Category: Short, Sharp & Sweet Insights

G’day All,

2-minute read:

Interest Rates

The RBA July cash rate remains on-hold at 1.5%. Because Australian lenders source a lot of their funding from overseas and interest rates globally are now rising, we can expect lenders to now begin lifting rates as has already begun with the majors. Now may be a good time to discuss the merits of fixing over the next 2-3 years remembering that P&I is the new norm for investment lending.

Also don’t forget we can also assist you with your DHOAS home loan requirements through Australian Military Bank (AMB)!

Federal Budget

Main take-aways are no changes to negative gearing (ability to claim expenses related to your investment property against other income); however developers will no longer be able to claim deductions on vacant land. This does not affect future clients who build a new investment property under a two-part (house & land) contract with the clear intention to rent it out.

The other big mention is $75 billion in national infrastructure spending. Land owners in vicinity of these projects will reap the greatest increases in land values and therefore personal wealth.

Tax Time

It’s upon us once again. Make sure you’re claiming your full deprecation entitlements and don’t forget that travel to visit an IP is no longer deductible. If you’d like a quote to process your ADF and investment property tax return, please get in touch as the team based in Sydney has some very good packages available.

Market

As mentioned previously, we are slowly moving into the second phase of the real-estate cycle, but not before an anticipated slow-down in 2019-21. From there we will see a growth-shift towards the commodities producing economies of QLD, WA and NT. South Australia will also bode well with the submarine and future frigates projects being confirmed (approx. $85billion). Terry Ryder’s article sums up nicely the relationship between economy and land value and you will do well to spot this early and acquire where you responsibly can.

Strategy

The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote – The few who do are the envy of the many who only watch – Jim Rohn

G’day All,

1-minute read:

Interest Rates

Official cash-rate was left on hold at 1.5% in February. There may be a rate rise towards end of year as employment, wage growth and inflation start to slowly pick up. There hasn’t been much movement in investor rates but I recommend fixed rates for the next 2-3 year period be explored depending on your personal circumstances.

Serviceability and lending policies are still very tight. This will further constrain new housing supply (a good thing) but policies will eventually change and with it some solid capital growth if you can acquire now.

Property Cycle

The transition into the second half of the real-estate cycle is now slowly underway. Sydney values are very slowly losing steam and we can expect a shift of focus away from finance and services based economies (NSW & VIC) to the manufacturing and resources based areas such as QLD, SA and WA. This will take around 2-3 years to play out but opportunity is brewing. Broad 2018 expectations:

–Sydney: prices lower by end of year

–Melbourne: prices slightly higher by end of year (tends to lag Sydney by 6-12mths)

–Hobart: probable double-digit growth (catch-up period after almost 10 years of zero growth)

–Adelaide: prices higher by end of year (bulk of 10-year $200billion defence spend is in SA)

–Perth/Darwin/Canberra: prices to remain stagnant (Perth & Darwin primarily resources-based economies)

–Brisbane: prices higher by end of year (increased interstate migration, infrastructure and median price gap between Brisbane and Sydney is now at its widest in history).

Strategy

Always remember that property is a long-term play (min 10-years). Our TWO-50-TEN™ strategy and asset selection process is designed on this principle and based on experience. The aim of building wealth is to provide choice and manoeuvrability in the future.

From the whole Defencewealth Team, here’s to a great 2018! If you or anyone you know would like to discuss finance (including DHOAS) or tax/accounting options, then please get in touch.

Quote

If you do not plan your future, someone else WILL plan it for you – Unknown

G’day All,

2-minute read:

Firstly welcome and congratulations to our newest investment and owner-occupier clients!

We’ve increased our partner network to now include trusted tax & accounting services as well as DHOAS lending through Australian Military Bank.

Economy

-Official cash rate remains on hold at 1.5%. The RBA meets again in February and consensus is for rates to again remain on hold due low inflation at sub-2%.

-We expect improving economic conditions going into 2018. Trump got his tax cuts passed and Europe is powering along economically despite all the Brexit worry. Asian middle-class is strengthening which bodes well for Aussie tourism, agricultural exports, commodities and international student numbers. What happens overseas matters to us as Australia is well and truly part of the global economy.

-Aussie banks will continue to capitalise on the improving economy and increased APRA regulations by independently raising rates (investor loans especially). I agree that now is the time to fix (strategy & asset dependent) and should be aiming for sub-4.8% interest-only or sub-4.2% P&I. Fixing for 3 years now should time well for an expected mid-cycle slow-down in 2019-20 where interest rates will likely drop momentarily.

Property Market

Key land markets to watch in 2018 are:

-Greater Brisbane (heavy infrastructure spend)

–Adelaide ($85 billion in naval spending)

-Perth (cyclical low)

-Townsville (Adani Carmichael mine flow-on effect)

-Cairns (tourism and tight vacancy rates) and

-Darwin (approaching cyclical low combined with defence, tourism and livestock trade increases).

Sydney and Newcastle will likely plateau with Melbourne expected to increase for the next 12-18 months.

On behalf of the Defencewealth Team and partners, I wish you and your family a very Merry Christmas and safe, prosperous New Year! As we recharge and refresh, I encourage you to take stock of what you’ve achieved in 2017 and we’ll be sure to hit the ground running in 2018!

Quote

The project you are most resisting carries your greatest growth – Unknown

Strategy

The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and personal results and are selected for their balance in anticipated cash flow, capital growth and risk.

G’day All,

3-minute read:

Interest Rates

If you’re still considering whether to fix or split your lending (owner-occupied & investment), now is a good time to get onto it. Because the economies of Europe, Asia and the US are greatly improving, expectations are that interest rates there will be increased within the next 12-18 months. This affects us as Australian banks source a lot of their wholesale funding from these overseas markets.

Australia’s unemployment rate has just fallen to 5.5% and wage rises may follow in the medium-term causing a rate rise from the RBA. I’ve now fixed around 85% of my own portfolio on a mixture of IO and P&I. As always, please get in touch if you’d like the finance team to assess and discuss your current situation including DHOAS loans.

Greater Brisbane

Our focus still remains within the SE Queensland market and will do so for a while yet. The amount of infrastructure planned for the greater Brisbane area include the:

• BNE runway duplication (permitting aircraft movements on par with Hong Kong)
• Brisbane Quarter CBD development ($1billion)
• Queens Wharf CBD precinct (adding $4billion to GSP per year)
• Cross-river rail construction commencing
• Ipswich CBD redevelopment ($500million)
• Ripley Town Centre ($1.5billion)
• Gold Coast Commonwealth Games infrastructure nearing completion
• Pimpama Village ($100million)
• New university and commercial precincts within Sunshine Coast region and upgrades to the Bruce Hwy
• Logan LGA undergoing widespread gentrification.

By positioning now and locking in a well-located investment property close to amenity and transport and with sufficient land content, you will stand to benefit from the ripple effect that the above projects will create. Of note, our team are now competing with cashed-up buyers from Sydney and Melbourne for land within our preferred estates.

Adelaide also presents tremendous potential when you consider the combined submarine and frigate projects total $85billion. Of note the Inpex gas plant in Darwin was $32billion and those who positioned early extracted tremendous gains despite the ensuing downturn. If you or anyone you know would like to discuss how the team can assist you in your property investment journey, then please get in touch! We can assist in the relevant areas of finance, tax & accounting and asset selection.

RAAF Amberley Expansion

Recent article on what the RAAF Amberley expansion will bring to the local economy. https://www.theurbandeveloper.com/raaf-base-set-bring-2800-jobs-amberley/

Strategy

The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on first-hand experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote

Knowing is not enough, we must apply. Willing is not enough, we must do – Bruce Lee

G’day All,

3-minute read:

Interest Rates

Although the RBA cash rate remains on-hold at 1.5%, lenders are still increasing their investor loan rates out-of-cycle. I believe there is merit now to seriously consider fixing your investment lending for the next 2-3 years. This will shield against further out-of-cycle rate rises brought on by APRA and the federal government’s new bank levy.

Because we’re expecting a mid-cycle slowdown between 2019 and 2020, this should time well as interest rates tend to come down during financial slowdowns, and this can be taken advantage of when your current rates expire.

As a guide, your fixed interest-only (IO) rates should be <4.79% and fixed principal & interest (P&I) rates should be <4.00%. Whilst interest-only is my preferred finance option, it may be worthwhile switching to P&I now as the interest rate differential can almost equal a loan’s principal repayment component. Please get in touch if you’d like us to review your current lending in light of your future goals.

Don’t forget we can also assist with DHOAS loans through Australian Military Bank!

Market

Congratulations to our clients that have recently built in the Ipswich growth corridor. The $1.5billion Ripley town centre has begun construction and land prices are now in a solid growth phase. As this corridor begins to mature, other areas we’re tuned to is Redcliffe Peninsula, Moreton Bay, Sunshine Coast and Logan.

If you’ve ever been considering Perth, Adelaide or Darwin, now is the time to begin looking. Perth and Darwin’s growth will be tied to increasing commodity prices and defence spending, whilst Adelaide will take the lion’s share of defence spending. The major markets of Sydney, Melbourne and Newcastle are now approaching a cycle-peak where potential for future upside is now reducing.

Fundamentals

I can’t emphasise enough the importance of sticking to a strategy and appreciating fundamentals. It’s been reported that some of our SAS folk have been left stuck with ‘underwater’ properties (where property value is less than loan outstanding) in Darwin that were purchased through a former Navy diver.

We at Defencewealth will never recommend a property that we ourselves wouldn’t personally invest in. I consider it a massive breach of trust and integrity that some members were sold apartments (minimal land content) under the NRAS scheme in a market that was clearly reaching peak-cycle. Whilst you are ultimately responsible for your own investment decisions, when seeking guidance and advice from others, make sure they have achieved what you’re aspiring to achieve and are also appropriately licenced and qualified. Whilst investment risk can never be eliminated, it can certainly be reduced through proper education and understanding.

http://www.dailytelegraph.com.au/news/nsw/elite-australian-soldiers-were-sold-property-investments-by-hugh-ochremienko-that-went-sour/news-story/c285f4c07a4243000823511bd83f559c

Strategy

The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote

It is in your moments of decision that your destiny is shaped — Tony Robbins

G’day All,

4-minute read:

Interest Rates

Official RBA cash rate remains on-hold at 1.5%. All lenders have now increased investor rates out-of-cycle to around 4.5% – 5.5% variable (discounted) especially on interest-only loans. If your risk profile is such that future rate rises are of concern, then a finance review to look at fixed rates is recommended. I personally prefer to remain variable for flexibility but will be looking to fix some lending over the next 12 months. Get in touch if you’d like the finance team to have a look.

Whilst getting an investment loan will become harder going forward, this is the natural real-estate and business cycle unfolding and is very similar to where we were in the late 1990’s and early 2000’s.

Federal Budget

The main items to affect investors is changes to depreciation on plant and equipment and the scrapping of travel costs. For genuine investors, the inability to claim travel costs will have no significance on cash flow or asset performance. The change to plant and equipment rules will have potential impact for those that purchase established rather than build new as you are not the original owner of the items (eg dishwasher, fans, aircons etc)

Bottom line: by constructing and acquiring new assets, you will preserve the right to claim full depreciation on both construction and plant and equipment.

Economy

Recent news includes the $89 billion submarine and ship building project which will positively impact the SA and WA economies. Infrastructure-wise, the inland rail project linking Brisbane and Adelaide via Toowoomba is on the cards; south-west Sydney will be getting a new international airport; and final investment decision on the $15 billion Adani coal mine has been reached which will further improve the Qld economy and of course land values.

Overseas, China has announced its One Belt – One Road policy to begin building and reinstating trade links with Europe and the Middle-East and the US is planning to embark on a national infrastructure program. As investors, our key takeaway is all this progress will require commodities which Australia has an abundance of. We just need to identify the markets poised for growth and invest there intelligently using a proven strategy.

Rate-Reducer Home Loan

For those with an owner-occupied and investment loan (or multiple), a unique loan product is now available that actively fast-tracks home ownership through a heavily discounted owner-occupied rate of less than 3.8%. This may not suit those with DHOAS loans but if you want to investigate further or have family or friends that may be interested, then please get in touch.

Tax Deductions

As the EOFY is upon us, below is a summary of allowable deductions:

• The cost of advertising for tenants for your property
• Bank charges and interest on loans
• Body corporate fees and charges
• Council rates, electricity, gas and water charges (unless these are borne by the tenants)
• Building, contents and public liability insurance
• Some legal expenses and lease document expenses
• Depreciation – but the rules for this have recently changed and will affect purchasers of established properties after 9th May 2017
• Pest control
• Repairs
• Maintenance and service costs
• Gardening and lawn mowing costs
• Any fees and commissions paid to property agents and quantity surveyors.

Generally speaking, you are not able to claim a tax deduction for any expenses that are related to acquiring/purchasing the property; as well as costs that are not actually incurred by you or costs not related to the rental or income generation from the property. Conveyancing costs, stamp duty and advertising the property for sale – which are all related to the acquisition or disposal of the property – are generally not able to be claimed as deductions. However, in relation to Capital Gains Tax, you are able to add these costs to the property’s cost base thereby reducing your CGT liability if you sell.

Strategy
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote

The biggest risk is not taking any risk. In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks — Mark Zuckerberg

G’day All,

Interest Rates
Official rate remains on hold at 1.5%. Expect this to remain for most of the year. Actual mortgage rates however will be increased by the banks. If you’ve got relatively high debt spread across multiple assets, you’ve probably got until the end of the year to lock in a decent 2-5 year fixed rate at sub-5%. If you’re still in acquisition though and have ample buffer funds, then fixing may not be required. Get in touch if you’d like to discuss further.

DHOAS
Some NAB DHOAS loans have come down to a 4.07% variable rate. If you’re currently paying more than this, it won’t hurt to call NAB and seek a pricing request.

Market
South-east Queensland still remains prime for investment. New estates to watch are within Sunshine Coast and Moreton Bay to the north and new estates east of the Ipswich CBD. Population is steadily increasing together with land price, rents and sales volumes. We still have packages available in the mid-$400K bracket that satisfy our investing and TWO-50-TEN™ strategy criteria.

The Brisbane median house price is now also half that of Sydney at $540,758. With a strengthening commodities market (gas, iron ore and coal), and some major public and private projects (Adani coal mine and Queen Street Wharf upgrade), there is plenty of upside potential to be had, especially when the law of economic-rent is understood.

Strategy
The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2million portfolio at 90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The types of properties we recommend are investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote
Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius – and a lot of courage – to move in the opposite direction – Albert Einstein

https://www.theurbandeveloper.com/ripley-valley-town-centre

G’day All,

Interest Rates

Official rates in the US were increased by 0.25% (to 0.75%) due to an improving economy and unemployment rate. Expect that interest rates here in Australia have now reached their bottom. The RBA may cut again by April 2017, however the banks will be reticent to pass this on. I now recommend we start looking into investment 3-5 year fixed rate options (including splits) over the course of 2017.

Before doing so though, ensure that your medium-term strategy accommodates a fixed-rate option especially if you’re still in Acquisition phase. Break-costs associated with breaking a fixed-rate loan can be expensive although if you fix prior to a major rate hike, then these costs won’t be incurred.

Key take-away – If you can lock in a 3-year rate at less than 4.5% interest-only then I’d be doing so remembering that the gross rental yield we aim for in all our investments is 4.5%. Feel free to get in touch with us to see what your finance options are.

South-East Queensland

This market is still ticking all our investment boxes. Latest announcements are a $1 billion surplus in the State budget (thanks to a coal comeback), the go-ahead of Adani’s Carmichael coal mine (to be world’s largest), first stage of Ipswich City $150 million redevelopment and continued expansion of RAAF Amberley with arrival of approx 2000 extra personnel over the coming years.

There’s also still a lot of activity going into Gold Coast infrastructure in preparation for the 2018 Commonwealth Games and the Sunshine Coast is not far behind especially with the University Hospital and Kawana health precinct.

As always, land value will absorb this increase in economic growth. We just need to put a business (housing) on top of it so that we can afford to hold it. Price-points in this market are still also affordable compared to Sydney and Melbourne.

DHOAS

I’ve been hearing a lot of push-back recently about the NAB and their refusal to lower DHOAS interest rates below 4.35%. Defence Bank now have a 3.95% comparison rate offer on DHOAS loans plus $1600 cash-back if applied before 31^st Dec 16. If you currently have lending with Defence Bank, it may be worthwhile putting a call in to see if they can also lower your current rate.  https://offers.defencebank.com.au/dhoas-home-loan

Merry Christmas!

From all of us at the Defencewealth team, we wish you and your family a very Merry Christmas and safe, prosperous 2017! As always, please get in touch if you’d like to start looking at your property investment and finance options over the holidays.

Quote: Wealth is like energy. It can never be destroyed. It simply transfers from one entity to another – Mike Maloney