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March 2008
In this Issue
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What would life be if we had no courage to attempt anything. Vincent Van Gogh Welcome message from Damian Collins 
Hello , On behalf of the Momentum Wealth team I am excited to present to you the March edition of Property Wealth News. Feeling the pinch of another interest rate rise? Make sure you check out this month's Investor Alert, where we look at a few strategies you could employ to ease your financial pressures. Plus there is a great article and a success story about the importance of, "get-out" contract clauses for buyers. Remember, if you would like to speak to one of our consultants about how to improve your current situation, they are always happy to help and answer any questions you may have.
Damian Collins
Investor Alert - Avoiding the temptation to cash in
Imagine that you're at a Blackjack table in a crowded casino. You've had a few good wins but for some reason you feel your luck might be running out. So is now the time to cash in your chips? Personally, I'm not much of a gambler myself, so I'd probably be running over to the cashier's desk to 'realise' my profit as I know I could lose the lot if I kept going. But when it comes to property investment my thoughts are very different. With interest rates continuing to rise, it's understandable if you're getting a little jittery and thinking about whether you should offload an investment property or two. Perhaps you have a property in a cooling market and you want to get out before the market gets worse. Or maybe your property is booming and you think you might cash in while prices are still good. Whatever the reason, it is critical that you think carefully about your situation and unless there is an overwhelming reason you should resist all temptations to sell up. I cannot emphasise this enough. I've always said that a big part of building wealth through property investment is holding on to your assets for as long as possible to allow the miracle of compounding to take effect. All you have to do is ask any investor to tell you their biggest regret and they will undoubtedly say something like, "I should have never sold [this property] because now it's worth double!" I believe there are only a few rare circumstances when it is acceptable to sell an investment property (other than in preparation for retirement). One reason is if there are some worrying signs, such as increasing crime rates and more state housing moving into the neighbourhood. Another reason to sell is if you are certain you can make better returns by buying into another area. But with the latter, you have to do your sums carefully and be absolutely sure you will be better off given the high costs associated with buying and selling property. If you genuinely can't afford to hold a property, then selling may be a good option. But I think many people use this as an excuse to sell and eventually regret the decision many years later when prices double again. But before we discuss any solutions, it is important for you to understand that your current cash flow pressures may only be temporary. Your holding costs will likely go down over time with increasing rents and with future predictions for interest rate decreases (perhaps in 2009). Your personal income may also go up which will help you to cover holding costs and may result in greater tax benefits if you enter a higher tax bracket. So you may only need a temporary solution to see you through the tough times. Option 1: Using your equity buffer If you have equity in an existing property, one way to ease your financial pressures may be to use a redraw or line of credit (LOC) facility to access funds you can use to pay for some property related expenses. With this strategy, you are essentially borrowing money to help fund the shortfall on your property. This will result in the size of your loan increasing slightly and an increase in overall interest payments but it will give the added cash to ease your situation. A number of successful investors who have purchased many properties have funded some of the shortfall from equity in other properties. While this can be a risky strategy, it can be a great way to build a massive property portfolio in a relatively short space of time. However, remember that to follow a strategy like this you must be very selective about the properties you purchase, otherwise you will not get the capital growth required to justify the risk and provide the ongoing equity to fund the shortfall. Remember that the goal with investing is generally to build equity, so it's important to be disciplined and not draw on your equity unnecessarily. For example, I wouldn't recommend you draw on your equity to buy a car or a big screen TV, which are both depreciating assets. Try to use the funds for investment purposes (i.e. paying for expenses that relate to your investment). If using a little of your equity means you don't have to sell your property, then it can be a great way to see you through those tough times. If you have good quality assets that will grow in value, your increased debt will be more than made up for by the increased equity gain. Option 2: Talking to your broker Another simpler option if you are struggling with increased holding costs may be to simply talk to your mortgage broker about refinancing into a loan that has a lower rate or lower fees. If you do this however, make sure the product you choose still meets your long term investment requirements as some products can restrict your investment opportunities in the future. Conclusion Unless you're preparing for retirement, selling an investment property should always be your last resort. So before you go down that path, talk to a trusted advisor about your situation and see if there is a solution that will allow you to hold you property and enjoy the long term capital gains that only come with time and patience. Interested in finding out to make your investments more affordable? Talk to one of our Property Wealth Consultants who specialise in finance by calling 1-800-000-159.
Another rate rise but likely coming to an end At its meeting last week, the RBA decided to increase the cash rate yet again by 25 basis points to 7.25 per cent in an ongoing struggle to curb inflationary pressures in the economy. Here are some comments from Governor Glenn Stevens: "This adjustment was made in order to contain and reduce inflation over the medium term. Inflation was high in 2007, with an annual CPI increase of 3 per cent in the December quarter and underlying measures around 3½ per cent." "Sentiment in global financial markets remains fragile. Australian financial intermediaries are experiencing increases in funding costs, which are being passed on to customers. Some tightening in credit standards for more risky borrowers is occurring." The good news for borrowers, it seems, is that previous increases have started to take effect, which should alleviate some of the upward pressure on interest rates. The RBA said: "There is tentative evidence that some moderation in household demand is beginning to occur, with business and consumer sentiment softer recently, and household credit demand slowing somewhat." Depending upon future inflation figures, it seems likely that we are near the end of the rising interest rate cycle. REIA labels negative gearing talk misguided Real Estate Institute of Australia (REIA) President, Noel Dyett, has come out slamming the recent media commentary suggesting that home loan affordability would be improved by removing or restructuring negative gearing provisions for property investors. "Renters struggling to find any rental accommodation, let alone affordable accommodation, cannot afford any moves to push investors out of the property market. Removing negative gearing would be a fast-track way to making the rental market tighter and pushing rents up further. "Any proposal to restructure or remove negative gearing for property investment would see investors move to other asset classes, as occurred between 1985 and 1987 when negative gearing was temporarily restructured. "It has been suggested that by removing negative gearing, affordable property owned by investors would be freed up for first home buyers and that with increased supply for this market sector, prices would fall. This is wishful thinking and any such movement would only be short-term, as the total amount of housing stock would remain constant, the number of dwellings for rent would decrease, and investors would be discouraged from building new homes, only exacerbating the current problems. "The solutions to home loan affordability and rental housing supply shortages clearly do not lie in pushing investors out of the property market," said Noel Dyett, REIA President. The Labor Party said clearly in their election campaign that they would not eliminate negative gearing. Given the disaster of the previous attempt to eliminate it, it is unlikely that they will choose that path again.
Real Estate Contracts - What you should know
Emma, a successful investor in her own right, is one of our Acquisitions Specialists. She has extensive experience working with investors and developers in acquiring residential and commercial properties; and development sites. I have recently come across a number of people who have purchased property through a sales agent and have been badly burned by not seeking representation when purchasing the property. A sales agent is there to represent the seller. Therefore they are aiming to get the seller the best price and use contract clauses that most favour the seller. When purchasing a property, it is crucial that buyers are aware of the potential pitfalls when it comes to real estate sales contracts. These contracts are legally binding documents - once accepted and signed by both parties (purchaser & seller) you are obligated to uphold its terms & conditions. Contracts for the sale of property do vary from state to state so advice is recommended before you place offers to ensure you are adequately protected & not in breach of any legal requirements. I always add my own clauses to contracts to protect myself from concealed or unforseen circumstances. Researching properties for purchase can be a time-consuming process, especially when looking at multiple properties. There may also be some issues that weren’t attended to before placing an offer on the property. This is why we always use a sufficient "get-out" clause to protect myself in these instances. I insist on using these clauses for our clients as well. I am still surprised at the number of people who believe the use of a finance clause will protect them should they change their mind about purchasing the property or find some problem with the property that they were not aware of. Typically finance clauses state that the purchase of the property is subject to you the purchaser obtaining finance within a particular time period. Anyone using this clause on its own is taking quite a risk. If you discover something that may affect your purchase decision, (for example a development next door, or structural problems with the house) then you may find yourself in breach of the contract if you walk away from the sale. I always ensure that I use other clauses or sufficient "get-out" clauses to cover myself. This provides me with an option to walk-away if something arises that I was unaware of when making the offer on the property. For more information on how Momentum Wealth can help you find a great investment property, you can contact Emma on 1-800-000-159
The lowdown on fixed rate loans
Chris has enjoyed over 7 years experience as a Real Estate Agent. He is a successful investor himself and has extensive knowledge in all aspects of buying, selling, managing, financing and investing in real estate. Now that interest rates have risen again, many investors are considering fixed interest rates. Fixed interest rates are great tools for cash flow planning, as an investor or owner-occupier can fix their repayments for many years, and they are not subject to changes in the money markets that affect variable rates. The down side of fixed rates is that there is typically a prepayment penalty if you choose to pay out the loan early. Another downside of fixed rate lending is the fact that they rarely have redraw facilities. The financial institutions hedge the fixed rate loan they give you into the money markets. If you had a loan that was fixed and rates went up significantly there would be a large incentive to draw down that loan. Conversely, if rates dropped dramatically an investor would not want to draw down if they could get cheaper funds elsewhere. For this reason financial institutions are reluctant to offer redraw facilities on fixed rate loans. Fixed rate loans are also typically for shorter terms. The rate is usually fixed for two, three, five or ten years. After this time you will likely need to renegotiate another loan. It is possible to get a combination loan. That is, a loan where part of the loan is at a fixed rate and part is at a variable rate. Alternatively you could utilise a fixed loan for part of the loan and line of credit for the rest. There are advantages and disadvantages to both variable and fixed interest rate loans. If you are highly leveraged, fixed rate loans are a great product to minimise your interest rate risk and help you better manage your cash flow. Would I fix my rates in the current stage of the cycle? No. But if you are at financial risk should rates increase much more, you should consider a fixed rate. For more information on how Momentum Wealth can assist you with your loan needs, contact Chris on 1-800-000-159 Finance Broking Services are provided by Momentum Wealth Finance Pty Ltd, WA Finance Brokers Licence 3170.
Verity, our Property Manager is dedicated to helping landlords achieve a steady income, whilst minimising fuss and maximising the value of their investments. She is a successful property investor herself and demands a high standard from all tenants to help ensure our clients' investments are always well maintained. Managing a property is like running a business and like any business; all landlords would like to receive their payments on time. In an ideal world, landlords would like to receive the rent from the tenant when it is due at all times, however all experienced landlords will agree that things don't always go to plan. When realising the rent is late, it is common for most landlords to experience 2 emotions - anger and fear. The landlord is often angry because it effects his/her ability to meet mortgage repayments and afraid because this one late payment may be the beginning of a string of late payments. Like a business, remember that for each day of unpaid rent that goes by, your financial security is threatened. Late rent must be appropriately dealt with quickly. By taking the correct action immediately, you will redeem your rent and will show your tenant that they will not get away with it in future. There are a number of legal matters you must consider in order to ensure your collect your rent on time and a good Property Manager will be on top of the process and make sure that tenants are followed up as soon as the rent is late. For more information on how Momentum Wealth can assist you with your Property Management needs, contact Verity on 1-800-000-159
Get your finances in order the easy way!
Just complete the form and one of our expert mortgage consultants will start comparing your loan options straight away - free of charge and with no obligation! For a limited time if you apply for a new loan, arrange pre-approval or refinance with Momentum Wealth, you'll receive a Set of 10 Property Masters Audio CDs to help you build your property fortune. Visit FreeLoanReview.com.au for more details.
News at Momentum Wealth - Expanding Team
We are pleased to announce a new addition to our growing team with the appointment of yet another Acquisitions Specialist. David Polkinghorne has joined our Perth Team and is already using his market knowledge and sound business acumen to help clients purchase great investment properties. Amongst his many skills, David has extensive experience in acquisitions and renovating properties for profit. If you would like to arrange an appointment with David, simply call 1800-000-159 today.
One of our Acquisitions Specialists, Rebecca Clow, was recently approached by an investor who had already identified a property that he wanted to buy. The investor was looking for an expert to assist him with researching the property and negotiating the purchase. He signed up for our Research & Negotiate service. After carefully researching the property and evaluating it for its growth potential, Rebecca was satisfied that the property provided a sound investment. She subsequently recommended a suitable negotiation strategy based on a variety of factors including the real market value of the property and the time it had spent on the market. Rebecca placed a reasonably low offer on the property, which included our special due-diligence clause that provided her buyer with the ability to walk away if inspections uncovered defects with the property. After a counter offer and a counter-counter-offer, the contract was eventually signed by the vendor. Rebecca then organised a building inspection and a termite inspection for the property, which was a very good thing indeed as the building inspection uncovered some serious water damage to the property. Under these circumstances, the due-diligence clause would allow the buyer to get out of the contract, but after careful consideration, Rebecca decided with her buyer that the purchase was still worthwhile if the owner would rectify the problems. It took some master negation skills and a lot of diplomacy on Rebecca's part but in the end a satisfactory solution was found. Rebecca's buyer was definitely glad he decided to employ a professional; otherwise, he almost definitely would have missed out on a great property at a great price. If you would like to find out more on the no-fuss way Rebecca can assist you sourcing a great investment property, please call us today on 1-800-000-159.
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Here at Momentum Wealth, we're always trying to make life easier and more rewarding for our clients. That is why we recently launched 
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