As you scroll through the listings and your eye wanders across all the gorgeous homes in Australia’s most idyllic holiday spots, you’ll also notice the breathtaking prices they command during the peak season. If you’re a property investor, you may find those high price tags make it very hard to resist the idea of investing in a luxury holiday rental property yourself. But is it really going to be a good money spinner?

Three things make a profitable holiday rental property. The right location, the right property and a luxurious fit out that brings your guests back time and time again. So what do you need to do to get set up for a high-yield holiday rental investment?

Choose the right location.

Yes, it is easy to make big dollars from a property by the sea in the height of summer, but you need to look at the total potential rental return across the entire year. Making a decent profit from a holiday rental investment requires a location that will attract holidaymakers all year round, not just in summer.

Ask yourself: what does the location have going for it as a holiday destination year round? Try and choose a location that offers people something special. Australians love the great outdoors and if your investment property is in a location of great natural beauty, it’s likely to be a winner.

A destination that is under three hour’s drive from the nearest capital city and international airport will not only attract local guests, it will attract people from interstate and maybe even overseas. If there is also a regional airport nearby, then all the better.

Choose the right property.

When choosing a property for a holiday rental investment, the first thing you need to take into consideration is the property’s accessibility to the local attractions and tourist hot spots. For example, if you’re investing in a property at a beachside location and want a maximum rental return on your investment, make sure it’s actually close to the beach and not on the other side of town near the highway entrance and the take-away food drive-thru.

Be careful to choose a property that offers a resort-style atmosphere. Avoid anything that is too suburban or ordinary in favour of a property that offers something different, like good views and wide open spaces.

Consider a property that offers plenty of room inside, with at least one sitting room separate from the kitchen living area. It should also have a separate laundry and wet area and of course, plenty of bedrooms. For a luxury holiday rental, a decent outdoor area is a must and a swimming pool will be a major attraction if you can manage it.

Set your property up to attract high paying guests.

Setting up your holiday rental property so that is practical and hard wearing is a good idea, but the trick is to do it in a way that looks luxurious, stylish and expensive so you can attract the highest paying guests. If you want to make the most profit from your investment, you need to make your place look absolutely fantastic in your online advertising photos and make sure it excites and delights your guests when they walk through the door.

Holidaymakers paying top dollar expect better levels of comfort and luxury in a holiday house rental than they do from their own homes. They will expect to find a good dishwasher, a great cooker and a large fridge in the kitchen at the very least. A modern flat screen TV and Wi-Fi is a must.

Your guests will also expect a king-or queen sized bed in the master bedroom and at least one other room with a double bed. Flexible sleeping options that will help them reduce costs by sharing with more people or another family are also a good idea.

Keep the decor simple, stylish and eye-catching – ask a local decorator for advice if necessary and try to create a look that compliments the location. Don’t be tempted to use your holiday rental property as a depository for all the old furniture the family doesn’t want. Red flags are outdated TVs, daggy curtains, garish duvet covers, cabinets with trinkets, clunky second-hand lounge suites, too many ornaments, ugly brown wood shelves, nanna-style light fittings, and horror of horrors, industrial or pub style wall-to-wall carpet.

Combining tourism and hospitality with your property investment can be a great idea if you do it right. If you’re considering buying an investment property in a holiday hot spot, let us know and we’ll help you crunch the numbers to see if it will be a good investment for you. Getting your finance right can make a big difference to your bottom line when investing in any kind property, so call us today to discuss your plans.

Many people think that interest-only home loans are only for serious property investors with aggressive purchasing strategies. However, all kinds of property buyers can apply for an interest-only loan and there are a lot of clever ways you can use them to your advantage.

As your mortgage and finance broker, we’re here to make sure you understand the different uses of loan products and how they may apply to your personal financial strategy and purchasing goals. In this article we talk about the pros and cons of interest-only products to help you decide if it’s time to say hello to interest-only.

The Pros

Smaller loan payments.

During the interest-only period of the home loan, your monthly loan payments would be lower than with a principal and interest loan. This is because your payments only need to cover the interest on the loan. Great if you want to reduce your expenses!

Free up cash.

Lower loan payments mean you could use your available cash for other purposes that may be financially beneficial. You could use the money to pay off debts to help save money on interest, make other investments to build wealth for your future, fund a loan to purchase another property or to make home renovations to increase your property value and equity position.

Tax deductible for property investors.

Want to save money on tax? The interest on an investment property debt is usually tax deductible for property investors, as long as you follow the ATO rules. That means an interest-only loan could very beneficial if you are a property investor because it could help you to maximise your tax deductions and cash-flow. Unfortunately, if you are using an interest-only loan product to purchase a home as an owner-occupier, you will not receive any tax deduction for interest.

Benefits are ongoing for the life of the interest-only term.

With an interest-only home loan, you can often choose an interest-only term from 1, 3, 5 or 10 years. This can be very beneficial for tax minimisation strategies and financial planning purposes. It could also be very beneficial for people buying a home on a tight budget as it can help you to plan your finances for the first few years you own the property as well as keep your loan payments lower.

Make payments on the principal when you have extra cash.

Many interest-only home loans allow you to make payments on the principal of your loan if you want to. This means that you can still build equity in your property by making a repayment on the principal of the loan when you have the extra cash.

The Cons

It’s possible that you may not build any equity.

Interest-only loan payments do not help you to build equity in your property because your loan payments do not pay down the loan principal. That means you will be relying on property prices to rise to gain equity (unless you make extra payments as mentioned above).

When the interest-only period ends, the loan will revert to a principal and interest loan and your loan payments will increase unless you make other plans.

If you decide to take out an interest-only loan, you should be careful to plan ahead for what you will do at the end of your interest-only period. At that time, you will have to decide whether to renegotiate another interest-only term, allow the loan to revert to a principal and interest loan, refinance the loan, or sell the property to pay off your debt.

An interest-only loan will cost more in interest over the life of the loan than a principal and interest loan.

Very few people keep a loan for the full 25 years, but you should be aware that the cost differentials between an interest-only loan and a principal and interest loan can be quite significant when calculated over the entire life of the loan. For example:

• With a normal principal and interest loan for $500,000 at 4.78% p.a. based on an LVR of 80% over 25 years, the total cost of interest on the loan would be$357,766 over the 25 year period.
• On an interest-only loan for $500,000 at 4.78% p.a. based on an LVR of 80% over 25 years with an interest-only period of 10 years, the total cost of interest on the loan would be $440,443 over the 25 year period. This means that the interest-only loan could cost you an additional $82,676 in interest compared to a 25 year principal and interest loan.

You may miss out on a golden opportunity to pay down the principal while interest rates are low.

Is a principal and interest the right loan for you considering that interest-rates are now at all time lows? Sometimes it can be worth paying more now to save money later. Paying down as much as you can off the loan principal now could mean that when interest rates do rise, you will be paying those higher interest rates on a reduced loan amount. Of course, a reduced loan size could mean lower loan repayments and/or paying less interest in the long-term.

Ask us if an interest-only home loan could help you to achieve your goals.

As your professional mortgage and finance brokers, we know about the pros and cons of all home loan and finance products. We’re here to help you understand the different financing options available and give you expert advice on how you can be clever about applying them to help you achieve your goals. Everyone’s personal financial circumstances and goals are different and you can be sure we’ll take the time to listen and understand what you want to achieve. If you’re considering using an interest-only home loan, please get in touch. We’ll help you decide if it’s the right option for you.

They’re designed to get you to make a purchase quickly and deny you the opportunity to evaluate the purchase properly and compare other options.

Hard sell sales tactics often include aggressive or forceful language and usually use strong psychological pressure to convince you to buy. Sometimes it is not immediately obvious that you are being given the hard sell – the salesman will pretend to be your friend and behave as if they are helping you out!

So how do you avoid being pushed into a purchase by a hard selling salesperson? Here are five tips to help you come out on top.

1. Learn to say no.

Saying no is surprisingly difficult for some people. We’re all brought up to be polite and delivering a flat no can seem rude. The hard sell practitioner is fully aware of this and uses your good manners to their advantage to create an opportunity to make their sales pitch. Always be polite, but be firm when saying no or they will continue to pester you until you buy something.

Learning to say no to such people is vitally important. Make the word ‘no’ your default response until you are sure you have all the facts and are in a position to make an informed and considered decision.

2. Beware of people bearing gifts.

Another common tactic, and one that is frequently used by property sellers and developers, is to reinforce your natural tendency to avoid saying no by giving you a ‘free’ gift. They know a gift will make you feel more obligated to say yes because we are all conditioned to reciprocate when given a gift.

For example, time share companies will often offer you a ‘free’ weekend away in return for attending their seminar, then try and pressure you into buying while you’re there. Or a property developer may offer you a ‘free’ furniture voucher to get you to attend an open house, then pressure you into signing a contract on the spot.

Always remember that when you accept a gift that is described as ‘free’, you are placed under absolutely no obligation to make a purchase or return the favour. Say no firmly and take your ‘free’ gift home without feeling guilty about it.

3. Keep your emotions in check.

High pressure sales tactics also take advantage of your negative emotions. They play on feelings such as fear, greed, vanity, guilt, ambition, frustration, anxiety and even loneliness. Gratification of any of these emotions is a strong motivator and makes us very susceptible to impulsive purchasing decisions that we may regret later.

When making any large purchase, it is important to be able to put your emotions aside and think logically and practically. Before you even consider looking at a home or car to purchase, protect the integrity of your decision making process by working out a budget and a buying strategy. Avoid impulse purchases by giving yourself a cooling off period when you can take the time to sit down and calmly consider the pros and cons.

4. See the bigger picture.

When emotions are running high and you’re under pressure to make a decision, it is a good idea to step back and take a wider view of the situation. Resist your impulse to purchase by taking a few deep breaths and asking yourself “What will happen if I don’t make the decision to purchase right now?”

After a few minutes have passed, more sensible considerations will come to the fore. Such as can you afford it? Does it meet your needs? Will it give you the return on your investment that the salesman has promised? Are you paying the right price? Could you get a better price by waiting and negotiating a bit more? These are the bigger picture questions that need to be answered before you make your decision to buy.

5. Do your own research.

Every property developer, real estate agent and car salesman will tell you their deal is fantastic, that buying their product is a ‘no-brainer’. They may even show you data or statistics to back up what they say. Never trust the word of a hard sell salesperson, always verify the facts for yourself. Remember, if it sounds too good to be true, it probably is.

When making any large purchase, particularly a property, the importance of conducting your own thorough research cannot be overstated. It may be time-consuming, but it is not difficult to go online and check you’re paying the right price, how likely it is that the investment will appreciate in value and what are the likely rental yields. If you are buying off the plan, or from a developer, always take the time to verify the value of the property on completion and hire an expert to help you if necessary. Do not take the developer’s word for it.

Remember, the objective of the hard sell salesperson is to make you buy now in order to take away your opportunity to consider things properly and perhaps decide not to make the purchase. The harder the sell, the more reason you have to go away and carefully research their offer.

Talk to a professional finance broker today.

One of the ways unscrupulous salespeople make their money is by selling you expensive finance. No matter how attractive the offer or how insistent the salesperson, you should never sign up for finance on the spot. It is very easy to be distracted by the price of that great car or perfect house and forget to be diligent about your financing deal – this is a major mistake that could end up costing you a lot more than you think.

Finance contracts can often have restrictive terms, unfavourable interest rates and hefty exit fees. Car dealership finance for example, is notorious for failing to take into consideration your complete financial circumstances, so you could end up with financial hardship or may actually find yourself unable to make your car repayments. This could be disastrous for your credit rating and leave you struggling to get any kind of finance in the future.

No matter the urgency, always take the time to talk with a mortgage or finance broker about your finance needs. We will help you to determine exactly how much you can afford to borrow and make sure you obtain the most favourable interest rate and finance product available for you and your needs, taking into consideration your personal financial circumstances and goals. Call us today.

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.