the number of homes selling for $2 million or more is on the rise.

When the growth cycle started in mid-2012, there had been 4,103 sales of $2 m or more across 884 suburbs in the preceding 12 months. By comparison, in the year to March 2016, there were 11,648 sales across 1,437 suburbs.

So what does all of this mean?

On the one side, there’s the affordability issue – yes, it’s getting worse in Sydney.

On the flipside, the rising number of million dollar suburbs means rising wealth for home owners. So in my mind, being a property owner certainly has its rewards.

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Property hot spots of tomorrow

Tuesday, August 16, 2016

by John McGrath

Savvy property investors are always on the lookout for the hot spots of tomorrow because that’s where the greatest potential for capital growth lies.

Some of the tell-tale signs of potential future growth are: beneficial new infrastructure such as new roads and transport, redevelopment of retail centres, and more lifestyle amenities such as new recreational centres, café villages and restaurants.

So buyers, let me tell you about Toowoomba. 

Toowoomba is located 125km west of Brisbane and in my opinion, is one of the most exciting emerging regional centres in Australia. It’s already our second largest inland city (after Canberra) but its growth is far from over.

Right now, Toowoomba has all the hallmarks for growth. We believe its strong focus and investment in infrastructure, retail and lifestyle precincts will have an impact on both interstate migration and employment opportunities in the short, medium and long term.

Several multi-million dollar projects are either underway or being planned, namely the $1.6 billion Second Range Crossing, the development of the 550 hectare Wellcamp Airport Business Park; the $500 million redevelopment of Grand Central shopping centre and the transformation of the railway precinct into an urban village and parklands.

To remind you – the key indicators of a hot spot are beneficial new infrastructure, redevelopment of retail centres and more lifestyle amenities … and Toowoomba has them all.

Guess what else is great about Toowoomba? The median house price is just $362,000 (CoreLogic). This affordable price point is not only attractive to the locals, it’s also attractive to tree changers, downsizers and investors. The median house rent is $305 per week (realestate.com.au) – a respectable yield of 4.4%.  

When do you buy in a hot spot? Ideally, it’s pretty soon after major projects have been approved or have commenced. The effects are not yet there, so they haven’t been felt by the property market – yet.

Our McGrath Toowoomba Principal, Toby Sandell says we’re at the best point in the cycle for buying for long-term capital growth now.

Our local market has been subdued for the past year since the banks tightened investment lending. As a result, we’ve seen very few investors in the marketplace, a decline in sales volumes of 33% (APM) and the region’s average days on market has increased to 67 days (REA),” Sandell says. 

“While there’s fewer investors, the flipside is we’ve seen more first home buyers and upgraders taking advantage of affordable buying and lower interest rates. There is good demand from locals for quality properties in the right areas.

“Interestingly, the median house price rose by 1% over the year despite these tougher conditions. The fact that the price is holding and even increasing slightly is a sign of Toowoomba’s resilience and strength. One reason for this is strong and stable employment with the state’s lowest unemployment figures.

“In the lead-up to Spring, we are just starting to see a few more positive signs with a bit more buyer enquiry and a few more investors from Sydney and Melbourne returning to look for well-priced homes.

“Stock is tight but we have been busy doing more appraisals for the past four-six weeks so we’re expecting that stock shortage to ease. We are currently marketing a number of high-end properties which have all attracted good numbers at opens.” 

Okay. Let’s talk specific projects.

Brisbane West Wellcamp Airport

The airport is having a positive effect on the accessibility of the region both domestically and into Asian markets. It is continuing to expand, with direct passenger flights to Melbourne and Cairns commencing in March. Several agri-based companies are setting up in the surrounding Business Park in order to take their produce directly to Asia. One of these is a baby milk formula factory – the first in Queensland, which will export directly to China.

Second Range Crossing

This new 41km road is important because it will take trucks off city streets, creating a better community amenity, while also enabling a faster trip for freight services. It will create 1,800 full-time jobs. Major construction is underway, with the peak phase expected around mid-2017, so as more workers move in during summer and into 2017, we expect to see weekly rents rise as well.

Grand Central redevelopment

Stage 1 of this massive new shopping centre should be open for Christmas retailing. The redevelopment will include a new dining precinct, department stores, supermarkets and almost 160 other stores.

Railway Parklands Precinct redevelopment

This 50 hectare site will incorporate a central park, shops, commercial and industrial facilities and residential options. The council estimates it will provide up to 3,300 jobs during construction and a further 1,800 jobs in retail and service industries. The developer is currently working with council to finalise the plans.

Now, a final word from Toby: 

“We see a very bright future for the town and the region. The airport’s expansion, the Second Range Crossing and the Grand Central extension will be pivotal to growth and employ thousands of workers once operational.

“The next big thing for us is the Melbourne to Brisbane Inland Rail line project, which would make Toowoomba a major logistical hub and bring more jobs and businesses to our region if it proceeds in its current proposed form.

“We feel that now is a fantastic time to buy and get in early before the next stage of growth starts to happen in the region.”

Super-Hot Spots within a Hot Spot

Every city has its super-hot spots. Right now, most of Toowoomba presents great buying, but we’ve highlighted a few suburbs that are the most popular right now and primed for capital growth.

South Toowoomba and Centenary Heights

  • Hot price bracket: $350k-$500k
  • Buyer demographic: Young families wanting value for money and close proximity to the CBD

East Toowoomba and Rangeville

  • Hot price bracket: $500k-$800k
  • Buyer demographic: Premium suburbs for upgrading families, although stock is very tight 
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What the rate cut means for the property market

Tuesday, August 09, 2016

By John McGrath

The Reserve Bank’s latest interest rate cut has taken the official cash rate to a new record low of 1.5%.

This is great news for people who already have loans because it makes their repayments cheaper. But the impact of this rate cut on the property market itself is probably going to be minimal. 

First of all, the big four banks are not passing on the rate cut in full.

Westpac is cutting rates on home loans with principal and interest repayments by 0.14% while customers with interest only loans (mostly investors), will receive a 0.10% cut.

The Commonwealth Bank is cutting its home loan rates by 0.13%. ANZ is cutting its rates by 0.12%. The National Australia Bank is only cutting rates by 0.10%.

Secondly, the banks’ tougher lending criteria continues to make it harder for people to buy more property. The rate cut won’t make borrowing easier, because in most cases, the banks calculate your existing repayment obligations at the long term average interest rate of about 7-7.5% to determine if you can afford another loan.

For the same reason, the rate cut won’t help first home buyers in Sydney where affordability is a major obstacle. First home buyers struggle most with raising their deposit, so a rate cut won’t help them find the 20% plus stamp duty they typically need to buy.

In addition, rate cuts at the end of a boom are less impactful than rate cuts at the beginning or during a boom when there is momentum in the marketplace and both buyers and sellers are highly motivated. Right now, momentum is easing.

According to CoreLogic’s latest report, Sydney homes are now taking an average of 40 days to sell which is two weeks longer than last year. In this environment, vendors typically begin reducing prices to get a sale. Price growth is continuing, but at a slower pace, and fewer new listings on the market means sellers are feeling less motivated (although buyer demand and clearance rates are still high). 

Sydney’s average annual rate of growth in the 12 months to July 2016 was 9.1% and Melbourne’s was 7.5%. This compares with Sydney’s peak of 18.4% in the 12 months to July 2015 and Melbourne’s peak of 14.2% in the 12 months to September 2015.

On the flipside, the rate cut does help people who already own property because it reduces their repayments.

The question is, what will you do with this extra money?

One option might be to change one or more of your loans to principal and interest, so you’re actually paying down your debt rather than just paying the interest.

Another option might be building up your savings for your next purchase, particularly if the banks are limiting the amount of money you can borrow. Put the money into an offset account so it reduces your repayments while also building your savings. 

If you take a long-term view with your properties (which you always should), these historically low interest rates are only going to last for a few years of what might be a two, three or four decade period of ownership.

There are many more years ahead and at some point, rates will return to the average of 7-7.5% or more. So it’s worth considering how you can best take advantage of these once-in-a-lifetime historically low interest rates while they’re still around.

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10 ways to give your home a facelift

Tuesday, August 02, 2016

By John McGrath

With so many great renovating and home decorating shows on TV these days, it’s no wonder people get inspired to make over their own homes. But ripping out entire rooms – which is what we usually see on TV – is not always required to achieve a great new look.  

There are plenty of cheap and easy ways to give your home a facelift without going to the expense of total replacement. You could literally save thousands of dollars if you just do a little research and have a good walk around your local hardware store.

Here is a list of cheap, quick and easy ways to smarten up your home:

1. Paint

Nothing lifts the look and feel of a home better than a fresh coat of paint. Painting a whole house professionally is expensive, so you can save a lot by doing it yourself.

I recommend neutral colours, which allows you plenty of flexibility with furniture colours.  Talk to an expert about gloss versus matte and colour selection. A quick way of doing things is to pick a neutral colour for the walls and then paint the doors, door frames, skirtings, architraves and ceilings in simple white.

Consider a mould-resistant paint for the bathroom and laundry. If you have children, look at wash and wear paints so you can wipe off marks more easily.

2. New window coverings

Replace old-style options, like venetian blinds and long curtains, with more modern options like plantation shutters or roman blinds in neutral colours.

3. Install a skylight

If your property is dark, skylights are your best friend. Bringing in more natural light will have an immediate and lasting effect on the ambience of your home.

4. Replace light fittings

If you’re on a budget, I’d go for one or two designer light fittings – such as pendant lights in the main living areas – and cheaper, simple and uniform fittings in the other rooms.

5. Replace wall light switch covers

This is a really cheap, but effective way of making every room look smarter. Many older style homes have plain white light switch covers. If they’re looking grubby or old fashioned, consider silver, stainless steel or a more modern white cover. You’ll pay about $6.50 for a typical single switch silver cover at Bunnings.

6. Steam clean carpets before considering replacing them

Some carpets are so worn out that nothing will save them – in which case, replace. However if your carpets are in good condition, but just a bit grubby with some stains and marks, try professional steam cleaning before you spend thousands of dollars replacing them.

7. Replace door, drawer and cupboard handles

This very low cost change will have a big impact. Try to find new handles that are similar in length and shape to your current ones, so you can place them over the holes from your previous handles – no filling required.

8. Upgrade the garden with simple tricks

Bark mulch is a simple, low-cost way of making your garden look stylish and neat. It will also reduce weeds and the garden will require less watering. In terms of plants, large gardens can look great with a big range of plant varieties, but small gardens tend to look better with just a few types of plants. Avoid deciduous plants (unless you enjoy raking leaves every weekend!) and instead target cheap evergreen varieties in similar shades of green.

9. Consider quick kitchen updates

Depending on what your kitchen cabinets are made of, you might be able to paint them if they’re still in good condition. Same goes for splashback tiles. Old laminate benchtops can be painted in another colour or even a stone-look laminate paint.

Alternatively, contact a kitchen company about refacing (brand new cabinet doors and drawer fronts with a matching veneer placed over existing cabinet boxes) or refinishing (painting/staining all existing cabinetry).

You’ll be looking at a few thousand dollars to refinish, several thousand to reface, and tens of thousands to replace (unless you go for a simple flat pack kitchen, which is a great replacement option for lower priced properties).

10. Consider quick bathroom updates

Resurfacing your tiles and bathtub is much cheaper than replacement. Even bathrooms in darker colours can be sprayed a brilliant white. Alternatively, you can paint the tiles yourself, but get advice first and make sure you use a primer.

If you want to replace the tiles, consider cheap ceramic tiles with a marble-like pattern or natural stone look. Also, replace your old shower frame with frameless glass – it’s far easier to keep clean and the extra expense of glass over a new aluminium frame is worth it!

When doing any kind of renovations, you need to consider what actually suits your home. I also recommend keeping re-sale in mind, even if you intend to stay put for the foreseeable future.

For example, if you own a modest home at the more affordable end of the price scale, don’t go tiling the bathroom with travertine stone because buyers in your price bracket will not pay more for that. Equally, if you’re renovating a larger home at the middle to higher end of the price scale, don’t use cheap ceramic tiles when your buyers will expect travertine.

If you need help making decisions, contact a local agent. Good agents will be more than willing to give you advice even if you have no plans to sell, so why not leverage their expertise to help you make the right call on your next round of home improvements?

 

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Buying apartment blocks with your SMSF

Tuesday, July 26, 2016

By John McGrath

Developers and high net worth individuals have always been the typical buyer demographic for blocks of apartments. But today, they are increasingly competing with a new type of buyer –  mum and dad investors purchasing through self-managed super funds (SMSFs).

Let me give you an example.

Not so long ago, one of our agents, Ben Collier at McGrath Edgecliff listed a fantastic art deco block of eight apartments in Barry Street, Clovelly that attracted many SMSF buyers.

The gross returns were $264,160 per year and there was scope to raise the rent and add value with extra parking too.

Ben expected a sale price around $7 million but strong competition at auction pushed the price to $7.52 million. While the property did end up selling to a developer, three of the under bidders above $7 million were mum-and-dad investors.

Now, $7.5 million is a big price tag and a budget that is simply out of reach for most people. However, when you’re buying with a SMSF, you typically have more money available to you for the deposit than you could have ever achieved through regular savings.

This is especially the case if you’re in your 40s or 50s and have been receiving mandatory super payments from your employers, plus your own contributions, since super was introduced in 1992. That’s 24 years of accruing at least 9% of your income (9.5% from FY15), with compounded interest and potentially other gains made from good investments over the years.

This means, depending on your income (and how hard your nest egg was hit by the GFC), you probably have more than adequate funds for the deposit on an investment property.

Recent statistics from the ATO shows that property investment via SMSFs is an increasing trend.

As of March 2016, there were 572,424 SMSFs belonging to 1,085,286 Australians.

Over the five years to March 2016, the amount of superannuation money invested in residential property has increased from $14.6 billion in June 2011 to $24.4 billion today – that’s a 67% increase.

Most SMSF buyers still need to borrow to buy a property through their fund, and getting finance for an apartment block purchase is more complicated than single homes.

I asked Alan Hemmings, General Manager of Oxygen Home Loans (the mortgage broking division of McGrath) to give us his advice.

  • Only a limited number of lenders will provide a residential loan for a block of up to six apartments, but they must all be held on one title (ie not strata titled).
  • In assessing serviceability, these lenders tend to be conservative and might only use a percentage of the actual rental income the block is returning to calculate whether you can service the loan.
  • Blocks with more than six apartments are considered commercial developments so you will have to use a commercial loan, which means a shorter loan term and a higher interest rate.
  • Banks typically apply an 80% LVR cap on all SMSF property purchases.

Buying a block of apartments presents many exciting opportunities for investors, but it’s hard to do in major cities because big money is usually required to secure the block in the first place and blocks don’t come onto the market too often. 

There are usually more options in regional markets, where purchase prices are lower and yields are typically higher than the cities.

A regional block won’t get the capital growth of a city block, but that might not be your aim. In retirement, many people just want to be debt-free with a few income assets to fund their lifestyle. So a regional block of apartments delivering a high rental return might be an excellent option, as long as the loan is small enough for you to pay it off before retiring.

For this strategy to work, you would need to buy in an area with a low vacancy rate over the long term, low unemployment, decent population growth and a diverse local economy.

Getting good advice is crucial when buying through a SMSF.

First, talk to your accountant as they’ll be able to advise you of the set-up and ongoing costs, including mandatory annual audits.

Then talk to a broker who really knows the ins and outs of SMSF investing to secure your loan.

Good luck!

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Election outcome to boost market activity

Tuesday, July 19, 2016

By John McGrath 

So … we finally got a result! Talk about drama in our political arena over the past couple of weeks, but in the end, the Coalition got over the line and the biggest thing that means for real estate is no changes to negative gearing or the capital gains discount.

McGrath joined with a number of other real estate companies across Australia to express concerns over Labor’s proposal to limit negative gearing to new properties and halve the current capital gains discount from 50% (if held for more than one year) to 25%.

We fundamentally disagreed with the suggestion from Labor that negative gearing mainly benefitted the wealthy. Our research shows two-thirds of people taking advantage of negative gearing have a taxable income under $80,000.

Moving forward, the end of the election period is likely to result in more market activity. 

The usual decline in stock that we always see over the Winter period was partly exacerbated by the election, because a lot of people delayed their real estate decisions.

For example, in the week leading up to the election, there were 811 capital city auctions compared to 2,218 the week before, according to research house CoreLogic.

In many cases, an election simply provides another reason for procrastination among nervous buyers and sellers. But in this election, property tax policy was such a major issue that it’s not surprising many people, particularly investors, chose to wait and see how it all played out.

Now we know there will be no change to negative gearing or capital gains policy, the pathway to Spring is clear. We usually see a bump in listings in the Spring season as many people perceive it to be the best time to sell. This year, we might see a bigger bump in listings simply because a lot of would-be Winter sellers delayed their campaigns.

Lack of stock has been a major issue in many of Sydney’s inner and middle-ring suburbs this year, which has contributed to ongoing price growth (8.9% increase in Sydney property values over the first six months of the year) and consistently strong clearance rates in the high 70% range.

A spike in listings over Spring would bring more fluidity to the market and enable more Sydneysiders to make their next move.

The other big political news of late is of course the Brexit vote in Britain. What will this mean for property?

Well, it’s probably all positive for us because global investors always want to invest in ‘safe havens’ and Australia offers the political and economic stability they want. We also have a property market with an outstanding history of reliable growth.

I think Brexit will cause some political and economic uncertainty for the UK for quite some time, which will cause continued volatility in global markets. You’d have to expect that in these circumstances, more global investors might turn to the relative safety of bricks and mortar as their favoured asset class.

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How to buy before the boom

Tuesday, July 12, 2016

By John McGrath

It’s the Holy Grail for aspiring investors – picking the right suburb and buying cheap just before it booms. But how do you do that?

Research is key.

Start with the macro factors, including a suburb’s population growth, its major existing attributes (like a train station or sought-after school), and any plans for change in the short term (like an expanded shopping centre), then drill down to the market trends that will tell you what’s happening right now.

As an investor, you should be open to suburbs you don’t live in or don’t know much about because your primary aim is to make money. It’s all about identifying the suburb with the best capital growth prospects.

Some investors look nationwide or statewide for opportunities, but I recommend sticking to the city you live in. It makes the search much easier and you’ll always be close to your investment. The ability to drive past whenever you like provides great peace of mind.

You will also benefit from your existing knowledge of the city as a whole. For example, in Sydney, everyone knows that close proximity to CBD transport and good local shops and cafes are highly desirable for buyers and renters alike. These are the macro ‘no-brainer’ features you want with your next investment property.

So that’s your starting point for identifying suburbs on the move. They need to have great existing amenities that are ideally being expanded or improved, or new amenities on the way. Prime examples include a new train station or light rail station, a new or expanded shopping centre and new or expanded schools.

Once you have a few suburbs in mind based on these big elements, it’s time to drill down to market indicators.

The signs of a suburb on the move

Population growth use Census data to identify suburbs with population growth above the state average over the last Census period (five years)  

History of good capital growth Look at the 10-20 year picture to get a better idea of whether the suburb will deliver reliable capital growth. Remember, suburbs overdue for growth might have a poor history over the past few years, so don’t be distracted by that. Look at statistics over the longer term

New infrastructure – projects such as new recreational facilities, expanding retail centres and new or better CBD transport will attract more tenants and later, more buyers. Rising demand means rising property values. Look for big retailers setting up shop too – think Bunnings, Woolworths, Coles and so on. These companies do significant research before spending a fortune setting up a new store, so take it as a very positive sign!  

Employment – suburbs on the move will have good or improving local employment opportunities as well as good or improving access via roads and public transport to major employment centres like the CBD

Gentrification – a suburb on the move will attract the hipster renovators first. They buy for value and renovate, changing the look and feel of a suburb over a 5-10 year period. Also look into council beautification programs. Upgraded suburb villages, sidewalks, parks and so forth are a great sign

Positive resident profile – suburbs on the move tend to have a changing resident profile with more money flowing in. Ideally, the suburb will have rising incomes above the state average, a rising number of residents with high paying jobs and a rising number of tertiary qualified residents. This indicates more money coming into the area, which will flow into property prices and rents over time   

The supply/demand dynamic – suburbs on the move have greater demand than supply. Here are the signs: 

  • Rising tenant demand – tenants are the first responders to positive change in a suburb because they can move around more easily than owner-occupiers. A suburb with a new Westfield, for example, will attract more tenants from neighbouring suburbs before it attracts more buyers. This tends to lead to rising rents and later, rising property prices
  • Short stock – fewer properties for sale and rent indicates a tightly-held marketplace
  • Low or falling vacancy rates – arguably one of the most important considerations when investing in property. While capital growth should be your No. 1 aim, you have to be able to hold the property long term and that means buying in a market with reliable long term tenant demand
  • Low or falling days on market for sale – this is a classic sign of greater demand versus supply, which leads to capital growth
  • More auctions and rising clearance rates – indicates strong market demand and confidence among vendors
  • Reduced vendor discounting – indicates that sellers don’t need to drop their prices to get a sale
  • Limited future supply – Ask council if there is any imminent increase in supply (such as newly approved apartment developments), and how much scope there is for new supply in the future (some suburbs have limited height restrictions, limited land and/or heritage orders that restrict building)  

Finally, once you’ve gathered all this information on a few suburbs, you need to hit the streets. Stroll around the main village, look in the shops, and check out a few residential streets. Does the area have a good vibe? Do you feel safe?

Trust the numbers you’ve gathered and trust your instincts on the street. If it looks and feels right, you’ve found your next suburb for investment.

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New property trends: multi-gen living

Tuesday, July 05, 2016

By John McGrath

One of the best things about Australian property buyers and renters is their ability to adapt to changing market conditions.

As we all know, one of the greatest challenges today is the ability to afford a place to live, and more specifically, a place to live in the area you actually want to reside in.

Over the past five years alone, we’ve seen some significant new trends in the marketplace that have come about purely due to Australians’ ingenuity in dealing with this challenge.

Among those trends are:

  1. First home buyers purchasing for investment in affordable areas to get a foot in the market and renting in their preferred area for lifestyle
  2. Parents going guarantor on a loan, or providing the deposit for their child’s first home
  3. Siblings or friends pooling funds to get out of the rental cycle and purchase a property they can live in together
  4. Young families leaving expensive cities like Sydney in favour of a better lifestyle and greater affordability of housing in major regional markets and;
  5. Families choosing apartment living over houses so they can afford to buy where they want to live

Another rising new trend to combat affordability is extended families living together – or multi-generational living. By extended families, I’m talking typically about mum, dad and their kids, plus grandparents.

The rise of multi-gen households

Research undertaken by UNSW’s City Futures Research Centre shows multi-gen living in Australia has been steadily increasing since the 1980s.

In 2006, around 1 in 5 Australians (and 1 in 4 in Sydney) lived in a household with two or more generations of related adults aged over 18.

You might not be surprised to find this is a trend in Sydney, where property prices are more expensive than anywhere else in the country. But the city that has experienced the greatest growth in multi-gen living is actually the far more affordable Brisbane, where the number of multi-gen homes increased by 51.7% between 1981-2006 compared to 36.1% in Sydney.

This demonstrates that there are other reasons for the rise in multi-gen living. Aside from financial pressure, the next most common reasons are the need or desire to provide care to a family member, usually a grandparent – a trend we should expect to see rising due to our ageing population, and children staying at home longer because they are delaying marriage and want to avoid paying rent so they can save more for their first home.

Multi-gen living is also a trend in the US, where 57 million Americans, or 18% of the population, lives in households with two or more generations. In 1980, it was 28 million. The trend spiked during the GFC and has continued rising, according to the Pew Research Centre.

The benefits of multi-gen living

Besides housing affordability, there’s a few other benefits to multi-gen living that people talk about too;

  1. Free childcare from the grandparents, with both mum and dad typically working to pay the mortgage
  2. Greater sharing of household chores, reducing the amount of housework done by each family member
  3. Security for the grandparents that someone will be there to look after them as they age and battle health issues

There’s another reason we’re seeing more multi-gen households in Australia – rising immigration, particularly from Asia.

In Asia, multi-gen living is normal. So when they come to Australia, it’s a culture they bring with them. As more Asian families move here, more multi-gen households will form.

The type of housing that multi-gen families target certainly varies depending on their budget, but also their relationships. For some families, separation and the ability to live independently of each other, while still being in the same property, is a priority.

In these cases, duplexes with separate self-contained levels or large homes that allow for some sort of division of space are sought-after. Properties on large blocks of land that allow for the construction of a granny flat out the back are also attractive to multi-gen buyers.

Multi-gens also do their fair share of knock-down/re-builds and major extensions of existing homes to accommodate their new living arrangements.

Most multi-gen households can be found in our cities’ middle and outer rings, most likely reflective of financial pressures among lower to middle income families and greater availability of larger homes with four or five bedrooms in these areas.

If you’re thinking of multi-gen living with some of your family members, my advice is be honest with yourself about how you want to live before proposing the idea to your relatives.

Consider where you want to live, how much space or separation you would need for yourself and how costs such as the mortgage, electricity, water and groceries would be split.

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EOFY checklist for property investors

Tuesday, June 28, 2016

With just a few days to go before the end of the financial year, now is the time for investors to attend to those small repairs and maintenance issues you’ve been putting off. You may want to consider getting them done now so you can claim the cost in this tax year. However to do this you must move quickly as June 30 is only a couple of days away.

Tax deductions are a crucial part of cash flow management with property investment. They’re not a reason to buy – so don’t go purchasing a new property solely because of the depreciation or anything like that, but certainly take your deductions seriously because they can have a big impact on your bottom line and deducting everything you’re allowed to deduct is part of the drill.

I also think the end of the financial year is a great time for investors to take stock of their investment’s performance.

How much income did you receive and how much did you spend on outgoings, including the mortgage? Remember, you can claim a deduction for interest payments only, not principal payments (which is why most investors use interest-only loans).

Next question. Is there new equity in the property that could be used for renovations or a deposit on your next investment? In markets like Sydney where there has been significant annual growth for four years, it’s definitely worth asking your local agent what they think your property is now worth.

Remember, the new equity in a property might not be immediately accessible like your wages and rental income, but it’s still money you’ve earned over the year. The best part is you don’t have to pay income tax on the equity and your bank will give you a big chunk of it (usually 80-90%) in new borrowings if that suits your purpose.

Given it’s that time of year, let’s go over a few common questions about property investment expenses.

What’s the difference between repairs, maintenance and improvements?

1.     A repair is usually partial and restores something to its original state, eg. repairing part of a fence by replacing two palings.

2.     Maintenance is work that prevents deterioration or fixes current deterioration eg. painting your property or oiling the garage door.

3.     An improvement makes something better than it was originally or provides something in a new and more valuable or desirable form. They generally improve the property’s income production or expected life. For example, if you replace a crumbling timber carport with a brick lock-up garage, you are going beyond simply repairing the carport, you are replacing it with an improved feature.

What can I claim as an immediate deduction and what has to be depreciated?

Generally speaking, you can claim an immediate deduction for repairs and maintenance as long as your property is being rented out. With improvements, you can either claim a capital works deduction or depreciation, depending on the type of improvement.  

What if I’ve lost my receipts?

If you paid with a credit card or EFTPOS, the ATO will accept bank statements as proof of purchase.

Can I do my own tax return?

Sure but I don’t recommend it. One of two things will probably happen – at best, you’ll make mistakes or forget some deductions that will result in you losing money; at worst you’ll get fined by the ATO for your errors.

Get yourself a great accountant, declare all your income and enjoy the peace of mind that your tax professional will identify every deduction you qualify for.  And next year, you can claim a deduction for the accounting costs too.

EOFY Check List

Examples of common immediate deductions:

  • Advertising for tenants
  • Accountancy costs
  • Body corporate fees and charges
  • Council rates
  • Water charges
  • Land tax
  • Cleaning
  • Gardening and lawn mowing
  • Pest control
  • Insurance (building, contents, public liability)
  • Interest expenses
  • Property agent's management fees
  • Repairs and maintenance
  • Travel undertaken to inspect the property, to collect the rent or for maintenance.

Examples of common depreciation expenses:

  • Furniture
  • Carpets
  • Curtains.

Examples of common capital works deductions:

  • A building or extension, such as a new room, garage, patio or pergola
  • Alterations – such as removing or adding an internal wall
  • Structural improvements – such as adding a gazebo, carport, sealed driveway or fence.

Source: ATO

Everything you could possibly need to know about deductions and depreciation can be found in the Residential Rental Properties section of the ATO website. 

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