buying your first investment property

The basics of buying your first investment property

23 May, 2018

Are you toying with the idea of buying your first investment property? It can be a great way to make money and prepare for a financially secure future, but only if you get it right. There is a lot to consider when choosing an investor home loan, selecting a property, and deciding how much you can commit to financially.

Here we explain some of the fundamental things to cover off as you make this important decision.

 

Why buy an investment property?

The fastest way to grow your wealth is by investing it wisely, not by keeping it in a bank account with next to no interest or stashing it away under your bed.

Australian real estate is considered a relatively stable investment which, when done well, can generate very healthy returns. You can get cash flow from rental income while the property produces capital gains over time. And thanks to negative gearing incentives, there are ways to offset various costs in your tax return.

But of course it doesn’t always work out exactly as planned, which is why it’s important to do thorough research and get the right advice before committing to such a significant investment.

 

Before you buy an investment property

There are certain things you need to do before buying any kind of real estate; building inspections and pest control checks, for instance. But with a rental property you also need to ask yourself:

  • Does the area have high demand and promising signs of growth?
  • How much rental income can you realistically achieve, and how does this compare to your mortgage repayments?
  • Will you still be able to afford your mortgage if your property is vacant for a while or the rental market slumps?
  • Which type of investor loan is right for you? (More on these below)
  • Have you considered all the risks and sought professional advice?

 

Types of home loans for investors

Just as with owner-occupier mortgages, you’ll find a range of different investor home loans on offer.

Interest-only loans are common among investors because they offer the lowest repayments. With this type of loan the repayment only goes towards paying interest, not reducing the loan principal. This can help with cash flow but will leave you in a sticky situation if your property loses value.

You’ll also need to decide whether you want a fixed or variable interest rate. Fixed rates are typically a little higher but remain in place for a term of 1-5 years. Variable rates can change at any time, affecting your repayment amount. You might consider a split loan which lessens risk by applying a fixed rate to part of the loan and a variable rate to the rest.

A mortgage broker will help you assess your finances and work out which type of loan is most suitable for your needs. You can also read more about different home loan options here.

 

Calculating your borrowing power

Before looking seriously at investment properties or applying for a loan, you need to know how much a lender is likely to let you borrow. This lets you focus your search on properties you can actually afford – and make offers that are within your means.

Your borrowing power is based on your income and expenses and the size of your deposit. There are various online tools that can help you calculate your borrowing power, and these can be a good place to start. However, a mortgage broker will work with you on a more personal level and deliver greater lifetime value­ than a free online calculator.

Get started on Monefly to connect with a trusted mortgage broker who can help you assess your finances and find the investor loan that’s best suited to your personal circumstances.

 

 

renovating funds monefly

Renovating your home? You’ll need some funds for that.

17 May, 2018

There are two main ways the value of your home or investment property will rise:

  1. You own it for long enough that it increases in value naturally
  2. You do something to improve the property and quickly add to its value

Both of these methods are tried and tested, and both are good ways to build your wealth as part of a wider investment strategy.

But today we’re talking about the second option: adding value to your property in the short term by renovating. Or, as it’s known in the industry, “manufacturing equity”.

 

The golden rule of renovating

When you’re spending money to make money by renovating, there is one simple rule to follow: the amount you add in value should be greater than the amount you spend on your renovations.

Spending $30,000 to increase the value of your property by $20,000, for instance, is not a good investment.

There are three main goals of renovating an investment property:

  • To achieve capital gains
  • To increase the amount of rent you can charge
  • To be able to access more equity to fund another investment

If you have identified the potential for adding value to your property through renovation, the next step is to work out how to fund it. In this article we’ll talk you through the main ways you can gather cash to fund a property renovation.

 

1. Use your own funds

If you have money set aside in a savings account or offset account, this is the simplest way to fund your renovations. The funds are there for you to access at any time, and you don’t have to worry about loan applications and fees.

 

2. Take out a construction loan

If you need to borrow funds for your renovation, consider a construction loan. This type of product is designed specifically for people who want to build a new home or carry out a renovation project.

The main difference between a construction loan and a regular mortgage is that you access the funds in staggered payments rather than as a lump sum.

There are two benefits of this to you as the borrower. Firstly, you only start paying interest on the money when you receive it, so you don’t have thousands of dollars sitting in your bank account for months on end costing you money. Secondly, you can set the loan up so your builders are paid for each stage of the work they complete – and this gives you more control.

There are a couple of downsides to this type of loan, though.

Construction loans may be subject to less favourable interest rates and you’ll probably have to pay upfront fees to the lender. You may also have to provide proof that your building plans have gained council approval and that your builders have quoted a maximum cost for the project.

Depending on the duration and cost of your renovation project, a construction loan may or may not work out cheaper in the long run. Be sure to run the sums before assuming this is the best finance option for you.

 

3. Get a home equity loan

If you already have a decent amount of equity in the property you’re renovating – or in another home you own – you may be able to access that equity in the form of a home equity loan.

Say, for example, your property is valued at $700,000 and you have $400,000 of outstanding debt. You can use that $300,000 of equity as security for your loan. You won’t be able to borrow the full amount, of course, because the usual loan-to-value ratio (LVR) policies will apply. However, it’s a good way to release some of the value in your property to make money elsewhere.

If you’re not sure if you have any equity in your property just create your free Monefly account to instantly value your property for free.

 

4. Top up your existing mortgage

Another option if you already have some equity in your home is to simply add to your current mortgage. Not all lenders will permit this, though, and again you’ll be limited by the lender’s LVR rules. In most cases, the total amount you borrow mustn’t exceed 80% of the value of your property.

 

5. Refinance your existing mortgage

This is taking option 4 a step further by increasing your mortgage amount to fund your renovations while also switching to a new provider to get a better rate.

Compare your existing mortgage with those currently available from other lenders – you might find that there are some much better deals available. When you apply a lower interest rate over the term of your loan, you could end up saving tens of thousands of dollars. You might also discover a loan that has better features and more flexibility with repayments.

You’ll need to take into account any switching fees when working out how cost effective this option will be.

 

6. Take out a personal loan

Most of the choices so far rely on you having savings or a decent amount of equity in a property. But what if you’re just starting out and none of these are an option?

You might be able to fund your renovations with a straightforward personal loan. However, this should really be a last resort because this type of loan usually carries higher interest rates than those secured against a property.

 

Some final advice

Whatever type of loan you decide on, it’s a good idea to check comparison sites to find a deal that suits you.

When budgeting for your renovation, be sure to include all costs associated with your loan such as interest charges, application fees and switching fees. Also account for the time you’ll personally have to put in, any loss in rental income during renovations, and potential delays from bad weather, etc.

Monefly’s app can help you budget for your renovation and track your spending in real time, so it’s easier to stay on target. You can also connect with your team of financial professionals for simple communication when it comes to finding a loan and managing your investments. Sign up for Monefly free today!

 

In short:

  • There are various finance options available if you want to add value to a property by renovating
  • You can access equity in an existing property by taking out a home equity loan, topping up your mortgage, or refinancing and increasing your loan amount
  • Alternatively, you can take out a construction loan or a standard personal loan
  • Be sure to budget for all of the associated costs and ensure the amount of value you will add is well above what you’re spending

 

 

capsule wardrobe monefly

How a capsule wardrobe can save you time and money

14 May, 2018

How often do you find yourself running late because you’ve spent so long deciding what to wear… and you’re still not that happy with your look? It’s probably not a lack of clothes that’s the problem. If anything, you have too many and you just can’t find a way to pull them together into a great outfit. Simplifying to a capsule wardrobe could be the answer to your clothing woes.

Not only will a capsule wardrobe make it easier to pick your outfit each day; you’ll also find you don’t spend as much on clothing in the long run. Impulse buys won’t seem as tempting and you can take the time to look for high-quality second-hand pieces that will truly complement your look.

In case you have no idea what a capsule wardrobe is or how to compile one, we’re going to talk you through the basics here.

 

Before you begin a capsule wardrobe: edit your current one

Your first step is to go through all the clothes you currently own, leaving no drawer unopened. You’ll need to be ruthless to get the most out of this process. Set aside anything that:

  • Doesn’t fit you
  • You don’t really like
  • Still has the tags on from a year ago (but it was such a bargain, right?)

You can donate these items or send them for textile recycling – don’t just throw them out! You could even sell them online to make a bit of extra cash (which will come in handy later).

What’s left should be just the clothes that you like and wear regularly.

 

Work on the basics

Now it’s time to identify the gaps in your wardrobe. There is no fixed formula for this but the idea is to have several versatile pieces that you can wear over and over again, rather than your closet being such a jumble you don’t know what to do with it.

With the suggestions below, choose clothing that suits your body type and makes you feel comfortable – so if you’re not into dresses, pants, or whatever you can leave them out. Try to stick to a certain colour scheme so it’s easy to mix and match these pieces into different outfits.

Some ideas to get you started:

  • A white button-down shirt:A white shirt makes a great staple because it can be used in so many looks. Dress it up with a statement necklace for business meetings and evenings out or layer it with a tank top and jeans for a more casual style. Finding a button-down that fits just right can be tricky, but once you find the perfect one, feel free to add another in a colour or print that will complement the rest of your capsule wardrobe.
  • Dresses you love:Aim for a combination of slip dresses, simple tunics and maxi dresses or other styles that you enjoy wearing. Again, these should be versatile pieces that you can easily pair with heels or layer with a blouse depending on the occasion.
  • Pants that fit:Don’t sell yourself short with poorly-fitting pants. Narrow down your wardrobe to simple slacks and denims that feel great and match with all your tops. Let go of those coloured jeans you’ve been hanging onto for years just in case they come back into fashion.
  • Comfortable tees:Whether you prefer crew necks or v-necks, tight-fitting or loose, stock up on a few t-shirts to complete your basic wardrobe. They can be different colours and prints, so long as they can be paired with enough of your jeans, pants and skirts. Just make sure you feel comfortable in them and they can be adapted to different styles of outfit.

 

Add some statement pieces to your capsule wardrobe

If you’re worried you’re going to look boring wearing the same few clothes all the time, think again. The things we have listed are just the basics to get you started – now you can add some personality with jewellery, bags, scarves and shoes to create a different outfit each time. You’ll find it much easier to pick out a few well-matched accessories to complement your capsule wardrobe than to work out what to wear with the weird abstract print top you bought on impulse.

Of course you can add other pieces such as skirts, shorts, jackets and tops to your collection. Try to aim for between 24 and 30 pieces in your capsule wardrobe to keep it simple yet adaptable to different looks. As you enjoy slowly adding in carefully chosen new pieces, be sure to clear out the ones that don’t work any more. This more deliberate approach will help you stick to your clothing budget and make it easier to look good!

 

 

australian federal budget Monefly

Federal Budget 2018: How it will affect you

11 May, 2018

Treasurer Scott Morrison has said this year’s Federal Budget is all about a strong economy, more jobs and essential services as the government lives “within its means”.

That’s all very well, but you’re probably wondering what it actually means for you. Let’s take a look at the main points from the 2018 Budget so you can see how you might be impacted.

 

Preschool and childcare

A new package coming into effect on July 2 will give a million or so Aussie families a boost with their childcare costs. From this date there will be no more limits on the Child Care Subsidy for families with a combined income of $187,000 or less.

The Child Care Safety Net will remain in place to support children with special needs and those from disadvantaged backgrounds and regional or rural areas. For all families, the Child Care Subsidy withholding rate will be cut to 5%, making more money available each month.

 

Hospitals

The government claims it is funding public hospitals at  “record levels” in this year’s Budget. This includes over $30 billion of extra funding to be provided between 2020-21 and 2024-25. Meanwhile, the Medicare Guarantee Fund will get a $34.4 billion lift and the government is introducing a new program aimed at encouraging more doctors to move to regional areas.

 

Schooling

Schools have done well from this year’s Federal Budget with an extra $24.5 billion of needs-based funding being delivered over the next decade. This is around 50% more per student than schools currently receive on average.

The government is also lending its support to curriculum reforms and new online learning tools proposed by businessman David Gonski. Permanent funding has been pledged to the National Schools Chaplaincy program, beginning with an additional $247 million over four years, the initial focus being on anti-bullying.

 

Tax cuts

If you’ve been hoping for a tax cut, the good news is you only have to wait until July 1. Tax cuts for low- and middle-income earners mean people earning up to $37,000 per year will get relief of up to $200, while for those earning up to $90,000 it’s a maximum of $530. It may not be much, but it’s better than nothing!

The government is also proposing changes to income tax thresholds which will level out the tax system over the next seven years. The end result will be that a maximum marginal tax rate of 32.5 cents per dollar will apply to 94% of Aussies.

 

Traffic and transport

The government is planning to inject a lot of funding into road and rail infrastructure – this will ease traffic and make public transport a viable option for more people. Across Australia, a $1 billion Urban Congestion Fund will help improve traffic flow via various state-level projects.

If you’re sick of daily traffic woes, keep an eye out for these big projects in the pipeline:

Victoria is going to do pretty well from the government’s spending on traffic alleviation and public transport improvements. Funding outlined in the Budget includes:

  • $5 billion for a Melbourne Airport rail link
  • $1.75 billion for the North East Link
  • $475 million for a rail link to Monash University’s Clayton campus
  • $225 million for the Frankston line to Baxter to be electrified
  • $132 million to duplicate the Princes Highway between Traralgon and Sale

 

The Federal Budget is also supporting several projects in NSW, including:

  • $400 million to get up to 900 trucks a day off the roads by duplicating the Port Botany freight rail line
  • $971 million for the Coffs Harbour bypass, allowing drivers to avoid 12 sets of traffic lights along that route
  • Around half of the money needed for the $310 million four-lane bridge being constructed over the Shoalhaven River at Nowra (the rest will have to come from the NSW government)

 

Western Australia is due to benefit from:

  • $1.05 billion for the Perth Metronet rail project
  • $944 million for traffic easing measures in Perth
  • $220 million for the Great Northern Highway Bindoon bypass

 

In Queensland, the focus is on decongesting the M1 Pacific Motorway and the Bruce Highway – a billion dollars has been pledged towards works on these busy highways. In addition, $390 million is going towards a duplicate north coast rail line which will offer new passenger services and reduce the number of trucks on the Bruce Highway.

 

The Gawler rail electrification project in South Australia will receive funding of $220 million with an extra $160 million pledged to improve the national freight network by duplicating Port Augusta’s Joy Baluch Bridge.

 

In Tasmania, Hobart’s Bridgewater Bridge is being replaced in a $461-million project which will reduce travel time into the city and lower freight costs.

 

New and expecting parents

$17.5 million is being invested into researching the first 2000 days of babies’ lives and improving the health of mothers. An additional $3 million will help educate pregnant women about exercise and healthy eating.

The Boostrix and Adacel combination vaccines have been added to the National Immunisation Program, and pregnant women will be able to receive free vaccines against pertussis. Digital baby books will soon be introduced for every newborn, acting as an electronic health record for the rest of their lives.

 

Baby boomers

To fight against age discrimination, employers will receive a $10,000 wage subsidy for hiring older Australians.

 

Healthcare

Your medicines may soon get cheaper as a result of $5 million being spent to encourage the use of generic drugs. The Pharmaceutical Benefit Scheme will get an extra $1.4 billion in funding, with medicines for spinal muscular atrophy, breast cancer, refractory multiple myeloma, relapsing-remitting multiple sclerosis and HIV prevention being added to the program.

The Royal Flying Doctor Service, which provides dental, mental health and emergency services to Aussies in rural areas, will receive $84 million in funding. But to help us stay healthy in the first place, the government is putting $154.3 million towards community sport and other measures to encourage healthier lifestyles.

 

Pensioners

All pensioners – including full-rate pensioners and self-funded retirees – will soon benefit from the Pension Loans Scheme. This means an income boost of up to $17,800 per couple while the pension and other retirement benefits remain in place.

An extension to the Pension Work Bonus will allow pensioners to earn an extra $1,300 each year without a reduction to their pension payments. It is also being expanded to include self-employed Aussies, who will have an earnings threshold of $7,800 a year.

 

People with disabilities

There isn’t much to report when it comes to disability funding, except that the government has confirmed funding previously pledged to the National Disability Insurance Scheme.  140,000 Aussies currently access this scheme, which should be rolled out completely by 2020. $92.1 million of extra funding will support people who are in a period of transition towards the NDIS, while $64.3 million is going into a jobs fund to scale up the number of NDIS workers.

 

Dodgy businesses

The government is cracking down on “phoenix” activity (where shady business operators purposefully go bust to write off their bills, but later re-emerge from the ashes with another scheme). Customers, other businesses and employees are all at risk of losing out from this kind of operation, so any measures to hold people accountable for their actions are welcome. The government’s proposed changes will close loopholes which allow directors to dodge responsibility by resigning, plus they will give the ATO more power to retain refunds.

 

Cash payments

If you like doing things the old-fashioned way and would rather make large payments in cash, you might soon be disappointed. As of July 1, 2019, the government is banning cash transactions over $10,000. The aim is to stop tax evasion and money laundering, so you’ll have to make your legitimate payments by cheque or electronic transfer instead.

 

Small businesses

The $20,000 instant asset tax write-off will stay in place for another year until June 30, 2019. Employees will receive additional protection through expanded unfair contract terms protections, while more small businesses will have access to “free, fast and binding dispute resolution” through the new Australian Financial Complaints Authority.

 

National security

$293.6 million will go towards aviation security as the government moves to protect Australia against “evolving threats” in civil aviation. $50.1 million of this will be put towards enhancing airport security with better screening technology at 64 regional airports. The government is also spending $121.6 million on improved screening of air cargo and international mail.

A further $62.2 million has been pledged to combat people smuggling, with $130 million more going towards identifying cyber crime and terrorism threats through visa screening.

 

Beer fans

Craft beer is about to get cheaper, with smaller breweries benefiting from a tax cut that will bring them level with the bigger names.

 

Eco warriers

The Great Barrier Reef will get funding of over half a billion dollars. This will help with improving water quality, conducting further scientific research, and combating coral destruction by the crown-of-thorns starfish.

 

If you want to know more about the details of the 2018 Federal Budget, visit https://www.budget.gov.au

 

cause of financial problems monefly

The main causes of financial problems

02 May, 2018

If you find yourself in trouble financially, it’s natural to start searching for a way out. But before you can fix all your problems, you need to work out what’s caused them in the first place – otherwise they’re likely to happen again.

 

The root of the financial problems

It might be easy to blame that car repair bill or a broken-down washing machine, but nobody ever went bankrupt from a single home appliance. If you’re completely honest with yourself, you’ve probably known it was heading this way for a while. Maybe you found you had less and less money spare each month, then you started using a credit card to make ends meet, and it snowballed from there. Or perhaps there was a sudden change in your circumstances that meant you no longer had a spare few hundred dollars to pay that bill.

However you arrived in this situation, you need to acknowledge the following before you can move on:

1. You’re facing a serious problem.

2. There is no point blaming high interest rates, the economy or anything else. You are where you are, and it’s likely due to your financial habits one way or another.

3. You are not the only person to have ever been in this situation and there are ways out.

4. If you do get yourself back on track, you’ll need to make big behavioural changes (and stick to them) to make sure you don’t find yourself in the same position again.

All clear? Good.

Now, you need to work out what really caused the problem. Most situations fall into one of the following three categories:

 

An unexpected bill

A big bill can be the straw that breaks the camel’s back, but only if you don’t budget for it. If you’re smart with your money, you’ll keep a contingency fund so that unexpected expenses can be easily dealt with.

Quarterly or annual bills, such as rates and insurance, should be saved for in advance monthly/fortnightly/weekly so the money is already there to pay them when they arrive.

 

A rise in expenses

If you have a variable rate mortgage and the rate suddenly rises, it can be hard to find the extra cash – especially if you have other loan commitments as well. The only way to deal with this right now is to take a serious look at your expenditure and find ways to cut back. You could also consider refinancing your loan to get a better deal, but this should be carefully researched rather than an impulse reaction to rates rising.

Hindsight is a wonderful thing, but in future, you can save up for big purchases rather than buying with credit so you won’t have so many loan repayments to juggle if times do get tough.

 

A drop in income

Losing your job is bound to make things tough financially, but again you can plan ahead in your budget by having a contingency fund in case you find yourself without any income for a while.

It may also be that your overtime is cut or you lose out on a bonus you usually receive. If you rely on this money to pay your bills, this is a big problem. Overtime, commission earnings and bonuses should not be built into your core income as they are not fixed. Instead, you should budget without them and if you do get the extra money, put it towards extra loan repayments.

If you find yourself in real trouble, speak to your lender’s hardship team about arranging a short repayment break or temporarily lowering your repayments so you don’t start to fall behind.

 

Lay it all out

The longer you ignore the problem and let it continue, the worse it’s going to get. You need to write everything down so you can see how bad things really are and work out a plan of action.

No matter what led to the problem and how much debt you’re in, the only way to fix it is to start spending less than you earn so you can put more money towards paying off your debts. This is where budgeting comes in, and you can read all about that here.

Bearing in mind that the cause of the three problem areas identified above is not having any contingency funds, make sure you budget for some emergency spending this time around.

Start taking small steps to cut your expenses and, if you can, boost your income, and you’ll soon start feeling better when you see your level of debt decreasing. It won’t be easy, but it’ll be worth it!

 

To sum up:

  • Financial problems generally build up over time and often stem from not budgeting and failing to save for unexpected expenses
  • If you are having financial problems, you need to accept the situation and recognise that change is needed in your financial management
  • It may be an unexpected expense, a rise in outgoings or a drop in income that makes your finances collapse, but these can all be softened by having a contingency fund in your budget
  • To clear your debt and gain financial freedom you need to make a budget and spend less than you earn – it’s not rocket science but it does take some commitment