Boosting rental return on investment

You’ve taken the plunge into the investment property pool and now have to find tenants. Although most rental markets throughout Australia remain tight, there’s still a need to put your property’s best foot forward to attract optimum returns.

Here are some of the ways you can add value and ask for more rent and get that rental return on investment.

Add or upgrade appliances

If your rental has no dishwasher, add one. You can ask an extra $5-10 a week in rent and tick one of the big convenience boxes for renters.

European or stainless steel appliances in the kitchen can also add appeal, especially with the proliferation of would-be Masterchefs.

Laundry

If you have an older unit with no internal laundry, take a leaf from the Europeans and install a front-loader washing machine under a bench in the kitchen. You could also add a wall-mounted clothes dryer in the bathroom if there’s room, or install a retractable clothesline on a balcony. Expect to collect about $30 extra a week with internal laundry facilities.

Temperature control

You can charge $20-30 a week extra by installing an inexpensive, wall-mounted, reverse-cycle air-conditioner, especially if the property is in a very hot or cold climate. Tenants in hot climates will also appreciate — and pay a little extra for — ceiling fans if you don’t want to fork out for air-conditioning.

Furniture

Fully-furnished rentals do attract higher yields (from $80 upwards, depending on the property and area), but are not for everyone. Renters who are in transient professions (defence force, teaching), relocating long distances, leaving a relationship or moving out of home for the first time are more likely to target furnished rentals. Others may be put off if a place is furnished because it means their gear has to be stored.

Do your homework on the area and the type of renters it attracts before stocking up on extra couches.

Undercover parking

You don’t have to build a garage to provide protected parking. Consider building a carport over a driveway. A simple $5,000 carport will probably pay for itself through extra rent in around two years.

Eye for detail

Glimpses of gleam can have a big visual impact, just as worn, rusty and scratched fixtures can detract. Modernise older properties with small details, such as new handles on drawers and cabinets, more contemporary light fittings and sparkling stainless steel taps. You can also give a stale bathroom a quick and cheap facelift with new towel rods and hooks, a large mirror and a new shower screen. These little features are hygiene factors that will attract a higher-paying tenant.

Storage

Built-in wardrobes are highly sought, so make sure you have them in every bedroom. They not only attract extra rent but broaden the appeal of your property. You can also add storage by reconfiguring existing wardrobes and kitchen cabinets.

Think about outdoor storage too, such as a shed or garage shelving, as tenants are likely to have bicycles, sports gear or camping equipment to stow.

Security

Insurance statistics show renters are twice as likely as owner occupiers to be burgled, often because security is not as stringent. Make your place less appealing to burglars and more enticing to renters by installing security screens on doors and windows. Just ensure you don’t bar windows, as they can pose a safety hazard in the case of fire.

Reduce energy costs

Tenants are often prepared to pay a little more in rent to save a lot on their utilities. Replace all standard light bulbs with energy efficient ones and switch the old electrical hot water system for a solar-boosted one. Make sure you promote the property’s energy efficiency when advertising for tenants.

Social media and small business – what are the common pitfalls, and how to transform clicks into customers.

The past five years have seen social media make a steady march into mainstream business strategy. More than 90 percent of small and medium businesses in Australia are on Facebook, LinkedIn, or Twitter, however, pundits warn that many businesses aren’t making the most of the digital enterprise opportunities.  The biggest risk is simply doing nothing, according to a leading expert in leveraging social media for business.

“Wherever customers go, businesses are sure to follow,” Pitch PR’s Stephen Sealey tells us.  “Take Facebook as an example. How many companies can really afford not to try to build a presence on this platform when at least half the population is using it?  “Just as customers in the last decade expected you to have a website, now they equally expect to find you through social media.”

But launching or refreshing your businesses’ social media presence requires more than a Millennial with a smartphone.  With ever-tightening margins and greater demands on time and resources, owners and operators need to ensure that social media supports broader organisational strategy and has an impact on the bottom line.

Successful social media engagement provides a unique opportunity for regular conversation with current and future customers on at a platform they have chosen and at a time that suits them. Today’s consumers have a strong voice and expect it to be heard, which is why the two-way nature of social media is so compelling for both businesses and customers.

Use benchmarks around reputation, relationship and new customer leads to assess and refine your social media engagement strategy.

“Social media can keep your product or service top of mind in a less sales-focused environment and provide genuine information and entertainment that is seen as real value by your audience,” Mr Sealey said.

Maintaining an active presence on social channels also generates valuable insights and information about potential customers and can direct traffic to your website or place of business where the real selling takes place.

Start with a goal in mind – it could be as simple as building a social media management capacity within your team or it might be around gathering data about a particular customer segment, or creating opportunities to engage with new and existing customers. Think about metrics like reach and engagement as well as sales.  When selecting which social media platform or platforms to focus on, consider the resources you can dedicate to social media management, as well as the demographics of your target markets.

“Large corporations like Qantas have the resources to operate on many different channels and their customers expect them to do just that,” Mr Sealey said. “That means using Twitter, Facebook, YouTube, Instagram, Pinterest and more.  “Smaller companies may also benefit from multiple platforms, however, more does not have to mean better, especially if you don’t have the resources or expertise to manage multiple social channels.”

The latest Sensis e-business report shows Facebook remains the most popular social platform for business, followed by Twitter and LinkedIn.  Different platforms attract different demographics, so find out which sites your best customers are using and follow them there.  “If you sell fast-moving goods to a young audience and have frequent sales, then Twitter might be an option,” Mr Sealey said.

“If you are a service provider or residential community, Facebook would be best, and B2B companies might focus on LinkedIn.

“Facebook is still by far the largest channel and people tend to spend the most time using it and will scroll backwards to see what’s happening on their newsfeed, so we generally recommend it as a great starting point for social media.”

AFG Competition Index – January 2015

Non-major lenders grab unprecedented 41% of refinancing loans

Non-major lenders wrote 41.4% of all new refinancing loans in December according to AFG, Australia’s largest mortgage broker. This is the highest proportion of home loans nonmajors have achieved in any home loan category since the GFC. AFG’s quarterly Competition Index shows that non-major lenders increased their share of refinancing loans from 28.4% in January 2014 to 41.4% by December – an increase of 45% over the year.

The success of non-major lenders in this category boosted their overall share of mortgages processed to an all-time high of 32.3% in December. This compares with a share of 24.0% of all home loans processed in January last year.

Mark Hewitt, General Manager of Sales and Operations says: ‘2014 was the most vigorous year of competition since the GFC, and there’s every indication that this trend will continue in 2015. Some are predicting a slowdown in market growth this year and this will intensify competition even further. In particular I am expecting the majors to hit back hard in the next quarter.’

Non-majors accounted for 41.4% of refinancing loans, 38.7% of fixed rate loans, and 31.5% of first home buyer loans in December. In an investor-driven market, major lenders still account for 73.3% of all new investor loans, although this is lower share than the 80.3% they held in January last year.

Suncorp was by far the strongest overall performer among non-major lenders, with 9.7% of all new home loans in December. Macquarie accounted for 5.4%, ING for 3.7% and Heritage Bank for 2.4% of all new home loans.

Suncorp’s strength was based on its highly successful penetration of the refinancing sector, where it accounted for 16.4% of all new home loans in December – more than any lender except for ANZ (17.6%)

Among the major lenders, 16.3% of loans processed in December were for ANZ, 14.8% for CBA, and 12.8% for Westpac. ANZ’s strength was underpinned by its relative success among the majors in the refinancing sector (17.6% compared to the next highest Westpac on 10.2%). Westpac continued to be strongest in the investor category, accounting for 17% of new investor loans, compared with 15.6% for ANZ and 13.5% for CBA.

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AFG Competition Index – January 2015

Ease the squeeze

The good news is interest rates are at record lows. The bad news is the average mortgage size in most Australian capitals has hit an all-time high. The challenge for many borrowers who are used to low rates could be keeping up with payments when rates inevitably rise. Those who want to get ahead will be taking steps now to make the most of the low rates so they have a buffer down the track. But if you are already feeling weighed down by debt, it may be time to lighten the load.

Shop around

Even in a low-rate environment, savings count. Talk to your broker about getting a sharper deal with your existing lender or another. Just make sure you do your sums on any switching fees to ensure the new offer stacks up.

Borrow as little as possible

Some lenders will accept just a 10 per cent deposit, which can be alluring in today’s escalating property market. But what you appear to gain with a lower deposit, you lose on higher repayments on a larger loan and the cost of Lenders Mortgage Insurance (LMI), which is charged to the borrower when a loan exceeds 80 percent of the property’s value. It protects the lender if the borrower defaults on the loan and can run into the thousands, depending on the size of the loan.

Having scrimped and saved for a sizeable deposit, it may also be tempting for first-home-buyers to bundle stamp duty and legal fees into the loan, but the more you can pay upfront, the more you save in the long run.

Ignore rate drops

It’s tempting to splash the extra cash when interest rates drop, but it’s wiser to inject the savings back into your mortgage. A rate dip from 6 per cent to 5.5 per cent on a $300,000 principal and interest loan over 25 years saves you $90 a month, or more than $1,000 a year. If you sink that money into your loan by continuing to make payments at the higher rate, you will save more than $27,000 in interest and shave more than two years off the loan. It also gives you a buffer should interest rates rise and you need to draw down on the over-payments. Just check your loan has a redraw facility.

Ditch the debt

Despite low-interest rates, Australia’s household debt compared with our income is historically high. In 2012, the average Australian household owed 1.73 times its gross disposable income for a year. That’s not only high by our standards, it’s high compared to other developed economies such as Canada, Germany and the UK1. Part of the problem is our high cost of housing, but also our capacity to run up other debt, including high-interest credit cards.

One of the most effective ways to ease your financial burden is to pay down your highest interest debts first. If you are paying 19 percent on your credit card and just 5 percent on your mortgage, it makes sense to get rid of the plastic debt first. Check your next credit card statement to see how much interest you will pay and how long it will take to pay the card off in full if you just make the minimum payment each month. Once your cards are cleared, you will have more funds to sock into your mortgage and pay it off faster.

Pay fortnightly

Perhaps the simplest way to save on your mortgage is to make repayments fortnightly instead of monthly.

Paying fortnightly allows you to squeeze in the equivalent of an extra monthly repayment per year. Let’s say your monthly repayment is $2,000 or $24,000 per year. If you paid $1,000 a fortnight instead, you would actually pay $26,000 over the year (26 fortnights in a year versus 12 months). That’s $2,000 extra in loan repayments each year, which will help you pay off the principal faster.

Make your loan work for you

Consider an all-in-one or offset account to help pay off your loan quicker. An all-in-one loan account effectively turns your mortgage into a savings account, providing you understand and maximise how it works. An all-in-one account generally allows you to pay your salary and any other earnings (such as rental income) into the loan so anything left over automatically reduces the amount owed and therefore the amount of interest you pay. The more money you keep in the account, the lower your interest payments. You can take further advantage of this set up by using a credit card for as many expenses as possible and paying it off in full during the interest-free period. That way you maximise how much you have in the loan account for as long as possible, with interest calculated daily but charged monthly. It’s essential, however, you spend within your means and clear your credit card debt each month. If you struggle to budget or manage credit, you may be better off sticking to a more traditional principal and interest loan.

A 100 per cent offset account generally works in a similar way, allowing you to use your savings to reduce the principal on the loan. Any savings are deducted monthly from the amount owed to calculate your interest payment. If for example, you have a $120,000 loan and $10,000 in your offset savings, you would pay interest on $110,000 instead of the full $120,000.

Both of these types of loans can help build a savings buffer to give you wriggle room if your income drops or you have unexpected expenses. But make sure you read and understand the terms and conditions before signing up to ensure you understand any restrictions or conditions that will apply. The key, though, as always, is to save more than you spend!

Speak up if times get tough

If you hit hard times, talk to your lender sooner rather than later as it’s in both your interests to find a solution. Many lenders will give you breathing space by extending the life of the loan or switching to interest-only payments for a period.

1 www.abs.gov.au/ausstats/ ABS 4102.0 – Australian Social Trends, 2014

Kids & Money: Making Cents – Teaching kids about money

“Money doesn’t grow on trees,” we tell our kids. But do we help them understand where it comes from and what to do with it? Like most good habits, financial responsibility needs to be taught and modelled. How you handle money probably has a lot to do with what your parents did or didn’t show you. Here are our top tips for teaching kids about money of all ages.

Ages 4-7

Needs vs wants

In a world of instant everything, the idea of a treat is fading fast. But, it’s never too early to learn we can’t always have — or afford — everything we want. In fact, it’s one of the most important financial lessons you can teach your child. Use ‘wants’, such as new toys and junk food as a treat or a reward and explain in ways your child understands why you sometimes say “no.”

Spare change

Give kids your coins at the end of the work week to put in a jar or money box and help them to count it once a month to see how much their stash has grown. When the jar is full, take them to the bank to deposit it in an account of their own. This is one of the simplest (and oldest) ways to teach kids about savings because it shows them first-hand how a little eventually adds up to a lot.

Ages 8-12

Earn and learn

While some families believe children should help out around the house for nothing and others think kids should get paid without lifting a finger, the fact is that pocket money teaches children about earning and budgeting — both necessary in adult life.

Set a consistent amount of money for certain tasks and be specific about what you want done. Your idea of a tidy room may differ to your child’s so show them what you mean by “clean.”

Game of life

Use Monopoly money to talk about the cost of living, spending and saving. Count up $5,000 – roughly an average gross monthly income. Start by taking out the income tax — about $1,200 (whoa!). Then pay for household bills, mortgage or rent, groceries and other necessities, all based on realistic amounts. Once all the expenses are covered, ask the kids what they think should happen with the remainder, so you can talk about saving and spending. Kids will be shocked by how much life actually costs.

Ages 13-16

Texting and tunes

Pester power cranks up a notch with teenagers, especially when it comes to mobile phones. The smartest move is a pre-paid account, which keeps a lid on costs while teaching kids restraint. Get them to research the best deal and then discuss the fairest way to pay for it. Mobile phones are as valuable as oxygen for teens so parents have an excellent bargaining chip.

Freedom of choice

This is a good age to give your child a taste of financial freedom. Take your child to the bank and get an ATM card attached to a zero-fee account so they can access at least some of their savings. You may prefer to only give them the card during school holidays or when they travel with sport or school. Start off with access to smaller amounts (no more than $50-$100) and encourage your kids to talk about the sorts of things they buy. You should also share your own examples of having to decide between saving and spending.

Ages 16-20

Direct debit

If your kids have a job — part or full time — offer to set aside some of their pay for savings. Young people with a strong savings ethic may not need support, but having access to real money is likely to prove too exciting for most. Agree on an appropriate amount and get a direct-debit to a savings account set up with their regular pay. They might begrudge it at first, but they are likely to thank you when they see a growing bounty after several months of saving.

Vroom, vroom

Your child’s first big financial responsibility is likely to come with four wheels. Whether you buy their first car, ask them to save up or share the load, it’s important to work out ahead of time the running costs, including fuel, insurance, registration and maintenance, and who is going to pay for what. You should also explain the enormous legal and financial implications of not paying for insurance and registration.

Under 25s can save on insurance by being included on their parents’ cover but be aware a steep young-driver excess (usually $2,000 or more) applies if they cause a collision.

If you set up a direct debit from their pay (above) the funds could go towards car costs.

Parents can also lend a helping hand by borrowing against their mortgage for their child’s first car to help reduce repayments and secure a newer, safer car.

Whatever option you choose, remember this is another opportunity to teach your kids financial responsibility and independence, which will be worth more than the thrill of a brand new car in the long run.

 

Alleged mortgage fraud not connected to AFG

Australian Finance Group (AFG) was first made aware of an ASIC investigation regarding Mr Aizaz Hassan through media reports on 6 January 2015.

Allegations against Mr Hassan relate to his employment with Myra Financial Services from 2008 to 2011. Myra Financial Services has no affiliation with AFG.

Mr Hassan was later employed at Cigna Financial, which operates as a credit representative under AFG’s Australian Credit Licence. It is important to note that the alleged fraud occurred prior to Mr Hassan’s employment with Cigna and prior to his association with AFG.

Mr Hassan was suspended on 6 January 2015, and had his employment terminated by Cigna Financial on 7 January 2015.

This matter is subject to legal proceedings and it would, therefore, be inappropriate for AFG to make further comment given these allegations occurred prior to any association between Mr Hassan and AFG.

Mortgage Index – January 2015

Refinancing surges: borrowers bet on rate cut

The proportion of home loan borrowers changing mortgage arrangements surged to 37.3% of all new mortgages in December, the highest level since March 2012 according to AFG, Australia’s largest mortgage broker. AFG Mortgage Index shows that refinancing rose over the last quarter of 2014 from 33.5% of all home loans processed in September, to 37.3% in December.

Also in December, the proportion of borrowers choosing fixed rate loans fell significantly to 14.5% of all home loans processed from 17.1% in November. The proportion of introductory loans, offered by lenders to incentivise borrowers to move from other institutions, also rose from 4.9% in November to 5.8% in December.

Mark Hewitt, General Manager of Sales and Operations says: ‘The last time we saw refinancing at these levels, in March 2012, borrowers were acting to lock in rates, and fixed interest loans reached a four year high. This time round with speculation that interest rates are more likely to go down than up, borrowers are shopping around for the variable rate deal and avoiding fixed for the time being.’

Refinancing averaged 37.3% nationally, but there were variations in different states, with the highest levels found in Victoria (42.2% of all home loans processed for that state in December), and South Australia (41.7%) followed by Queensland (39.9%), Western Australia (36.7%) and New South Wales (31.8%).

First home buying continued to fall to unprecedented, low levels, comprising just 6.9% of all home loans processed nationally by AFG. First home buying accounted for only 1.7% of all new home loans in NSW, 3.9% in Queensland, 5.3% in South Australia, 6.9% in Victoria and 18.9% in Western Australia. The long term national average for first home buyers was previously around 15%.

In December, AFG achieved a major milestone, with its loan book reaching $100 billion. This makes the aggregation business of the company 50% larger than the next biggest aggregator in Australia.

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