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November 2008
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No pessimist ever discovered the secret of the stars, or sailed to an uncharted land, or opened a new doorway for the human spirit. Helen Keller Welcome message from Damian Collins 
Hello , It's often said that there are two types of people in the world: those who see the glass as half empty and those who consider the glass half full. It's just a question of perspective really and one that is highly relevant for property investors in today's economic climate. Some clearly see the present as a time to sell up and withdraw from the market (half empty). Others believe it is a time of unprecedented opportunity (half full). One thing is clear. In these uncertain times, it's far easier to be a pessimist and listen to the doomsayers than to make bold, calculated moves that could set you up for the future. So let me ask you this, in ten years time when you look back at this time holding a glass of your favourite beverage, will you be toasting to your success or drowning your sorrows in regret? On that note, I would like to welcome you to the November edition of Property Wealth News. In this month's edition, we show you how to make an important risk assessment before investing - don't miss it. We also look at some of latest news and provide you with a range 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. In these uncertain times, it's now more important than ever that you speak to an expert before making property investment decisions. This is the last edition for 2008, we will return next year with our regular property information, market commentary, tips and hints. I would like to take this opportunity to thank you for your support in 2008 and wish you and your family a very Merry Christmas and prosperous New Year.
Damian Collins
How to calculate your break-even point
With rents increasing in most parts of the country and interest rates heading south, conditions are perfect for entering the market. This is because the out-of-pocket costs of holding an investment property are relatively low. Some people, however, are still quite hesitant to make a purchase. This is often because they perceive the risk to be high, a view influenced perhaps by the media. In helping to asses the risk of a potential property investment, I always recommend investors calculate the property's break-even point of capital growth before making the purchase. This is the point at which the capital gains equal the cash shortfall of holding the property (assuming that the property is negatively geared). As we generally invest seeking capital gain, the break-even point essentially defines when an investment will generate a positive return. And the lower the break-even point the less risk involved in the investment. Let’s look at a simple example. Assume you purchase a $400,000 property (worth $400,000). When you subtract all the expenses (including interest on the loan, management fees etc) from the rent and take into account depreciation and tax benefits, this property has a negative cash flow of $10,000 pa, which is fairly typical. So, in other words it costs you $10,000 out of your pocket to hold this property. In this example, what is the break-even point? It's easy to calculate. By simply dividing 10,000 (the cash shortfall) by 400,000 (the value of the property) and multiplying the figure by 100 (to make it a percentage) we obtain an answer of 2.5%. Therefore, if the property grows 2.5% in that year, your investment has broken even. Obviously you would want more than 2.5% growth to justify the risk, especially when long term growth rates are generally much higher than that. But it shows nonetheless how little capital growth you actually need on an investment to break even. For the sake of this example let's assume that the property does grow by only 2.5% in the first year you own the property. What happens to the break-even point in the second year when you take into account that rent on this property has now increased. Let's say that your out of pocket expenses are now $8000 pa rather than $10,000. With a quick calculation you can work out that your break even point is now only 1.95%. Anything above that figure and you're ahead. Here's an interesting question, what happens to the break even point when you buy a property below market value? It involves the same calculation but brings up a strange result. Let's go back to the earlier example where you bought the $400,000 property but let's say the property is actually worth $450,000 when you buy it. All of your costs are the same and so is the rent, which means your out-of-pocket costs are still $10,000 pa. So what's the break-even point? You might be thinking to yourself that you’re already $50,000 ahead so isn't the break even point negative? You would be right. It is now -8.9%. This means that even if through some shock and highly unlikely occurrence, the property value falls by 8.9% you would have still broken even. Clearly, if you manage to buy a property below market value you give yourself a great head-start. With variable rates likely to drop another 1.5% to around 5.5% on a home or investment loan, many investors will find that a good quality property with solid capital growth prospects may cost them less than $100 per week out of pocket. If you would like to speak to one of our consultants about your property plans, please call us 1-800-000-159 and they can let you know what your options are.
Cautious but positive outlook for the property market in 2009 There are clear signs of growth in demand for residential property, according to billionaire developer Harry Triguboff and James MacKenzie chairman of the Mirvac Group. In fact, Mr Triguboff expected his prices to rise 10% next year underpinned by the government stimulus, rising rents, and the lack of supply. This positive news is reinforced by recent comments from the Reserve Bank deputy governor, Ric Battellino, who anticipates a resilient housing market. Mr Battellino is optimistic house prices in Australia will not suffer the same fate as the US market. Unlike the US, Australia’s property slowdown is not because there is an excess of supply but because buyers are waiting for better circumstances to enter the market. "This latent demand would support the market", he said. Additionally, housing debt in Australia is largely held by middle-aged borrowers who had a strong capacity to service and repay them, rather than more marginal borrowers, meaning forced sales were less likely. Amid speculation of a global recession and a volatile rate of inflation, Mr Battellino offered no guarantees: "The economy is being affected by powerful forces from different directions, and it is unclear what the net effect will be". He commented however that Australia had managed to avoid a global recession in 2001 after the US technology bubble burst, and sees no data to suggest that this cannot also be achieved now. Of course, the good news is also subject to the state of unemployment as commented by Mr MacKenzie. "These early signs are not factored into our projections, but are nonetheless cause for some cautious optimism and hopefully some good news in the not too distant future".
Selecting a suitable renovation candidate - Part One
Many first time renovators make the mistake of rushing into their first project. They are excited and ready to start and unfortunately end up purchasing a property that is not suitable for renovation. They convince themselves that they will be able to fix the problems that impair the property. Sound familiar? There are a number of characteristics you should look for when scouting a suitable property renovation candidate: Similar style Open floor plan Privacy Off Street Parking Property with a sense of style or charm Natural light So be aware, although all properties can be renovated not all properties can be renovated successfully and for a profit. Look out for our next newsletter in which we’ll discuss some of the less desirable characteristics to avoid. For more information on how David can help you find and evaluate a great investment property, you can contact him on 1-800-000-159.
Property Tax Tips - The 6 year rule
Damian is our Managing Director and founder of Momentum Wealth. As well as being a highly successful property investor, Damian is also a qualified Chartered Accountant and is passionate about educating property investors in all aspects of property investment. It's a common question asked by property investors. If someone decides to move out of their home, can they still claim it as their primary residence and therefore obtain the capital gains tax exception? The answer is yes with some limitations. The temporary absence rule states that where a dwelling ceases to be an individual's main residence, the individual can choose to treat the dwelling as their main residence for all or part of the period they are not living in the property. If the property is NOT used for income producing purposes after the person moves out, then the taxpayer can treat the dwelling as their main residence indefinitely. But if the dwelling IS used for income producing purposes (i.e. it is rented out) the dwelling can be treated as the person’s main residence for up to six years after they move out. The good news is that if the property is rented for longer than six years in one continuous period, than the exemption still applies for the six years, it is not lost entirely. But you can only have one principal residence at a time. You cannot purchase another property and rent the old property out and claim both properties as your principal residence for capital gains purposes. What happens if someone moves out of the property, rents it out then later moves back in, then later moves out again and rents the property? Does the 6 year rule apply to the total of the two periods? No. The ATO has said in TD 95/9 that the six year rule applies to each period of absence. That means you can access the six year rule more than once for the same property. For the new six year period to start, you must move back into the property. It's important to note that for the temporary absence rule to apply, the property must have first been claimed as a primary residence. If you purchase a property and rent it out straight away, the 6 year rule will not apply. Momentum Wealth and its affiliated entities are not Accountants. While all information is provided in good faith, you should seek your own independent advice in relation to all tax matters.
Joining forces for shared benefit
For the astute investor, the current market is signaling that it's a great time to think about buying property. Reasonably priced properties, sliding interest rates, and less competition to buy. There's only one problem... money. Perhaps you've used your existing equity, you don't have enough cash for a deposit, or you can't borrow more without exceeding your debt service ratio. But don't let that phase you. You just need to think laterally! Even if you have no money or can't scrape together what you need, there are other ways in which you can get into the market. One of those ingenious ways is through a joint venture arrangement. It involves getting together with one or more parties for the purpose of a commercial activity such as purchasing real estate. You both contribute something to the arrangement and in return you share the rewards. For example, you may be able to find people who are looking to invest in property but don't have the time available to find something suitable. You may be able to come to an arrangement where you find a suitable property for them where they would put up the money for the property that you have found, and in exchange for your time they would give you a percentage of ownership of the property. Or consider this: maybe you have a great income from your job and tick all the boxes for being able to borrow, but just don't have any equity or cash available for a deposit. Then comes along a partner who has plenty of equity available in their home to cover a deposit (and other 'on' costs) but because they no longer work much, they aren't really able to borrow. Together, you now have the capacity to combine your situations to make that purchase and reap the rewards together. Another alternative may be to agree upon receiving a fee for your efforts as opposed to a percentage of ownership. If it is a property development site for example, you may be able to get a spotters fee or referral fee if you find a suitable property for a developer. If you do enter into a joint venture arrangement, it is best to join forces with others that complement your own abilities and skills, and what you can bring to the table. To ensure a smooth relationship, choose those who have a similar mindset to you and focused on the same agreed goals for the project. The options for joint venture arrangements are just up to you and your imagination, but always ensure you get proper financial advice and have a solicitor draw up an appropriate written agreement. They are a great way to help you continue on with your goal for financial freedom and although it may mean sharing the rewards, remember 50% of something is better than 100% of nothing. For more information on how Momentum Wealth can assist you with your loan needs, contact Sarcha on 1-800-000-159. Finance Broking Services are provided by Momentum Wealth Finance Pty Ltd*. We have brokers all around Australia who can help you with your finances. *WA Finance Brokers Licence 3170.
A bit of work can mean higher rents and better tenants
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. We all know that first impressions count. And this is true when it comes to preparing your property for the rental market. Prospective tenants will make judgements about your property in the first 30 seconds of entering it. In fact, many may not even enter the property if the external appearance of the property has put them off. And those judgements that they make will influence their decision of whether or not to put in an application and how much rent they are prepared to offer you. But why bother putting effort into presenting your property when vacancy rates are so low, I hear you saying. Well, while it is true that tenants are less picky when vacancy rates are low, it's still important to make sure you property looks as good as it can. It can pay off substiationally with better tenants, lower vacancies and of course higher rents. And it doesn’t have to take a lot of effort or cost you a fortune. There are many simple, cost-effective things you can do to maximise the impact your property has on prospective tenants. Here are just some of things we generally recommend:
There are many things you can do to help your property make a good first impression. A good property manager should advise you on what you need to do. For more information on how Momentum Wealth can assist you with your Property Management needs, contact our Property Management team on 1-800-000-159.
News at Momentum Wealth – Rapidly Expanding Team
We are pleased to announce 3 new additions to our team in Perth with the appointment of Ray Chua, Susan Silvius and Joanne Benvenuti. Ray is an important addition to our Acquisitions team. Quali¬fied with an honours degree in Engineering, Ray is an active property investor who has an analytical and systematic approach to finding high-performing properties. Susan has joined our progressive Finance team. Originally a Financial Consultant in North America she has over 6 years experience in the Finance Industry and a keen ability to navigate complex scenarios and find suitable outcomes. Joanne has joined us as a senior property manager. She has been in the real estate industry for over 4 years and is passionate about the industry. She works hard for our clients to achieve maximum returns and ensure that all properties are maintained to the highest standard. Current vacancies We currently have vacancies for: To find out more please visit our new careers page
At Momentum Wealth we are committed to continually improving our customer service, which is why we conduct regular surveys of our clients. This month we would like to congratulate our Acquisitions team for the overwhelmingly positive response we received from clients. Here is what some of our clients said when asked what they would say to someone thinking of using Momentum Wealth: "For those who are uncertain about where to buy or too busy to do the research themselves; this is a perfect option." Gloria W., WA "Get into property and go with these guys!" Scott G., WA "I have already recommended to mates at work. [I love the] ability to keep doing what I do while [the buyers' agent] does all the hard work. I end up with a good investment for little of my own time." Clint J., WA "If you are interested in Capital Growth this is a good option." Alan M., WA "The company is a very forward thinking and professional." Stephen Q. & Christine M., WA If you would like to speak with one of our Acquisitions team about your own situation, call 1800-000-159 today.
The Lighter Side of Wealth Building
Dead giveaway A city boy moved to the country and bought a donkey from an old farmer for $100. The farmer agreed to deliver the mule the next day. The next day, the farmer drove up and said, "Sorry, but I have some bad news. The donkey died." "Well, then, just give me my money back." "Can't do that. I went and spent it already." "OK, then, just unload the donkey." "Whatya gonna do with him?" "I'm going to raffle him off." "You can't raffle off a dead donkey!" "Sure I can. Watch me. I just won't tell anybody he's dead." A month later the farmer met up with the city boy and asked, "What happened with that dead donkey?" "I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $898." "Didn't anyone complain?" "Just the guy who won. So I gave him his two dollars back!" The boy grew up to be a senior executive at ENRON.
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David Polkinghorne, a successful property investor in his own right, is one of our Acquisitions Specialists. He has extensive experience in acquisitions and renovating properties for profit. 
Sarcha is one of our mortgage & finance specialists. She is adept at handling the diverse situations and circumstances often encountered by property investors. If you would like to speak with Sarcha about your own situation, call 1800-000-159 today. 
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