Jason also talks about how capital growth actually works and when it actually occurs when it comes to residential property investing. Hope you enjoy the video and if you want to get yourself a copy of the full video (3hrs worth) just click here, “Make Money in Real Estate”

There’s a new government regulation, it appears to be on the state level at the moment… and it requires all property to be fitted with RCD (Residual Current Device) – in layman’s term, safety switches, or trip circuit.

This regulation started on the 9th August 2009, but doesn’t take full effect until 2011. Note that this will affect you when you change tenants or buying/selling a property. The new law says that you have to install TWO RCDs to protect your power points and your lighting otherwise its technically against the regulation to change tenant or buy/sell a property.

anyways to find out more about this new this particular rental property law affects you, please go to Department of Commerce – Energy Safety

Watch out for property spruikers who:

• Offer a one-stop shop (lawyer, accountant, mortgage broker and valuer)
• Fly-in fly-out to entice propspective clients
• Pressure you to sign on the same day
• Cold call
• Focus on the ‘Get Rich Quick’ tactic
• Promises above-average returns at little or no risk
• Uses the ‘Education in Vacuum’ tactic

It seems like the time has come again for history to repeat itself…

if the funding rates doesn’t “cool off” banks will (again) move into negative margin territory. This just means that banks will lose money for every fixed term loan they are writing to the public at the current rate. So watch out for those fixed interest rates… be expecting them to shift up slightly if things don’t “cool off” in the near future. Banks don’t like losing money…

Anyways, if you’re thinking of fixing you might want to consider doing it soon or at least pay the fixed rate cap fee to lock in the current rate. Otherwise, hang in there and start building up some cash reserves for future interest rates rises. (Fixed interest rates are usually a leading indicator for future expected interest rates up to 10 years plus in the future)

Firstly, I’m not an insurance broker and obviously don’t know your financial situation, so I have no idea which insurance is most suitable for your needs. I’m only talking from my experience with rent protection, and my understanding of what the general rent protection covers. Policies will vary from insurer to insurer, but here’s one that I personally use EBM Insurance Brokers. Their rent protection covers the following (for only $225 per year – obviously is dependent on the individual property):

Loss of Rent due to:
Denial of Access: 52 weeks
Prevention of Access: 52 weeks
Default of Rent: 6 weeks
Departure without notice: 6 weeks
Breaking of lease: 6 weeks
Malicious Damage: 52 weeks
Accidental Damage to Contents: 52 weeks
Accidental Damage to Building: 52 weeks
Theft by Tenant: 52 weeks
Hardship: 6 weeks
Death of a Tenant: 6 weeks
Defined Risks to contents (Fire and storm etc.): $10,000

Damage & Theft (building)
Malicious Damage: $50,000
Accidental Damage: $50,000
Theft by the Tenant: $50,000

Damage & Theft (contents)
Malicious Damage: $50,000
Accidental Damage: $50,000
Theft by the Tenant:$50,000
Defined Risks (Fire and storm etc.): $50,000

Many people are worried about the tenant breaking their lease or damaging the building to a state where it is not habitable for many weeks etc. In my opinion, most if not all of your worries are eliminated by investing a tax deductible $200-300 for a peace of mind.

Say your rental income is $330 a week with the usual fees:
* 2 weeks letting fee
* 10% management fee (including postage & sundries) – approx 5 weeks
* Quarterly inspection costing around $300-400 (1-2 weeks)

When you take all these fees into consideration, you give somebody else 8-9 weeks of rent out of the 52 weeks of rental income that you take (which works out to be 15-20%). Paying 1 week worth of rent every year to insure that you get most of the 52 weeks worth of rent, I think is cheap considering the amount of money you are paying your managing agent! It’s even cheaper if you have a bad managing agent putting ‘not so good’ tenants into your property! Then you’ll be hoping you have rent protection when the tenant defaults or burn down your investment!

So do YOU think Rent Protection is worth it?

With low interest rates many people are also opting for variable loans instead of fixed loans, especially since fixed rates are sometimes quite a bit more higher than the variable rates. The combination of low interest rates and investors taking advantage of the low interest environment can lead to a financial disaster if not planned properly…

Why you might ask? well it’s very simple, if interest rates increase the repayment amount would obviously increase except it will hurt the investor a lot more at low interest rates (lower base).

For example,

• When interest rates were around 7% and interest rates increased by 0.5% to 7.5%, the investor would have to pay 7.143% (7.5%/7%) more in interest expense.
• However if interest rates are around 4% and interest rates increased by 0.5% to 4.5%, the investor would have to pay 12.5% (4.5%/4%) more in interest expense!

Hopefully you can see that it’s over 3 times (12.5%/7.143%) the increase in interest expense!

Currently, Australia’s cash rate is 3% with the cash rate traditionally being around 5-6% it would not be a surprise if the cash rate increase over the next few years back to the average of around 5-6% (i.e doubling in interest rates, meaning doubling in interest repayments!)

Graph Courtesy of Forex Blog

So don’t fall for the interest rate trap! Think about the potential increase in interest rates before making any investments especially if you are not able to financially sustain future interest rate rises!

Okay, Here’s the first one of the fears!
What if Interest Rates Goes Up?

If you are scared of interest rates going up then the solution is to fix it. Just remember that interest rates can both go up and down. Fixing the interest rate reduces the risk that you will have to pay more interest in the future (i.e. guarantee that your interest expense is constant over the period) However, if interest rate drops and you have fixed it then you won’t get any benefit of the interest savings. A suggestion is to fix half the loan so that you can get 1/2 the benefit of interest movement in either direction.

Most people think are scared that interest rates, fixing interest rates will only guarantee that your expense is known (ie. it will not increase or decrease). The factor to note when fixing your interest rates, especially in the more recent economic time (2008) when interest rates all over the world has dropped dramatically, is that fixed rate break cost will go up approximately proportional to the interest savings from the rate drop.

Remember that Banks lend money based on your current financial situation, so as the financial situation improves (e.g. interest rate drop) you would benefit, however if the financial situation deteriorate (e.g. interest rate rise) you would suffer. That is why some people prefer the certainty of being able to service the interest payments through good times or bad times (assuming their financial situation does not change through time)

So think about this the next time you think about fixing your interest rates!

Residential Property Investment – Barriers > What if Interest Rates Goes Up?

After 29 April 2009, the current 2009 PAYG withholding e-variation will no longer be available.

You can use e-variation to lodge any PAYG withholding variation application: simply enter the relevant reason code.

• To access e-variation at www.ato.gov.au
• select ‘Find a form or publication’ from the left menu
• select ‘All forms’
• then ‘Search’
• then enter ’2036′ into the NAT number field
• then click on the link to the PAYG withholding variation application 2010 (NAT 2036)
• then follow the prompts.

How long do you have to wait for your PAYG Variation?
When you lodge your e-variation application, you should receive an on-screen message with your reference number. If you do not get this message, the transmission may still have been successful. Do not transmit the e-variation again as this will delay the processing of the application.

We will send you an email confirming receipt or your application. If you do not get this email, please phone 1300 360 221 between 8.00am and 6.00pm, Monday to Friday.

In most cases e-variation applications are processed within 14 days. Please wait 21 days before phoning to check on the progress.

More information
If you have more questions:

• visit the ATO website www.ato.gov.au
• phone 1300 360 221 between 8.00am and 6.00pm, Monday to Friday, or
• email ATO at ITWvariation@ato.gov.au

If you want to find out more information regarding the benefits of doing a PAYG Withholding Variation then you may want to visit:

• Income Tax Withholding Variation – Get Your Taxes Back Before the Financial Year!
• Rental Property Depreciation – Is It Really Worth It?
• Depreciation Schedule – The Benefits
• Depreciation Schedule – Where Can I Get One?

This image is from the March 2009 edition of the Australian Property Investor.

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What I got most out of the seminar was the very interesting accounting and tax tips. Hans is an accountant by profession so he has an intimate understanding of tax laws and what can and cannot be done. You can really see him really light up when he talks about tax minimisation!

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