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How many of us have gone on a holiday and then dreamt of buying a holiday house?
But before you take the plunge there are many factors to take into account, so keep a level head and consider your options carefully.
A holiday house on the coast seems to be a growing Australian dream as we try to get away from the stresses of working in the city, as well as prepare for future retirement.
The purchase of a holiday house, however, can often be a more demanding property investment. Here is some information to help you in making an informative investment choice.
Location is always a critical factor in purchasing property, and holiday homes are no different.
Prices have soared in recent years in areas on the coast within a couple of hours of the capital cities, so look a little further and choose an area that has not yet peaked and still possesses growth potential.
Ensure the area is attractive to holiday goers with restaurants, facilities and attractions nearby. There is no point in buying a place by the beach if it’s not within close proximity to those luxuries we all enjoy on holidays.
Don’t go for areas that have been over developed and are full of brand new apartment buildings as often they will be overpriced and it will lack uniqueness. Also check with the local council if there are plans for major developments in the near future.
As the property will be rented out on a short term basis there will be times when the place will be unoccupied.
While you are searching for a particular area, make sure you find out from the local agents what the average occupation percentages are. This will help you to determine what the rental income per night/week needs to be, and whether this is within the typical rental prices of the area.
The advantage of a holiday house is you get to enjoy it for a portion of the year and then claim expenses for the remainder of the year as tax deductions.
As prescribed by the ATO, you can claim expenses such as advertising for tenants, bank charges, body corporate fees, borrowing expenses, council rates, depreciation of items such as furniture, gardening, insurance, land tax, pest control, property agent fees, repairs and maintenance, stationery, telephone, water charges and even travel undertaken to inspect the property.
You can also deduct some expenses from the selling price, which reduces your capital gains tax. These expenses include interest, rates and trips to the property to carry out maintenance.
It should be remembered, though, that annual running costs for a holiday house can be much higher than for other property investments.
In order to attract good short term tenants you need to keep the house and its contents in good condition, as the property needs to be fully furnished.
This means replacing furniture and white goods regularly, painting internal areas, as well as the initial significant investment required on fully furnishing the house.
Therefore, in order to gain significant returns, this should be a 10 year plus investment plan. And don’t forget that when you do manage to use the place yourself for holidaying, there will probably always be jobs to do on the place - so this is by no means a passive investment.
Purchasing a holiday house can be a tremendous growth investment. However, like all major financial decisions, you need to do your research before you take the plunge.
Debt consolidation is often portrayed as a way out of trouble.
But for many it’s actually a smart way to get debt-free more quickly by reducing the interest being paid.
Many of us have several loans and debts. For example we may have a home loan, a line of credit, car financing, a personal loan, a few credit cards, and some store finance for furniture or renovations. These commitments will all be charged at different interest rates, perhaps with account fees and other charges.
Whilst it may have been logical to set-up and keep these commitments separate, it can mean that you are paying more interest than you have to.
For example, cards currently have very high interest rates up to 20% and higher, with annual fees ranging from $0 to $295, and interest-free days from nil to 62.
Whilst some of the more expensive cards will have rewards and loyalty programs, these may not make up for the differences in interest charges, fees and interest-free days.
Personal loans, car loans and store finance also show wide variations, with some very high interest rates. For example, interest-free finance through a store is an attractive option provided that the debt is cleared within the term. If not, these loans often revert to extremely high interest rates – 20% and higher are not uncommon.
The smart way to reduce this debt more quickly is to minimise the interest rate and fees being charged, whilst maintaining the same monthly payment as before.
A good example is to watch out for low interest or even interest-free balance transfers that are regularly offered by credit card providers. You can apply for a new card and then transfer the balances from other credit cards, which will then be charged interest at a very low rate or even interest free, at least for a period of six months and occasionally for the lifetime of the balance transferred.
This can be a good short term solution, but often the interest rate then reverts back to a (comparatively) high rate. So then the whole process of application and balance transfer has to start again.
Also, this doesn’t help to reduce the interest rates on some store finance, personal loans and car financing.
A more comprehensive solution is to consolidate all of the debts into a relatively low-interest product such as a home loan. The recent reductions in interest rates on many home loans have made this option look even more attractive.
Consolidation can be done by either using an existing spare capacity, for example using available redraw or an unused line of credit, or by refinancing the entire home loan to borrow a larger amount.
This can often result in more than halving your average interest rates. For example you could refinance a credit card at 18.75% to the standard variable mortgage rate of around 7.8%. On a debt of $10,000 this represents a reduction in interest of around $1,100 per annum.
Similarly, by refinancing a car loan of $25,000 at, say, 13% to a home loan of around 7.8% you could see interest savings of approximately $1,200 per annum.
Of course in both of these examples the amount of saving would reduce over time as some of the debt principal is paid off, but it would still be substantial.
Now here is an important point. By keeping the new consolidated payment the same as the sum of the various payments being made previously, then the debt will reduce more quickly as less interest is being paid, so more of the payment is reducing the debt itself.
This strategy does work, but you should watch out for the following:
Cancel The Old Debts or Cards. If you transfer the debts (e.g. from credit cards) then you are at risk of building up new debt in its place, which isn’t the idea. By cancelling the old credit cards and loans this won’t happen.
Early Repayment Costs. Some loans may incur a penalty if paid out early, which can negate some of the benefit of refinancing the debt.
Establishment Costs. Organising a top up on your home loan, or refinancing altogether, will incur some costs. Again you should check what these costs are and factor them into your calculations.
If used correctly and by keeping the new payment at the same level as the sum of the old payments, then using your home loan to consolidate your debts is a good way of reducing interest and clearing personal loans and credit card debts more quickly.
The current ABC drama series "Identity" is highlighting the sometimes extreme consequences of having your identity stolen.
For any of us, though, having our identity stolen can be stressful and expensive.
Identity theft is the theft and use of personal identifying information of an actual person, either living or dead. Criminals normally do this in undertake to undertake identity fraud, which is defined as gaining a benefit by deception (usually financial).
Identity theft happens in several ways. It can range from somebody using your credit card details illegally to make purchases over the internet or telephone, through to having your entire identity assumed by another person to open bank accounts, take out loans, make tax returns and conduct other business illegally in your name.
By introducing some practical precautions into everyday life, you can take an active role in reducing the risk of identity theft and fraud.
Only carry with you those credit cards you intend to use, and leave the rest locked up.
Never let your credit card out of your sight. It only takes a second to ‘skim’ your credit card and so steal all of the details held in the magnetic strip.
Don’t leave your personal documents lying around. Keep such documents in a locked safe or filing cabinet.
Ensure your home letterbox is locked and secure, this will prevent the stealing of personal information from your mail.
Remove registration papers, driving licences, bills etc from the glove box of your car.
Tear up, burn or shred any unwanted documents containing personal information before putting them in the bin.
Before giving your credit card details over the ‘phone, make sure these details are being used for a legitimate purpose, and check your credit card statement to make sure you have not been made a victim of identity theft.
If you buy goods or services on the internet, check the site you are accessing is a secure site. If you are a regular purchaser online, use a third party payment provider such as Paypal.
Check your credit report regularly to make sure nobody has been misusing your personal information for criminal purposes.
Change your ISP and computer passwords regularly.
Don’t keep personal information on your computer hard disk. Instead, save it to a CD or floppy disk. Also don’t use automatic log-in features that save your password.
Keep your virus protection software up-to-date. Also, never open e-mails or attachments that you are not expecting without running your virus protection.
Be wary about using public access computers (e.g. at internet cafes) for personal transactions as they are notoriously insecure.
If you do become a victim of identity theft, there are a number of steps you can take to recover your good name and limit the damage done:
Report identity theft to the police. Identity theft is like any other theft - it must be reported to the police. Provide all documentation necessary to assist the police in investigating the crime.
Contact the Credit Reporting Agency. Report that you are a victim of identity theft. Ask that an alert be placed on your file, and ask that you be contacted by phone if credit providers want to open accounts for you.
Check your credit file carefully for unauthorised entries. Look for accounts that have been opened in your name, or unauthorised changes to your existing accounts.
Close all accounts. Contact all the businesses with whom unauthorised accounts have been opened in your name and ask them to close all fraudulent accounts. Also close all legitimate accounts and open new accounts with new PINs and passwords.
Keep all documentary evidence of fraud. Take notes, keep copies, keep police reports, get confirmation of conversations and actions in writing. Never send originals away in the mail - if documents are required by someone else, send photocopies.
Everybody makes mistakes, even property investors. And they can be expensive.
Here we explore the five biggest mistakes property investors make – and more importantly, how to avoid them.
Here is a list of five common mistakes that property investors can make - that can easily be avoided.
If you inspect a property and care what the curtains look like, whether the kitchen has stainless steel appliances and what the colour scheme is, you’re probably making this mistake.
Many investors forget that purchasing an investment property is for someone else to live in – a tenant. They review the property with their own expectations in mind.
Investors would be better advised to speak to property managers about what features are desirable for tenants in a given area, rather than thinking about what’s desirable for them. For example, in a family-oriented area then a well-fenced backyard would be important.
Investors who sign on the dotted line without consulting their accountants, solicitors or finance brokers are risking the success of their investment.
Many people don’t use these experts so as to avoid the cost. But there is a much greater cost to not using them. How many of us can be experts in tax, financial planning, or give ourselves some objective advice?
It is worth checking whether the experts invest in property themselves, to ensure that their advice is backed up by hard, practical experience.
Many investors fail to ask themselves some basic questions that would help them to reduce their risks.
For example what happens if:
The property can’t be tenanted for a period of time
The property burns down or is damaged by flood or storm
Interest rates go up by another one per cent or more
Investors need to have a back-up plan for when things go wrong. For example they should consider:
insurance not only for building and contents, but also landlord insurance to protect against rental loss or damage. Further, perhaps income protection insurance would provide added peace of mind in case of job-loss.
having access to extra funds, either their own savings or an easily accessed loan.
Doing enough research prior to making the purchase will help the investor work out whether the property is a good buy or not.
The selling agent, whilst useful, should not be the only source of information. After all, they are working for the seller.
Nothing beats doing your own research:
How far away are facilities such as schools, shops, transport and medical facilities?
What is the history of capital growth in the area?
Most investors rely on rough estimates rather than sitting down and doing the hard numbers related to their purchases. Particularly when looking at negatively gearing a property, investors need to know how much they will need to spend each month and work out whether thay can afford it.
For those investors who can’t do the calculations on paper, investors should consider the purchase of inexpensive property analysis software that helps do the sums.