Category: Short, Sharp & Sweet Insights

Interest Rates
The official cash rate has been kept on hold at 1.5%. Some analysts expect another cut in November but will all depend on inflation data. Majority of interest rates on investment lending are around the 4.2-4.5% range with some lenders offering sub 4% if packaged with an owner-occupied loan. If you currently have a NAB DHOAS loan greater than $250K your target rate should be 4.4% or below.

DHOAS
Our network now includes capacity to accept and process DHOAS home loan applications through Australian Military Bank (AMB). If you or someone you know would like to discuss DHOAS loan options, subsidies or the potential grants available for first-home buyers when building new, then please get in touch.

Australian Market
Cairns. Plans for the $8 billion Aquis casino project have been cancelled for a luxury hotel complex capped at $2 billion. If this project gets approved, it will still prove to be a boon for the Cairns economy (and land values). Although Cairns is predominately tourism driven, it could still be a good play given the low Aussie dollar and increasing tourist numbers coming to Australia from the Asia-Pacific region. I’m still keeping this market in the watch-list.

South-East Queensland. There’s a lot going on in this market particularly to the north and west of Brisbane. As mentioned previously, congratulations to those that purchased in Coomera and Pimpama as new-release land prices no longer offer investment value.

Key markets for us are now within the Ipswich LGA and north toward the Sunshine Coast. When assessing a potential market, key fundamentals are infrastructure, commercial investment and population growth. The following projects are either planned or underway in both regions:

-$5 billion Kawana Health Precinct
-$2.3 billion Sunshine Coast University Hospital
-$1 billion on the Bruce Hwy upgrade (linking Brisbane with Sunshine Coast)
-$400 million on the Sunshine Coast international airport upgrade
-$12 billion Springfield community
-$1.5 billion Springfield rail link
-$2.8 billion Ipswich Motorway upgrade
-$154 million Orion Shopping Centre
-$1 billion Citiswich Project (Ipswich CBD upgrade)
-RAAF Amberley major base upgrade

Adelaide. Since the $50 billion submarine project announcement this year, sales activity has increased across the city. Key markets we’re watching are within the Port Adelaide Enfield and City of Charles Sturt LGAs.

Law of Economic Rent. As mentioned, the above projects will attract population growth and strengthen local economies. Local land values will absorb this increase in economic output which is why land content is the critical piece to any property investment.

As always, please get in touch if you have any questions or would like to expand or start your long-term property investment portfolio with an experienced team.

Quote – Time is more valuable than money. You can get more money, but you cannot get more time. Jim Rohn

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 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 Catherine and I recommend are considered investment grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Key investment topics we’ve been tracking over the last couple of months are as follows:

RBA Cash Rate – Dropped to 1.5% in August. Most banks will not pass on the full rate cut as returning profit to shareholders is their number one priority. If you’re with a big 4 bank you can expect between a 0.10% – 0.15% reduction at best.

Main reason for the RBA drop was low inflation figures and a higher Australian dollar. Regarding inflation, government and the RBA need higher inflation to keep tax revenues high as well as reduce the value of government debt. When it comes to the Aussie dollar, a higher dollar means we export less and our terms of trade go negative. These numbers aren’t looking at changing anytime soon so there is potential for another RBA cut by year’s end.

Australian Market – Overall the national property market is doing pretty well despite the crash calls late last year and early this year. Some markets are obviously performing better than others and this all relates back to the economy of that region however the number of properties being transacted for less than $400K is declining. In summary:

• Sydney is at its peak with approximately 6-12 months of growth left before it stagnates
• Melbourne still has opportunities for capital growth but lower rental yields
• Brisbane (SEQ) and Adelaide present best prospects for both growth and yield
• Darwin and Perth still correcting. Will need to revisit once the commodity price-cycle smooths out.

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 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 Catherine and I recommend are considered investment grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

DHOAS – Food for thought: if you currently have a DHOAS home loan it may be worth investigating looking at non-DHOAS options particularly when owner-occupied rates are below 3.80% with other lenders. Each individual case will vary however for someone on a Tier 3 subsidy and $400K loan, the difference in interest saved at 3.80% is slightly more than the $350/mth subsidy received at the higher DHOAS interest rate of 4.4%.

Of course there are many other variables like offset accounts and a credit card facility which are crucial for those with multiple properties and the subsidy tends to pick up more slack in higher interest rate environments. But if anything, it might be worth using the above to negotiate a better rate with NAB, ADCU or Defence Bank if you’re currently paying above 4.4%.

Don’t forget that Simon and his team can assist you in all lending and finance requirements as well as that of family and friends. If you or someone you know is ready to start building genuine wealth through property then please get in touch!

Quote – Money is not wealth just as a clock is not time

G’day  All,

Key investment topics we’ve been tracking over the last couple of months are as follows:

Australian interest rates

The RBA cash rate is still on hold at 2% but we can expect another cut by year’s end. The interest rate you and I pay on our loans will either remain stagnant or slightly increase throughout the course of the year as banks continually test the waters on how to further extend profitability. At this stage I’m still keeping my loans variable as it provides more flexibility during the acquisition phase.

60 Minutes story – housing crash

An American economist by the name of Jonathan Tepper was on 60 Minutes back in February warning Australia of a pending housing crash. It turns out Tepper and his hedge fund had significant ‘short’ positions on Australian banks. The 60 Minutes approach was an apparent attempt to get the mainstream (mum & dad’s) to sell down their shares in the major banks so Tepper & Co could get out of their short positions at reduced costs.

The 60 Minutes story focussed on inner-Sydney property prices and the huge losses experienced in the QLD mining town of Moranbah. As experienced investors we would never condone buying into either of those locations simply because the market fundamentals don’t support it even at the height of the mining boom.

Negative gearing

A lot of debate and commentary lately on the merits of getting rid of negative gearing. I wouldn’t get too hung up on it as it will almost certainly remain in place for new builds which is our primary asset class.

Australian market

With national unemployment steady at 5.8%, mortgage delinquency rates below 2% and a lot of infrastructure under construction or being planned, Australia as a whole is looking pretty good. The mining economies of WA and the NT are in a downturn and should present some good buying opportunities in the next 12-15 months.

Our primary focus is still in the south-east QLD market given the strong combination of infrastructure, private industry expansion and population growth. Good opportunities are also available in the Victorian regions of Epping and Sunshine.

http://www.news.com.au/national

MSBS retention

For our members considering tax-efficient options when receiving the retention benefit, a valid strategy is to prepay up to 12 months interest on an investment loan in the financial year it is received. When coupled with the significant depreciation ($8-$12K in the first year) on a new build, more of your income tax will be diverted to your asset base instead of Canberra. This will require personalised accounting advice for which we can provide a referral.

Many thanks for all your referrals so far as we really enjoy assisting ADF members, their friends and families build genuine wealth through residential property!

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Someone is sitting in the shade today because someone planted a tree a long time ago – Warren Buffet

RBA Cash Rate
-Remains on hold at 2%. Inflation increased slightly over the Christmas quarter but still remains under the RBA’s preferred 2-3%. Expect official rate to remain on hold with potential for another cut.
-Interest rate increases by the banks from hereon are now purely for profit as investor lending growth is now contained below the regulator’s (APRA) annual 10% guideline. If in doubt about any loans you have then please get in touch with Simon to arrange a no-obligation review.

Global Economy
– US raised their official interest rate by 0.25% on the back of a strengthening economy and increasing real-estate values.

-The Japanese official interest rate is now negative and I promise this isn’t a joke. This only affects the Japanese banks in a bid to get them to lend more money into the economy rather than keep reserves on deposit with their central bank. http://www.bloombergview.com/quicktake/negative-interest-rates

-Global oil prices have dipped below US$30 a barrel. Cheap energy is a pre-cursor to a strong economy and a strong economy is what supports rising property (land) prices.

-Whilst China is in a spot of bother economically, most of their issues will remain contained internally. Whenever you hear bad news always remember that there’s approximately 2.5 billion people in the Asia-Pacific region that are either in or moving into a recognised middle-class. These people will be demanding higher quality food, leisure, health and education and Australia is well placed to service these demands. Take baby formula for instance. The Asian Century is the main driver behind the Federal Government’s push to further develop northern Australia.

Australian Market
-No change to our focus on the south-east Queensland market. Congratulations to those that have recently secured early-stage land through Catherine in Brisbane’s south-west corridor!

DHOAS
-As a guide for those with a NAB DHOAS loan, you shouldn’t be paying more than a 4.75% interest rate. The bigger your loan amount then the bigger the discount. If you are paying more than 4.75% then get in touch with NAB and request a lower rate.

Overall 2016 looks set to be a solid year to get your property portfolio underway. The ideal time was 2 years ago but the next best time is now. For those in their mid-20’s that have recently joined Defencewealth and started the TWO-50-TEN™ journey – welcome! By the time you are in your mid to late 30’s you’ll be in a very healthy financial position provided you stay the course.

If you or anyone else you know are seriously considering property investing then please get in touch. As investors ourselves, our core business is to assist you with strategy, finance and asset selection with referral partners for tax, accounting and financial planning.

Here’s to a great year!

Quote
Diversification is protection against ignorance. It makes little sense if you know what you are doing – Warren Buffet

RBA Cash Rate
The official interest rate was again kept on hold at 2% for December. The RBA will meet again next in February. National unemployment has dropped to 5.8% and the Aussie dollar still hovers at around $0.72US. This is all good news. Inflation though is still quite low so expect the RBA to remain on hold with potential for another rate cut in early 2016.

Lending
There’s been a substantial drop in investor lending nationwide over the last few months. This is great news! Owner-occupied lending has increased as banks are still making it harder to borrow for investment purposes. This is the cycle at play and we’ve been here before.

Economy
Some commentators are expecting a recession in 2016-2017. The 18-year cycle has it timed for around 2019-2020. I’m still acquiring assets leading up to 2019 but we will need to watch our debt levels going into 2019. For our older members who might remember, effects will be similar to the ‘dot-com’ crash in 2000-01. Whilst 2019 may seem like a long way off – property investment is long-term.

DHOAS
Congratulations to our Investors and First Home Buyers that have recently constructed or are in the process. As you’ve seen, land acquisition and subdivision is a time-consuming task with significant red-tape attached. If you are seeking the DHOAS lump sum, just make sure your subsidy certificate is valid for when hand-over occurs otherwise you will miss out.

Market News
The south-east Queensland region still remains our investment location of choice. Significant infrastructure projects that add to land values combined with population and employment growth are the primary reasons. We have now missed the boat on the Pimpama/Coomera region due to high land price although Catherine has been successful in sourcing stock in other emerging markets. For mine, key areas we’ll be focussing on include Ipswich, Ripley, Narangba, Northlakes and Cairns in Queensland and Epping, Mill Park, Doreen, Mernda and Thomastown in Victoria.

Quote
I think the key indicator for wealth is not good grades, work ethic, or IQ. I believe it’s relationships. Ask yourself two questions: How many people do I know, and how much ransom money could I get for each one? ― Jarod Kintz

Once again thanks for all your support over 2015 and please feel free to get in touch over the holiday period if you have any investment questions.

We wish you a very festive and safe Christmas and New Year and look forward to assisting you and your family in building genuine wealth throughout 2016!

G’day All,

The RBA have kept the cash rate on hold at 2% for November. The Aussie dollar is hovering at around $0.71US which is helping to boost major exports including international tourism.

Latest inflation is tracking at 2.1% annually (the RBA target is between 2-3%) and trending down. We will probably see another cut by the RBA by March/April 2016 if not next month to help stimulate extra spending and inflation.

As you know banks have increased their mortgage interest rates across the board citing higher capital reserve requirements by APRA. The capital reserve increase has gone from 0.16% to 0.25%.

What this means is that for every $1.00 that a bank ‘lends,’ they must hold $0.0025 in cash. Or put another way, on a typical $450,000 home loan, banks only need to hold $1,125 (a quarter of 1%). This is fractional reserve banking and is the primary way that our money supply is created and added to.

All money and credit created must actually be borrowed into existence by someone, with interest rates controlling the velocity at which that money flows through the economy.

Right now the trend is to divert money creation away from property (land value) hence the increase in mortgage interest rates which are even higher for investment loans. Do not be swayed by this. We have been here before (approx. 18 years ago) and this is the cycle at play.

To questions of whether to look at fixed rates or not, my take is fairly simple. If I’m still in acquisition phase I’ll give greater consideration to remaining on variable rates to maintain full flexibility in refinancing. If I’m in consolidation phase then fixing can be considered.

You can also opt to split your loans between variable and fixed. It all boils down to your risk appetite and investment goals. Simon and his team are all over the current finance landscape and can assist with all lending requirements including that of friends and family.

Market News
Congratulations to those that have recently secured property through us in Coomera and Pimpama. The $1 billion Coomera Town Centre is now about to begin. This new infrastructure will increase adjacent land prices however our ideal purchasing window is now beginning to close as well priced land is now much harder to source.

http://www.goldcoastbulletin.com.au/realestate/

Darwin is also set to greatly benefit in future Northern Australia investment and development in line with the Asian Century.

https://au.news.yahoo.com

As always we’ll keep you posted on new property investment opportunities as they arise.

Once again thanks for all your referrals and please keep them coming!

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Wealth consists not in having great possessions, but in having few wants – Epictetus

RBA Cash Rate
Left on hold at 2% for both September and October. The official interest rate setting is really only a factor for owner-occupiers now and less so for investors as most lenders have increased their investor interest rates by between 0.25%-0.45%. If you’re on a fixed rate then it’s obviously not an issue at the moment.

The reason we watch what the RBA does with the official cash rate is because it’s a gauge on the broader economy. When the economy improves and inflation begins to pick up the RBA will increase the cost (interest rate) of money. At the same time the value of hard assets (land in particular) will rise to capture the increase in inflation and economic gain.

There is no doubt that right now is the time to be acquiring favourable assets in solid markets whilst rates are historically low. Also remember that residential housing is the business but the wealth is in the land.

Market News
Northern Gold Coast

• Confidence and momentum in the Coomera and Pimpama markets are solidly increasing.
• SQM Research have upgraded their outlook for the region. As a result we’re now seeing an increase in land prices from developers (if it’s in the news, it’s in the price);
• Although vacancy rates are trending lower, we’re finding that it is taking some time (approx. 3-5 weeks) to initially lease some properties. This is typical though for the winter months.
• By securing property now at today’s price points, any drops in future rental return as housing supply increases will be manageable. This is also why I think we only have an 8-12 month window to secure land in this market.

Northern Brisbane/Sunshine Coast

• A lot of infrastructure going up or planned. The North-East Business Park in Morayfield is underway.
• Construction of the $1.5 billion Kawana Health Precinct on the Sunshine Coast is also underway making it the largest health precinct in Australia.
• Similar to northern Gold Coast, we are witnessing land price increases by developers as more infrastructure projects and buyer interest gets underway.

Cairns

• The $8 billion Aquis Resort is now back on track. Final approval still lacking but if successful, expect construction to start in 2017.  http://www.cairnspost.com.au/business/bn-aquis-project-back-on-agenda-for-cairns-after-fung-signs-deal/story-fnjpusdv-1227533788224
• Herron Todd White who are national valuers have independently rated Cairns as a rising market.

We love your referrals! Please continue to let your friends, family and colleagues know about the Defencewealth team and service.

Quote
Never invest in a business you can’t understand and beware of geeks bearing formulas. – Warren Buffet

RBA Cash Rate
As expected the RBA held rates at 2% for August. We’re still anticipating a further cut later in the year but this most likely will not flow on to investment lending. Rather it’ll be aimed at more owner-occupied borrowing and personal consumption loans for things like cars and technology.

The above is very important to note as owner-occupiers buy based on emotion and lifestyle; investors like us buy based on economic fundamentals and numbers. Emotion and desire contribute significantly to higher property prices, although the mainstream will have you believe it’s all because of ‘greedy’ investors. The more credit that is created and lent to owner-occupiers to buy into the ‘great Australian dream,’ the higher we can expect the land price to increase.

As alluded to in a previous SSS, we’ve been here before in the mid 90’s when interest rates for property investors were higher than owner-occupiers. This is the cycle at play, trouble is most of us were either too young or just not aware of what was happening and why.

For those concerned about a property bubble, Core Logic released data showing that total value of Australia’s real-estate broke through $6 trillion in June 2015. What’s really interesting though is that the value of total debt tied against this $6 trillion is approximately $1.49 trillion. This is an LVR of only 25% meaning total values (excluding vacant land) are worth four times more than the debt held against it! This is nowhere near bubble territory so keep this in mind when you next hear a bad news story about property bubbles.

Core Logic article

Market Update
Congratulations to those who have either recently or are close to being completed on their investment properties! Infrastructure in preparation for the 2018 Commonwealth Games is well under way which will greatly improve amenity and desirability of the Pimpama/Coomera regions.

The second Toowoomba Range Crossing project is expected to pump around $500,000 per day into the local economy. We can expect land values to take up most of these gains going forward.

http://www.thechronicle.com.au/news/crossing-delivers-500000-a-day-to-city-range-works/2705452/

Whilst the South Australian economy is pretty flat at the moment for our first-home buyers, land-locked infill developments close to amenity and infrastructure will prove to be worthy investments in the long term.

Investment Strategy
For those not aware Defencewealth advocates a TWO-50-TEN™ strategy. This is based on acquiring a $2 million portfolio, consolidating down to a 50% LVR and achieving sustainment within a ten-fifteen year period. The properties acquired must be assessed against cash flow, capital growth and risk noting we target new property to better maximise the effects of depreciation and stamp-duty savings.

It can be hard to project manage all the services required to see through successful investing, that’s why Defencewealth has an established team in place to look after our ADF client-members. Teamwork, integrity and trust run through everything we do and it’s important you only work with people who are not only investors themselves but have achieved success in the field.

Global Economy
In summary:
• Greece is getting bailed out again with more loans and will remain within the Eurozone;
• The Irish, Spanish and UK economies are now significantly improving;
• The US are talking about raising interest rates by year’s end. Remember this only happens when an economy is improving;
• China not so good, may impact Australia’s economy particularly going into 2019-2020 but wait and see;
• Australia is joining the Chinese-led Asian Infrastructure Investment Bank (AIIB) bringing us further into the Asian Century.

We love your referrals! Please continue to let your friends, family and colleagues know about the Defencewealth team and service.

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Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. – Paul Samuelson

RBA Cash rate

As expected the official cash rate was left at 2% for July. I still expect there to be no change until around October/November where there may potentially be another cut. Of note the Canadian central bank have just cut their official rate to 0.5% this month remembering their economy is very similar to Australia’s.

The RBA are making noise again about needing to review (read abolish) negative gearing on property. It’s only speculation but we think they’re raising the issue again in an attempt to ‘scare’ investors away from property as they don’t want a potential bubble to form when they eventually do cut rates again.

Why might they cut? – Unemployment in SA is now 7.6% (6.1% nationally) and national inflation and consumer confidence in general are still tracking on the low side. Australian Government debt is now also $373.1 billion up from $356 billion in February. The Aussie dollar has dropped to around $0.74US which is a good thing.

It’s important to note that inflation will eventually tick up bringing higher interest rates and increased land values with it. They who hold the most property during this inflationary period will benefit the most.

Regarding the Greece crisis – I wouldn’t worry about it too much. What’s interesting though is the agreed solution to their debt problem is to actually grant them more debt by way of bailout loans. This is because our entire financial and monetary system is based on credit and lending. A mentor of mine put me onto the following ‘crises’ we’ve seen over the last few years post GFC:

• Australian housing collapse
• China’s housing boom and collapse
• US debt ceiling
• US money printing
• European money printing
• Italian interest rates
• Spanish interest rates
• Portuguese interest rates
• Greek debt default
• Dubai
• Cyprus banking bailout
• Europe’s alphabet soup of bailout plans
• Japan’s money printing
• Japan’s interest rates
• China’s interest rates (Shibor — a term few used before or have used since the apparent ‘Shibor crisis’)
• Syria, Libya, and Egypt
• Emerging markets
• Argentina’s debt problem
• Russia and Ukraine
• China (again)
• Turkey

This list will keep growing and risk is always ever present. You will do well though if you can see through the noise and appreciate the 18.6 year real-estate cycle that I keep banging on about. This is because all the credit created by banks will eventually find its way into a land price somewhere.

Market Update

Congrats to our members who are now in the process of securing their second investment properties through our team! Following the infrastructure trail is proving to be a crucial part of asset selection and getting to a $2 million asset base.

http://www.propertyobserver.com.au/terry-ryder

We’re still focused on south-east Queensland, Cairns and Melbourne’s northern growth corridor. I feel Darwin and Perth will present some good buying opportunities in about 12 months time.

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It’s easier to stand on the sidelines, criticise, and say why you shouldn’t do something. The sidelines are crowded. Get in the game. – Robert Kiyosaki

We love your referrals! Please keep them coming. Remember the team can assist in all aspects of finance, tax & accounting and financial planning.