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The Reserve Bank’s recent rate reduction was welcome relief for many home owners and investors, but what to do with that extra cash…

The Reserve Bank’s reduction of the official cash rate earlier this month will mean a nice little reduction in the minimum home loan repayments of some home owners and investors.

But you could see much greater savings by making some simple changes to the way in which you make your repayments.

While it might be tempting to put the extra cash from your rate reduction towards a new wardrobe or car, have you considered keeping your loan repayments at their current level?

It’s not hard to see why you benefit. Basically, the longer you take to pay off the principal amount of your loan, the more interest you will end up paying.

By increasing the amount of your monthly home loan repayment – or not reducing it when the Reserve Bank cuts interest rates – you could shave thousands of dollars off the total amount you end up paying.

You would also cut dramatically the time you need to repay the loan.

This is the safest and most commonly used mortgage reduction strategy in Australia – and it’s an extremely effective one. You only need to crunch a few numbers to see why.

For example, if you have taken out a $300,000 home loan, at a variable rate of 7.25 per cent over a 25-year term, your minimum monthly repayment sits at $2,168.42.

If your lender passes on a 0.25 per cent rate cut, this will bring your variable rate down to 7.00 per cent, with a new minimum monthly repayment of $2,120.34.

This represents a saving of $45.08 per month and while that might not have a huge impact on your financial situation, it could mean the world of a difference to your mortgage.

That additional $45 per month could potentially save you more than $21,370 in interest repayments and wipe 1.4 years off the life of your loan if you choose to include it in your current repayments rather than spending it.

It really is that simple.

And with a new found taste for saving, have you considered switching your loan repayments from a monthly to a fortnightly schedule?

This is another simple but effective mortgage reduction strategy that carries with it little to no risk at all.

By dividing your monthly mortgage obligation in two and paying this amount every fortnight you will end up making one additional payment every year, which can wipe significant time off the life of your loan and save you tens of thousands of dollars that otherwise would be spent on interest.

Unlike other mortgage reduction strategies that include the burden of having to actively manage your mortgage on a monthly – or even daily – basis, fortnightly payments can be set up as a direct debit so you can simply ‘set and forget’.

Best of all, once the additional payments have been factored into your budget, you will hardly notice any difference.

Got a question about finance? Email me, George or give us a call anytime.

Kind Regards,

George Nori
Director
Positive Financial Services Pty Ltd
Corporate Credit Representative Number 388095
admin@positivefinancialservices.com.au

Ph:   02 8004 2222
Fax:  02 46207 807

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Negative gearing is not the problem, building costs are. Negative gearing is simply the government’s way of giving back to house providers – firstly, because the government cannot (nor should it) provide the housing, and secondly, we cannot build property inexpensively.

Our nation has a small population compared to other countries. The USA, for example, does not have negative gearing as they have a massive labour force that can work more cheaply, therefore building a property is simply less expensive.

Source Image: sscreations / FreeDigitalPhotos.net

So why offer tax concessions? Australia is limited by people. It simply costs more to deliver a home here. We have few trades people and we have less choice, therefore the competitive tension is challenging.

Of course those whom have already invested cannot be adversely impacted, as the law is not retrospective, and those under the scheme have an extra impetus to keep the stock.

The idea that the rich use negative gearing to avoid tax is a smoke screen. In small populated areas with large land masses, the labour force dictates the cost to deliver an outcome. Gearing is the result of a highly paid labour force, paying more tax.

If we all earned less, then obviously we would pay less tax, and enjoy fewer deductions, making the concept of negative gearing irrelevant. As it is, however, we earn well, and our construction costs are high, reflecting a definite need for negative gearing to be an option for investors.

Gearing is a benefit which offsets the high cost of building. Unless any trade skill wants to take an 80 percent wage deduction, then it simply cannot be reconsidered.

Market Impact After Eliminating Negative Gearing

Case Study: New Zealand

Recently, New Zealand introduced “no building depreciation” legislation yet they kept “chattel depreciation”. The impact has been minimal so far, but it is early days.

New Zealand, however, has virtually no new properties being built. The property market in many parts of New Zealand has done well for the last year, regardless of the change.

The logical outcome for New Zealanders and property investors is that rents will go up, as there is limited new property construction taking place. New Zealand also has many other benefits, such as no stamp duty.

The construction sector in Australia is a little different, however, therefore removing negative gearing from the equation would certainly slow the new property market place.

Case Study: Australia

In Australia the new home industry is delivering more stock, so it would suffer, and we would enter a long and even tighter supply period as less property would be sold and therefore delivered. Labour costs may drop as well if there is less construction.

To remove negative gearing from the equation would certainly change the market sentiment, slowing down the market by making investors leery of moving in it. Doomsayers would predict widespread panic and the market would cool based on fear of the unknown.

I believe that if negative gearing is eliminated it would reduce the market share that investors bring to the Australian property market, by driving those individuals who bought their properties on tax principles to seek out other investment ideas such as shares or equities, for example.

All of these possible changes may be short term, however, as people sit on the fence, waiting to see what happens. In the long run, you don’t buy real estate for a tax deduction, you buy it because the property is going to grow in value, you can force value, or you can have the tenant pay the rent.

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Mudgee is a strategic town in New South Wales and right now it’s great for capital growth. The rental returns are really growing. In fact, some returns are hitting around that sweet spot of 7 percent, which is fantastic for investors’ back pockets.

Source credit: luigi diamanti / FreeDigitalPhotos.net

I love Mudgee – it’s been predicted to be a great investment location. In fact, Luke Berry from The Next HotSpot was recently featured in Smart Property Investor’s Magazine predicting the best places to invest in Australia. He’s put Mudgee down as a hotspot for investors not to miss.

Recently, I spoke with Luke about Mudgee and he shared his thoughts about this great location. “Well look Sam, I suppose you can hear the traffic and see the hustle and bustle of the Main Street, which is one of the first indicators that there’s something happening in the town. Look, there’s a couple of key reasons I’ve chosen Mudgee:

• There are enormous investment in mines in the region – they’re predicting something like 2,000 new jobs coming to the area over the next 3 to 5 years, and with a town of around 8,000 that’s a significant growth.

• You’re going to have wage growth, and there’s more so an enormous under supply, and I’m guessing that’s why you’re here for your members. There’s an enormous opportunity to get in, buy well, build a home and get those mining renters, and so that’s the reasons why I chose it.”

The reasons that Luke mentions are certainly a couple of the key reasons I’m recommending Mudgee to our clients. Other positive aspects of the market include:

• A very good owner occupier rate of 69%
• Huge mining industry expansion
• Diverse employment base – mining, tourism and agricultural
• A low supply of rentals which helps keep yields at approximately 6.8%
• Strong transport links offering daily coach and air services
• Central location between Sydney and Newcastle as well as major regional areas
• Strong wine and tourism industries – nearly half a million people visit Mudgee annually

There’s a saying, “mines, vines and wines”. This means that locations which have these attributes will drive the market. I’d have to agree with Luke when he said, “it’s [Mudgee] been one of the oldest established agricultural communities – it’s got a great wine industry, that drives some tourism.”

What do you think? Would you consider Mudgee a good investment – would you consider it at all? Comments welcome below

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Currently there has been much interest surrounding the imbalance in mining markets particularly for locals who don’t work in the mine. So what is actually happening.

I tend to think of certain mining towns in Australia as “real estate refugees”. What does this mean exactly? It means small community towns who have been impacted by a colossal mining injection are being driven away from their communities.

Why is this happening – what drives people from their home town?

The basis of any economy is that there are enough people to fill all levels of jobs that sees a community function. From driving the school bus, to teaching, to nursing. If these people can’t afford to live within the castle – they leave!

"Fly-in, fly-out miners kill towns" - www.brisbanetimes.com.au - Working for change ... Moranbah residents (from left) Kirby Ramage, Kelly Vea Vea, Karen Low, Vikki Oldfield and Leanne Kettleton lead the protest march. Photo: Colette Landolt

However, the problem in Moranbah for example involves much more than economics. This problem has been in plain sight, talked about in community meetings, discussed in local pubs and argued about in government circles. However until this crisis brought the dark side of the mining boom into sharp focus, the money to be made kept the issue in the background. It has simply been left on the perimeters of both public policy and investors’ concerns …. left to be dealt with “another day” – and that day has finally arrived.
The mining companies’ actions have simply brought the condition of Moranbah’s market to the forefront.  Disputes about the impact mining has on the community have become a hot-button political issue, with parties such as Australia First espousing the need for more permanent housing,  less expensive rents and lower house prices in order to establish a community rather than a high paying camp.

When mining slows, the alarming concern is that the community that is Moranbah may just fly away. The risk is a big one. Who knows when the tipping point for commodities will change and world wide demand stops. It is something potential investors must assess when buying in a community that is changing demographically.

The impact locally of this action may allow smaller contractors to fill the void of the big miners, however the rent they pay will be less, therefore property will be stagnate. As for the local goods and service industry – this has been impacted by the peak level of prices in the town as reported in the local media. The big challenge for this high income mining society and the high house prices which have followed, is that most locals, who perform services outside the mining sector, want to leave town, as they have seen the community transform to a mining camp.

Companies – The influence that the world’s biggest mining companies can have on world markets is profound, let alone what their activities can do for local Australian property markets.  Over the next decade, trillions of dollars is expected to be made from mining in Australia.  Many would assume the infrastructure and job security that the minesbring to be a “growth driver”, yet the very nature in many of the cases, is in-fact that the influences are completely external to the market, in fact many markets are solely dependant on the miners activities. These markets are risky, in that if the mining company remove themselves from the area, house prices could fall sharply.

www.abc.net.au - News Report on Ravensthorpe mine closure

Many people might remember the Ravensthorpe property disaster which is now folk law within the industry. When BHP announced in was sinking billions of dollars into a nickel mine in a town called Ravensthorpe in WA, around 500km from Perth, locals and investors alike poured in to secure property chasing  a fast and high return. After all, there was no bigger miner in the world to be renting property to, and the town offered a limited supply of property….The investment was surely sound! The area started out strongly and as expected, the influence of the mega mining giant saw rents soar and house prices grow. Within a few years the parameters changed.

The GFC hit. This saw BHP reverse their interest in nickel mining. Within three days of a board meeting in Perth, they disbanded their 1800-person workforce and duly left town. Rents and prices plummeted.

The lesson is to always invest in diverse economies that are not run by faceless companies or their collusive contractors. You will always end up in a poor investment if you base investment decisions on third parties that are outside of your control.

Industry – When you are buying a property in an area, you are actually investing not only in the property market but you are making an investment into the various industries that accompany the people within the direct community you are buying within. For example, if you were to invest in the Gold Coast, the main industry driver is tourism; if you were to invest in a town called Moree in NSW, the main industry is agriculture and the specific commodity is cotton. Even though the property may stack up, even though you may think your getting a great deal – if their is only one main industry that supports the community, or if it is present challenged or if the future looks challenging, the property may not be the smartest buy.

The key is to unlock diversity. Buying in an area that has a diversity from various industries is smart. If an area is geared towards one particular industry only, in a down turn, your property value can suffer greatly. Purchasing in towns with a population of over 10,000 is also sensible. Generally, these areas also act as a service centre and outrank smaller communities. For example, Wee Waa has a population of 1500 and it is a cotton community near Moree. In a down turn, Wee Waa will feel the pinch more so than Moree that has over 10,000 residences; meaning Moree has many local residents that provide services to the community that create sustainability.

Today there is a lot of focus around growing mining markets. As we have discussed, it is sensible to invest in a locality that has more than one miner, project or commodity being mined. One trick pony towns are not desirable investments. They tend to boom and bust. Understand that you are buying the commodity being mined within the town.

For example:-

• Kambalda WA is a nickel mining community, so you are actually hedging into a market that responds to worldwide nickel prices.
• Collinsville QLD is a coal mining community, so you are buying effectively that commodity.
• Ravensthorpe. Being a Nickel town, many bought property when nickel was trading at around $30 a pound, at the demise of the town; Nickel was trading at $7 a pound.

Basically for property investors this means when the mine contract ends, the town may just become ghost towns – and obviously resulting in a huge loss of value.

Some examples in the past (that are not exactly ghost towns) that have been adversely affected include:

Raventhorpe WA

Kambalda WA

Coolgardie WA

Broken Hill NSW

Cobar NSW

Zeehan TAS

Queenstown TAS

My educated opinion of where rents have been driven out of control from the mining boom and will soon see a market contraction include:-

Moranbah

Middlemount

Dysart

Karratha

Some areas we are targeting for investing right that are the new mining boom towns of this decade include:

Narrabri

Gunnedah

Mudgee

Toowoomba

Chinchilla

Whyalla

Gladstone

Keep in mind these are just a handful of our targetted HOT markets! We choose markets that are reliant on a diverse number of growth drivers – not just mining. Check out our exclusive deals in some of these areas now - and the growth drivers in that region.

Want to find out

1 – Why we select the areas we do and

2 – The best markets (the next Moranbah’s of this decade)

Then BOOK IN NOW for a Property Investor Night.

There are many areas that will boom alongside this once in a decade resources boom – there are also key areas to avoid like the plague.

It is imperative you understand what is happening and educate yourself on where to invest first – before you take a stab in the dark and listen to the media hype – you could be simply throwing hundreds of thousands of dollars at a future ghost town.

To find out more, please come along to our next two hour property investor nights where you can find out about the current property markets, where to invest to make profit and where to avoid.

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This week I show you some insider tips for using property as an investment vehicle to legally reduce your tax down dramatically – with some investors using these tips to pay ZERO tax!

Most have us haven’t realistically thought about this, but many of you give every cent you earn on Monday, to the taxation department. If you’re in a high income bracket ……..well there goes Tuesday and half of Wednesday’s pay, straight to the ATO just about!

For some that’s almost half of your weekly wage handed over to the taxation department….which is absolutley ludicrous, when there is a much more efficient way you could be managing your finances and taxes.

In today’s weekly market tip I reveal:-

1) Why claiming your depreciation immediately is important! Claiming your tax entitlements as soon as you get paid i.e. weekly, fortnightly or monthly, instead of claiming at the end of the year is clever – find out why! (Remember the ATO doesn’t pay you any interest!)

2) Why putting the claimed money back into your loans directly ensures you are paying less interest each month.

3) How claiming immediately adds extra serviceability or extra cashflow to your pay packet, allowing you to buy more properties and move forward easier.

4) How investing in 3-5 properties and working with a good property specialised accountant can ensure you pay little to NO tax at all!

Avoid Dead Money: Let us show you exactly how you can make your money work harder for you and your future. Find out exactly how to use the HUGE tax incentives for property investors, whereby the money you would usually be forced to pay in tax can legally be used to service your property investments.

Learn more about this topic at our next Property Investor Night and find out more about how a depreciation schedule with a PAYG variation can reduce your tax, improve your cashflow and serviceability. Find out how you can start to take proactive steps towards paying less or even NO tax! Find out how to invest your money directly into your property portfolio, instead of handing dead money over to the ATO each week!

Come along to our next exciting events held all over Australia!

Have a fabulous and safe Easter break!

Warm Regards, 
Jason Whitton
Founder of Positive Real Estate

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4 days of Eggsellent Easter Gifts!

Grab exclusive Property Investing Tools to help you make HUGE profits, pick the right markets for 2012 and begin the essential educational process to help you start moving towards financial success!

Our Easter Gift Extravaganza will expire in 4 Days so Hurry!

Claim exclusive 2012 Hotspot and Notspot Webinar access PLUS an Essential Investor Tools Pack

CLICK HERE to claim your Investor Gift Pack NOW! 

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Sam Saggers our CEO at Positive Real Estate was recently quoted in Sydney Morning Herald’s Money Magazine – “Invest in property but aim well” written by John Collett. February 25, 2012

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Sam Saggers article released with iconic industry publication Property Observer on Friday March, 23, 2012 -  pinpoints some interesting facts on how Whyalla is a promising hotspot set to capitalise on this once ina decade mining boom! The entire article explains this is finer detail – however we will surmise below .

* BHP Billiton received final approval to begin the expansion of the Olympic Dam mine in South Australia – a $30 billion dollar injection.

*In 2007 and 2008, house prices hit the floor and until now there has been nothing worthy of mentioning – however if we look at the history of Gladstone (somewhat of a precedent) where sizeable injections of this nature completely turned this town into a boom town of this decade, one would expect similarities and higher levels of interest in the Whyalla and Port Augusta markets.

* We brokered properties in Whyalla in 2008 as property prices had hit their floor – and now finally after the wait on this welcome news, I believe, our investors will be able to access and recycle their equity and increase their rents as a result of this latest news and population growth that will begin to occur. My advice would be to not cash in immediately; wait three years for the market to heat up and then maximise on your investment.

* The Olympic Dam mine is the mothership of projects, so I expect the South Australia economy and workforce to reap the rewards.By mid 2012 I expect this area will hold some investor interest, with clients looking for capital gains as a spin off from the project and vacancy rates  will tighten up, rents will rise etc.

* Right now you can buy into a soft market with bargains aplenty (sales on the market for around 180 days); so be patient and you will see a growth result. There are some great properties around the $250,000 mark with promising rental yields.

* The strategy for this market is definitely “buy well” and make your money buying. Get a discount off the asking price of up to 10% and wait for the growth.

This expansion will see Whyalla benefit greatly from this $30 billion dollar expansion. 6,000 jobs will be created, and the mine expansion indirectly will create 15,000 jobs; with a total number of jobs being created set to be around a massive 25,000.

Whyalla is a city that offers enormous potential for a plethora of reasons. Read the entire article to find out why this area is somewhere you must zero-in on as a property investor.

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Listen to the entire Radio Interview with Property Uncut by clicking below:-
Which is the Best Property Investment Strategy? Part 2
March 22, 2012 By Kevin Turner

All smart property investors have a property strategy. But which is the right one for you? In part 2 of this series Kevin Turner asks a group of Australian real estate experts to share their strategy and then looks at the pros and cons. Listen to Buying off the plan with Sam Saggers CEO of Positive Real Estate. Sam relays the must know information for property investors looking to enter an off the plan deal in the hope of making capital growth in the time it takes to settle – i.e buying growth through time. Sam explains what to look out for, what to avoid, where to look, specific must ask questions and how to ensure success when entering into this more sophisticated property investing strategy – it truly is worth investing your time to listen to his off the plan tips for profit. Share your comment and let us know your opinions, thoughts and share experiences etc. or what you have learnt from buying off the plan.

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Persistence and keeping their eye on the target is what gained Kathy and Matt Sherman the lovely sum of $90,000 cash PLUS a new home.

 They needed the cash for both personal and financial reasons. “We wanted to top up our buffer account and help with the shortfall between rent and expenses,” shared Kathy. With a baby on the way, the Shermans also wanted to have cash to cover expenses so they could take an extensive time off work.

Their decision to purchase a block subdivision with an existing property and then build a second dwelling on the property was based on solid principles, however it would take two years for all of the details to be ironed out and for the construction to begin.

The hardest part, according to Kathy was the wait, however Kathy and Matt are in a good position to enjoy some strong capital growth with this venture and it was all made possible by staying committed to their goals and not giving up when things didn’t go as planned.

Matt & Kathy Sherman appeared in Australian Property Investor Magazine in October 2010 – Read their entire success story here.