1st Street Newsletter FEBRUARY 2008

Contents

Seven Tips for Negative Gearing
Using a Buyer’s Agent

Jeremy Fisher
Director

518b Old South Head Rd
Rose Bay NSW 2029

Tel:	1300 880 109
Fax:	02 9371 1990
Mob:	0411 33 9998

E-mail:	Click Here
Website:	Click Here

Welcome to 1st Street Home Loans. We are an Australian-owned mortgage advisory company with a difference. Due to our strong relationships with the banks, industry leading technology, honest approach and only the highest level of service, we were recently awarded as the number 1 independant mortgage broker in Australia.

With an increasing number of people today turning to mortgage brokers for professional and unbiased service, 1st Street Home Loans is fast becoming their broker of choice. We offer a free and impartial service that provides access to over 30 residential and commercial lenders and more than 500 loan products from across Australia.

The Mortgage and Finance Association of Australia (MFAA) is the peak body for the Australian mortgage industry. Members include banks, mortgage managers, credit unions, mortgage brokers, wholesale funding institutions, real estate agents, valuers, solicitors and conveyancers.

All MFAA members belong to an independent dispute resolution scheme such as the Credit Ombudsman Service Limited.

Loan writing members are also required to become Accredited Mortgage Consultants (AMC). An AMC is covered by professional indemnity insurance, has passed probity checks, and has met education and experience requirements set out by the MFAA.

Hello,

Welcome to 1st Street's monthly newsletter. If you require any assistance in obtaining the right loan for you, or if you have any questions in regards to an existing loan, please do not hesitate to contact me personally on 1300 88 01 09 or 0411 33 9998.

Kind regards,

Jeremy Fisher

Seven Tips for Negative Gearing

Gearing Negative gearing is a way to maximise your gains, but carries greater risks as well.

Here we suggest some tips to help you make the right decision.

Through some careful planning and assessment of your financial position, the rental market, and the investment property you’d like to buy, a negative gearing strategy can help you to achieve your financial goals.

Here are seven tips to help you do that.

1. Assess your financial situation

Map out your own personal objectives and what you want to achieve. Assess your own individual financial situation and seek professional advice.

2. Consider the worst-case scenario

To have peace of mind you need to map out the worst-case scenario to “stress test” your finances. What happens if the property is vacant for a long period of time? What if you lose your job, or if you decide to start or extend your family?

Planning for the worst case might change your opinion about how much to borrow, and should certainly make you have sufficient cash reserves or access to cash to get through.

3. Get insurance

As mentioned above, one risk is that you lose your income. You should seriously consider taking out income protection insurance so that most of your income will be replaced, at least for a period.

You should also consider landlord insurance. These policies can cover you for malicious or accidental damage by the tenant; theft by the tenant (eg furnishings); loss of rental income if the tenant defaults on their payments or if the property is vacant due to repairs; public liability (eg damages claim from an injured tenant); and legal expenses incurred in taking action against a tenant.

4. Understand the risks and benefits

Property promoters are not the best people to give you advice on the pros and cons of a particular property, location, etc. After all, they have a vested interest in you purchasing a property from them.

You need to do your own research, seek professional advice about the benefits and risks, and make your own decisions.

5. Take out an interest-only loan

Because this is an investment, the loan you take out to pay for it is a tax-deductible debt. On the other hand, a home loan for your own family home is not tax-deductible.

It therefore makes financial sense to concentrate on paying off the principal on your own home loan, leaving the investment loan principal intact. Then, once your home loan is paid off, you can concentrate on reducing your investment loan.

6. Buy quality property

You need to make sure that the investment property is going to meet your objectives in terms of regular rental income and good capital growth. Ask yourself which locations are popular with renters? Where is the vacancy rate really low? What are the long term plans for transport, retail centres, etc in the areas you’re considering?

7. Get professional advice

You should consider using an accountant to prepare your tax return. This way you ensure that all available deductions are maximised, and that you don’t make any mistakes.

Further, you should consider engaging the services of a quantity surveyor to calculate the property depreciation. It is estimated that 80% of property investors are not maximising their depreciation claims, which means that they’re paying more tax than they need to.

In summary

Property investment can be a great way to build your wealth. The most successful investors are those that plan well, minimise their risks, and use professionals.

Using a Buyer’s Agent

Blueprint & key Buying a property can be a time-consuming and confusing process.

This is where a good buyer’s agent can help you find the right property, and negotiate the best price.

Buyer’s agents are licensed professionals that specialise in searching, evaluating and negotiating the purchase of property on behalf of the buyer – they do not sell real estate.

The key difference between a buyer’s agent and a traditional selling agent is who they represent. A buyer’s agent works exclusively for the buyer, whereas the selling agent works for the seller. By law an agent cannot act for, and accept a commission from, both parties in the transaction.

Services

Most buyer’s agents offer at least two levels of service:

The full search service. This is where the buyer’s agent actively searches the market and shortlists properties meeting the specific criteria of the client and then evaluates and negotiates the recommended property.
The negotiation or auction bidding only service. This is where the client finds the property and engages the buyer’s agent to evaluate and negotiate a private treaty or bid at auction.

Using a buyer’s agent to purchase real estate is becoming more widespread throughout Australia as investors and home buyers understand the benefits they provide.

A professional buyer’s agent can provide you with all the knowledge you need to make an informed decision about the value of a property without all of the sales “hype” often generated by sales agents and glossy brochures.

Furthermore, buyer’s agents can give you the upper hand by their understanding of the auction process, bidding tactics and by not being emotionally involved in the auction or negotiation process.

Benefits

Here are four key benefits why you should use a buyer’s agent:

Gain access to a wider choice of properties, many not even advertised, via the contacts and network of the buyer’s agent.
Source the right type of property in locations with good prospects for capital growth .
Leverage your time. Instead of searching the newspapers and internet every weekend, get someone else to do the hard work short listing suitable properties.
Obtain the lowest possible price by using a professional negotiator.

Fees

Many think that using the services of a buyer’s agent is too expensive. This is not the case. Buyer’s agents can save you money, time and stress, whatever your budget.

In most cases they will negotiate a better price that will save you more than the fee, and provide a whole lot more benefits as well. For investors, the fees are tax deductible.

Buyer’s agents usually charge their fee before they begin the search. The fees are either a flat stated price or a percentage of the property purchase price.

Professionalism

An important question to ask a buyer’s agent is whether they are truly “exclusive” or “independent”. If they accept sales commission from vendors or developers then they cannot be classified as “independent” as they are acting in the interests of the seller.

Only deal with a licensed buyer’s agent. You can check licences via the Office of Fair Trading in each state. Only use one that is a recognised member of your state-based Real Estate Institute and the Real Estate Buyer’s Agents Association of Australia.

Conclusion

Buying a property is a major financial decision. Using a professional buyer’s agent could help to make it the best decision.

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