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Purchasing An Investment

RBA trims cash rate to new record low 0.10%

If you didn’t back a winner on Melbourne Cup Day then fret not: the Reserve Bank of Australia (RBA) has delivered mortgage holders a win by cutting the official cash rate by 15 basis points to a new record low of 0.10%.

Is now a good time to buy property? Two-thirds of investors say ‘yes’

The majority of property investors are remaining upbeat despite COVID-19, with 67% believing now is a good time to invest in residential property, according to a new survey.

House prices tipped to surge 15%, RBA hints at cash rate cut

Strap yourself in: Australian house prices are tipped to experience a mild COVID-19 dip before surging 15% over the following two years, according to some of the nation’s top economists.

So, who’s eligible for the $25,000 HomeBuilder scheme?

You might have heard that the federal government will give eligible Australians $25,000 to build or substantially renovate homes as part of the new HomeBuilder scheme. Today we’ll look at who exactly can qualify for the initiative.

HomeBuilder Scheme

HomeBuilder Scheme

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Australian homeowners will be offered grants of around $25,000 to build new, purchase new or renovate their existing homes as part of the HomeBuilder Scheme as announced by the Federal government last week.

The scheme was developed to protect the residential construction industry, particularly tradies’ jobs, in the wake of the COVID-19 pandemic. The scheme represents a significant opportunity for first home buyers and existing owner occupiers, but eligibility criteria and value thresholds do apply, so we’ll keep it Simple.

What you need to know: 

  • First home buyers are eligible for the scheme, but you do not have to be a first home buyer to qualify.
  • The HomeBuilder scheme is uncapped but time limited. HomeBuilder will provide eligible owner-occupiers (including first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home where the contract is signed between 4 June 2020 and 31 December 2020. Construction must commence within three months of the contract date.
  • There is a value of dwelling / renovation threshold that applies:
    • Where building a new home as a principal place of residence, the property value must not exceed $750,000 to be eligible for HomeBuilder;
    • Where substantially renovating your existing home as a principal place of residence, the renovation contract must be between $150,000 and $750,000, and the value of your existing property must not exceed $1.5 million.
  • Off the plan apartments are included as new builds and therefore people purchasing off the plan will be eligible for HomeBuilder

Finer details: 

  • To access HomeBuilder, owner occupiers must meet the following eligibility criteria:
    • Be a natural person (not a company or trust)
    • Be aged 18 years and older
    • Be an Australian citizen
    • Meet one of the following two income caps: 
      • $125,000 per annum for an individual applicant (based on 2018 – 2019 returns or later) 
      • $200,000 per annum for couples (based on 2018 – 2019 returns or later)
  • HomeBuilder will complement existing State and Territory First Home Owner Grant programs, stamp duty concessions and other grant schemes, as well as the Commonwealth’s First Home Loan Deposit Scheme and First Home Super Saver Scheme.
  • Owner-builders and those seeking to build a new home or renovate an existing home as an investment property are ineligible for HomeBuilder.
  • The renovation works must be to improve the accessibility, safety and liveability of the dwelling. It cannot be for additions to the property such as swimming pools, tennis courts, outdoor spas and saunas, sheds or garages (unconnected to the property).

As digital and mobile brokers, if you’re looking to purchase your first home, or you finally think you might be ready to make substantial home improvements, we’ll take the pain away from arranging finance. Later this week, we’re releasing our updated eBook with real life examples as to how you might access HomeBuilder as a first home buyer or using equity in your existing home. Stay tuned to our channels to find out more.

The Highs and Lows of Investing in Property

The Highs and Lows of Investing in Property

For a long time, investing in property has been portrayed as a great way to build wealth. Whether it’s through huge capital gains from flipping houses or earning passive income by renting them out, in reality, there is much more to it than this.

Rental Income and Gearing 

While it’s true that you can earn a good amount of money from having tenants occupy your house, the rent often does not cover the mortgage repayments. When your investment return is less than the costs, the investment is negatively geared. Though you’ll need to have another source of income to be capable of making the mortgage repayments, this is not necessarily a bad thing, in fact being negatively geared can have some great benefits. Generally, a tax deduction can be claimed for any investment loss incurred due to negative gearing and can be a terrific strategy to reduce taxable income. 

Positive gearing is when the rental income is higher than the costs of the investment. You will be making money on your investment but this income is taxable. Investment properties can be used for tax-deductible purposes or to generate more income, depending on how they’re geared.

A risk that needs to be considered is the chance that the property could be left empty for some time if a suitable renter isn’t able to be found. While the investment loss is tax-deductible, you need to be prepared and equipped to be able to cover the cost out of your own pocket. 

Capital growth

Although there are never any guarantees regarding investment returns, historically the property market steadily increases over the long term. This steady market incline means that most properties should experience capital growth which can offset the investment loss incurred in the early years from being negatively geared. 

It is possible to maximise your capital growth by researching market trends. Properties in desirable locations with easy access to things such as quality schools, public transport, pools, beaches, nature reserves and any other popular facilities, tend to rise in value significantly. Household features such as off-street parking, multiple bathrooms and large bedrooms can see your property value rise well over time too. Renovations are also a great way to fast track your capital growth.

Volatility

Property is an attractive investment as it is known for being much less volatile than the share market and is also quite a liquid asset. With the property market steadily rising, houses can be sold quite easily if you require quick cash but unlike shares, you can’t just sell off a portion of the investment.     

While the property market is historically very stable, it still experiences peaks and troughs. An interest rate rise is also not typically passed onto renters and as such, investment income will be lower. Of course, the reverse is also true; interest rate drops mean the investment income will be higher.  

Property can be a very profitable part of your overall financial portfolio if managed well and tailored to suit your needs. Be sure to speak to a professional about diversifying your portfolio so you’re not overly invested in property for the purposes of risk management.

Saving for Your First Home

Saving for Your First Home

Buying a home is one of life’s huge milestones, but it’s no easy feat to achieve. Houses are expensive, and while the mortgage covers the bulk of the price, you still need to save a rather large deposit to get your foot in the door.

How much do I need to save?

You need to figure out what price range you can afford. You can do that by using this mortgage calculator.  Firstly, you work out how much you can safely afford to pay towards your mortgage each month, then, you plug the figure into the calculator and it tells you how much you are able to borrow. For example, if you can afford to pay monthly repayments of $2,000 then you can afford to borrow roughly $380,000 (based on a 25-year mortgage at 4%).

The minimum deposit required is generally 5% of the value of the home. In the example above, a 5% deposit is $19,000. If you want to avoid lenders mortgage insurance, a 20% deposit is required, which amounts to $76,000 in the given example. 

That’s a lot of money to save! 

How do I save enough for a deposit?

Saving takes time, but we’ve got some tips that will get you there sooner.

Make a budget

We manage what we monitor. Monitor your spending to work out your essentials. To calculate your potential saving power, subtract your essential items (such as utilities, groceries and car expenses) from your weekly wage. This excess income is what you could be saving. Spending just $20 a day on miscellaneous items amounts to $7,300 a year! Cutting out your daily takeaway coffee or staying home to eat-in more often could see you well on the way to purchasing your first home. But remember not to leave yourself short, saving for a home doesn’t need to mean you go without all of the things you love to splurge on—everything in moderation.

Reduce your debt

Cutting down on debt is a great way to save on interest costs. This money could instead be used for saving for your deposit. If you have multiple credit cards or loans that you’re unable to live without, it could save you money to consolidate them into one loan. Making your credit card repayments promptly might save on interest costs if you pay it off during the interest-free period.

Find a high-interest savings account or term deposit

While trying to save, high interest rates are your best friend. Banks often offer savings accounts attracting high interest or bonus interest when you don’t make any withdrawals. These are great accounts for saving due to the high interest rate and the incentive to leave your hard-earned cash alone. 

Term deposits are a good option for when you’ve got a lump sum to lock away for a specified period at a high rate. 

Saving a deposit doesn’t happen overnight, but with set goals, hard work and dedication, you’ll be holding the key to your home before you know it. 

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