Sunday, February 11, 2007

Business Nerd of the Month! David ‘Kochie’

Business Nerd of the Month! David ‘Kochie’ Koch, is best known as an Australian television personality, and financial commentator. He currently presents 7's Sunrise morning program each weekday and Where Are They Now. Koch hosts Australia's top-rated small business show, My Business, which airs on Sunday mornings on 7.Koch founded Personal Investment magazine and My Business magazine, the largest-circulation small business magazine in Australia. He also provides business and financial commentary for several publications, including Pacific Magazines and AFR Investor. Koch was a director of the NSW Small Business Development Corporation for eight years and as the current director of Pinstripe Media Pty Ltd, he speaks regularly at corporate events about small business, finance and investment issues.He was nominated for a Silver Logie in 2004 and 2005 for Best TV Presenter. The Money Management newspaper recognised Koch as one of the 10 most influential people of all time in the financial services industry and he has written several practical books on family and business financial management. Reader's Digest listed him in the top 50 Most Trusted Australians and he was recently named 2007 Australian Father of The Year by the Australian Father's Day Council. Yeah, we love successful nerds!

Housing Affordability

Hello fine readers! As promised last month I am going to delve into the world of ‘housing affordability’ come on this crazy journey with me as I try to understand the complex world that is….economics.

Unless you are literally living in a cave or under a rock, housing affordability is going to matter to you, hence why the current ‘crisis’ is getting such considerable media coverage.

The topic is complex as it is influenced by many economic factors. Any combination of such factors can create varying outcomes on individuals and community. Economists, banks, politicians and business people all monitor certain statistics to map trends and anticipate moves in the market. These factors and statistics include:
- The number of new housing approvals
- The reserve banks’ interest rates
- Credit and debt and international markets
- The number of approved home loans
- The housing costs to purchase, rent, build and renovate
- Individual income rates of pay
- Consumer confidence and employment growth
- Inflation rates
- Growth in population

To try and understand what is contributing to Victoria’s low housing affordability I will look at each of the above basic factors and discuss the influence they may be having. As you read you will see that each factor relies on and influences each other.

New Housing Approvals
Housing approvals are important as they can forecast what will be built in the coming months and years. In July housing approvals increased by 15.3 per cent from the previous month to 3,625, but they were still down 5 per cent on the same time last year. Housing approvals peaked in August 2002 and five years on there is still no recovery despite Government first homebuyer and rebate incentives. 2006/07 figures show there would have been approximately 39,000 new dwellings built in Victoria, which is 3,000 fewer than the required 42,400 to fill the need. As fewer homes are being built and more people move to Melbourne supply decreases and demand increases. This will lead to an increase in cost.

Housing Costs
The average house price in Melbourne is now $420,000, up more than 10 per cent over the past 12 months. In Sydney, this figure is closer to $520,000. Both cities are now among the English-speaking world's least affordable housing markets. Research has shown that in Melbourne a 605sq m allotment in Tarneit, 27km southwest of the CBD, costs $249,600. 2km further west at Manor Lakes, prices are starting at $255,600. In Sydney a house and land package on a smaller block in St Helen's Park, 48km south of the CBD, is $400,000.

Affordability is affecting the whole country. In Brisbane, outer suburban housing starts at $320,000 in Jimboomba. On the Gold Coast places like Yatala and Pimpama, halfway to Brisbane are starting at $320,000. In comparison suburban affordability in Melbourne is quiet attractive to many Australians. This has lead to an increase in Victoria’s population which places a greater demand on the market.

Other housing costs have also increased contributing the low housing affordability. Renovation costs have jumped almost 6 per cent in the past 12 months dramatically increasing the price for those hoping to enter the property market by purchasing a ‘do-er up-er’. Rental prices have also increased with the decrease in available rental properties due to the number of owner occupiers purchasing.

Home Loans
Australians took out fewer home loans in July then June 2007. Some believe the fall was a correction after a strong rise in June as a result of this years’ superannuation opportunity to put up to $1 million in and receive a tax discount. More than 63,500 people took out home loans in July, down 4.1 per cent. Economists had expected only a 2 per cent fall. The number of loans for new dwellings dropped 3.3 per cent. In general, fewer home loans reflect the restraint on purchasers to enter the housing market and poor value available. Less homeowners can also lead to more renters as people choose to rent or stay in the family home longer before they purchase, thus putting pressure on the rental markets.

The reserve banks’ interest rates
It must be made clear that the Reserve Bank is independent of the government and the forthcoming election, despite general opinion, will have no bearing on their decisions to change rates.

On Tuesday 7th of August 2007 the Reserve Bank of Australia announced it had lifted official interest rates by a quarter of a percentage point to 6.50 percent, an 11-year high and the first rise in rates since last November 2006. The rise in interest rates will add around $50 a month to repayments on the average $250,000 mortgage. Many believe that rates may rise again this year if a return of stability to the money market does not occur and international economic pressures are not contained and spill over into Australia.

The fall in home ownership is expected to worsen in coming months as the effects of the interest rate rise takes hold. An interest rate rise can often taken 6-18months for its full effect to be felt. The possibility of a November rate rise is currently at 50 per cent at best.
Many believe the deciding factor would be an abnormally high October inflation figure.
This speculation of another interest rate rise may be the reason behind the slowing demand for home loans discussed above. Any interest rate rises will affect anyone with a mortgage particularly those first homebuyers whom may have already extended themselves to meet their current home loan.

Growth in Population
Melbourne attracted 61,000 new residents in the year to June 2006, while Sydney attracted only 35,000. For the first100 years after Federation, Sydney achieved a greater annual population growth than Melbourne every year. But this is no longer the case as Australians choose which city and which living environment they prefer. Of the new population a considerable amount are nuclear structured families. Research shows that over 5 year Sydney attracted 5,000 net extra traditional nuclear families where as Melbourne attracted 11,000. This population growth coupled with the shortage of new housing approvals would lead to a rise in housing costs in the year ahead.

Individual income rates of pay
As the gap widens between the rich and the poor, even people in ‘good jobs’ are finding themselves unable to live near their place of employment. A large proportion of these people are spending up to 50 percent of their income on their homes. With such a large percentage of income being spent on rent or house payments tremendous burden has now been placed on finances for food, utilities and transportation.
The deterioration of housing affordability has been worsened by salaries that haven't risen nearly as fast as house prices.
Studies have shown that the median house price in Melbourne is between six and seven times median household income and in Sydney housing costs measured between eight and nine times earnings. This unbalanced relationship between housing costs and income is a major contributing factor to the low affordability being experienced across Australia.

So, I hope this whirlwind tour of economics and housing factors has been beneficial! Despite sounding quiet doom and gloom for the future it must be remembered that all markets work in cycles and everything therefore is relative. So stay positive and continue to look for the bargains and opportunities that can be found in all sorts of markets.

Look forward to next months issue where I tackle the most frequently asked Real Estate questions.

Saturday, February 10, 2007

Frequently Asked Financial Questions

Hello fellow readers. Welcome back for this months’ Real Estate column. Exciting isn’t it? Ok, so not everyone is a Business nerd such as me. Although, I have found many people have lots of interesting questions. It does seem that many people are secret or budding Real Estate nerds! Yeah! This month I hope to embrace this community of question askers by answering the three most frequently asked questions! Enjoy….

p.s. be aware that these answers are Victorian based, every state has their own lot of rules.

What is and how much is stamp duty?
Stamp duty is a general revenue tax which is imposed on transfers e.g. agreements to sell property, policies of insurance and motor vehicle licence transfers. Interestingly stamp duty is used for public services such as education, health, law and order, and public safety.
The purchaser pf the property is usually expected to pay the duty as a percentage of the agreed purchase price. The name ‘Stamp Duty’ comes from the purchaser’s requirement to ensure that the document has been correctly stamped.

The percentage of stamp duty required to pay increases as the purchase price increases. The structure is similar to increases in personal income tax scheme. So the richer you are the more you pay. I’ve tried to outline it in this little table.

Examples of cost structure:

If you pay $20,000 for your house. Stamp duty is approximately $280.00

If you pay $115,000 for your house. Stamp duty on the first $20,000 is $280.00. Stamp duty on the next $95,000 is $2,280.00. Total Duty to pay is $2,560.00

If you pay $870,000 for your house. Stamp duty on the first $20,000 is $280.00. Stamp duty on the next $95,000 is $2,280.00. Stamp duty on the last $755,000 is $45,300.00. Total Duty to pay is $47,860.00

If you pay $1,000,000 for your house. Stamp duty on the first $20,000 is $280.00. Stamp duty on the next $95,000 is $2,280.00. Stamp duty on the next $755,000 is $45,300.00. Stamp duty on the last $130,000 is $7,140.00. Total Duty to pay is $55,000.00

Why is stamp duty important to me?
You have to be aware of the extra costs associated with purchasing a property. Many Real Estate agents will only discuss the sale price and not mention the extra costs such as Stamp Duty and legal fees. It is quiet a large amount to pay in one lump sum. Some people therefore choose to also borrow the Stamp Duty from their banks, potentially borrowing a total of 105% of the purchase price.

If you’re really excited about all of this you can sign up for the ‘Stamp Duty Bulletin’ at www.bdw.com/subscriptions/ oh dear….

What is a Section 32 Vendors Statement?

A ‘Vendor Statement’ or ‘Section 32’ is a document containing lots of information about the property being sold, and is provided by the owner (Real Estate people call them ‘vendors’ once an owner has decided to sell).

The name ‘Section 32’ comes from the Sale of Land Act, in which the 32nd Section outlines what information must be given, and also sets out specific warnings that must be made clear to the purchaser, such as the cooling off periods and exceptions.
Purchasers should get a copy of the Section 32 and check it thoroughly with legal council. The most important things to look for are usually things NOT included. Why haven’t they been included? Is there something to hide?
It is important that the Section 32 is correct and complete, as a sale can be terminated or the vendor fined if it has not been properly prepared. It is strongly recommended that a vendor employs a legal representative such as a conveyance, solicitor or lawyer to prepare the document.

The Section 32 must be provided to an intending purchaser BEFORE the contract is signed. Real Estate agent will often have the purchaser sign a contract first, and include a special condition in the contract stating that the sale is subject to the vendor providing the purchaser with a copy of the Section 32. This can be a good way to quicken up the process of purchasing a property and getting your offer in first, but only do it when you truly understand what you are doing and the legal ramifications.

Common things to be included in a Section 32 are:
Statutory warnings to the purchaser.
Vendor’s details.
Title details.
Information regarding building permits issued in the past 7 years.
Particulars of owner-builder warranty insurance.
Particulars of any mortgages or “charges” over the.
Information regarding covenants, easements and any other restrictions on title.
Planning information, particularly where zoning restricts land use.
Information regarding outgoings payable by the owner of the property.
Disclosure of any notices or orders issued by the authorities, regarding such matters as fencing, road-widening, sewerage etc.
Information as to services connected to the property.

Why are vendor statements important to me?
Real Estate agents are there to sell properties. Although they are highly regulated to tell the truth it is important for you to do your own homework and double check the facts. Vendor statements allow you to do this in a legal setting ensuring you ‘get what you paid for’ with no nasty surprises down the track. These could include large body corporate fees or zoning which means you can’t run your business there as planned!
What is the difference between a private treaty sale and an auction?

There are two main ways to buy a house – by private sale or by auction. Owners (or Vendors) get to choose which method they will use to sell.

Private Treaty Sale
Buying by private sale means you buy the property at the advertised price or at a negotiated price with the vendor, usually through the vendor’s estate agent. Buying this way allows both parties to negotiate an acceptable price in private.

Features of a private sale include:
Often less dramatic than an auction
Time to consider offers
The ability for extended sale periods
Offers for the property are made 'blind', without knowing what other offers are
Savings on the expenses of an auction campaign
Offers are often made below the asking price with negotiations expected

Auction
Approximately 30 percent of residential sales occur by auction in Melbourne and are most popular in inner Melbourne. The auction method is pitched as the way to test the property market against buyer demand. Auctions are often emotional and fast-moving and require both parties to keep a cool head for a successful and fare result. If the highest bid is acceptable to the vendor (above the ‘reserved price’) a sale occurs on the fall of the hammer.

Features of an auction include:
Everyone is aware of other offers being made
All legal documents relating to the sale of the property are available for inspection before the auction
Contracts are signed and exchanged on the day of the auction
The purchaser is required pay the deposit as stated in the contract (usually 10% of the purchase price) at the conclusion of the auction
There is no ‘cooling off’ period at an auction
Properties often outsell their advertised price
It is possible to make an offer before the auction.

Why is the difference between a private sale and auction important to me?
You must be aware of the method of sale as it can make a huge difference to how you make an offer or if you want to make an offer at all. Auctions require you to be more prepared for the day of the auction with your finances in order to pay the deposit and your legal due diligence done on the property. Learn the ins and outs of both methods to ensure you know how to secure a bargain.

Friday, February 9, 2007

Tips for successful investing in property

So it seems that while we have been on our mid semester break the housing market has becoming a hot topic, with suggestions that housing affordability, both for rent and sale, may become an ‘election decider’. As a Real Estate industry member I am of course a little bit excited by this as housing is something close to my heart and I believe everyone should be have access to affordable and acceptable housing as a foundation to lead their best lives. So next month, I will try to answer the questions raised in the media, look at what the government is doing, what they could be doing and what you should do to combat the increase in housing.

This month will complete my three part ‘first home buyer’ series by looking at simple tricks of the trade for how to better your rental and capital return on your investment.

Ways to increase your investment return

Talk to serviced and short stay businesses
This is a very difficult type of investment for the first homebuyer and it is often not recommended by institutions but it is an interesting cash positive option. Make sure you check these points if you’re thinking about entering this niche market.
1) Research the history and success of who is managing the services and see if there are any takeovers in the future
2) Look at guaranteed rentals, lease terms and incremental rent increases. These can be great as you don’t have to worry about having the apartment rented all the time and can structure your repayment.
3) Have the apartment independently valued as some guaranteed rentals are paid for by you after inflated purchase prices. Banks will insist on a valuation.

A story of furniture increasing your rental return
Ben bought a vacant 2 bedroom apartment for $400,000. He advertised to rent it out at $400per week unfurnished on a 12 month lease. It cost $1,000 in advertising and he found a tenant within a week. After his total outgoings he began receiving $300 per week to put towards his mortgage. Ben understood that if his outgoings didn’t change he would have $300 per week continually with no change. His friend mentioned that he should furnish it as she had done this herself and found a large company to rent the apartment to put their staff in during interstate projects. When it came time for Ben to re rent the apartment he went to IKEA and bought 2 bedrooms worth of furniture including mattresses, sheets, forks, plates and electrical goods at a cost of $15,000. It cost $1,375 in advertising and took 3 weeks to find a tenant Ben but was able to secure a professional couple from overseas as tenants at $550 per week. He figured that if he depreciated the furniture at $290 per week the furniture will have paid for itself within 12 months and after outgoings he would still receive $165 per week. Ben was happy to chip in the extra money himself towards his mortgage for the first year because once the furniture was paid off, he would receive $455 per week continually and be in a position to pay off his mortgage years earlier! Yeah for BEN!

Try and purchase with land under you
Although purchasing apartments on strata titles (basically high rise buildings) can be attractive as they are affordable vehicles to enter the market you purchase very little land. Effectively if you are purchasing a very small percentage of the land the entire building takes up. As the old saying goes, Real Estate is all about Location Location Location. The price of land is more likely to increase then the building on it, so the more land you have, the better!


Think outside the square
Have you thought about other ways of entering the property market rather then residential? You can purchase commercial property such as office space, shops, warehouses, hotels and even car spaces. This can be a good way to diversify your portfolio and create tax benefits. These properties often show higher net incomes then residential properties with rent often covering total outgoings. Commercial leases of years rather then months typically offer more security and can business success can enhance your property value. Make sure you monitor the costs of maintenance and choose a continually desirable location. Corporate tenants such as government departments are less likely to stop paying rent.

Tuesday, February 6, 2007

How to secure a mortgage and first homebuyers grant

(Click image to enlarge)


Last month we started looking at the many young Australians entering the real estate market. Last month we discussed what to look for in a property, this month we will look at how to secure a mortgage and how the first homebuyers grant works. This is a very large area to cover for a short article but I will give you websites that you can use to follow up where I leave off.

How much can I borrow?
Each bank or lending institution uses slightly different lending criteria. The two main requirements however are:
• Your annual income and monthly repayment capacity
• Deposit to loan ratio. How much of the purchase price you are borrowing

The lender will calculate an approximate amount of how much you can borrow. For your own budget though, most people aim to spend no more then one third of their gross monthly income on mortgage repayments.

http://www.echoice.com.au/ has a good basic loan calculator.


What is a mortgage broker?
A mortgage broker arranges financing for borrowers with a variety of lenders. They often help locate the best loan for you and arrange the paperwork and contact required for the chosen loan. A mortgage broker does not make the loan, but receives payments for his or her services, often payment is paid by the bank as a percentage of the loan. It is best to check each broker’s commission schedule to ensure advice is impartial. A mortgage broker is probably a very good idea for the first home buyer as they can explain things better then most lenders, they often come to your place of business or home and can have access to special deals and rates.

Example of mortgage brokers are:
http://www.eaussie.com.au/
http://www.choicehomeloans.com.au/
http://www.mortgagechoice.com.au/
www.refundhomeloans.com.au


Loan Facilities and Definitions for a Good Loan

AAPR - The average annual percentage rate (AAPR) or true rate or mortgage comparison rate. Summaries interest payments, fees and expresses in one rate. It is designed to reflect the total annual cost to a borrower of a loan.

Accelerated Payment - The option to make repayments higher then the minimum required to pay off the home loan faster.

Amortisation Period or Home Loan Term– Regular monthly loan repayments of the principal and interest based on a schedule that will allow you to own your home at the end of a specific time period such as 15 or 30 years.

Basic Rate - Applied to loans commonly called 'No Frills Loans' which are generally cheaper than Standard Variable Rate Loans but do not have features such as a redraw facility or mortgage offset.

Standard Variable Rate - The rate for a 'premium' home loan product with features such as redraw.

Redraw Facility – The ability to make additional repayments on your mortgage, and then have access to the additional repayments if you need to. Know the conditions attached to the redraw facility such as minimum amounts and fees for using it.

Establishment Fees –Fees which may or may not be charged to set up a loan.

Exit Fee - Fee imposed by lenders when the loan is paid off before the end of it's term.

Fixed-rate mortgage - The interest rate and loan repayments are fixed for an agreed term, regardless of any market interest rate variations.

Official Cash Rate - The interest rate set by the Reserve Bank of Australia on the first Tuesday of each month is used to influence general market interest rates.

Principal – The amount borrowed from a lender on which interest is.

Further definitions can be found at www.realestateguide.com.au/xinc/definitions.cfm


First Home Buyer Loans
Federal
The Federal Government's First Home Owner Grant scheme (FHOG) was introduced in July, 2000. The tax free payment of up to $7000 was established to encourage home ownership and is on-going with no end date yet specified. The grant is not means-tested or restricted by a properties purchase price.
To be eligible to receive the FHOG you must meet the following criteria at the time of settlement, or completion of construction of the home:
- Applicants must be a natural person over 18 years old and not a Company
- At least one applicant must be a permanent resident or Australian citizen
- You must not have received a FHOG in any State or Territory of Australia
- You must not have owned residential property, including investment, either jointly, separately.
- At least one owner must occupy the home as their principal place of residence for at least 6 months continuously within the first 12 months

The grant is paid by electronic funds transfer to a nominated account when the buyer becomes entitled to possession of the home under a contract to purchase (usually on settlement), or after construction and when the building is ready to live in. Many lenders are authorised to administer the scheme and can organise earlier payment.

State
The Victorian First Home Bonus was introduced in 2004 and is in addition to the $7,000 FHOG.
New contracts entered before June 2007 receives a $3,000 bonus.

To be eligible to receive the First Home Bonus, applicants must satisfy all FHOG eligibility criteria as well as ensuring the amount payable under the contract is less then $500,000.

Applying
You can apply for the FHOG and the First Home Bonus at either the State Revenue Office (SRO) or an approved financial institution or through a mortgage broker. Only one application form is required and can be obtained from either the SRO or a financial institution. Applications forms and the supporting documentation are then lodged when applying for a loan.

Further Useful Websites

http://www.consumer.vic.gov.au/ – Advice, simple steps, Victorian regulations
http://www.yourmortgage.com.au/ – Calculators, advice, mortgage broker locators
http://www.sro.vic.gov.au/ – Details of the Federal Governments FHOG

Join us next month for the final chapter of entering the investment market with simple tricks of the trade of how to better your rental and capital return.

Good Luck!

Monday, February 5, 2007

Simple Tips for purchasing your first home or investment property in Melbourne

Many young Australians are quickly feeling the pinch of renting and the pressure to invest in real estate. Starting the hunt into the daunting and great property market can take time and headaches. Over the next few issues we will cover what to look for in a property, how to secure a mortgage and first homebuyers grant and finally how to add value to your property once you have purchased it.

This month we look at small ways to help you locate a property that will keep you smiling all the way to the bank.

Things the banks may want
Many banks will place basic requirements on loans they believe to minimize their risk.
Don’t forget the banks are the ones essentially purchasing the property; they like to make sure that if you fail to repay the loan they won’t loose!
Common requirements include:
- Size, the property should be over 50sqm internally
- Location, a 10% deposit for suburbs such as Melbourne CBD and South Melbourne usually apply and 20% in Southbank and the Docklands.
- Usage, many banks prefer not to lend to apartments in a partially serviced block

Things to ask the sales consultant
When talking to the sales agent ask lots of questions. It’s a good idea to make note of their answers and check them yourself if possible. Check with councils, neighbors, solicitors and in the vendor’s statement. Some useful things to ask about include:
- Car park location, particularly in apartments and the accessibility of street parking for your guests
- If the property will be sold via private sale or auction
- If the previous occupants were owners or tenants, generally a property will be in better condition if it had an owner living in it
- Comparative sales in the area to compare price
- Which direction it is facing, generally north and east are preferred for light
- How long the property has been on the market for, generally if it’s taken a long time to sell there’s a good reason why. If a property sells quickly today, more then likely it will sell even quicker next time!
- For a copy of the section 32 or vendors statement
- What are the property outgoings such as council/water rates, body corporate
- What appliances etc. will remain with the property

Things to look for in a property in general
The above lists of questions will hopefully give you a good overall idea of the quality of the property. When inspecting the property it is good to take note of some things yourself, such as:
- The properties overall condition by checking carpets and walls for marks, and bathrooms and ceilings for water damage etc.
- Storage, check there is enough storage available in bedrooms and kitchens particularly, does the current occupant look like they have enough storage for their belongings?
- Inspect the property at different times of the day, this can help reveal the brightness of the property through out the day and if traffic noise increases in certain periods
- Surrounding construction, is there plans for large infrastructure development or buildings planned near the property? If so, will it affect the properties charm or value?


Things to look for in an investment property specifically
When looking for an investment property the number one thing to remember is that you’re NOT looking to live in it yourself. Most owners purchase properties with great views or in great condition etc. because they would prefer such luxuries. A good investor realizes that tenants will pay good rent without these expenses. Key elements include:
- Rental return, make money in the short term with a return of 5%-7% eg. Simple rule of thumb is, if you purchase a property for $450k you should rent it for at least $450pw. Remember to include all outgoings in this equation.
- Capital appreciation, longer term returns come in 3< years for houses and 6-10< years for apartments when you sell them at the hopefully higher market rate
- Lease terms, if the property already has a tenant how long have they committed to and for how long? Will this contribute enough to repaying your mortgage?
- Lease type, look into the returns possible through leasing the property residentially, commercially, fully furnished or serviced etc. each have their own pros and cons depending on your time line and strategy
- Location, many investors try to position their properties near institutions such as universities, hospitals and army barracks for the people whom study and work there. Also near public transport and in areas where there is strong capital appreciation.

Costs to remember
Many people thinking about purchasing a property can omit many costs that may make or break the deal. Sit down and do your numbers carefully and decide are you comfortable with this level of financial commitment continuously for the next few years. Cost include:
- Interest repayments, fixed and variable interest rates which may increase quarterly or annually,
- Mortgage fees, such as withdrawal, set up, late and management fees
- Stamp duty, in Victoria Stamp duty is paid on most used properties, check how much is owing for properties in the price bracket you are looking at
- Legal and solicitors fees to go through documents and managing the purchase and to assist with a will if one is often required when you purchase a property
- Annual outgoings such as body corporate, water and council rates
- Maintenance, maintaining and improving the property for yourself or tenants including the occasional unexpected and often expensive large issues

A lot of stuff hey? How can we young people possibly make the right choice? This is the risk that everyone in the property market faces. Unfortunately real estate is not a guaranteed way to make money but money can certainly be made if you try, are diligent in your research, act quickly and have a little bit of luck! First homebuyer’s grants from the state and federal government are available to eligible youths but be careful not to use this to purchase a lemon! Make the right choice today and leave the others to making their lemonade the hard way.

Sunday, February 4, 2007

Beginning and Ending a Tenancy

Renting a home can be a mind field of lessons and red tape, the most cautious times however tend to be at the beginning and end of your lease. Last month we talked about how to best go about applying for a property. This month is all about how to secure the tenancy from beginning to end and being aware of your rights.

Paying the Bond
Once a date has been set to ‘sign leases’ you will be required to pay the bond amount and first months rent upfront. Many real estate agents will require the payments be made in two separate bank cheques or cash rather then credit or eftpos cards. Bonds are calculated on rent per weeks. For properties with rent under $350 per week the bond may be up to four weeks. Properties over $350 per week may be asked to pay up to six weeks rent.

Lease Names
It is important that everyone living in the flat put their name on the lease. This ensures that each tenant has equal rights for basic things such as collecting keys and receiving access to the property to larger issues such as abandoned goods and rental references.

Completing a Condition Report
Completing a condition report is one of the only formal opportunities for tenants to record any damage or wear on the property. You must fill in two copies of the report for each room noting any issues such as marks on the walls, stains on the carpets etc. to ensure that when you vacate you are not held responsible for them. You must hand in the landlord copy to your property manager and HOLD ONTO their own copy incase any disputes arise.

Maintence and Keys
The beginning of the lease is the best opportunity to have any maintenance requests followed out by the landlord. Bring attention to the issues noted on the condition report and make sure they are followed up. Once you have been in a property for a while it can become more difficult to draw attention to smaller non essential maintenance issues. Also make sure you are happy with the amount and quality of keys you are given. Make sure all remotes and security passes work well as later in the lease you will be required to pay for them yourself.

Ways of Ending your Lease
There are a few general opportunities to vacate the property. You may:
- complete the fixed term of your tenancy and give 28 days notice in writing to the landlord before your lease completion date
- stay on in the property after your fixed term and give 28 days notice in writing to your landlord once you are on a periodic lease
- transfer the rest of the fixed lease or periodic lease to someone else
- break your lease by notifying the landlord in writing and allowing the landlord to find new tenants
As long as the correct amount of notice is given in the first two scenarios no cost is incurred.

Transferring a lease can be tricky as the property manager must approve the new applicant and draw up new lease amendments, some property managers can take a long time to do this possibly causing you to pay two rents while you wait. Tenant transfers also become difficult in practice as the new tenant must pay the outgoing tenant their share of the bond and put their name on the bond form. Often we find disputes then arise at the end of the tenancy if bond money is not received.

Breaking a lease is the most expensive way of choosing to end your lease. Some agencies will require you conduct inspections at the property until a new tenant is found or pay for advertising costs. You may need to pay rent until a new tenant is found which could potentially be until the end of the original lease agreement. And finally, breaking a lease does not look too good on your rental history.

Claiming Your Bond
When you vacate you must leave the house in a clean state, effectively in better condition then you began the lease. This will ensure your full bond is received. Most real estate agents will require you steam clean the properties carpets and supply them with a receipt when you hand back all keys and remotes. You must leave on the day you say you will or you may be required to pay for the extra days.

When completing a bond claim for everyone on the original bond lodgment or those whom have transferred onto it must sign the claim form. Be careful to sign exactly as you did on the original lodgment form (refer to your copy to check signature) as they are processed by a computer that demands very high similarities. Do not fill in the bond claim amount until AFTER your property manger or landlord has done the final inspection and tells you how much you will receive.

I hope all of the above is helpful as it important not only to know your rights as a tenant but to make your time in each property easy and ensure you receive a glowing rental reference for your next property.

Good luck

And happy renting!

Saturday, February 3, 2007

New Tenancy Applications

Welcome to 2007. This year I hope to give helpful advice on how to rent and buy property in Melbourne today for younger people. From what the first homebuyers grant is all about to your rights as a tenant.

This month is busy for starting new leases. As students leave and graduate January through to March sees a large ‘swap’ in tenancies. This can be good for new tenants as there can be a lot of properties available but bad at the same time as there are also a lot of people trying to rent them! To help you get the property you want follow these four tips:

Send in a good application:
To be good it must be COMPLETE with all names, phone numbers and 100 points of identification (eg. A passport, current visa, medicare card, drivers licence and a bill equals 100 points) also, make sure you sign where necessary.

Afford the property:
Make it look like you can afford the property. If you have a healthy salary show it with pay slips, (eg After tax weekly earnings of at least double the weekly rent.),
if not show a healthy bank statement (eg minimum of 3- 6 months rent). If you don’t have either put a parent as a guarantor or on the lease with you.

Look good/Be prepared:
Be polite and well dressed when you go to see properties and talk on the phone. Often receptionists will be the ones checking your application and recommending you to the property managers. Most agencies when you borrow keys to inspect properties require a $50 cash deposit and photo id, be prepared and have them on you before you get there.

Know the availability:
Ring the agent and ask when the property is available to inspect and when they want someone moved in by. Most landlords will not be flexible on the move in date by more then 1-2 weeks. If you put in a good application some agencies will let you view the property up to 14 days before the advertised availability date.

Good luck!