In this issue:


August 2014


Welcome to our newsletter

As the cool winter weather sets in, the Reserve Bank of Australia has hunkered down and kept the official cash rate on hold at 2. 5 per cent for yet another month. It has now been a year since the RBA last reduced rates and introduced the low cash rate, creating a lengthy period of stability on interest rates.

Analysts are predicting that the current low interest rate environment should continue for the remainder of 2014, with some venturing to suggest that interest rates could remain on hold until this time next year. The RBA's decision to keep the cash rate at historically low levels is being influenced by the high Australian dollar, which is causing slow growth in the economy and hampering our export markets.

As a result, the cost of borrowing has hit an historical low. In late July and early August this year, lenders released some of the lowest fixed interest rates on mortgages ever recorded. There are also some excellent variable rate mortgages available.

Due to these record low interest rates, property markets around the country are enjoying exceptional activity – which has only been reduced slightly by the onset of winter. National property prices are showing consistent gains month on month, with a year to date national average rise of just over 4 per cent. Whilst all capital cities are showing median house price gains compared to the same time last year, the Sydney and Melbourne markets are leading the way with rises of 6.3 per cent and 5.3 per cent respectively.

Obviously, this is good news for property owners. But it could also be good news for those in the market to make a purchase soon. The low interest rate environment is expected to continue for quite some time, which means that we can also expect to see capital growth in property to continue due to increased demand for available housing stock.

However, prices should be kept somewhat in check due to the amount of new residential building construction forecasted over the next three years. Master Builders Australia is predicting a strong pick up in new houses and apartments, with more than 200,000 properties set to come onto the market during that time frame.

Now is a great time to discuss your financial plans with a professional. Home buyers, property investors and those looking to refinance are in a great position to take advantage of a rising property market and a very competitive loan market. For more information about how you could be taking advantage of the low interest rates to get ahead, give us a call today.

Sincerely , Ambition Financial Group




Getting a grasp on the property ladder

With borrowing costs lower than they've been for decades, property investment has become increasingly popular as a method of building wealth. But how does a complete investment novice take advantage of low interest rates and get started on the property ladder? There are no hard and fast property investment rules to follow, no written guidelines and no easy fix! In this article we take a look at the fundamentals of property investment and provide some information you might need to know before you get started.

How do you make money from property investment?
There are generally two ways to make money from property investment – rental income and capital growth. You may also enjoy some tax benefits that help you to maximise your profits and the effects of rental income and capital growth.

Rental income from an investment property helps you to pay down your mortgage and increase the equity you have in your property over time. If the rental income is greater than the costs involved with your rental property, this is referred to as ‘cash flow positive'. If the rental income is less than the costs involved with your rental property, this is often referred to as ‘negative gearing' and may offer some tax benefits. Both strategies may be useful to you, depending on your personal financial situation.

When your property increases in value, this is referred to as ‘capital growth'. Generally speaking, the longer you hold your property the more opportunity it has to increase in value. When you add in the effects of rental income paying down your mortgage, your equity in the property grows over time and you can see significant gains. The equity is your profit. Many investors access the equity after it builds up to use as a deposit to purchase their second investment property, and then a third and so on until they have a property portfolio.

What are the steps to getting started?
1. Seek independent financial advice
2. Gather your deposit 
3. Structure your finances  
4. Source a property
5. Manage and grow 

Our team is here to guide you through these steps and put you in touch with the right professionals to help to make the process easy and straightforward.

Seek independent financial advice to determine your financial position. You'll also want to explore the tax benefits of investing and how it will help to offset your costs, so it pays to get advice from professionals like a financial planner or qualified tax accountant.

Saving for a deposit is probably the most significant hurdle when it comes to property investment. If you already own a home, you could access the equity to use as a deposit on your first investment property. If you don't, then then you will need to use genuine savings. How much money you actually need for a deposit depends on the cost of the property you wish to purchase – but in some cases, it might be possible to start your property portfolio with as little as 5% of the purchase price.

Structuring your finances is the next important step. Our job is to find and help you access the best possible loan for your purposes considering your personal financial situation. We help you to sort out exactly what you can afford to pay for your first investment property, and help you to find the loan that will be flexible enough to meet both your current needs and your future investment plans. Structuring your finances is a very important step and it's wise to get your finances sorted before you even start looking around for a property to buy.

Source a property with capital growth potential. Capital growth is where you aim to make the most significant profit from your investment property, so it's important that you take the time to consider how this will happen and do your research. It's a good idea to choose a property in a growth area – inner city suburbs are popular because they are always in high demand. Make sure that the property is near to amenities such as public transport, shopping centres, schools and parks. You can also plan to create capital growth by improving or renovating a property – but be careful to choose a property that only needs cosmetic changes as structural work can be expensive and may cause you to over capitalise.

Remember, you don't have to choose an investment property that is close to where you live. You can invest anywhere in Australia and some areas of the country have more capital growth potential than others.

Manage and grow, so you can build equity and use it to purchase your next property. Two things are important to your objectives here – keeping your property tenanted to pay the mortgage and keeping it well maintained to protect the value and grow your equity. If you are time poor, you may want to employ a property management company to help keep your property tenanted and maintained. If this is the case, make sure you take the costs into consideration when you are structuring your finances.

After you have held the property for a while, you can check on capital growth by having your property valued. When you have built significant equity, you can use it to purchase your next investment property. The more properties you hold, the more quickly your equity builds and the more properties you can purchase – and up the property ladder you go!

Understand the value of professional advisers
Part of our service is to refer you to the right people at every step of the process – from a good buyer's agent if you don't have time to source properties that meet your financial and investment strategy, to the professionals you need to complete the purchase. We can help with referrals to solicitors, conveyancers, building and pest inspectors and even property management companies after you make the purchase.

It all starts with a conversation about your financial situation. So why not give us a call today? If you're already investing and have friends who might benefit from property investment, don't hesitate to send them to us. With the cost of borrowing so low, it's a great time to put your foot on the first rung of the property ladder!




Can you buy property with a SMSF?

In 2010, a change to the rules allowed a Self Managed Super Fund (SMSF) to borrow money to invest in property assets. Before the rules changed, direct investment in a property via a superfund was rare because few of us had enough money in our super to purchase a property outright.

Now the rules have changed, more people are setting up their own SMSF.  And more people with an SMSF are turning to the perceived safety of bricks and mortar because the share market is proving to be an unpredictable way of making your super grow for retirement. But whilst the new rules make it easier to borrow in super, there are still some restrictions regarding purchasing a property with a SMSF.

(Setting up and administrating a SMSF can be complicated. So it is very important that you seek advice from a professional accountant or financial planner before you decide to take this route.)

Why is it considered a good idea?
If you purchase an investment property outside your super, you will be required to pay capital gains tax when you sell it to fund your retirement. Additionally, if you're thinking about retiring on the rental income of such investments, you will pay tax at the full rate on that income even if you're retired.

Holding the same property within a super fund could reduce the tax to zero if you sell it once you start drawing down a pension. Additionally, any rental income is only taxed at 15 percent – and not taxed at all if you are drawing a pension.

Buying an investment property through your super could also help you pay it off faster. All the rent and your super contributions can go towards paying down the loan. You could also pay down your SMSF property by ‘salary sacrificing' whilst you are working, giving you additional tax benefits. Additionally, maintenance and upkeep costs are also tax deductible within your super.

What are the drawbacks?
You are not permitted to live in an investment property you purchase with your SMSF. However, you are allowed to use your SMSF to purchase business premises for your company.

Other restrictions include development of the investment property. Whilst you are allowed to maintain and refurbish the property, you are not allowed to develop or change it in any significant way. This means that buying a property, developing it and turning it over for a quick profit is not an acceptable investment for a SMSF. You also can't plan to profit by making a sub division.  Property investment under your SMSF is a long term proposition.

It is also important that any property investment from your SMSF is paid off before you stop working – otherwise the loan will have to be repaid from your super's other investments and that could leave you short of an income if you don't plan correctly.

How do you go about borrowing for a SMSF?
There are rules about the type of loan you can use to purchase property through your SMSF. You are required to use a Limited Recourse Borrowing Arrangement – which means that the property itself is the security for the asset. No other assets – either within or outside your super fund – are allowed to be used as security for the loan.

Generally speaking, you can borrow 65 – 70 percent of the property value using your SMSF. So for a $400,000 property, your superfund would need to provide $140,000 in cash for a deposit. There is also the additional expense of setting up your SMSF, which could cost as much as S3,500.

Sometimes lenders will charge 2 – 4 per cent more for an investment loan inside your super because of the complexity of the arrangement. However, we are experts at locating the right loan for your needs and can shop around with a variety of lenders to get you the best deal.

Talk to the professionals
If you're thinking about setting up your own SMSF to purchase property, or if you already have a SMSF and would like to invest, the legal intricacies are quite complex and you will need expert advice to do it properly. Getting it wrong could incur harsh penalties – you could be taxed as much as 46.5 per cent on your super's assets if it is not set up and operated correctly.

But get it right and it could make the difference to your retirement income objectives! Once your SMSF is set up, talk to us about getting a competitive loan for your SMSF property investment. We'll be happy to help.




How to finance a property renovation

Renovating a property is an ambition that many of us share. Whether you are looking to do major structural renovations or just cosmetic ones, the key to success is to plan everything carefully and set a budget so that you don’t overspend. When it comes to financing your renovation, there are many options that may be more or less suitable – depending on the type and cost of the renovations you want to make and your personal financial circumstances. In this article, we take a look at the different options for financing property renovations.

Refinancing your mortgage
Larger renovations need a larger amount of money to achieve. If you're doing major renovations that include structural changes like extending the floor plan, adding a pool or a second storey, then refinancing your mortgage might be your best option. This will increase your mortgage, however your renovations may also increase the value of your home.

Whether or not refinancing is suitable for you depends on the type of mortgage you currently have and the break costs involved. (It may be the case that the cost of refinancing is prohibitive on your particular mortgage). We can crunch the numbers for you to help you decide if refinancing is your best option.

Construction loans
If you are doing major construction in your renovation that involves the long term services of a contracted builder, then you might want to consider a Construction Loan. These loans are designed to make the building process easier and allow you to draw down on funds as you need them so you only pay interest on the funds you use, when you use them. This can mean big savings, particularly on large scale renovations that may cost $100,000 or more.  When construction is complete, you can often nominate which home loan product the Construction Loan reverts to, moving forward. 

Construction Loans are a good idea if you're undertaking expensive renovations that may take a while to complete. If you already have a mortgage on the property you wish to renovate, then you may have to refinance to access a Construction Loan.

Extend your mortgage
Depending on the type of mortgage you have and the amount of funds you require, extending your mortgage to access funds to renovate may be an option. This will be easier to do if you have held your mortgage for a while and have built up equity in your property. If your renovations are going to add significant value to your property, then a simple extension of your existing mortgage may be a good idea. You can plan to spread your renovation costs out over time and recoup the costs with a higher sale price when it comes time to sell. Talk to us to discover if extending your mortgage is a viable option for you.

Home equity loans
If you've owned your home for a while, chances are that your property has increased in value while your mortgage has been reducing. Home equity loans allow you to access that built up equity even if you don't want to refinance or sell. It is possible to take out an additional loan against this equity only – provided your financial circumstances allow you to service the additional expense.

Getting a home equity loan involves having your house valued to determine the amount of equity you have. Unlike a regular mortgage which must be spent on purchasing a home, a home equity loan can be spent on anything you choose – renovations, investments, consolidating debts and so on.

Line of credit
A line of credit is similar to a home equity loan in that it is usually secured against your home. Unlike most home equity loans that give you the funds in a lump sum, a line of credit gives you access to money that you can draw down as needed. You only pay interest on the money you use. A line of credit is like a credit card with a lower rate of interest. You can use it for just about anything – which means that you have to be strict with yourself so you preserve the equity you have in your home and don't fritter it away on things you don't need.

An additional feature of a line of credit is that you only have to pay the interest each month on the funds that you have used. You don't have to make regular repayments on the principal as long as you always pay the interest due. This can be an advantage if you plan to renovate and sell sooner rather than later.

Use your redraw facility
Many home loan products these days offer a redraw facility.  This allows you to withdraw any extra payments you may have made on your mortgage. If you are ahead on your mortgage and wish to access funds to renovate, this is an excellent option.

Remember, planning ahead and setting a strict budget is the key to success! Having your finances in place before you begin is very important to the smooth progress of your renovation plans. If you plan to renovate your home, then talk to us and we'll help you to find the best financing option to suit your budget and personal financial circumstances.


Wine review

2012 Fox Creek Red Baron Shiraz, McLaren Vale, Australia

If you're looking for a fiesty quaffing wine to enjoy through the winter months, this fantastic McLaren Vale shiraz is excellent value for money. It offers a showy, smoky and peppery bouquet with layers of dark plums, blackberries, cassis and fresh smoky vanilla oak backed by suggestions of cloves and cinnamon. Just the thing to compliment food designed to keep out the winter chills. It’s possible to find this wine for as little as $18 – but the average price of around $25 is still a bargain.

Rating : 4 stars
RRP : $25


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Contact us







Ambition Financial Group
Darren Riekie

Mobile: 0434 533 014
Phone: 02 85432900
Fax: 02 85432999
Suite 4, 169-171 Taren Point Road Caringbah NSW 2229

PO Box 853 Caringbah NSW 1495

ABN: 53116933218 | Australian credit licence number: 391015


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