How to make your real estate investment property work harder for you

An investment property is just like any other business: it needs to be well-managed and focused on its target market for the best returns.
While the recent turnaround in rental vacancy rates across most Australian states has made life a little easier for many landlords, the likelihood of interest rate rises in the near future means there is no room for complacency.
Here's how to ensure a property pulls its weight.
Leave it to the experts
Whether you are new to property investment or an old hand, a good property manager can make a huge difference to your bottom line.
Seasoned property investors agree that employing the services of an experienced, professional managing agent is money well spent.
Buyers' advocate Janet Spencer of Buyer Solutions rates a good property manager as one that keeps a keen eye on maintenance issues and provides regular feedback to landlords, thus allowing plenty of time to budget and plan for future expenditures such as replacing carpets or repainting.
Core services include rent collection, routine inspections and co-ordination of maintenance requests. Importantly, a property manager can act as an intermediary buffer zone between the owner and the tenant.
Fees generally range from between 6 to 9 per cent of gross rental income and - as with most services - you get what you pay for.

Inspections and body corporate.
Regular inspections are vital for landlords, particularly the estimated 30 per cent who manage their own property. Inspections can alert owners to minor maintenance issues that could develop into major problems if left unattended.
In Victoria, landlords can inspect their properties every six months. But more frequent inspections may be possible if the tenant agrees. In NSW, rented properties can be inspected up to a maximum of four times a year, with seven days' notice to the tenant required.
There is probably nothing duller than a body corporate meeting, but such meetings are also vital sources of information for landlords. This is where they can learn about problematic tenants, the budget for future maintenance costs, such as exterior painting or landscaping, and any potential levies.

Time for an upgrade?
Sometimes you have to spend money to make money.
Routine upgrades to your property can translate into quality tenants, rental increases and a shorter vacancy time between tenancies.
Gerri Keays, national property management executive at Ray White Australia, says tenants have become more savvy and are increasingly demanding properties that are well-maintained and come with fixtures and fittings that are reasonably up to date. "Vertical blinds that have been around for 30 years are not going to add value to your property," Keays says. The same can be said about dated kitchens, brightly coloured walls and shag-pile carpet.
Sophie Lyon, general manager of property management at Philip Webb Real Estate, agrees. "Many tenants we see these days are choosing to rent as opposed to having to rent," she says. "They are not prepared to take just anything."

Rental review.
Raising the rent is an obvious way to increase the return on your investment, particularly in the current hotly contested rental market where vacancy rates in Melbourne and Sydney average 2 per cent or less. In the 12 months to June 2006, the increase in the median rent outpaced the annual CPI increase of 4 per cent in many areas of these cities, with rises of more than 7 per cent recorded for two-bedroom apartments in popular suburbs of Sydney.
That said, raising the rent could be counterproductive if your property remains vacant for more than a few weeks.
Anthony Atra, a leasing agent with Century 21 Cityline Realty, which specialises in the keenly sought areas of inner Sydney and the eastern suburbs, says if your inner-city property is taking more than two weeks to rent out, it is probably overpriced.

Deductions and insurance.
While the Australian Tax Office has recently stepped up its targeting of property investors who claim expenses inappropriately, there are also plenty of landlords who underestimate what they can legitimately claim. This will be particularly important for those investors who have seen the value of their tax deductions reduced as their marginal tax rates have fallen.
Expenses for which there may be an immediate deduction include advertising for tenants, bank charges, body corporate fees, travel and car expenses for collecting rent or property inspections and certain depreciable assets that cost less than $300 (see right). For further information download the Rental Property Report 2006 at the ATO website (see http://www.ato.gov.au and search for rental).
Finally, loss of rent is a common problem - particularly when tenants fall into arrears - but landlord insurance can cover this expense. Several insurers offer protection against malicious or accidental damage by tenants, theft by tenants, legal expenses and legal liability. But read the fine print, excesses vary widely as does the time you are covered for rent loss.

What you can claim.
Besides loan interest, rental property expenses for which you can claim a tax deduction include:

• advertising for tenants,
• bank charges,
• body corporate fees,
• borrowing expenses,
• council rates,
• decline in value of depreciating assets,
• gardening and lawn mowing,
• insurance,
• land tax,
• pest control,
• property agent fees or commissions,
• repairs and maintenance,
• stationery,
• telephone,
• water charges, and
• travel undertaken to inspect the property or to collect the rent.

Source: Australian Tax Office [ATO]

The right manager makes a difference.
After 10 years of buying and selling properties and dealing with all sorts of tenant issues, Margaret Steel believes finding the right property manager is crucial to success in property investment.
"It really makes it so much easier if you have someone who is able to foresee maintenance issues and head off problems," says Steel, whose residential investment portfolio consists of nine two-bedroom properties, eight of which are part of two refurbished older-style inner-city apartment blocks.
Steel has been with the same property management firm since she began buying properties in the mid-1990s, just before Melbourne's last big real-estate boom. During this time the energetic mother of two has avoided any major problems with her tenants, encouraging them by way of a personal letter to report all maintenance issues, however minor.
"A lot of tenants don't like to be seen to be whingeing, but it is better to have a leaking tap reported and fixed than to have to replace the parquetry when a tenant leaves", she says.
Steel, who built her property portfolio on the advice of buyers' advocate Janet Spencer says she regularly upgrades her properties, paying close attention to carpets and benchtops. "We figure it is worth [it] in order to get a good tenant who will stay," Steel says.

Source: The Melbourne Age

Home loan mortgage Interest rates could go higher

The stage is set for a November home loan interest rate rise and possibly another rise in mortgage rates in 2007, with a solid rise in consumer prices in the third quarter pointing to inflation pressures in the domestic economy.
An Australian Bureau of Statistics (ABS) report showed the nation's consumer price index (CPI) rose 0.9 per cent in the quarter, for an annual rate of 3.9 per cent. In the June quarter, the CPI rose 1.6 per cent. The median market forecast for the headline CPI was for a rise of 0.8 per cent in the CPI in the September quarter, for an annual pace of 3.8 per cent.
Commonwealth Bank chief economist Michael Blythe said the suggested the central bank would raise rates next month. "Clearly we're still waiting to see what those key underlying measures are, but all indications are that it will be high enough to tick off that November rate rise," he said.
Westpac bank senior economist Andrew Hanlan said the figures confirmed that inflation was a challenge for the economy and the Reserve Bank of Australia (RBA).The RBA's inflation comfort zone for inflation is 2 to 3 per cent. The RBA would likely have to adjust rates following its November 7 board meeting, Mr Hanlan said."We need to see the Reserve Bank nudge things higher and we expect that in November," he said.But depending on how entrenched inflation is in the economy, Mr Hanlan said there is still a risk still that the central bank could raise rates again in February.Mr Hanlan said inflation is being impacted by rising global prices."Those rising global prices are feeding through to the whole pricing chain and we saw that earlier in the week with the producer price index rising quite a bit," he said. RBC senior economist Su-Lin Ong also said the results would put pressure on the RBA to raise rates for a third time this year. "The data and the details today support another hike from the Reserve Bank, most likely in November," she said.
"It (would be) a pretty prudent move given that there are clearly some underlying pressures in the economy." Source AAP

First time home buyers will struggle with house prices

First time home buyers would find it increasingly difficult to purchase a home in Melbourne as property prices moved back to record highs, an industry group warned.
The higher house prices combined with further interest rate hikes being touted as a done deal, and the planned reduction in the state government assistance could see a movement back to regional areas where median prices fell significantly over the last quarter.
According to data released by the Real Estate Institute of Victoria today, the Melbourne real estate market has continued its steady appreciation with a rise in the median price of 1.5 per cent since the June quarter.REIV chief executive Enzo Raimondo said if this trend continued Melbourne's median house price would return to the all-time high of $380,000 recorded in December 2003.
The September Melbourne quarterly median price rose to $377,000 up $5,500 from a revised June quarter. "This quarter's price data shows that all the fundamentals of the Melbourne property market are on track, the median price is steadily appreciating, stock availability at auctions has increased 11 per cent on 2005 and the clearance rate is up five per cent," Mr Raimondo said.
However he said the news was not good for those trying to break into the market. "The steady appreciation continues to affect affordability," Mr Raimondo said. "The most recent ABS data showed that first home buyers have reduced from 19.88 per cent of the local market in June to 17.76 per cent in August. "Further (interest) rate increases, taxes and charges and the planned reduction in the state government assistance for first home buyers in the middle of next year will only make it harder for young families. "This could push young families back to regional areas like Greater Shepparton in the central north were median prices for properties dropped by almost five per cent.
Geelong's median house price fell by 4.6 per cent and Ballarat's dipped 0.5 per cent. Greater Bendigo's median house price was up 3.2 per cent.Newport in Melbourne's inner west was the only area to make the top 20 growth suburbs in both quarters.
Doncaster, a leafy eastern suburb, recorded the biggest increase in median house price up 16.1 per cent to $520,000 while Melbourne's northern suburb of Broadmeadows reported a 13.4 per cent increase to $216,000.

Article source: AAP

Credit card holders are being dealt a poor hand

Credit card users who miss an American Express credit card payment will be hit with higher interest rates.
In an Australian first, American Express is applying a form of risk-rating to its customer base that will result in a sliding scale of rates.
Miss one credit card minimum payment, and you lose any promotional rate you were enjoying.
Miss three payments within 12 months and your current rate increases by 4 per cent per annum.
Miss two consecutive payments, or four separate ones within 12 months, and your rate goes up to 25.99 per cent for at least the next 12 months. At the end of that time, Amex has discretion over whether it will lower your rate.
Effectively, the company is relegating those they assess as high-risk to a punitive rate. Or, in Amex's words, "we are setting credit card rates at the customer level rather than the traditional approach of setting rates by product".
This represents a departure from how credit card interest rates have been set in the past. Until recently, if you missed a payment on your credit card, the worst that could happen was you'd be hit with a flat fee. "We'll see the Australian market move to risk-based pricing over time," predicts Denis Orrock of InfoChoice. "Whether it be through a universal change to the reporting structure, to allow ratings agencies to carry it out, or institutions doing their own risk profiling.
"Consumer groups are concerned vulnerable consumers will be hardest hit by the change. Carolyn Bond of the Consumer Law Centre in Victoria says the new Amex policy goes against the industry trend to responsible lending."Amex is going in the direction of penalising people in financial difficulty, rather than looking at different ways they can assist," Bond says. "If you can't afford your payments at the standard credit card interest rates rate [typically about 17 or 18 per cent], then you're not going to be able to afford them at 26 per cent."Cardholders could be locked into a vicious circle of crippling debt with such high rates.
Defaults of 90 days or more affect a person's credit history. "You start to see real problems emerge," says Dr Nick Coates of the Australian Consumers Association. "Customers struggling to maintain everyday expenses with the [recent] interest rate rise and petrol prices will probably start to load up their credit cards first. We've seen cash-outs and credit card debt before the last rate rise at an all-time monthly high, suggesting there are a lot of people under stress. They're the sorts of consumers who will be caught by a sliding scale."Risk-based pricing is common practice in the US, where lending institutions are allowed considerably more access to credit records than they are in Australia.
"One of the reasons we haven't had more discriminatory rates for credit cards is because it's difficult to price risk at the outset," says Nicola Howell, the director of the Centre for Credit and Consumer Law at Griffith University. "That's one of the arguments for more detailed credit reporting."
Orrock says Amex is in effect conducting its own risk profiling. "What you're seeing is that Amex probably wants to cherry-pick their customer base by separating the good from the bad. This is a pretty easy way to roll your default risk customers up into a fairly aggressive interest rate for one year."
Nina Rinella, an Amex spokeswoman, says the company is simply trying to make sure its customers showing responsible payment behaviour are not subsidising irresponsible customers. "The vast majority of our customers have good payment behaviour, and they're not going to be [affected]," she says. Rinella says that Amex is simultaneously offering 60 per cent of its customers, who pay on time, a reduced rate that could be "as low as 12.99 per cent".
There are still some question marks over Amex's new policy.
The NSW Office of Fair Trading is considering the implications of the new policy under the consumer credit code, which imposes some restrictions on default charges.
The company says it is above board. "American Express sought the advice of several leading barristers who agreed that the policy complies with the consumer credit code," Rinella says."Any change in interest rate resulting from our policy is based on a review of the customer's account history ... [and is] made irrespective of whether the customer is in default at that particular time."
Prior to any interest rate changes we would have communicated to a customer multiple times through letters, statement messages, SMS alerts and/or phone calls," she says.
Coates also cites the Consumer Law Centre of Victoria's 2004 Unfair Fees report, which questioned the legality of excessively high default fees."I'm surprised that [Amex] is looking at this already," he says. "I would have thought that there are some issues to be resolved about so-called penalty fees and penalty rates in Australia before these sliding scales could be introduced." The report argued that if the penalty being charged is disproportionate to the actual administrative costs of default and is coupled with unconscionable contract provisions (such as unfair bargaining power), the fees could be illegal.
No one has challenged the banks in court on late fees yet. But there is evidence of a shift in policy in the United Kingdom, with its Office of Fair Trading recently outlawing sliding scale hikes by imposing a low, flat-rate limit on late fees for credit cards.
Andrew Willink of Cannex doubts that many Australian institutions will follow Amex's policy. He likens it to insurance, where customers who make few or no claims are rewarded with lower premiums (and vice versa). "It's a behaviour rate," he says. "If you behave in a regular pattern according to the contract, you'll benefit from the fact that your interest rate is lower."
But the system will introduce more complexity, he says."With finance products now, fees and interest rates are blurring together, so you don't know [the true cost] - and that's the difficult thing," he says.
Consumer groups are concerned the move may prompt other institutions to introduce similar rate hikes."We don't want to see this system being developed in Australia," Coates says. "We believe that it disadvantages struggling consumers who are over-committed with their debt."To avoid trouble, understand all your credit card terms and conditions."
Make sure you're very aware of what arrangements are in place if you do default," Howell says."Research of behavioural economics indicates that people always take a positive view of how they're going to behave.
They don't expect they're going to default, therefore they don't pay much attention to what the default arrangements are. So be realistic about your credit card use."

Source: The Melbourne Age

Home loans grow as UK house prices hit new high.

Mortgage sizes grow as house prices in England and Wales surged an annual 11.5 per cent in October, taking asking prices to a record high, a survey showed today, in a further sign higher borrowing costs have not stifled demand.

The Rightmove house price index showed prices rose 2.0 per cent in October month-on-month, pushing the annual rate to its highest level this year. The figures were not adjusted to take into account seasonal changes in the market.

The asking price for an average house rose to 218,954 pounds (AU$541,232) in October, up from 214,566 in the previous month and beating the previous record of 217,580 pounds set in July.

The Rightmove data is in tune with other surveys showing the housing market shrugging off a Bank of England rate rise to 4.75 per cent in August. Most economists expect benchmark borrowing rates to rise further to 5.0 per cent next month.

"We have never (before) had a sustained low inflation, low interest rate economy combined with widespread home ownership," said Miles Shipside, commercial director at Rightmove, a leading property Web site.

"These unique conditions help push prices higher and higher. However, supply of houses coming onto the market is dropping as prices increase, because fewer home owners can afford to trade up."

Rightmove said the rise in prices was driven by a growing shortage of supply but added many first-time buyers are being priced out of the market given wage rises under five per cent while house price inflation runs above 10 per cent.

Asking prices in London and the southeast continued to lead the pack. Average London prices rose an annual 19 per cent to 335,507 pounds.

City bonuses and a surge in foreign interest have exaggerated gains in London's most desirable boroughs.

Rightmove said the cost of an average home in London's exclusive neighbourhood Kensington and Chelsea.

Source: Reuters

Home loan lenders in interest rate war for your mortgage business

Home loan lenders want your business now and are prepared to pay for it!
Many major banks are slashing margins to lower the effective mortgage interest rates to attract new home buyers and mortgage refinance business.
Consumer finance research firm Cannex said that lenders had reported cuts to 54 fixed rate mortgages since the beginning of October.
Cannex financial analyst Harry Senlitonga said now may be a good time to consider a fixed rate loan with competition for customers in the increasingly popular fixed market driving lenders to cut rates.
"We are expecting to see more lenders follow in the next few weeks," he said.
Mr Senlitonga said rates had fallen an average 0.12 per cent in three-year fixed mortgages, while the five-year fixed rate category had dropped an average 0.17 per cent.
Fixed rate mortgages have gained popularity since the Reserve Bank of Australia (RBA) raised interest rates in May and August this year, bringing the official interest rate to 6.0 per cent.
Following the latest move, the number of fixed rate loans taken out by owner-occupiers jumped to 20.4 per cent in August from 16.2 per cent in July, according to Australian Bureau of Statistics (ABS) data.
As a result, lenders are now trying to capitalise on the increased demand for fixed rate loans as they scramble for customers in a shrinking market.
The ABS figures showed that both the number of mortgages taken out and the amount borrowed by consumers fell in August, dropping 1 per cent and 1.3 per cent respectively.
RESI Mortgage national consumer advocacy manager Lisa Montgomery said there were some great fixed rates because of the increased competition.
"We are actually seeing that there are a lot of good rates out there for consumers to fix into," Ms Montgomery said.
But she warned borrowers that fixing 100 per cent of their loan may not be the best financial move.
"There needs to be some caution displayed because when you do fix in - someone is going to lose - and it's either going to be the institution or it will be the consumer," she said.
While RBA governor Glenn Stevens said this week that the chances of another interest rate rise were high, most economists believe that rates have neared their peak and some even think rates may begin to come down next year.
"If you are looking to fix in, sit on the fence with perhaps 50 per cent of your loan and keep the other 50 per cent variable," Ms Montgomery said.
She said that by doing this, borrowers effectively had the comfort and piece of mind that came with a fixed rate but also the flexibility to make extra payments, which generally cannot be done with fixed mortgages.
As well, by only fixing part of the loan, borrowers could also take advantage of any potential falls in interest rates.
"So you're actually getting the best of both worlds," she said.
Source AAP

Credit Complaints on the rise

The chief credit industry complaint resolution service wants to make membership to it mandatory for lenders and brokers, following a rise in consumer complaints.

The number of complaints from consumers to the Credit Ombudsman Service (COS) jumped to 766 in 2005/06 from 685 in the previous year, a rise of about 11 per cent.

But most complaints, 526, were directed to non-members of COS. Complaints about COS members actually decreased significantly to 271 in 2005/06 from 397 in 2004/05.

This occurred as the number of contacts to COS rose sharply.

Chairman Graeme Matthews said the increased ratio of inquiries to complaints against its members was evidence of the increased effectiveness of its internal dispute resolution procedures.

Mr Matthews said 92 per cent of complaints received last year were resolved after facilitated negotiation or conciliation between the consumer and COS member.

Only 8 per cent of complaints required a determination by the Credit Ombudsman to resolve the dispute.

Mr Matthews said he is concerned about the growing number of complaints about non-members and called on state governments to make it mandatory for credit companies to join an external dispute resolution scheme like COS.

"Unless each participant is a member of COS or another external dispute resolution scheme, the consumer may be left without a remedy.

"This is clearly unacceptable as it hinders comprehensive coverage of the credit marketplace."
The vast majority of complaints to COS in 2005/06 were about standard loans (77 per cent).

About half of last year's complaints were about brokers and just over a third about lenders.
The biggest cause of complaints was a failure of a credit provider to disclose fees or commissions.

By the end of June 2006, COS had 6517 members, up from 5802 in the previous year.

Source: AAP

Bleak time for Tasmania's housing industry as mortgage interest rate rise bites.

There has been a call for the First Home Owners' Grant to be increased to help stem Tasmania's housing industry downturn.
Housing Industry Association state executive director Stuart Clues said climbing mortgage interest rates and high real estate prices were locking Tasmanian first home buyers out of the market. He said forecasts of a 5 per cent fall in housing starts in Tasmania for the coming year would see the situation worsen.
"Tasmania has the lowest percentage of first home buyers entering the market, accounting for 14 to 15 per cent of home loan approvals, compared with 19 per cent in other states," he said.
"Tasmanian families are spending close to 20 per cent of their income on paying the mortgage, when 10 years ago the figure was more like 10 to 12 per cent."
Mr Clues said with a further interest rate increase predicted for November, young families looking to buy their first house were hardest hit.
"The First Home Owners Grant has not increased despite rising house prices and interest rates," he said.
Despite low numbers of first home buyers entering the market, Mr Clues said the HIA's predicted 5 per cent fall in housing starts in Tasmania in 2006-07 was less than predicted for other states.
"New housing starts have fallen by less in Tasmania than in Australia as a whole over the past couple of years," he said.
"Housing starts in Tasmania fell by 9 per cent to a level of 2561 in 2005-06.
"A further fall of 5 per cent will see the cycle bottom at 2444 starts."
However, expenditure on renovations hit a new record high last financial year and is predicted to grow by 6 per cent to $652 million in 2006-07.
The housing industry contributes more than $1 billion a year to Tasmania's economy and renovations are a key factor – about 40 per cent of building work in Tasmania is renovations, compared with 20 per cent in other states.

Mortgage interest rate rise in November on the cards

The pace of Australia's economic growth is expected to pick up over the next few months, increasing the chances of another mortgage home loan interest rate rise this year, a survey reveals.
The Westpac-Melbourne Institute's leading index of economic activity, which indicates the likely pace of activity three to nine months from now, was rose 0.7 index points in August bringing the annualised rate of growth to 6.1 per cent, compared to 6.5 per cent in July.
Despite the moderation, the result was well above the index's long term trend of 4.1 per cent.
Westpac chief economist Bill Evans said the leading index pointed to strong growth in the economy over the next few months.
"The Reserve Bank has also alluded to surprising strength in tax receipts, which is also pointing to a stronger economy than depicted by the official national accounts that measured the pace of growth over the year to June 2006 as an insipid two per cent."
Mr Evans expects the central bank will lift the official rate by a quarter of a percentage point to 6.25 per cent following a board meeting on November 7.
Mr Evans said growth in the coincident index was being underpinned by rising employment. "Growth in the index has now almost returned to trend following a weak first half of 2006," he said.
"This is pointing to better growth conditions in the second half of 2006. Employment continues to be the real driver of the index."
Mr Evans also forecast economic growth in the second half of this year to pick up to around four per cent, as net exports add to growth for the first time in 19 quarters.
But as non-farm inventories are rebuilt, farm inventories will be drawn down and farm production will fall due to the current drought.
"The impact on growth from the drought could be as severe as 2002/03 when growth was reduced by around one per cent," Mr Evans said.
The index also showed that half of the four monthly components increased in August. Share prices grew by 2.6 per cent while real money supply gained by 0.9 per cent.
However, this was partly offset by a 12.6 per cent drop in dwelling approvals and US industrial production fell by 0.1 per cent.
Three out of the four quarterly components also increased. Overtime worked, core manufacturing material prices, and real corporate gross operating surpluses increased, while the productivity measure declined.
The growth rate of the coincident index, which provides information on a weighted average of six economic series that are typically coincident with economic activity, rose 0.7 index points in August to an annualised 3.1 per cent from 2.8 per cent in June.

Source: AAP

Low mortgage interest rates drive gain in new home starts

Low mortgage interest rates are boosting the new home buyers and home building companies. The construction of new privately-owned residences increased nearly six percent last month compared to August, according to a joint report by the U.S. Census Bureau and the Department of Housing and Urban Development. The report also showed housing starts to be 19.9 percent below the August 2005 rate.
New home starts have slowed from the unsustainable levels of the last few years but the market has proven to resilient.
As long a long-term mortgage rates remaining low and there is a continued job growth across most industries the housing marketing will be in good shape, especially at the high end of the market.