Property Review Video – August 2023
Stay up to date with the latest developments in the property market over the past month. Our video takes you through an overview of the state of...
In just 15 short years, Airbnb has transformed from a platform helping homeowners earn cash from their spare rooms to a business and property investment strategy.
There are between 100,000 and 350,000 short-term rental properties across Australia, with homes making up approximately 85% of those listings according to various portals.i
While it might seem like a no-brainer investment decision — making thousands of dollars a week versus simply hundreds, the reality isn’t quite that simple.
Although taking the short-term route can be lucrative, savvy investors need to crunch the numbers to determine whether the figures add up. Just like any investment, there are tax implications with short-term rentals, as well as other possible hurdles including strata by-laws, council restrictions, heavy competition and seasonal impacts.
So, here are some tips to help work out the best property path.
By understanding your investment strategy, you can plan for the future of your asset. If cash flow is important, you’ll want a property that turns a profit each week (also known as positive gearing). This gain is made after you’ve paid all the holding expenses, but keep in mind a short-term rental attracts additional costs.
Alternatively, if your plan is purely to realise capital gain in the long run, and you’re able to absorb potential losses (also known as negative gearing), ensure you are aware of your out-of-pocket expenses each financial year to know where you stand. While you’ll get a tax break for these outgoings, will the short-term gain be worth the long-term pain?
A quality property in a popular holiday destination can earn a homeowner hundreds, if not thousands — of dollars a night. This can be an incredible income if managed well and might also mean you have a vacation home, or retirement pad, that pays for itself.
Real estate in some sought after holiday locations has also made great capital gains over the last decade, so the strategy could prove to be fruitful for investors willing to play the long game.
Quality long-term rentals provide financial stability for landlords who don’t want to ride the wave of seasonal markets. A great home in an established neighbourhood with a low rental vacancy rate can be a “set and forget” investment that gives investors peace of mind and a passive income for years.
Putting your property on Airbnb, Vrbo or Stayz can be advantageous for property investors. According to Airbtics, a short-term rental analytics site, the average annual revenue for Australian hosts on Airbnb is $48,760, which is a healthy passive income, but it can be a volatile market space with hidden costs.ii
Here are some facts potential short-term landlords need to understand before taking the plunge;
Consider booking frequency – The average Australian occupancy on Airbnb is just 53%, which means your investment could be sitting empty for almost half the year, with some markets already saturated with short-term rentals.iii
Councils are changing heart – Some local governments are realising just how many homes are vacant during a national housing crisis and are starting to restrict short-term rentals, with some limiting letting to just 90 or 180 days in a calendar year.
Stratas aren’t always supportive – Owner’s corporations can refuse short-term rentals altogether so it pays to determine whether it will be allowed in your building.
Holiday hotspots can cool down – Depending on where your short-term rental is located, demand for it could ebb and flow considerably. You’ll need to be sure the months it’s earning will cover those down days.
Beware of hidden costs and taxes – Holiday lets incur additional costs which aren’t usually associated with long-term rentals, including; increased maintenance through greater wear and tear, cleaning, furnishings, higher management costs and insurances. There are also tax implications such as annual income tax and capital gains upon sale to consider.
The best investment strategy will depend on your financial situation, your goals and property location. If you’d like to discuss funding, don’t hesitate to give us a call.
i https://www.airdna.co/resources/industry-report
ii, iii https://airbtics.com/most-profitable-airbnb-locations-australia/
Stay up to date with the latest developments in the property market over the past month.
The RBA has not increased the cash rate this month.
After 10 consecutive rate increases the cash rate this month remains at 3.6%.
Our video also takes you through an overview of the state of the property market, including a breakdown across all capital cities of the changes in dwelling values over the past month, as well as over a period of 12 months.
Click the video below to view our April update.
With interest rates increasing, contact us today to get a better understanding of how market changes will impact your next property purchase.
How do you feel when you enter your front door? Is your home a welcoming sanctuary or just a place to store your stuff and lay your head? If it’s more the latter, there are heaps of things you can do to make your home feel like a place of happiness and comfort.
Whether you have full control over your décor and home layout or have to keep your landlord happy, here are some ways to ensure that your living environment makes you feel great.
Let’s start with an easy one. One of the most powerful things we can do to elevate our mood do is let light into our homes, so open the curtains or blinds and enjoy the sunlight streaming in through the windows. If your place does not have large windows or is oriented in a way that it does not catch the light, there is a lot you can do with mirrors to bounce light around and open up a space.
Another easy trick is to play around with your furniture placement. Think laterally – could that dining table be moved over to that spot overlooking the garden? Would the couch be better against that far wall? Try to create ‘spaces’ for yourself that suit your needs and the way you live – for example do you need a cosy nook to relax in, a clear space to exercise or a work/study area (that’s not the kitchen bench!).
One thing that is appealing in an interior is a sense of space and openness. If you look around and your place is full of “stuff” have a think about decluttering and getting rid of things that don’t bring you joy. Most councils have hard rubbish collections either at a particular time of the year or that you can book in advance. There are also companies that specialise in helping people get rid of items they don’t need and it can be worth the cost to free yourself and your home of clutter.
That does not mean you have to flip to full minimalist and live in a white box – in fact, surrounding yourself with objects that evoke happy memories can be very mood-enhancing. So, get out those old photos and stick them in a frame or pull out the mementos you picked up on that fantastic holiday and put them on display.
If you want to go a step further, you can do more than surround yourself with happy memories. For a home that’s mood enhancing, think about creating an immersive home environment that appeals to all your senses.
Sight: For visual appeal, decide what colours make you feel good. You don’t have to paint all the walls, just including the colours that appeal to you in your décor can work, whether that be bright vibrant colours that make you feel energised and alive or more subdued colours that make you feel calm and peaceful.
Smell: Aromas can have a strong impact on your emotional state. If you’ve got pets or issues with damp make sure you’ve got adequate ventilation to ensure that you’re not masking nasty smells using scents. Think about using candles or oil burners or just a bunch of fresh herbs in the kitchen to make the whole place smell lovely!
Touch: Don’t under-estimate the power of touch to add a sense of comfort to your home. Surround yourself with soft rugs underfoot, tactile cushions to lie back on, or splash out on new bedlinen and bath towels to give your place that ‘5-star hotel’ feel.
Plants in your living space can purify the air and improve your health, as well as your state of mind. Being surrounded by green, growing things has been proven to be a mood enhancer and there is satisfaction in nurturing something and watching it grow.
So have a look around at your place and if your abode is a bit of a downer, take some steps today to make your home a place you enjoy coming home to!
In today’s challenging financial climate, saving enough money for a house deposit can seem out of reach for many. While there are various Government grants available, not everyone is eligible, and some are turning towards their parents for help.
Let’s look at some of the ways parents could assist.
The most common way parents can help is with a Family Guarantee Loan (not to be confused with the Family Home Guarantee government initiative). This is when they offer their own property as security on the home loan. This can fast-track buying if you don’t have enough deposit. A larger deposit could avoid lenders mortgage insurance and could also open up more competitive lender rates. The bottom line is that banks will still want proof that you can afford the loan repayments and know how to manage money.
Fortunately, your guarantor loan doesn’t have to be forever. Once you’ve repaid a certain amount of the mortgage, it can be removed. The risk is that if you fall behind in repayments, the bank could force your parents to sell their home to repay the loan.
If your parents have the cash, giving a lump sum may look like an easy option. However, some lenders ask for a statuary declaration that the money is a non-repayable gift and want it to stay untouched in your bank account for three to six months before it is included as savings. This can slow down your loan approval process.
Another option is a loan. Loan conditions need to be in writing, including the interest rate – even if it’s zero, and the agreed amount to be paid back monthly.
Buying a property with your parents is another option. Your parent’s percentage is an investment, while you could be an owner occupier or another investor while renting elsewhere or living at home.
Even if your parents can’t offer direct financial help, they can still offer practical assistance. A common way is to move in with your parents instead of renting. While this allows you to save for a deposit faster, it does mean higher grocery and utility bills for your parents, so you may have to pay your share. This can also help you understand the costs of running your own home if you’ve never had to pay for groceries or pay bills before.
Saving for a deposit is a great way to understand the importance of living within your means. If you begin this habit early on, not only will it help with a deposit, but it will present as lower loan risk to lenders. Another useful tip is to access your credit scorei so you can fix any problems before applying for a loan.
You can save yourself a lot of stress and heartache by ensuring you have realistic expectations on the location, type and size of property you can expect to afford. It may be very different to where you currently live, especially if you are renting. ‘Rentvesting’ is an alternate option and can be an affordable first step. This is when you buy an investment property in a cheaper area while continuing to rent in another location. Consider how you’re going to afford to furnish the home, as well as budgeting for regular bills, and ongoing maintenance is also important. Most lender websites have calculators to help with this.
If you’re fortunate enough to receive financial assistance from your parents, it’s important to keep the lines of communication open to ensure all parties have a clear understanding of the terms and conditions as well as individual responsibilities.
We’re happy to work out the options open to both you and your parents, including any government schemes to help first home buyers and ensuring everyone’s paperwork is in order. Our wide range of lenders makes it easier to find the right loan structure, so please call us for a chat.
In the space of a year – and 10 official interest rate rises – plenty of positively or neutrally geared investment properties have slipped into negative territory. After a significant 3.5% jump in the cash rate, savvy investors are now rethinking their medium to long term strategies.
While some property investors actively choose a negative gearing path, others have only recently found themselves navigating the oft-talked about mortgage method due to the fast-paced interest rate climate. There are tax-related perks that come with negative gearing, but the strategy doesn’t necessarily make sense for everyone. To work out if negative gearing is right for you, it might be time to give your property investment plan a ‘health check’.
Put simply, negatively gearing your property investment means spending more on your mortgage interest payments and expenses than you’re getting in rental payments. In this case you’re effectively not earning an income from the property, but it does mean you can write off these losses at tax time. Although the investment property is costing you (rather than providing income), the negative gearing pay day hopefully comes in the form of capital growth.
While some investors swear by the strategy, negative gearing does come with downsides. You’ll be making an ongoing loss and won’t generate a passive income to help pay for the property’s holding costs. Another drawback is the potential for a capital loss. Investors get into real estate to make money, but there are no guarantees.
On the flip side of negative gearing, positive gearing takes the opposite approach, whereby the income you earn from your investment property is higher than your expenses. This tactic is ideal for investors looking for consistent returns and a passive income. And if the property increases in value there will be capital gains on top of your rental income when you come to sell. You will pay tax on your rental income and with rising rates, it can be more challenging to find suitable properties which fit the strategy.
If your investment property costs you nothing, but also earns you nothing, then it is neutrally geared. It’s a rare approach because it’s difficult to perfectly align both the expenses and earnings but can work well for anyone investing through a self-managed super as it won’t eat into the fund’s wealth.
It’s important to cover all your bases when working out whether negative gearing is the right strategy for your personal circumstances and the property in question. Prepare yourself by asking;
As the cost of living – and the price of holding a mortgage – continues to increase, negative gearing will eat more and more into your monthly expenses. While it can be a highly effective strategy to reduce your tax bill and unlock capital gains, there are a lot of other things to consider. If your household budget is already tight in the current climate, then perhaps this isn’t a path for you. However, if you have crunched the numbers and are confident you can absorb the extra costs then negative gearing might just be the right fit.
Ultimately, you’ll need to consider your own financial circumstances and speak to us to find a loan that suits your ideal strategy.
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