OCTOBER PROPERTY UPDATE
Here’s a peak at what’s included in this month’s update.
Nathan: Roadblocks or building blocks, making the most of challenges.
Property Management: How to maximise your insurance claim
Accounting: What you need to know about renovation and tax
Legal: What happens to your super in the event of death?
Finance: Banks crack down on fraudulent applications after survey shows 28% of applicants lie </a
NATHAN’S UPDATE: ROADBLOCKS OR BUILDING BLOCKS?
Many investors have been thrown a curve ball by APRA and lending changes in the past 12 months. Whether you make that challenge, a road block or a building block, is up to you.
I felt some of the same challenges but it hasn’t stopped me from buying 17 properties this year. However, I found I needed to adapt and tweak my strategy to keep moving towards my goal of becoming a billionaire through property.
Personally, I am at the point where I have decided to sell a few properties to pave the way for more growth. I don’t sell properties often. When I do it’s only once a property has served its purpose it’s time to say goodbye, so I can get a more appropriate property for the current stage of the journey.
The decision to sell should be carefully though out. If you are thinking about selling a property, it may not be the best option for you. There could be other ways to address your needs and solve any issues you might have.
Most recently we gave our investors access to wholesale priced new developments and off the plan apartments. These kind of properties are great for people needing a chunky capital injection into their portfolio in order to adapt to the current lending environment and unlock more borrowing power.
PROPERTY MANAGEMENT UPDATE: MAKING THE MOST OF INSURANCE CLAIMS
As investors, we hope we never have to submit an insurance claim, but when we do then we want to make sure that we are getting the most from it. As such, it’s not enough to just take a tenants description of the damage. A property manager should physically inspect the damage and do some further investigation before an insurance claim is submitted.
As this video with Scott Johnson, from Blink Property shows a little bit of investigation can reveal a lot, and help you maximise your insurance claim return.
In this instance, the initial cause for concern was bubbling kitchen floor laminate caused by a dishwasher water pipe leak. Where many people would stop here and submit the claim, Scott did some further digging.
As a result, Scott found several other major and minor issues, which had they not been picked up could lead to severe problems down the track.
It turned out that the busted dishwasher pipe had been damaged by rodents entering from a previously created access hole in the wall. Taking a look through the access hole, it was clear to see that there was a corking issue in the bathroom, which allowed water to enter the walls. Finally, a further inspection of the kitchen itself also showed some minor water damage on the cabinet doors.
Without a physical pre-insurance inspection like this, the owner of this property would never have claimed for any of these things, and would likely to continue experiencing problems in the future.
Pre-insurance claim inspections are a standard service at Blink Property, and all property managers are trained in looking for other signs and/or causes of damage.
ACCOUNTING UPDATE: RENOVATION AND TAX!
Everyone loves a good renovation and lately many properties are getting facelifts and it’s been working. If you are thinking of renovation you need to ask yourself a few questions
1. Are you a personal property investor?
2. Are you making profits from property renovations?
3. Are you in the business of renovating?
Let’s look at the first two of these questions.
PERSONAL PROPERTY INVESTOR
If you are a personal property investor, your net gain or loss from the renovation (proceeds from the sale of the property less the purchase and other costs associated with buying, renovating and selling it) is treated as a capital gain or capital loss respectively.
Capital Gains Tax (CGT) concessions such as the CGT discount and the main residence exemption may reduce your capital gain.
You’re not conducting an enterprise of property renovation for GST purposes and are not required to register for GST. However, if you’re registered in some other business capacity you still don’t pay GST on the proceeds from the sale of the property or claim GST credits for related purchases.
AN ENTERPRISE OF PROPERTY RENOVATION
If you’re carrying out a profit-making activity of property renovations, you report in your income tax return your net profit or loss from the renovation.
You’re entitled to an Australian business number (ABN) and you may be required to register for GST if the renovations are substantial.
ADVANTAGES OF DOING A RENOVATION
There are several advantages of a well-executed property renovation such as;
• Manufacture capital (equity) without a large transaction cost such as stamp duty or agent fees
• Attract higher rents and increased the rental yield
• Added depreciation for investors looking to get a return on the investment and tax efficiencies without purchasing another property
• Reduced long term running and maintenance costs
• Increasing portfolio value when in consolidation period with the banks
POSSIBLE SET BACKS OF A RENOVATION
As with anything in life there are always downsides and other considerations
• Opportunity cost of the renovation, could the money be put to better use purchasing other properties
• Accurately budgeting and time management. It can be easy for costs to blow out.
• Comparisons of the area and whether your renovation will overcapitalise your property
It is always good to have a chat to your advisers to see which of the categories you fall into to determine what is claimable and what your responsibilities are and what minimisation options you have.
Contact OnePath Accounting if you have any questions about the financial implications of your renovation.
LEGAL UPDATE: WHERE DOES SUPER GO IF YOU PASS AWAY
In the event of death, your super fund trustee normally pays death benefits to one of more of the account owners dependants or to their estate.
For super death benefits, the term ‘dependants’ includes:
• Spouse (this includes same-sex de facto partners)
• Financial inter-dependants
• Financial dependants
Most super funds allow nominations on where the death benefit is paid to, either as a non-binding or binding nomination.
If no one is nominated, the super fund trustee will decide who the money goes to. This can lead to delays and may cause family distress.
A binding nomination leaves the super fund trustee with no choice as to who gets the death benefit.
The owner chooses whether the money goes to one or more dependants or a legal personal representative, who must pay out the money according to a will.
A non-binding nomination guides the super fund trustee on who will get the super benefits. However, the trustee still has the final say, especially if a non-dependant has been nominated as a recipient. The trustee is not required to follow the instructions within a will.
So, even if you have a will it may not have your family’s interests protected. Make sure to update your super nominations if you marry of have children and aim to use the most appropriate form of nomination.
FINANCE UPDATE: 28% OF MORTGAGEES ADMIT TO PROVIDING INACCURATE INFORMATION ON APPLICATIONS
A report by UBS Investment Bank surveyed 1,228 Australians who have taken out a residential mortgage over the last 24 months. Almost a third of respondents admitted to providing factually inaccurate applications.
Banks have been quick to act with many now requiring more documentation to verify the income and expense figures they are using in order to approve loans. All applicants are now being asked to detail their expenses across several categories including housing, food, clothing and recreation. Previously, many lenders only required a total figure be provided for all expenses.
Lenders apply their own Household Expenditure Measure (HEM) estimates to account for expenses based upon an applicant’s demographic data. Although they’re used as a guideline, discrepancies against an applicant’s declared expenses may lead to delays as they seek to clarify the differences.
It pays to be organized and know your detailed expenses before applying for a loan. The banks have the ability to see run analysis on outgoings from accounts and see expenses have been understated. Neat, rounded amounts such as $2000 pm may also raise questions. Generally they will ask for an explanation, in the worst case they could flag the application as fraudulent.
On a positive note, we’ve noticed it is prompting many clients to consider and review their spending habits. As a result, many identified ways to cut out or reduce some of their expenses.