Capital Means

Discover how to turn your home equity into a better retirement for you.

If you have equity stored away in your home, now could be the perfect time to tap into it for an investment property.

Equity is simply the difference between the value of your home and what you owe on it. If you have a property valued at $500,000 and owe $200,000 on it, you have $300,000 equity available.

There are a few reasons why the time is ripe for home owners to scout out an investment property.

Firstly, property prices have flattened across most of Australia in the wake of global uncertainty. However, key indicators in the US now point to a recovery there, which our market is likely to follow, especially given our strong economy. So, not only is now a buyer's market but there's a good chance of capital gains in the first few years of ownership.

Secondly, interest rates are low. After the recent drop in official rates, there is strong speculation they won't dip further in the short term.

Thirdly, we still have a housing shortage here in Australia, which continues to drive low rental vacancy rates. That means good properties rent easily.

So, where to begin?

Start with a visit to your local Mortgage Broker to get a rough idea of what you can borrow. Your broker can estimate your equity, talk through the types of loans available and give you a rough idea of repayments. Then you will know what you can afford before you start looking at properties.

You can also do some rough sums beforehand with some of the calculators on our website.

A broker can find the right loan for your circumstances and shop around for the best deal. One of the most popular products among property investors is a line of credit. It acts like a big overdraft at a home loan rate, giving you instant access - as a rule - to up to 80% of the equity in your home. Interest is only paid on the funds you use. It's a very elastic, convenient product. But one word of caution: you need to be disciplined with your cash flow. Easy access to equity can be a temptation for many borrowers to spend up big on depreciating assets that offer no investment value and only add to your overall debt.

Capital gains or rental return?

You should decide whether you want strong rental returns or decent capital growth over the next several years on your investment. If you are in a high tax bracket and looking to create a tax advantage through an investment loss, you will be looking for capital gain.

First-time investors looking to establish a portfolio of properties should also be aiming for capital growth over the next five or so years, as this will establish equity for the next property purchase. However, some investors are not in a hurry for capital growth and prefer their property to be cash positive or neutral from the get go. If that's the case, consider a property in one of the areas with a long-term future in resources, where rents reflect a shortage of housing. Just keep in mind that although the resources sector has a strong future, based on global demand, your investment is entirely dependent on the continued success of one industry.

Right now, the bottom line is that there's potential for both decent capital gains and rental returns for property investors who chose the right property in the right location.

Find the right property

The first rule is to invest in property with your head and not your heart. Remember, you are not buying a home or apartment to live in yourself.

Savvy investors look for properties:

- Close to public transport and other amenities, such as shops or schools, especially in-demand public schools that only accept students in their local catchment.
- That are low maintenance and well maintained.
- In areas with good potential for capital gains.
- In areas with low rental vacancy rates.

Another tip for first-time investors is to stick to familiar turf. It could be near where you live now, where you grew up or previously lived, where you have friends or family or near where you work. Not only are you more likely to feel comfortable investing in a familiar area but you can keep an eye on local trends and the property itself.

You should also find out whether any major infrastructure projects are slated for your target area. New roads, public transport and major developments, such as hospitals, can add significant value to rental properties. Visit www.infrastructureaustralia.gov.au for links to the major planning departments in each state.

Managing your investment - and your tenants

Like all investments, rental properties need to be managed. You can be landlord and property manager in one, or pay a professional property manager. If you are busy or live some distance from the property, your money will be well spent on a reputable, reliable manager.

For a small monthly fee (generally 6 to 9% of rent), a good manager will vet prospective tenants, ensure the property is looked after, make sure rent is paid on time, arrange repairs and maintenance and recommend appropriate rent increases. Ask for referrals from other investors and look for an agent who specialises in property management, rather than sales, so you know your rental will not be second fiddle to other activities. You should agree on what your property manager can authorise automatically when it comes to repairs.

It's also important you keep tabs on the local property market to track the equity you build over time, which not only adds to your wealth but could be used towards your next investment property.

Federal and State Governments review their incentive schemes for First Home Buyers with each annual Budget.

To find out the latest benefits you are eligible for, visit http://www.firsthome.gov.au/.

If you have any questions or would like some help in obtaining all the benefits you can, I'm here to help. http://www.firsthome.gov.au/

For many Australians retirement is an opportunity to down-size their homes and simplify their lives. For more than 138,000 retirees*, that means opting for life in a retirement village.

Village living offers an appealing lifestyle, especially for those looking for a sense of community and to spend their new-found free time on recreation rather than maintaining a property.

But the process of taking up a spot in a retirement complex is very different to buying your own home. Haven takes a look at some of the pros and cons of shifting to a retirement village.

Not an investment decision

Retirees need to consider a retirement complex to be a lifestyle choice, not an investment decision. Rather than buying a physical appreciating asset, you are entering a contract to occupy a place in the village for an entry fee.

There are usually three types of contracts:

Strata title: You pay an agreed amount to a former resident or the operator, and then own the unit. You also usually need to enter into a service agreement with the operator.

Loan and licence: May be offered by not-for-profit organisations, such as churches. You usually pay a contribution in the form of an interest-free loan.

Leasehold: The lease is usually registered on the title deed, which protects you if the village is sold. You pay a lump sum for the leasehold.

Entry, ongoing and exit fees usually apply to all three contract types.

Rather than a sale price, you pay an entry fee, which varies greatly depending on the location of the complex and the amenities and services offered. On average, the entry fee for a two-bedroom unit is about 90 per cent of the median property price for the location.

You will also be charged ongoing service fees to cover the upkeep of amenities in the village, such as swimming pools, gardens, recreation areas and communal transport.

Don�t enter into any agreement without the advice of a specialist retirement lawyer. They can help you understand the fine print and guide you through the system based on your state laws.

Age pension

Your retirement advisor will also help you navigate your age pension eligibility. The amount you pay as an entry fee to a retirement village can affect whether you are classified as a homeowner for pension purposes or a non-homeowner.

It depends whether the entry contribution is higher than the extra allowable amount (EAA), as determined by Centrelink. The EAA is the difference between the non-homeowner and homeowner assets test threshold for the age pension at the time the entry contribution is paid.

The extra allowable amount is currently $146,500. Whether you are considered a homeowner affects the amount of assets you can own without impacting your pension entitlement.

If you are not considered a homeowner, your entry contribution is included as an asset, but it is not classed as a financial investment and won�t be considered as a source of income. You may also be eligible for rental assistance.

Shop around

Just like when you buy a property, you should do your homework before settling on a retirement village. Take a tour and talk to residents about what they like and dislike about the place. Think about what you want out of your retirement and whether the complex caters to those needs.

- If you want to entertain, do you have space in your unit or is there a communal area you can use?
- Is there a gym or swimming pool where you can exercise?
- Can you have guests stay over and, if so, for how long?

This can be a key consideration for grandparents who may take care of grandchildren. You should also ask about transport help. Many complexes provide a private bus service to shops and clubs for residents who don�t wish to drive.

Generally, the more comprehensive the services the more you pay in body corporate fees, so make sure you understand the fee structure and what�s included before signing on the dotted line.

Community spirit

One of the biggest attractions of retirement living is the instant community. Many villages provide social opportunities ranging from outings to quiz nights, dinners and interest clubs. Participation is entirely optional but there is usually no shortage of opportunities to get to know and socialise with your neighbours.

Aged care included

Many retirees plan ahead and scout out a village with an on-site aged care facility to avoid another relocation in their latter years. Just be mindful the level of care someone needs is determined by an Aged Care Assessment Team and that not all facilities offer high care should you or your partner require it.

A place in aged care may also require separate payments, or entry fee, and many facilities will have waiting lists. It�s also common for one partner to have greater needs than another, so couples with health or mobility issues need to ensure the complex they settle on caters to their needs.

When you leave

When a resident moves out, it is generally because they have passed away or relocated to an aged care facility. Financially, it is usually the beneficiaries of the resident�s estate who are most impacted.

When a resident sells up they, or their estate, are generally charged an exit fee, or a deferred management fee, which is usually charged annually at 2.5 to 3.5% of the original sale price, capped at 10 years.

Some complexes may also require a percentage of any capital gains made. Make sure you read the fine print of the original sale contract and seek advice from a specialist retirement lawyer.

*Retirement Villages Association Retirement Living Survey 2011

If you want more space, renovate right!

It's been more than 25 years since Tom Hanks and Shelley Long showed us the calamitous side of renovating gone wrong in the comedy movie, The Money Pit, but the warnings ring loud and clear today.

With a sluggish property market, many home owners are opting to renovate rather than relocate. Before you hit the hardware store and strap on the tool belt, here are my top tips to renovate your way to reward, instead of ruin.

1. Renovate or rejuvenate?

You don't have to tear down walls or add a new storey to add value to your home. If you need extra space, you will probably have to renovate.

But there are plenty of ways to add value without making drastic structural changes: paint a new colour scheme inside and out; clean up and replant an overgrown garden; replace floor coverings or sand and revarnish existing timber floors; spruce up old windows with some modern shutters; or create some extra storage with built-in wardrobes.

2. Know what you can and can't do yourself.

Not the DIY type? Face defeat early and call in experts to tackle the job. It may be difficult to part with money for something you feel you can do yourself, but if you botch the job, you will pay more in the long run. There are some jobs even skilled DIYers should not tackle for safety reasons, including electrical work, asbestos removal and roofing.

3. Target your market.

If you are buying a property specifically to renovate for profit or tarting up your existing home for sale, consider the likely buyers for the neighbourhood. Remember you're not renovating for your own lifestyle and tastes, so keep colour palettes neutral and avoid fittings that are overly artistic or unusual.

4. Take a peek at the competition.

Visit some of the fully renovated houses in your area that are up for sale to see what the market is prepared to pay and what buyers are looking for. It will give you a good handle on which features help differentiate one property over another and current values.

5. Don't overcapitalise.

It remains the golden rule of renovating and is particularly poignant in the current market. Cost every aspect of your project and be realistic about the value it will add, especially if you are planning on staying in the property for only a couple of years or less.

If you plan on living there for more than five years, you have a little more leeway to recoup the value of your renovation at sale time.

However, it's still wise to keep at least a 20% margin between what you spend and the current value in case you have to sell sooner than expected.

6. Don't start what you can't finish.

If you don't have the money to undertake your project, don't start. Some renovators kick off their project with an aim to saving up along the way. If your savings fall short you may be left with an unsightly, unfinished project, which will curtail your capacity to sell if needed.

Chances are you will also lose interest in taking on future projects, so make sure you have all the money you need upfront.

How to pay your credit card off completely this year.

Are you growing increasingly concerned about your credit card balance?

Do you feel like you keep making the repayments but the total never goes down? It probably doesn't. Credit card debt is very bad debt and it has a way of reproducing itself faster than a pair of rabbits.

So how can you get your credit card paid off by the end of the year?

Mark managed to pay off a $7k credit card balance in one year, just by making a few smart decisions with his budget.

Decision number 1: Cancel the Pay TV. Mark was paying $79 per month for subscription TV. He didn't really watch it very much because he was working long hours.

Saving: $948

Decision number 2: No more morning Cappuccino. Mark's boss had recently installed a great coffee machine in the office, so he decided not to get a $4 coffee on his way to work every day.

Saving: $1040

Decision number 3: Ride to work. Mark had purchased a new bike last year, and he was really keen to get fit. An easy 20 minute ride to work every day saved him paying for train tickets.

Saving: $3000

Decision number 4: Cancel the Gym membership. Mark had made only two guest appearances at his gym this month, and he felt it was a waste of money now that he was riding to work.

Saving: $1200

Decision number 5: No beer on weeknights. Mark was enjoying his new fitness regime and he decided that he would try to only drink beer on the weekends. He stopped buying a 6 pack 2 nights a week.

Saving: 1456

Mark's story shows just how easy it is to pay off your credit card debt by making a few small changes to your lifestyle. But the first step is to stop spending on the card.

If you can stop growing the debt, you can then start working on bringing it down, one coffee at a time!

You're a parent whose grown up kids want to buy their first home. And because you want the best for them, you probably also want to ensure that they get the correct advice before they sign anything.

A truer word has never been spoken.
..and I think the best start for first home buyers is to talk through their options with someone who has done it before as well as someone who is directly involved with the process every day.

If you are a parent whose children have grown up, you've probably bought a home before.

I'm helping people buy their home every day, it's my job. This means, together, we are well qualified to point your young adults in the right direction when it comes to buying their first home.

So, why don't we catch up with your kids and discuss their options together. Between us, we should be able to provide helpful advice and motivation along the way.

I provide home loans for just about everyone and every situation so why not try me out? It doesn't usually take long and the privacy act ensures our conversation is entirely confidential.

A cuppa and a chat.

It could be as simple as that.

We all know that interest rates are cyclical and that when rates go down they will eventually go up.

As a result, lenders have been assessing loan applications on the ability of borrowers to make repayments at interest rates approximately 2% higher than those currently available.

While lenders have been assessing your ability to make repayments at a higher interest rate, what is the reality of the fi nancial impact of your regular loan repayments?

To make sure you are ready, click here to read my "What goes down, must come up" article.https://www.mortgageaustralia.com.au/email/files/whatgoesdownmustgoup.pdf

Make your dream car affordable with a low cost car loan.

Here are the 7 questions most First Home Buyers ask me.

1) How much money can I borrow?

This amount varies from lender to lender and depends on a number of factors. Go to our clever loan options tool for a quick idea of the approximate amount. We're more than happy to give you a more detailed response based on your individual circumstances.

2) How do I choose the loan that's right for me?

Loan types and loan features will give you a good idea of the main options available. But because there are hundreds of different home loan products available, and individual circumstances are all different, we'll do all the legwork and will recommend the home loan that is right for you.

3) How much do I need for a deposit?

Usually between 5% - 10% of the value of a property, which you pay when signing a Contract of Sale. If you can't organise a deposit in time, your conveyancer/solicitor may be able to arrange a deposit bond until settlement - although you'll have to pay extra for this. If the deposit requested is 10%, your conveyancer may be able to negotiate this down to 5%.

4) How much will regular repayments be?

Go to the calculators on our website for an overall idea. Because there so many different loan products, some with lower introductory rates, contact me today for the sharpest deals currently available.

5) How often do I make home loan repayments - weekly, fortnightly or monthly?

Most lenders offer flexible repayment options to suit your pay cycle.

6) What is the First Home Owner Grant and can I get one?

This is a grant available to Australian citizens or permanent residents who wish to buy or build their first home, which will be their principal place of residence within 12 months of settlement. As grant conditions vary from state to state, ask us about how much grant money you could receive.

7) What fees/costs should I budget for?

There are a number of fees involved when buying a property. To avoid any surprises, the list below sets out all the usual costs:
- Stamp Duty - This is the big one. All other costs are relatively small by comparison. State and Territory Governments charge different rates of stamp duty from each other. Stamp duty costs also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself.
- Legal/conveyancing fees - These will be charged by the conveyancer you appoint to help you through the home loan process. These fees, which include title search fees, are usually around $1,000 - $1,500.
- Building inspection - This should be carried out before the purchase of a property by an expert, such as a Structural Engineer, to ensure it is structurally sound. The cost can be up to $1,000 depending on the size of the property. Your conveyancer will usually arrange this inspection, and you will usually pay for it as part of their total invoice at settlement.
- Pest inspection - Also to be carried out before purchase to ensure the property is free of problems such as white ants. Allow up to $500 depending on the size of the property. Your conveyancer will usually arrange this inspection, and you will usually pay for it, as part of their total invoice at settlement.
- Lender costs - Most lenders charge establishment fees to help cover the costs of their own valuation as well as internal admin fees. Allow about $300.
- Moving costs - Don't forget to factor in the cost of a removal firm if you plan on using one.
- After buying - As well as regular loan repayments you should take out building insurance and contents insurance. If you are borrowing more than 80% of the purchase price of the property, you'll also need to pay Lender Mortgage Insurance. You may also choose to take out Mortgage Protection Insurance.
- If you have bought a strata title, regular strata fees are payable.

Avoid these 7 common home buying blunders.

Your home is likely to be the biggest purchase you make, so it's something you want to get right.

Mistakes can be stressful and costly.

Here are the biggest ones buyers make and some tips to help you avoid them.

1) Letting your heart rule your head.

It's often easy to be dispassionate about an investment property but when it comes to your own home, emotions can run high.

Buyers often make the mistake of falling for features in a home or loving a certain location, only to find, once they move in, they have compromised on what they really need.

Arm yourself with a list of non-negotiables - the features you simply must have now or soon down the track, such as extra bedrooms for a growing family, office space for a home business or proximity to public transport. If a property doesn't tick all of your must-haves, keep hunting.

You should also decide whether or not you want to renovate or have a lot of time for maintenance. Heritage properties can win over hearts but often require deep pockets and lots of upkeep. Similarly, a fixer-upper in your price range and preferred location may end up being a money pit you can't really afford.

Look beyond fancy fit-outs and styling - the furnishings will go with the vendors.

Stick to the buying basics - location, price, layout and condition - to decide if the property is right for you.

2) Believing the selling agent is working for you.

Real estate agents are paid by the vendor with commission from the sale. The higher the sale price, the more they put in their pocket.

Don't fall for sales spiels that tempt you to spend more than you can afford or settle for a property that doesn't meet your needs.

Some buyers are levelling the playing field by hiring their own agents to find a property and negotiate the sale. Fees for buying agents vary, but generally they charge for their time, plus take a commission from the sale. If you have no time to house hunt, it may be worth the extra cost.

3) No homework.

There is no such thing as too much research when it comes to property. You should set aside several weeks to get around to as many properties as possible, narrowing your search to three target suburbs when you are ready to buy.

Check out recent sales of comparable properties in the area and build on this research as you go, keeping in mind property prices can move fast in a boom.

You should also find out if there are any amenities and infrastructure planned for the area, such as new roads, public transport, hospitals or schools, which can boost real estate prices.

Another key question is how long the property has been on the market.

If looking for an investment, research rents and what the area has to offer tenants, such as a lively restaurant or cafe scene and reliable public transport.

4) Starting the hunt without loan approval.

Knowing how much you can afford will take a lot of stress out of your search.

A pre-approved loan sets a boundary so you can focus on properties in your price range and gives you peace of mind that you will be able to move fast when you find the right one.

Your broker is the person to speak with to make sure you have this all in place.

5) Buying beyond your means.

It can be tempting to stretch your budget for what seems like the right property, especially if interest rates are as low as they are now.

But rates are cyclical and what goes down, eventually goes up. If you are extending to afford a property while interest rates are low, you are going to struggle to make your mortgage payments when they start to climb.

It's wise to calculate your repayments should rates rise by two to three per cent and build that reserve into your budget. That way, you have some comfort when the cycle eventually turns.

6) Not getting the property inspected.

According to NSW building advisory service Archicentre, only one in 10 buyers gets a professional building and pest report on a property before they buy it.

Most inspections cost a few hundred dollars, a small price to pay for peace of mind on a purchase as significant as a home.

A licensed inspector can check for pests, such as termites, and building flaws or issues, such as wood rot or rising damp, all of which have the potential to cause costly dramas if unchecked.

Always ensure the sale contract is subject to getting the all-clear on the building inspection. If something surfaces, you can either back out of the purchase or negotiate a lower price to compensate for the required repairs.

7) Not getting the sale contract checked.

The contract you sign when you hand over a deposit is legally binding, so have it scrutinised by a lawyer or conveyancer.

They will check it for any sale or zoning conditions that could disadvantage you, such as restrictions, or covenants that may be imposed.

A lawyer or conveyancer can also check property documentation, such as sewer diagrams, to make sure there are no issues with any renovation or extension plans.

Your legal expert can also help adjust the contract terms for your benefit, such as negotiating a longer settlement period if required.

The truth about your Credit File.

When the National Consumer Credit Protection Act came into effect in 2010, it was designed to help regulate lenders and prevent consumers from getting out their of depth with debt.

One of the spin-offs has been increased scrutiny on would-be borrowers.

Lenders now look to an individual's credit file to help determine if they are a good or bad risk.

Yes, that's right - a credit file. It sounds very FBI and, in some ways, it is. Your credit file includes your personal information, including your full name, date of birth, driver's licence number, gender, addresses and employer information.

It also records any credit applications you have made in the past five years, such as home loans or store financing of household goods, plus any bills you have defaulted on and any financial matters on public record, including any bankruptcies or directorships.

Home lenders will look at your credit file to verify your reliability. Being aware of what's on your file and how you can keep it clean, will go a long way to helping you secure a home loan.

Previous credit applications

A previously declined credit application can leave an unwanted stain on your credit file. If you are declined a credit card or a loan, find out why and take steps to rectify the situation before applying for new loans or credit.

While your positive actions may not erase the blemish, you can at least demonstrate responsibility with the new lender, which may convince them to give extra weight to other criteria, such as income and a strong employment record.

Payment defaults

Don't think that unpaid phone bill from your previous rental matters much? Think again. A payment default is an account of $100 or more that is 60 days or more overdue.

Payment defaults can only be included on your credit file if the credit provider has tried to recover some or all of the overdue amount. This means they must have sent a notice in writing to your last known address and requested payment.

Payment defaults stay on your credit file for five years, even after you pay the overdue amount.

If you don't pay a bill but can't be contacted, you may be declared a clearout. Before you can be listed as a clearout, the credit provider must make reasonable efforts to contact you, either in person (including over the phone) or in writing to your last known address.

If you can't be contacted, the credit provider can immediately list the debt on your file as overdue, even if it hasn't been overdue for 60 days or more. Clearouts remain on file for seven years from the date they are listed, even when you have paid the overdue amount.

Avoid unpaid bills blighting your credit file by:

- Paying on time or at least when overdue notices are sent.
- Providing a change of address to all creditors/billers if you move.
- Leaving someone to manage your bills if you need to be away for a month or more.

Hardships

They say it's often better to seek forgiveness than permission, but most lenders are happy to discuss what can be done to help if you hit hard times. Far better to fess up to a creditor or lender if you can't make one or two payments than have them whack a black mark on your credit file due to lack of contact.

Talk to your Mortgage Broker

Borrowing via a Mortgage Broker is one of the best ways to navigate the credit crunch. A broker will have a good understanding of what financial attributes various lenders are looking for in their borrowers.

For example, a lender may give kudos to long service in a job and a solid savings record, which may help offset an unpaid bill from three years ago that appears on your credit file.

Your broker can also advocate and negotiate on your behalf. Just remember, it pays to be honest. If you have a mark against you, be up front so your broker can consider the best lender and loan for your situation.