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May 2008
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The person who gets the farthest is generally the one who is willing to do and dare. The sure-thing boat never gets far from shore. Dale Carnegie Welcome message from Damian Collins 
Hello , On behalf of the Momentum Wealth team I am excited to present to you the May edition of Property Wealth News. This month we continue our feature on investing with a Self-Managed Super Fund; we discuss the recent interest rate announcement from the RBA; and, as always, we provide a multitude of hints and tips to assist you with your property investing. Remember, if you would like to speak to one of our consultants about how to improve your current situation or accelerate your investment plans, please call 1-800-000-159 and they will be happy to help and answer any questions you may have. Happy investing,
Damian Collins
How a SMSF can borrow to invest using an instalment warrant
As of September 24 2007, Self Managed Super Funds (SMSF) are allowed to borrow to invest in direct property using what is known as an instalment warrant arrangement. But how does it all work? Let's say an investor has $150,000 in his SMSF and wishes to purchase an investment property requiring a total investment of $400,000. The $150,000 is used to cover the deposit and fees and a loan is obtained for the remainder of the funds ($250,000). The property is not purchased directly by the SMSF but rather via a separate trust. So although the security trustee legally owns the property, the SMSF receives all the benefits of ownership (e.g. net rental income, capital growth). The SMSF trustee can acquire legal ownership upon payment of sufficient instalments. The loan is serviced from net rental payments as well as super contribution which could be the compulsory 9% employer super contributions or personal contributions. The SMSF is permitted (but not required) to pay further interim instalments (i.e. reduce the principal under the loan) throughout the term of the Instalment Warrant (say 10 years). With an instalment warrant arrangement there are a number of conditions that need to be met but an important one is that the loan provided to the SMSF must be 'limited recourse in nature'. This basically means that the loan is secured only against the new investment property and the lender's only recourse (if you don't pay the loan amount) is to sell the asset held on trust. So, if the property falls in value and the lender cannot recoup enough money, the SMSF's other assets are protected. What are some of the benefits? Some of the benefits of borrowing to invest with an instalment warrant arrangement are:
What are some of the drawbacks and considerations? Some of the things to consider are:
Having your superfund borrow to invest is not for everyone and requires a great deal of careful consideration. But it can offer some great advantages. Remember that if you are planning to use your SMSF to borrow money, speak to your accountant to see if it is possible with your situation. Our Property Wealth Consultants can help you obtain finance once you have decided to purchase a property using your SMSF. Momentum and its affiliated entities are not Solicitors, Accountants or Financial Planners. While all information is provided in good faith, you should seek your own independent legal, accounting and financial advice in relation to setting up an SMSF.
Despite inflation figures registering 4% plus, the Reserve Bank of Australia (RBA) has left official interest rates steady for the second month running. This is welcome news for borrowers. The statement that accompanied this decision said that there was increasing evidence that demand was slowing, which is perhaps a sign that rates have finally reached their peak. Governor of Monetary Policy, Mr Stevens, said: "In order to reduce inflation over time, growth in aggregate demand needs to be significantly slower than it was in 2007. Evidence is accumulating that this is occurring. Indicators of household spending have recorded subdued outcomes over recent months, and demand for credit by both households and businesses has weakened. "As a result of the Board's earlier decisions, additional rises in market interest rates and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year. Conditions in international financial markets, though improved in recent weeks, also remain difficult. These factors are acting to restrain demand." Many analysts believe that the RBA will continue to leave rates on hold and will possibly cut rates later this year if the downturn accelerates.
According to a report commissioned by Australian Direct Property Investment Association (ADPIA), property investment has shown to be better than shares and other asset classes over the past 10 and 20 years. Over the 10 years to December 31 2007, direct property provided strong returns, highest distributions, lowest volatility and best risk-adjusted returns. Explaining why property was less volatile than other assets, ADPIA president Linden Toll said, "Direct property is unique in that valuations are not sentiment driven.
According to the latest job figures, there has been a small increase in the national unemployment rate despite strong employment growth. Strong employment growth and historically low levels of unemployment often make people feel less vulnerable and more willing to borrow money for property, leading to increased demand. The official labour force statistics for April show more than 25,000 extra jobs were created during the month. However, a rise in job seeker numbers pushed the unemployment rate up slightly to 4.2 per cent, which is still close to February's 33-year low of 4 per cent. The unemployment rate rose in New South Wales (+0.1% to 4,4%), Victoria (+0.3 to 4.6%), ACT (+0.1% to 2.8%), Queensland (+0.1% to 3.7%), and South Australia (+0.3% to 4.9%). The unemployment rate remained the same in Western Australia (3.3%) and fell in both Tasmania (-0.2% to 4.5%) and the Northern Territory (-0.2% to 4.3%).
Supply: the forgotten part of the equation
Rebecca is one of property acquisition experts and has many years experience in the Real Estate industry. Rebecca specialises in sourcing residential property investments and has a natural flair for identifying the best on-market and off-market deals for our clients. Most investors consider demand when assessing a potential investment. But fewer consider the supply side of the equation. Oversupply has the potential to jeopardise that important growth you are looking for when investing in property for the long-term. Essentially you should think about how easily your investment can be replicated by others, or in other words, how much competition your property will have. In any market, where there is high supply of a commodity (your property), potential consumers or users of that product enjoy more choice - therefore your ability to command a premium price is reduced. Areas on the fringe of suburbia, with large tracts of undeveloped land nearby are a good example of this. It can be difficult to achieve a high price for a property in such an area when similar properties are readily available in new land subdivisions nearby. It would be better to have a property in an established area with high demand and little room for expansion. Similarly, high-demand areas that are "land-locked" by hills or bodies of water can limit future supply and put upwards pressure on prices. It is also important to keep track of zoning regulations in the areas you are interested in investing. Residential zoning is used by local governments to regulate housing density. If a locality you are interested in is zoned to allow high-density apartments or townhouses, there may be too much supply, or potential supply of these types of dwellings to give your investment the growth potential you seek. It is very easy for others to build properties much the same as yours nearby. When we look at supply factors in identifying suitable property candidates for clients, we identify areas in which there is likely to be little competition - that is look for properties with unique, highly valued features, avoid areas in which there is a lot of free land for expansion and keep an eye on zoning and development issues. For more information on how Rebecca can help you find and evaluate a great investment property, you can call her on 1-800-000-159
The lowdown on line of credit loans
A line of credit or home equity loan is usually established as a continuous redraw facility secured by your property's value. For example if you own a property worth $400,000, you may be able to secure a line of credit for $320,000. You can usually access these funds via a cheque book or an internet banking facility. Withdrawals and deposits can be made to you heart's content as long as you keep below your loan maximum. Typically on these types of loans there are no early payment fees, no redraw fees and no term limit on the length of the loan. Importantly, there are usually no minimum monthly repayments required as long as the loan amount is below its limit. Another advantage of a line of credit is that you do not need to seek permission from the institution each time you wish to utilise the facility. There are a couple of downsides of using a line of credit which should be taken into consideration when looking at your financing strategies. Firstly, most lines of credit are subject to an annual review. The financial institution may request that each year you provide them with financial statements, tax returns and other financial information, so they can ensure that you have the ability to make loan repayments going forward. The second downside is that they are usually callable by the financial institution at any time, for any reason. The financial institution may decide that they want their money back and you have to pay up, usually within 30 days. In practical terms the financial institution won't call in a loan for no reason. However, if you have a short-term problem, they could call the loan in at any time, without giving you the opportunity to rectify the default. Lines of credit are often used in conjunction with more permanent finance, for example if you purchase a property for $400,000 and require $320,000 of finance, you may take a five-year fixed interest rate for $200,000 and take the other $120,000 as a variable rate line of credit. For disciplined investors, a line of credit is a flexible and very useful wealth creation tool. However, if you have difficulty in restraining yourself from spending money then, this product may not be suitable for you. Also be aware that many loans now have redraw facilities and a line of credit may not be necessary for you. For more information on how Momentum Wealth can assist you with your loan needs, contact Ian on 1-800-000-159 Finance Broking Services are provided by Momentum Wealth Finance Pty Ltd, WA Finance Brokers Licence 3170.
Does self-managing your property really save you money?
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. A key factor in maintaining and growing your investment property is managing the investment effectively. This means ensuring you receive a good return through strong rents and placing a quality tenant in your investment. I talk to many investors on a daily basis and I still come across the belief that self-managed investment properties save money. With this being said, how much are you truly saving and is it to the benefit of your investment? Property management fees are usually paid as a percentage of rental return, with additional costs for inspections etc and in my opinion it is certainly money well spent! As a property manager, I have seen rental disasters where rigorous checks on tenants have not been undertaken and resulted in damaged property and unpaid rent. When a property is on the market for rent the first goal is to secure you a quality tenant. This can only be done through thorough background checks. This includes ascertaining if the tenant has:
In addition to this, potential applicants are also checked through local and national databases which the average investor does not have access to. So what does this all mean? It means that all potential tenants need to be thoroughly screened before they are even considered as a potential applicant to rent your investment property. This process can save you a lot of heartache and put dollars in your pocket in the long run. 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.
Passionate about property? WE WANT YOU!
Due to the continued growth and expansion of Momentum Wealth, we currently have vacancies for: To find out more please contact General Manager, Jennifer Wakeman on 1-800-000-159 or jenniferw@momentumwealth.com.au
Having a baby should be a time of joy and celebration. The last thing you want when you have a new bundle of joy is to worry about how you are going to meet your financial commitments. One of our Property Wealth consultants in Perth, Sarcha, recently had a client who was taking a year off work for maternity leave and was worried that she would have to sell an investment property and therefore give away the growth potential of the property to someone else. After looking at the client's financial situation, Sarcha's recommendation was to set up a line of credit using the equity in the property to provide a temporary 'repayment holiday'. Although drawing from your equity to make repayments is generally not a good long-term strategy, when short term fluctuations happen to your cash flow it can be useful in enabling you to retain ownership of your investments. For this to work there would have to be adequate equity in the property, which made the valuation very important. Knowing this, Sarcha prepared some sales evidence for the client and encouraged the client to personally meet the valuer at the property and hand over the sales evidence (while pointing out the great features of the property). The result? The valuation came in higher than expected which gave the client access to another $20,000 than she had originally hoped for. Perhaps that holiday might be extended a little…
The Lighter Side of Wealth Building A few real estate jokes to raise a chuckle...
Asking For a Raise "Is that so?" asked the manager. "What other companies are after you?"
A client bought a new home and the real estate agent wanted to send flowers for the occasion. The owner was angry and called the florist to complain. After he had told the florist of the obvious mistake and how angry he was, the florist said. "Sir, I'm really sorry for the mistake, but rather than getting angry you should bear in mind that somewhere there is a funeral taking place, and they have flowers with a note saying, "Congratulations on your new home".
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Rates on hold again and signs of things to come
Ian is one of our finance & mortgage specialists in Queensland. He has many years experience in the finance industry and is passionate about helping people build wealth through property investment. Apart from being a great financing tool, a line of credit is also an excellent addition to your wealth creation strategies.
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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