You know when you decide to go on holidays and you start researching all of the fun things you’re in store for?

The excitement begins to consume you. You may find yourself sneakily looking up extreme adventure activities when you’re meant to be working, Googling accommodation options on your commute home or browsing Instagram travel photos at midnight. Well, buying property requires that same level of enthusiasm and commitment towards research – after all, it is an adventure you’ll never forget. And guess what – the eventual purchase will feel even better than the holiday. In this article, we’ve put together your essential property research checklist so you have the perfect home adventure!

Research your borrowing power

For this first point, you don’t actually have to do too much. All that’s required of you is to pick up the phone and chat with us! As your mortgage broker, we’ll determine your borrowing power and give you a clear understanding of how much you can realistically afford to spend. We’ll ask you about your income, expenses and get to know you financially, so we can give you an accurate indication of your borrowing power and ensure you’re looking in the right price range from the very start.

Research the suburb

Now that you’ve got an idea of how much you can borrow, it’s time to start researching where to buy. Whether you’re a homebuyer or an investor, the aim is to purchase in a suburb with solid capital growth potential, and to buy at the early stages of an upturn, not at the peak of a growth cycle.

There are plenty of great online resources to access market reports on specific areas. These contain details about everything from median prices and growth rates to rental yields and demographic trends. RP Data CoreLogic, realestate.com.au, Residex and domain.com.au are just a few examples, and you can also ask us for a property report.

It’s a good idea to consider the average rental yield of the area and of a particular property. The rental yield is the rental income expressed as a percentage of the property’s value. If there is strong demand in an area, the rental yields may be higher, but if there is a high vacancy rate, the rental yields may stagnate or decline.

Research the property

During inspections, you should go through the property with a fine-toothed comb. Inside the property, check the ceilings for water stains and the cornices for waviness, which may indicate water leaks in the roof. If the property is carpeted and you want to pull it up, find out whether there’s cement or floorboards underneath. As you stroll through the property, be mindful about the evenness of the floor. Before you buy, it’s always a good idea to get building and pest inspections. The peace of mind of knowing your property won’t collapse or be eaten up by termites is worth the fees.

Outside, look at the condition of the gutters, check for cracks in the brickwork and for mildew in the eaves, which may indicate issues with run-off. Keep an eye out for cracks in the driveway, which may mean there’s a lot of ground movement on the property.

Research the price

The best way to research the price you may end up paying is to compare other recent sales prices for similar properties in the same location. You can find recent sales via websites like realestate.com.au. Make sure the land size is similar and the condition of the property is comparable. Regularly attending inspections will also help you to formulate a clearer picture of the going rate for similar properties. Lastly, it’s important to research additional ongoing costs such as the council rates, strata fees, and water costs. Most of these outgoings should be included in the contract of sale.

Research the professionals you’ll need

During the buying process, you’ll need professional support you can depend on, including us as your mortgage broker, a solicitor, and building and pest inspectors. When researching who to use, it’s a good idea to ask friends and family for recommendations. Also, check each service provider’s online reviews. And if you do need a referral to a professional we can vouch for, please don’t hesitate to ask!

We can’t stress enough the importance of doing plenty of research before buying property, but we guarantee the effort will be well worth it in the long-run. You may even find it becomes as addictive as planning a holiday! And remember, we are here to help you with everything from calculating your borrowing capacity, to organising pre-approval and finding you a home loan that works. Please get in touch.Property Research Checklist

If you’re new to property investment, understanding all of the jargon involved can be tricky.

As your mortgage broker, our mission is to help simplify and support you through the process of investing in property, which is why we’ve put together this handy list explaining the key lingo you’re likely to encounter. Right, students, pens at the ready, it’s time for some learning!

Bank valuation
A bank valuation is the bank’s estimate of the value of a property. When you apply for a home loan, your lender will send an independent valuer to appraise the property. The bank valuation is usually more conservative than the market value, because it’s designed to limit the lender’s risk and indicates the amount they can expect to recoup if the property is repossessed. It’s important to note that a bank will not accept your valuation of the property, even if you obtain your valuation from an independent valuer.

Capital gain
Capital gain is the term used to describe the profit on the sale of the property, once all expenses have been deducted. Capital Gains Tax (CGT) is applicable to capital gains on investment properties purchased on or after September 20, 1985, but does not apply to your principal place of residence in most instances.

The tax you pay is based on the sale price minus the cost involved in acquiring and holding the property (your cost base), and any gain is included in your assessable income in the financial year you sell the property. There may be several exemptions for paying capital gains tax (CGT). For example under the ‘Temporary Absence Rule’ – if you move out of your home and rent it out, the property may still be treated as your principal residence for up to six years and you are exempt from CGT. However, the exemption rules may vary from state to state, so it is wise to speak to your accountant about CGT and ask them to explain any exemptions that may be applicable to you.

Capital growth
Capital growth is the increase in value of the property over time. The supply and demand in an area impacts the capital growth. If there is high demand from buyers and limited supply, the prices are likely to rise.

Current market value
Not to be confused with the listing price, nor the most recent offer on a property, the current market value, as defined by The International Valuation Standards Council, is: “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

Depreciation
Depreciation is the decline in the value of an asset over time. As an investor, you may be able to claim depreciation on the property buildings and the items within it against your taxable income, but again you should check with your accountant to see what tax deductions are applicable to you. In order to claim depreciation, you will need to employ a qualified Quantity Surveyor to prepare you a depreciation schedule. The tax office will not accept a depreciation schedule that you prepare yourself.

Equity
Equity is the current market value of a property minus any outstanding mortgage repayments. Investors can use the equity from the increasing value of an investment property to purchase a new property – if you are interested in doing this, talk to us about refinancing your current loan.

Lenders Mortgage Insurance (LMI)
This is a fee charged by lenders to protect themselves against borrowers who default, in case the net proceeds of a foreclosure do not cover the loan. LMI may be applicable to borrowers who do not have a deposit of 20% or more.

Loan-to-value ratio (LVR)
The LVR is the proportion of money borrowed versus the value of a property. Lenders take into account the LVR when assessing mortgage applications, as the lower the LVR, the lower their risk. Usually lenders will require you to pay LMI if they’re lending more than 80% of the value of the property.

Negative gearing
Negative gearing applies when the property’s expenses surpass the rent earned. These expenses can be used to reduce your taxable income. Positive gearing is when the rent exceeds the costs and the property pays for itself.

Rental yield
The rental yield is the annual rental income, expressed as a percentage of the property’s value. It’s often quoted when examining a property’s rental potential, and may be calculated as a gross percentage (before expenses are subtracted), or as a net percentage (accounting for purchasing or transaction costs). The rental yield can help investors determine the potential income and cash flow involved in purchasing a property.

Suburb growth
Suburb growth refers to the capital growth of properties within a particular suburb. As an investor, it a good idea to thoroughly research a suburb’s profile, including its capital growth potential, before purchasing a property.

Vacancy rate
The vacancy rate is the amount of properties vacant in an area. It is a useful way for investors to assess the rental demand of a suburb before purchasing. Investors usually prefer a suburb with a low vacancy rate, because it indicates a likelihood of being able to find tenants quickly and easily.

Zoning
Zoning refers to government laws specifying how property can be used. Properties may be zoned for residential, industrial, business, or other purposes. It’s important to be aware of zoning, as it affects the home loan you take out, capital growth potential, plus future renovation plans.

Investing in property is exciting, but it can also be confusing with so much new terminology to digest. We can help you make smart investment decisions and alleviate the stress by helping you decide the right structure for your property investment loan and by guiding you through the loan application and settlement processProperty Investment Jargon Explained

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With residential property prices escalating at an unprecedented rate, many investors looking to enter the property market are finding it increasingly difficult to get a foot on the first rung of the property ladder.

As an alternative option, more and more investors are investigating the merits of commercial property to help them grow their wealth. But what are the major differences between commercial and residential property investments? What do investors need to look out for?

Capital growth potential

Capital growth potential is an important consideration for investors, and this is one of the key differences between residential and commercial property. It is generally believed that the capital growth potential of commercial property is not as reliable as with residential property. This is because demand for residential property is growing all the time as the population grows, usually at a higher rate than the supply of new homes.

Generally speaking, demand for commercial property tends to be less and it is usually reliant on economic growth, rather than population growth. When the economy is in a growth phase, more new businesses start up and this increases demand for commercial premises and supports capital growth, but this generally occurs at a much slower rate than with residential property. Additionally, commercial property is more vulnerable during an economic downturn than residential property.

Rental yields

Whilst residential property may win on capital growth potential, commercial property may often be the stronger contender when it comes to rental yields.

For example, rental yields from residential property are generally around 3 – 5% per annum, which is much lower than with commercial property, which can often return as much as 5 – 12% per annum depending on your choice of investment.

An additional benefit of commercial property is that rental increases can often be written into the lease and may even be tied to economic factors. This makes it much easier to plan / anticipate the rental returns you will receive on your investment.

Tenant availability and security

Whilst rental yields may be higher for commercial property than with residential property, finding tenants may not be as easy. Commercial properties can often sit vacant for months or even years, particularly when the reason for the vacancy is an economic downturn or a long-term tenant has gone out of business. Finding new tenants may often require remodelling or refitting the premises, which can also pose an additional expense.

However, once you have found a good tenant for your commercial property, they do tend to stay longer and are less likely to default on the rent payments than residential tenants. Residential leases can be as short as three months, where commercial property leases tend to be at least 3 – 5 years or even longer.

Deposits

Commercial property investment entry price points may be extremely attractive to the smaller investor, however there are some disadvantages when it comes to putting down a deposit. Lenders are often much more reluctant to approve loans for commercial property investments and usually require a deposit of at least 30%. For a residential property investment, you can often get loan approval with a deposit as low as 5%.

Maintenance and other property expenses

This is another area where commercial property investment can often win over residential property investment. With a residential property, the investor is responsible for all maintenance costs and expenses such as repairs and operating expenses like the council rates.

With a commercial property investment, the tenant is usually responsible for all expenses including general maintenance, repairs and operating expenses such as rates.

A balanced investment portfolio is best

When it comes to deciding whether you should invest in residential or commercial property, we recommend that you look at each investment opportunity on its individual merits and do extensive research to determine both its capital growth and rental yield potential.

A balanced portfolio would most likely include a combination of both residential and commercial properties that have been specifically chosen to meet your personal investment criteria. A balanced approach will also assist in mitigating any risks associated with your investment over time.

If you’re considering a residential or commercial property investment, then don’t hesitate to give us a call. We’ll help you crunch the numbers to determine if the property you are considering will help you meet your investment objectives. We can also help you to get pre-approval on your loan so you can easily determine which properties meet your buying criteria.


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