Monthly Archives: July 2016
While relaxing and enjoying good times at your favourite holiday location, you stroll past the local real estate agent’s window and browse the offerings.
Imagine, staying regularly or living in the same place where you have so many great memories. Imagine owning a property where time seems to stand still, and where enjoyment is the longest lasting impression.
For many people, buying an investment property in their favourite holiday destination presents a double dose of benefits – the chance to regularly enjoy the best of holidays and build wealth at the same time. Such a property can also represent the ideal retirement destination, or somewhere to treat family and friends with affordable holidays in the meantime.
While buying a holiday property seems a glittering prize, what are the key considerations before taking the plunge?
Make sure you really like the location
The first and highest priority is to know that you absolutely adore the location of your vacation property, and will be happy to adopt the area as your home-away-from home.
Gaining such an understanding is only possible by spending considerable time at the location, not just a weekend. It may require you staying for several weeks or longer to fully appreciate whether the location is going to stand the test of time.
If you love snow skiing, are the ski fields to a standard that will bring you enjoyment year after year? If you love fishing, will the location provide a happy fishing experience for you, year-in year-out?
As opposed to staying at a resort or timeshare, buying a holiday property is a long-term commitment, and you cannot just move to the next location if you become weary of the location or property.
Easy accessibility should also be considered. If the thought of catching two flights, or driving 1000 kilometres every time you want to take a holiday seems overwhelming, then you may wish to consider something closer to your first home.
Know all the costs
A vacation property is the same as any other property investment – you need to factor in all the costs involved, whether rates, electricity, maintenance, property management and all other overheads involved. A dream vacation property can quickly become a nightmare if your holding costs exceed your budget.
In many principalities, the government treat investing in holiday apartments differently than straight-up investment properties, so tax is also an important consideration when crunching the numbers.
Management of property
It is likely that you will only spend a few weeks a year at a holiday property, so what happens for the rest of the year in your absence?
A good property manager will not only ensure that ongoing maintenance issues are attended to quickly and effectively, but to maximise cash flow from rentals, will also work to ensure that the property is consistently occupied and cleaned while you are not there.
Engaging a property manager to undertake ongoing maintenance is so important, as the last thing you want to do on your holidays is to spend them repairing.
Due diligence on important indicators
If you can create more wealth at the same time as enjoying the benefits of a vacation property, then you have achieved two goals at once, but this will not happen by accident.
Before buying a vacation property, make sure it has the capacity to attract enough holidaymakers to make the investment viable. Ask local agents about the average rental yield in the area, average rents for similar properties and occupancy rates, which can often be lower and more volatile in holiday locations.
Most holiday destinations experience “high seasons” when rent prices can be increased to accommodate increased demand.
If this season clashes with your preferred holiday times, you may have to forgo earning higher rents for your own enjoyment, and this should be factored into your calculations.
Take security seriously
If it is likely that your vacation property will be left unattended for weeks or months on end, to protect your investment it is crucial to consider security.
Depending on the location and type of property, this could take the form of contracting a security firm to patrol the property regularly, or installing security and alarm systems. Perhaps it could mean undertaking certain renovations, such as installing bars on windows or more secure doors.
In the end, you need to be clear of your priority when buying a holiday property. Is your first priority to buy a holiday property, or to build wealth through the purchase of an investment property. Your priority will inform your purchase.
When it comes to buying in pristine tourism destinations, it is so easy for the heart to rule the head, so before you jump in, make sure you are clear about your priorities, think long term, and know that the numbers stack up.
By Landon Miller of Harcourts Premier Properties, California USA
If you’re like many other property owners, you likely cringe when you get your property tax assessment in the mail. But as annoying as it may be to have to open your wallet to pay these pesky taxes, they do actually serve an important purpose.
You’re not just throwing money at Uncle Sam; instead, you’re contributing to the greater good of your neighborhood and surrounding communities.
So, what exactly does your property tax money cover?
Your property taxes go toward a few different things, not just one. Public schools depend on tax dollars to be developed and to remain in operation.
This component of property taxes is typically the biggest item on just about every property tax bill; in fact, it generally accounts for more than half of it. And in areas with a large student demographic or top-rated schools, this number can be even higher. You can bet that along with highly-appraised schools come higher property values.
While public schools get plenty of their funds from the government, the biggest supply typically comes from local homeowners in the area.
Local Public Safety Departments
A big part of your tax dollars go towards paying public safety officers, including uniformed police, 9-1-1 support personnel, firefighters, paramedics, and anyone else involved in keeping the public safe. Property tax money also covers the costs associated with keeping these individuals working and on the road, including police and fire stations, and vehicles and trucks.
If any additional personnel need to be hired, or if any more cars or stations need to be added, city and municipal governments will typically have to hike property taxes to make it happen.
Public Roads and Parks
Nobody likes to drive on roads full of potholes or stroll through parks full of debris and overgrown weeds. The municipal government hires people to take care of roads, sidewalks and parks, and it’s the homeowners that flip the bill through property taxes. Such maintenance includes traffic light repairs, paving roads, filling potholes, removing snow, and other improvements.
Municipal and County-Level Operations
In order for municipalities and counties to be able to carry out their day-to-day operations, they need money. And the majority of that funding comes from property tax revenues. How the money is split up between the municipality and county is often apparent, but in many other cases, it’s not.
In some areas, money may be fully collected by one entity, then divided appropriately. For instance, you might pay your municipality for allocations on one single bill, after which the apportioned money is then sent over to the county.
How Are Property Taxes Calculated?
The amount that you pay towards your property taxes will depend on the market value of your home, as well as the pre-determined assessment rate. This rate is a percentage that will vary from one jurisdiction to another. In order to come up with your property tax obligation, the value of your property is multiplied by the assessment rate.
Whether you pay these taxes directly to the tax department or pay them through your mortgage lender, you’ll get a copy of the bill at least once each year. Make sure you take them time to look over the bill and see exactly how the money is allocated so you can get a good idea of where your hard-earned dollar is going.
Municipalities, counties, and school districts depend on property taxes to support their budgets. Without adequate funds, there wouldn’t be enough money in the pot to take care of the schools, streets, parks, and public safety officers. The more money a local government needs, the higher your property tax bill will go to meet the demands.
When it comes to buying investment property, is rental yield the iron-clad indicator you can take to the bank? Or is it another statistic that can mislead or misrepresent the potential of a property?
If you’re looking for investment property, consider rental yield as one tool in your kit, albeit an important tool. It indicates the possible annual return on investment, over time, in comparison to the purchase price.
Rental yield is calculated thus:
Weekly rent x 52
Purchase price of property
Typically, weekly rent is around .1% of the purchase property, so the yield on a typical investment property is calculated thus:
$400 x 52
——————— = 5.2%
Because it doesn’t include a host of other variables, such as cost of repairs, depreciation, insurance, property management, and rates, investors should not look to yield to determine whether a property will be either positively or negatively geared. This can only be achieved through developing a cash flow projection.
Neither does the yield figure indicate or factor in possible capital growth. In fact, on many occasions, a property with high yield will be likely to offer low capital growth overtime and visa-versa (although there are exceptions).
For example, many investment properties in Australian mining areas are currently offering yields of over 8%, however the prospect of long-term capital gain – which what ultimately investors are seeking – is slim.
On the way to choosing an investment property, a high yield is important, but not to be used in isolation when making the decision.
The Holy Grail when it comes to investment property is a high yield dwelling in an area that promises capital gains. Throw in low maintenance costs and a great Property Manager and you have the full package!
The commonly held view goes something like this: All mortgagee sales go for a song because the bank just wants to get rid of the property as soon as possible to cover the debt.
Mortgagee sales can represent a great opportunity for the right buyer, in the right market, at the right time. However, the word “mortgagee” on a real estate advertisement doesn’t always equal “fire sale”.
The main point of difference with a mortgagee sale, is that the sale of the property is under the control of a financial institution rather than the owner.
What is a mortgagee sale?
When a homeowner stops making mortgage payments, the bank or lender has the power to take possession of that property, which involves a long legal process that can take six months or longer.
Such a circumstances can be the result of any number of factors, sometimes outside of the home owner’s control, for example, death in the family, sickness, unemployment or similar events. No matter the circumstances, losing the family home represents a devastating time for the mortgagor, and it is important to keep this in mind.
Before buying, it is vital to evaluate some of the well-circulated myths about mortgagee sales.
Myth #1: Mortgagee sales always represent a bargain
The price of the property will be determined more by market forces, rather than who is selling.
In a tighter market, with weaker buyer interest, some property specialists report mortgagee sales going for between 10 and 15% below market value.
In a stronger market, more buyer attention can push the price closer to the median. However, bidders at a mortgagee auction in a strong market often hold back because of their expectations of a lower price, so discounts can still be gained, particularly after the auction if the reserve is not met.
Myth #2: The bank wants to sell in a hurry
Many people think that because banks and financial institutions are not real estate agents, their only interest is to sell the property as quickly as possible.
This is true, however, there are laws governing the behaviour of lenders to ensure that the best interests of the mortgagor are maintained.
A rushed sale, without evidence of an appropriate and effective marketing campaign, will give grounds for the mortgagor to seek compensation if the result is a lower sale price than expected.
On many occasions, lenders will even avoid using the words “mortgagee sale” when marketing the property to avoid any perception of de-valuing the property in the marketplace.
Selling at a low price before auction can attract scrutiny of regulators, so it’s in the lender’s best interest to ensure all the boxes are ticked before and during the sale.
Myth #3: The level of debt determines the price
The common myth goes something like this: Because the bank only wants to recover their debt, that will be the key factor in the price. So if the mortgagor owned $150,000 on a $450,000 house, all the bank wants is $150,000.
However, although the mortgagors are no longer the owner of the house, they retain rights under law to ensure the house is sold for a reasonable price, and will receive the proceeds once the debt and costs are paid. It is in their best interests, to monitor how the sale proceeds.
Myth #4: The bank will accept any price, as long as it covers the loan
By law, a lender must undertake a lengthy process before the sale, which includes setting the price through an independent, certified valuation.
So, as always, it is the responsibility of the prospective buyer to do their homework into the recent prices of similar properties sold in the local market.
There are several risks involved with buying at a mortgagee sale, for example, there is no guaranteed vacant possession, and the new owner may be liable for any outstanding rates, body corporate fees or other payments.
Lenders are not required to supply building reports or disclose unapproved construction work.
So it’s important to take the time to do your own research and ask your Harcourts Sales Consultant about these risks. Check the sale and purchase agreement carefully before committing.
In the right market, a mortgagee sale can lead to bargains for buyers. However, to put it in context, a mortgage sale is about buying from a non-emotive, straight-forward vendor, offering a property that has gone through an informed, professional, independent pricing assessment.