Tag: finance

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Expert Tips

Additional expenses when buying a house

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When you find a dream property to purchase within your budget it can be happy days indeed. Once that offer is accepted though, you may not be aware of additional expenses when buying a house. The upfront costs can vary depending on where you live in Australia and the conditions of your loan and size of your deposit. But here are the eight additional expenses you may not have considered.

Additional expenses when buying a house

Additional Expenses When Buying a House

Building and Termite Inspection

The moment your offer is accepted for a property, a building and termite inspection is often conducted before the sale becomes unconditional.

If you intend to buy a property at auction, these inspections may need to be done before you intend to bid as an auction sale does not allow for a change of mind due to results of a building and termite inspection.

There are building inspectors who can offer both a building and termite inspection in one, but for peace of mind, a separate termite inspection can offer a more thorough inspection. Generally, a termite inspector will have more expertise and specialised equipment to detect termites than a standalone building inspection.

Termite damage can cost thousands to rectify, so paying for this separate inspection will not only give you peace of mind, it could save you losing your hard earned dollars to fix unforeseen termite damage.

Plumbing and Electrical Inspection

Its common knowledge for a building and termite inspection to be completed before a sale becomes unconditional. But it’s becoming more common to get a separate plumbing and electrical inspection too.

It’s wrongly assumed a building inspection will check all the electrical and plumbing work of a property. Yet, plumbing and electrical are licensed trades. These areas of a home can be costly to rectify if there are any hidden problems. It’s a good idea to get a plumber out and put a camera down the drains to check for obtruding tree roots or damaged sewer pipes which could cause problems to you later down the track. Checking for a safety switch and unlicensed electrical work can also offer peace of mind for safety too.

Lenders Mortgage Insurance

The cost of lender’s mortgage insurance (LMI) will vary depending on the size of your deposit and the amount you have paid for your property. LMI is added to your loan if you don’t have 20% deposit or more for your property.

Loan Application Fees and Bank Charges

Fees for loan applications and setting up bank accounts can also come as a surprise when setting up the mortgage for your new property. Speak with your financial consultant or bank provider to understand these fees.

Conveyancing Fees

A solicitor or conveyancer is needed to manage your contract and the fees can vary for this service. A conveyancer focuses on property law and helps facilitate the contract from start to end. They can also do additional checks on the property to ensure all renovations, new builds and add ons to the property have been lodged to council or have been approved for installation.

Stamp Duty

Stamp duty can range from state to state and it can be another additional expense when buying a house. It may not be applicable to your purchase and the way to check this is to look at what concessions are available in your state for stamp duty. There are online calculators that can estimate the stamp duty you will pay for your property to give you an idea on the costs.

Home and Contents Insurance

Insurance is important to protect your new asset from any risks. Ensure you get the right insurance for the intent needs of the property. For example if you intend to rent the property, landlord insurance may be needed. Often it is a condition of the loan to have insurances set up and the financial institution to be listed as a financial interest on the certificate of currency.

DISCLAIMER : Any information in this article is provided for general information purposes only. No legal, financial and taxation advice is given and the reader accepts information in this article may not be applicable to their circumstances. Independent professional advice from an advisor in legal, financial services and taxation are to be conducted by the reader for their own personal circumstances. We do not hold an Australian Financial Services Licence as defined by section 9 of the Corporations Act 2001 (Cth) and we are not authorised to provide financial services to the reader and we have not provided financial services to the reader.

What can you do when you buy a house and realise you hate it?

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Expert Tips

How to purchase your first property as a single woman

Two Red Shoes
Rebecca. Photo by Kirsten Flavell

With Australian property prices some of the highest in the world, buying a house is increasingly out of reach for many people. And given it’s a tough ask for those in a relationship, the path to property ownership seems laden with obstacles for the single among us. “Starting a portfolio is never easy no matter who you are but as single women, we must be extra cautious, motivated and pragmatic when it comes to building a killer portfolio,” says Rebecca Jarrett-Dalton, the founder of mortgage brokerage company Two Red Shoes.

A veritable minefield, you may be struggling to even start, which is where Rebecca’s expert advice comes in. “You deserve your place in the world of property owners. These seven tips should help you get you into gear to start that portfolio and, soon enough, you’ll be popping the champagne in a brand new house!” says Rebecca.

Two Red Shoes
Rebecca Jarrett-Dalton. Photo by Kirsten Flavell

Find an adviser that will you pay attention to you!
Personally I find it a little depressing that women are still having to prove themselves in this realm, but Rebecca warns that old habits (or prejudices) die hard. “Sadly, many women mention that they are overlooked or ignored yet women are often the key financial decision-makers. And this is obviously even more so when they are single,” says Rebecca.

“If you suggest something and you’re told no, ask why. It is your right to ask questions because it is your investment! If an advisor gives you an answer that seems glib or dismissive, go somewhere else. You don’t have to deal with condescension,” says Rebecca. Look for an advisor that listens, takes your ideas on board and offers constructive criticism too.

Reduce unnecessary credit & spending
When going for a loan, lenders will forensically examine your spending habits when summing up whether you’re a liability or not. Just recently I heard of one major bank that will deem a person irresponsible with money if they see Uber Eats on their bank statement (guilty as charged!).

“Lenders are looking at your spending habits when considering your affordability. Reducing your credit limits and repaying any unnecessary debt before you start makes you more attractive to a lender. Fixing your spending habits before you start a portfolio will improve your cashflow moving forward too,” says Rebecca.

Make decisions with your head (not heart)
This can be a tough one for women — particularly as we’re prone to nesting and that in itself often imbues the purchase of a property with layers of emotion.

“Being a forward thinker is a necessity when starting a portfolio that is going to have long-term growth. Remember your own taste will likely change, and trends are as unsettled as the wind. While buying that cute cottage may make your heart sing, you need to think; will it attract the right tenant or any tenant at all? Will it suit your longer-term goals?” says Rebecca.

You should also try to avoid high-maintenance properties or ones with unique features in order to increase the property’s buyer appeal down the line. “Always opt for the future rather than what your heart desires now,” says Rebecca.

Buy the best you can afford
Moving house is an expensive pursuit when you consider removalist fees and stamp duty (amongst many more hidden costs), so buying the best property you can afford helps to future-proof your purchase.

“The cost of changing over property is too much. You need to buy the place that you will be happy to live in for long enough to justify the costs of moving. Consider that moving is an exercise that costs upwards of $50,000 by the time you pay agents fees and the stamp duty again. Ensure the home you are about to buy is worth it,” says Rebecca.

Keep your budget in mind
The cost of day to day living can be surprisingly high, when you factor in all of life’s expenses. But one of the worst things you can do is remain ignorant to your spending habits — if you’re across them, you can make sensible decisions and avoid panic. 

“The ‘single tax’ is one to watch, given that the cost of utilities and rates is more or less the same for you alone as it is for a couple. This means you’re already under the pump from the beginning. Make life easier for yourself by working out your average spending and your net income. If there isn’t any surplus, you’ll know that you need to make some adjustments to the budget,” says Rebecca.

Build a safety net
You’ve heard the cliche about putting something away for a rainy day? Well this is even more important if you’re single and only have yourself to fall back on. “Consider putting money away in your home loan if it has a redraw facility, or an offset account to save interest while you wait for financial disaster. Another great way to stay ahead is to pay a little onto your bills with each pay,” says Rebecca who explains that a good financial adviser should be able to help you manage this.

You don’t need the latest, greatest, shiny new thing
“Need is a strong word. It is important to separate your needs and desires if you want to build capital,” says Rebecca whose own home is filled with hand me downs and old furniture.

“You may be surprised to hear that I don’t have a new lounge – it’s more than 20 years old but it’s fine because it still works perfectly. Although I might desire all-new furniture, my goal remains on the property. If your goal is focused on the right things, you won’t worry about the age of your lounge suite.”

For more on Rebecca and Two Red Shoes | Buy property with friends & increase your tax deductions

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Expert Tips

How to save a deposit for your first home

By Veronica Morgan

Although house prices around Australia have stalled slightly this year, it’s still tough out there for many Gen Ys and Millennials to scrape together a deposit for their first home.

Ideally, you’ll need to save 20% of the asking price plus purchasing costs, but might get away with 10% plus costs if you’re prepared to pay lender’s mortgage insurance.

A question I am often asked by many young people keen to get on the property ladder is how exactly do you come up with such a large amount of money?

Unfortunately there is no way to sugar coat this, you’re going to have to stop spending and start saving!

I recently met with some very motivated young buyers who had all managed to buy their first property by the age of 25. They shared with me four creative ideas on how to save:

  1. Move in with your parents – if you save $400 a week on rent, that’s over $20,000 per annum!
  2. Give up your morning latte – one a day adds up to over $1400 a year.
  3. Pack your lunch and drink tap water – a conservative saving of $10 for every day of work a year equals $2300!
  4. Save your shrapnel – at the end of the day put all your coins and $5 notes in a jar (it’s surprising how much you can save this way).

If you implement the four steps above your should be able to save over $25,000 in one year with only minor changes to your lifestyle. But it’s still going to take you nearly five years to save enough for a $500,000 property, so here are a few other ideas:

Ditch the car or do a car share

You could save a whole lot more money by getting rid of your car. According to various motoring associations, the annual running cost of a small “micro” class vehicle is over $6,000 per annum (plus registration and insurance). If you really can’t do without your wheels, perhaps you could join a neighbourhood car share scheme. According to Car Next Door, you could make between $2,500 and $10,000 profit per year depending on your vehicle and how often you make it available.

Go halves

Partner up with your sibling or trusted friend and look at the option of a more affordable investment property. Just make sure that you enter into a co-ownerhsip agreement before you commit!

Super size it

Talk to your accountant about the option of using your superannuation to accelerate your saving goals.

Cut up the credit cards

Or at the very least, keep only one card and reduce the limit to $500 for emergencies only! Alarming statistics from budgeting company Fox Symes reveal that a huge 86% of Gen-Yers admit to overspending on everything from groceries to entertainment, clothes and holidays – and often through credit card use.

Stay single

Recently I met with a couple who said goodbye to their dream of home ownership when they decided to spend $60,000 on their wedding. Call me a cynic, but given that the divorce rate is almost 50% in Australia, your money would be better used for a deposit on a home!

The good news

I do have a little bit of good news. A number of recent studies have shown that loan repayments are actually easier to manage today than they were for your parents in previous decades. So once you get over that initial deposit hurdle, you’ll find things ease up (well, a little bit anyway).

Veronica Morgan is the principal of Good Deeds Property Buyers, co-host of Location, Location, Location Australia on Foxtel and co-host of The Elephant in the Room property podcast.

Veronica Morgan on whether you should help your adult children get on the property ladder.

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RENO ADDICT

Reno Addict is now part of Interiors Addict

A reno by Naomi Findlay

As you know, we are constantly working behind the scenes to bring you new features and to make our content offering bigger, better and different! This New Year, I’m excited to tell you that our former sister site Reno Addict is no more, but fear not, it has been incorporated into this site as its own dedicated section.

We’re always testing and measuring to see what works, and to cut a long story short, it no longer made sense to keep the renovation content separate. There is no doubt that renovation is more popular than ever in Australia and more and more of the general public are interested in reading about it, whether it’s inspiration for a dream future project or that they’re actively renovating their dream home or investment property. That might be a whole home overhaul or simply a bathroom reno.

We know there’s a very good chance that if you’re interested in beautiful homes and interiors, you’ll have at least a passing interest in renovating too. So we decided to bring this renovation content in front of the eyes of our much larger readership here. We’ll still be concentrating on reno content, in fact perhaps now more than ever. We’d still love to see and share your real renos with our audience, so please email [email protected] if you’re proud of yours!

I’ll be sharing more of my own home reno this year. Pic by Jacqui Turk

As well as real reno inspiration, you can expect posts about new products, the latest legislation affecting you and expert advice covering topics like real estate, finance, home staging, health and safety and architecture.

We’ll bring you advice from the big names in the industry like Australia’s Rapid Renovation Expert, Naomi Findlay
A reno by Naomi Findlay

We know renovating can be daunting for first timers (I found this out myself last year!) so we want to demystify a lot of it and help you plan, find the right people to help you, make sure you spend wisely and are happy with the final result for years to come!

We’ll still have columns from ex Blockheads like Julia and Sasha and plenty of real renos

If you have any questions or you’re a reno expert who would like to write for us, please email [email protected]

As always, we welcome your feedback and ideas so feel free to comment below or contact us via the form at the top right of this page! This isn’t the last change for 2018, so I’ll keep you updated when we launch new things!

As ever, thanks for reading!

Jen

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Expert Tips Kitchens RENO ADDICT

How to make a big impact on a small budget in your home

In partnership with Latitude Financial Services

As you know, we recently finished a couple of major jobs in our own reno: a new kitchen and a new floor. The photoshoots for these are imminent so I look forward to sharing the before and afters soon!

Kitchens and floors are pretty major investments but there are lots of other things you can achieve in your home for a few thousand dollars which make a huge impact. Here are some of my top suggestions:

Lighting: When we moved into our nanna house we changed all our lighting, swapping old and very dated pendants for gorgeous new brass chandeliers with LED filament-style bulbs as well as rattan pendants from Beacon Lighting. Total cost including the electrician was less than $3,000 and the difference it made was priceless!

New lights and shutters in our living room (before we changed the floors)

Window treatments: We went for plantation shutters from DIY Online Blinds which aren’t the cheapest option but they make a huge difference (in our case, hiding some old and yellowing window frames which is a lot cheaper than replacing all the windows and the window treatments!). You could probably do all new matching blinds in your home for less than a couple of grand.

Paint: We had our whole house painted internally before we moved in (so much easier than moving furniture!). It cost a few thousand but it made the world of difference. We did most of our home in Haymes Greyology 4. We are now saving up to have the red brick exterior painted. This is a more expensive job but it really will be the icing on the cake! And then there’s the driveway (it never ends when you buy an older home!).

Walls painted in Haymes Greyology 4 in our bedroom

Doors: The last job on my list before Christmas is replacing all my internal doors, and my front door, with some new ones from Corinthian Doors. I’ve found the more we update things around here, the more the older/cheaper things stand out! It’s time for some quality doors and I’m confident they will make a huge difference. I can’t wait to share them with you.

Bathroom on a budget: With all the work we’ve been doing, we sadly can’t afford a full bathroom reno (or two!) just yet. But after Christmas we’ll be embarking on a family bathroom refresh on a budget which I hope you’ll all love. The idea is to have the bath and tiles professionally sprayed, paint the walls, replace the vanity and possibly tile over the floor, all for well under $5,000.

I talk more about these ideas in this latest video with Jess Aloi from our partners Latitude Financial Services.

For help achieving your reno dreams, speak to Latitude about your best borrowing options.

Photography by Jacqui Turk.

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RENO ADDICT

Podcast episode 2: financing your reno dreams

I’m sure I’m not the only homeowner with a reno wish list as long as my arm! But with property prices as they are, more than ever, it can be really hard to afford to do everything you want to, to create your dream home. Making those mortgage payments can be tough enough!

I sat down with Jess Aloi from our partner, Latitude Financial Services, about different ways to fund your dreams! We chat about our own renos, budgeting and planning sensibly, having a contingency fund and borrowing within your means.

Jess Aloi from Latitude Financial Services

Get it on iTunes.

Or listen via SoundCloud below…

https://soundcloud.com/user-740833903/the-interiors-addict-podcast-ep2

If you have any finance questions, please email Jess and we’ll share the answers here: [email protected]

FACEBOOK LIVE

Jess will be doing a Facebook Live chat on our page at 8pm AEST on 2 November! Make sure you hop online with all your reno borrowing questions!

 

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RENO ADDICT

How To: Carefully claim deductions when renovating

Carefully claim deductions when renovating

Before renovating an investment property, there are a number of factors investors should be aware of, particularly as any work completed could impact the deductions available to be claimed. Below are a few considerations investors should make in order to reap the maximum rewards both in terms of adding value to the property and at tax time.

Carefully claim deductions when renovatingHow To: Carefully claim deductions when renovating

1. Claim depreciation for renovations completed by a previous owners – Often when an investor purchases an older property, at some stage since the building’s original construction, renovation work may have been completed. Although the ATO restricts property owners from claiming capital works deductions for properties constructed prior to the 18th of July 1985, they can claim capital works for renovations completed after this date, even if the work was completed by a previous owner. Quantity Surveyors will discover any previous renovations, even less obvious ones like new plumbing or electrical wiring, during a site inspection of the property.

2. Be aware that any work completed to an income producing property could affect depreciation deductions –  Investors often make the mistake of claiming renovations as repairs and maintenance. This can put them at risk of an audit by the Australian Taxation Office (ATO). The ATO provide clear definitions on the difference between repairs, maintenance and capital improvements. It is important to get it right to ensure deductions are correct and maximised. As a general rule, repairs are classified as work completed to fix damage or deterioration to a property, for example replacing part of a damaged fence. Maintenance on the other hand is work completed to prevent deterioration of the property, for example servicing a hot water system. Capital improvements occur when any work completed enhances the condition or value of an item beyond its original state at the time of purchase. This work must then be classified as a capital works deduction or as plant and equipment and depreciated over time.

3. Ask a specialist Quantity Surveyor about the deductions available before renovating  – Renovations impact the depreciation deductions available for an income producing property. Owners should consult with their specialist Quantity Surveyor prior to starting any work. This is because any items removed may have a remaining depreciable value that can be claimed as an immediate deduction in the year the asset is removed and replaced. This is a process known as ‘scrapping’. Once the renovation is completed, the Quantity Surveyor will perform a second inspection to capture details of all of the new structures and assets added to the property. An updated depreciation schedule will be produced to include the details of the deductions an investor can claim for both pre-existing assets and structures and the new items which have been added to the property

4. Choose new assets carefully when renovating to maximise future deductions – Different asset types will affect the depreciation deductions available. For example, when looking at flooring valued around $2,000 the different types have a very different result. The below table demonstrates the difference in deductions for the owner for flooring:Carefully claim deductions when renovatingThe same rule applies when claiming deductions for air conditioning. Below are the expected deductions for a property owner who owns $5,000 of cooling equipment:Carefully claim deductions when renovatingAlways consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow.

Article written by Chief Executive Officer of BMT Tax Depreciation, Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA). Please contact 1300 728 726 or visit www.bmtqs.com.au for more information on how BMT can help you.

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RENO ADDICT

Swimming pool items that make a (tax) splash

swimming pool

Considering installing a pool in your rental property or during your reno? We Aussies are a water loving people but a swimming pool can be a long term expense. If you’re considering adding a swimming pool to your property, either as an owner or as a landlord, it’s important to consider the pros and cons before making the decision.

Let’s take a look at some of the advantages and disadvantages and also outline some of the pool items which attract depreciation benefits for their owners.

swimming pool

 

  • Landlords must ensure areas comply with pool safety legislation – Safety is the most important factor landlords must consider if a rental property has a pool. It is important to check the requirements each state has in place to ensure your pool and surrounding areas are compliant to help prevent incidents of drowning or other potential hazards that can occur in and around water. Whilst the rules in each state differ, some things to consider when scrutinising the safety of a pool area include ensuring adequate pool fencing which meets any height guidelines; checking that gates are fitted with a latching device, swing outward from the pool area and are self-closing; have filtration systems which comply with Australian standards and do not use hard covers as safety barriers in place of a fence for spas. Earlier this year, the New South Wales Government also introduced new laws for pool and spa compliance last year from the 29th of April 2016. Those with properties with pools located in this state must obtain a Swimming Pool Certificate of Compliance before properties are sold or leased.
  • Pools increase maintenance and insurance costs – Owners of rental properties must always be prepared to budget for necessary repairs and maintenance costs. However, if a rental property contains a pool the potential costs are generally higher. If tenants are unwilling to keep the pool cleaned regularly, this may mean hiring a cleaner to complete the job to avoid the water turning into a murky algae and leaf filled disaster. As there is an increased chance of accidents occurring in properties which contain pools, insurance expenses are also likely to be higher, so investors must factor this into their budget. It isn’t all bad news though. Investors are able to claim the costs of repairs, maintenance and insurance in the year the expense is incurred when they visit their Accountant.
  • Pools may not necessarily add value or increase rent – Whilst pools sound like appealing features, they don’t necessarily add value to a property or help to attract potential tenants. In fact, oftentimes they can be seen as a hassle and even dangerous, particularly if tenants have a young family. A recent survey of more than 1,000 Australian homebuyers by finder.com.au found that swimming pools were the seventh most desirable feature in a home. More desirable items on the list included air-conditioning, a garage or carport area, a backyard or garden, solar panels, a deck or pergola and a dishwasher. Needless to say, pools can be a hit or a miss and research suggests that investors should only consider buying a property with a pool or renovating to add one if it is located in the right suburb. This is because pools are far more likely to receive use in areas with warmer climates. Investors need to consider the fact that during winter and cooler months, pool areas will often go unused which can result in the condition of the area deteriorating. Should a rental property become vacant at the wrong time, this could make it less attractive to rent to potential tenants.
  • Depreciation benefits – One of the biggest benefits of renting a property with a pool is the depreciation deductions the owner will be eligible to claim. Investors who are aware of their eligibility to claim depreciation deductions often focus on the building itself and the assets contained inside. However, outdoor items and structures are also depreciable due to the wear and tear that occurs over time. The following graphic provides examples of some of the structural items which can be claimed as a capital works deduction and some of the easily removed assets which can be depreciated as plant and equipment.swimming pool

As you can see, items in the pool area create a $2,8746 splash of deductions in the first financial year alone for the owner of the above property. Fixed items such as the in-ground pool, slide, diving board, spa, pool fence and pool house resulted in $1,577 in capital works deductions in the first financial year for the owner. Easily removable plant and equipment assets such as the furniture, pergola, couch, outdoor lights and the pool filter and pump resulted in $1,297 in depreciation deductions for the owner in the first year.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.

For more details on how BMT can help you, visit www.bmtqs.com.au

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RENO ADDICT

Expert advice: Why 2017 will be the year of the small reno

2017 the year of the small reno

Property trends for 2017 are all associated with the year of the small reno. These include keeping an eye on interest rates, declining returns for real estate flippers and making small renovations count.

Late last year there was a burst of energy from the market and those who were prepared enough to start the selling process in January will have seen that energy carry over into the New Year.

Stock is traditionally low in January as many sellers find it difficult to balance the organisation needed to pull together the marketing and property preparation during the holiday period as the year winds down. Those who do make it tend to do well in a market of low stock and strong demand. As a result, there may be a dip in demand during February and March as supply rises, but this will be countered by a continuation of a three-year trend that has seen sellers receive quite a lot of money for not doing very much to a property.

Expert advice: Why 2017 will be the year of the small renoImage from Refresh Renovations

2017: The year of the small reno

Small renos will do

If you’re looking to renovate and sell for capital gain, be careful not to overcapitalise. You don’t need to spend a lot to smarten up a place and once you have the right look and feel, you’re not going to increase the sale price by a great deal just by spending more. Of course, if you’ve bought a disaster zone by all means fix it up, but if all it needs is an aesthetic once over then don’t go overboard thinking a bigger budget will translate into astronomical offers.

Save your reno budget for a property you’re going to live in; you won’t go wrong if you invest in your own lifestyle. When the market is tough you’ll probably need a reno to sell, but for now simply getting the basics right can fetch you a good price.

 

Everything old is new

As for style, the big trend is in modern vintage. The use of metals like brass and copper hints at earlier periods but it’s often used in a sleek and fashionable way, like on light fittings that take more contemporary forms.

I’ve also seen some eye-catching classic remakes. Materials like marble are timeless in the kitchen but designers are using variations like red marble, which adds character to a bench top and stands out from the usual marble tones. Traditional patterns are also seeing a revival: I’ve noticed some very smart-looking herringbone parquetry, which can help lift a bland floor and give it some interest.

Expert advice: Why 2017 will be the year of the small reno

Interest rates on the move

Over the past year we’ve seen a split between what the Reserve Bank sets as the interest rate and the actual cost of lending. In the past six months there has been an uplift in lenders’ interest rates and it’s likely the RBA will follow. This will see a lot of people cap out of the market, especially real estate flippers who won’t get as much bang for buck, so expect to see a lot of transactions when that happens.

The market is still strong for renting out properties, though, so don’t give up on property investment—just don’t assume you’ll make your money from big renovation projects.

Overall, what sells is a liveable property in a decent location. The good news is that a small reno budget can go a long way in this market, so make sure you spend wisely and you’re sure to see a return.

Mark Foy is one of our resident experts and a director of Belle Property Surry Hills in Sydney.

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RENO ADDICT

Top financial advice for home renovators

Top Financial Advice for Home Renovators

As renovation reality shows like The Block boom in popularity, more homeowners are willing to get their hands dirty and tackle home revamps. Whether it’s to boost the property’s selling value or to create a space that’s more practical and appealing, smart home renovation investments are becoming more popular than ever. But financing the dream can be challenging for many of us!

If you have decided to take the leap and transform your tired looking home, putting a realistic budget in place for the project is vital. You may need to borrow more money, refinance your existing loan or utilise other financing options; regardless it’s paramount to find a way to stay within your budget. Here are some tips to keep your wallet – and your home – happy.

Top Financial Advice for Home Renovators

Top Financial Advice for Home Renovators

1. Know why you are renovating

It’s important from the beginning of a renovation project to know why you’re doing it – whether it’s renovating to make living in your home more comfortable for yourself or renovating to sell and hopefully making money out of it. Whatever the reason, it’s important to plan and do your research otherwise you could end up worse off.

2. Focus on the essentials: kerb appeal and cosmetic renovation

One of the biggest money pitfalls of renovations is focusing on the wrong things. Sure, you might want the extravagant lounge area with all the trimmings but it’s best to focus on the essentials first – especially if you’re renovating to increase return on investment. Kerb appeal is one of the first big ticket items to focus on – first impressions do count. You don’t need to fork out a lot of money to create that ‘wow’ factor. A fresh coat of paint, basic landscaping tricks and bright bold numbering on your mailbox can have a huge impact.

Unless you need too (or have budgeted for it) hone in on cosmetic changes over structural. The kitchen and bathroom are where buyers want to see modern appeal, ample storage areas and improved lighting and ventilation. Cosmetic renovations are great for concentrating on the fundamentals to avoid overcapitalising or giving the home that ‘half-baked cake effect’.

3. Don’t blow the budget

It’s easy to blow the budget when it comes to home renovations. If you’re looking at doing a cosmetic renovation, stick to the 10% rule to keep renovation costs to a minimum. Use 10% of the property value to do the cosmetic renovation (what your home is valued at now, not what you bought it for). For example: if your home’s current value is $400,000, allow $40,000 to complete the renovations. This will help to ensure you don’t blow the budget, cover the whole house for a cosmetic renovation and give you a decent return on investment explains Cherie Barber who runs Renovating for Profit.

A big key to sticking within your budget is to set realistic expectations. Don’t plan for an excessively high budget if you have no means of meeting it. Plan the budget up front and don’t forget to build in a contingency plan for unexpected costs, which will almost always occur, during the renovations.

Top Financial Advice for Home Renovators

4. Utilise bank redraw

If available with your bank, redrawing from your home loan can be a smart financial move to assist with renovations. Not all financial loans have a redraw option so you’ll need to check with your mortgage broker to determine whether you can apply. Redraw amounts will also vary between banks and loans.

In terms of your home loan’s interest, redrawing is one of the least expensive forms if cash isn’t an option. Essentially it’s like using your own savings from additional loan payments that have accumulated over time. The downfall though is it only works if you’ve been making advance payments on your loan. And you’ll want to ask about redraw fees too, as some banks will charge for this option.

5. Don’t overlook the more inexpensive remodel jobs

Some of the best financial advice for home renovation lies with what jobs you target. As mentioned above, the big essentials are kerb appeal and a full cosmetic renovation, but that’s not to say you shouldn’t underestimate the importance of inexpensive remodelling jobs. Things like a fresh coat of paint can offer the best return of investment of many home improvement options, or consider replacing the front door and updating fixtures for other easy ideas.

Adding or rejuvenating landscaping out the front and back will go a long way too and doesn’t need to cost you an arm and a leg. Removing carpet and installing cost-effective hardwood floors can give you a return of investment from 50%-75% too.

6. Financing the Facelift

Besides utilising a redraw on your loan, there are a number of options to take advantage of for financing the facelift. From home equity loans, construction loans which allow you to borrow against the value of your property and offset accounts, there’s something to suit most situations. A line of credit may be an option as well – it provides you with the option to draw additional funds from the home loan with a set limit and helps to avoid transaction fees with reduced interest.

Regardless of what financing option you choose, it’s paramount to think long term. Use your own personal experiences and those of other homeowners you know who have renovated in the past for ideas and speak to a mortgage broker to determine which suits your needs best. With the right financial help and tackling the best renovation jobs for the ultimate return on your investment, it won’t take long before your property is finished and looking great – all without breaking the bank!

By Kate Beaumont, Mortgage Finance Broker at Blueprint Wealth

Kate Beaumont is an authorised representative and credit representative of AMP Financial Planning.

Blueprint Planning Pty Ltd (ABN 78 097 264 554), trading as Blueprint Wealth, is an authorised representative and credit representative of AMP Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.

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RENO ADDICT

How to find hidden value in your next investment property

How To Find Hidden Value In Your Next Investment Property

If you’re on the hunt for your next investment property, don’t discount the ‘diamonds in the rough’ AKA existing properties that may not be a brand new build.

While brand new properties are always an attractive option, providing investors with optimal depreciation claims through higher capital works deductions and plant and equipment assets, older properties can still provide substantial deductions, many of which may be hidden beneath the surface. How To Find Hidden Value In Your Next Investment Property

Continue reading “How to find hidden value in your next investment property”
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Expert Tips RENO ADDICT

The deductions property investors often throw away

All too often we see investors contacting specialist quantity surveyors to organise a depreciation schedule after they have completed renovations to an investment property. In most instances this is too late for the investor to claim all of the deductions they are entitled to.

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If a client mentions they are considering renovating their investment property, it is important to recommend they speak to their specialist quantity surveyor straight away. This is because there may be depreciation deductions available for any disposed assets or demolished building assets being removed during the renovation process.

Property investors scrap items within a property for several reasons. The most common reason is ‘not fit for purpose’ because of obsolescence, functional inadequacy or dated style.

Essentially, if an item is scrapped it is a loss to the owner. Legislation allows property investors to claim additional deductions over and above their normal depreciation claim for assets being removed from their property. The remaining depreciable value of any scrapped items can be claimed in the year these items are removed from the property.

To take advantage of deductions for scrapped assets, a depreciation schedule must be arranged both before and after the renovation takes place. This will allow the quantity surveyor to complete a site inspection of the property to value all of the items and to take photographic records of the assets contained within the property. This evidence and the pre-renovation schedule will substantiate an investor’s claims should the Australian Taxation Office complete an audit of their annual income tax assessment.

Once the renovation has been undertaken, the quantity surveyor will compile an itemised schedule which will detail the depreciation deductions available for the new plant and equipment and capital works deductions obtainable for the owner of property.

Any removed assets identified initially will show a left over un-deducted amount in the property depreciation schedule. This amount can be claimed immediately. The new assets can then be depreciated as normal based on their effective life.

Depreciation and renovation case study

Jonathan purchased a fifty year old, two bedroom house. After renting it out for two years he decided to renovate the property. In its pre-renovation condition the house contained carpet, blinds, an oven, a cook top, ceiling fans, a split system air conditioning unit, a hot water system and light shades.

Jonathan engaged a specialist quantity surveyor to complete a property depreciation schedule when he originally purchased the property two years ago. Upon hearing about the additional deductions available when renovating from his Accountant, Jonathan contacted a quantity surveyor before starting the renovation to find out more. After obtaining information and discussing the benefits, Jonathan found that he was able to use his existing schedule to work out the un-deducted value of the items which were to be removed during the renovation.

When the original property depreciation schedule was completed, a depreciation expert visited Jonathan’s house and conducted a full site inspection. During this inspection they took notes and photographs of all depreciable items. This original schedule included all of the items being removed from the property.

The table below outlines the extra deductions that became available to Jonathan during the renovation.

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Jonathan claimed $9,073 in extra deductions that year in his personal tax return. After Jonathan completed the renovation he contacted the specialist quantity surveyor to update the property depreciation schedule. They inspected Jonathan’s property again, documenting all of the new additions.

The specialist quantity surveyor calculated the construction write-off allowance now available on Jonathan’s new extension. Some of the new additions included a new oven, carpet, air-conditioning, a hot water system and blinds.

In addition to the $9,073 claimed on the removed assets, Jonathan was able to claim $8,700 in depreciation deductions on the new items in the first year alone and $29,300 in the first five years. Jonathan was able to maximise the depreciation deductions on his investment property both prior to and after the renovation by taking the depreciation schedules to his Accountant to make his claim when he completed his annual income tax assessment.

Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Click here for more.

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DIY RENO ADDICT

The five warning signs you’re about to overcapitalise

Imagine purchasing a property with the view of adding a second storey extension for the water views or extending out the back, only to later find out the local planning laws didn’t allow it. Or approaching selling agents for the property you’ve spent months renovating, only to hear the alarming news that the estimated selling price will barely cover costs, yet alone bring the tidy profit you were banking on. They’re expensive shocks that can be avoided with proper due diligence and research. Here are five mistakes you never want to make.

cherie-barber

1. Paying too much for the property

If you pay too much for a property to start with, you’ve thrown away the best chance you had to make a good profit. That $40,000 you overpaid will have to be clawed back somehow and it won’t be easy if you’re on a tight budget or the market plummets.

2. Ignoring a major buyer objection

A location on a busy main road, overhead power lines, right next door to an electricity substation or noisy school… they’re all “buyer objections.” And guess what? If you picked the property up for a bargain because other buyers didn’t want a bar of these turn-offs, you’ll be saddled with the same problem when you come to sell. No matter how gorgeous the renovation, the busy road will still be right out front.

3. Failing to detect a major defect

If you buy a house knowing it needs rewiring or a new roof, then you can factor in the repair costs. If you didn’t know about them, then it’s an unforeseen cost you’re going to have to wear and if the problem turns out to be major, that could run into tens of thousands of dollars. Before you can even begin the visible work that adds value, you’re going to have to spend a fortune on hidden but essential, remedial work. Always get the building report or pest and asbestos inspection done.

4. Incorrectly budgeting the renovation

In order to make money from renovating, you need to know upfront exactly how much you can spend on the renovation in order to make the profit you’re after and what the renovated property is likely to sell for, based on your market research. It’s a magic set of numbers that professional renovators and developers virtually carry in their head. A sure way to overcapitalise is to spend more on the property than it’s worth.

5. Choosing the wrong style of renovation for the area

A renovation you do in a suburb full of uni students is going to be quite different to the one you choose for a leafy family-orientated suburb. Different suburbs appeal to different demographics and you need to establish what demographic prevails in your suburb. This information is not hard to get. Doing a renovation that is completely out of step with the rest of the suburb will turn off buyers and may mean you’re spending money on things that don’t matter at the expense of ones that do. Do your research and make sure you tailor your renovation to your target market.

–Cherie Barber is the director of Renovating for Profit, a company that teaches everyday people how to buy and renovate properties for a profit.

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Bathrooms Kitchens RENO ADDICT

How to: Add value and increase deductions when renovating

Contemporary Kitchen

Australians have always had a passion for renovating property and recent predictions on renovation spending for 2016 suggest this trend will continue.

Data from the Commonwealth Bank Future Home Insights Series forecasts that renovation spending will top $32 billion in 2016 alone. This equates to 36% of total spending on residential construction for detached houses including alterations and additions.

Similarly, a report from the Housing Industry Association estimated that around 213,000 kitchens and 429,400 bathrooms were installed in Australia during the 2015-2016 financial year.

Contemporary Kitchen

While these predictions demonstrate that owners are not afraid to spend money to improve the value of their homes and rental properties, often property investors may not be aware of the implications that renovations will have on their depreciation deductions.

Whether an investor updates a kitchen, bathroom or simply replaces the carpets or hot water system in a property, the removal of these assets will affect a depreciation claim.

Renovations affect depreciation deductions in two ways. Firstly, an investor should note that any items removed may have a remaining un-deducted depreciable value which they are entitled to claim when the item is removed.

This process, known as scrapping, allows investors to claim the total remaining depreciable value for items which are thrown away in the year of their removal.

Investors must also factor in deductions they can claim for new items they add to the property.

Assets will be captured by a depreciation specialist during a pre-renovation inspection. After the renovation is completed, a new depreciation schedule is then prepared listing all new additions that have been added and the existing depreciable items which will remain in the property.

To show how depreciation deductions are affected during a renovation, lets look at the following example.

An investor purchased a property one year ago. Originally constructed in 1992, the property was beginning to show signs of wear and tear. Upon purchase, the investor rented out the property and engaged BMT Tax Depreciation to prepare a depreciation schedule. After owning the property for twelve months, the investor decided to install a new kitchen to improve future rental income and increase the equity held in the property. Outlined in the owner’s original existing depreciation schedule were items discovered during the first site inspection including a stove, blinds, light fittings, a rangehood, a dishwasher, a sink, tiled floors, cupboards and joinery.

The tables below show the original value of items and the depreciation deductions that could be claimed in the first full financial year. They also show the remaining un-deducted value of items after the first year’s claim was made.

2016_ta374_scrapping_tableThis investor could claim $780 for plant and equipment depreciation and $146 in capital works deductions, a combined total depreciation deduction of $926 in the first full financial year for the kitchen alone.

They can also claim the remaining un-deducted value of $3,010 for plant and equipment and $2,336 for capital works for items removed and scrapped during the renovation in the financial year of their removal.

BMT found that the newly installed kitchen would result in $1,611 in deductions for the owner in the year it is installed. Therefore a total of $6,957 could be claimed for the removed assets and the depreciation of the new kitchen.

Additional depreciation deductions are also available for structures and assets found in the rest of the property.

To avoid throwing thousands of dollars away in existing items and to ensure deductions for new items are captured it is essential to speak to a quantity surveyor before you start your renovation.

For more information please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.

–Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation.

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Expert Tips RENO ADDICT

Selling in spring: Property makeovers for a competitive season

As soon as the calendar hits September you can feel the property market wake up from its winter hibernation. Welcome to spring, one of the most competitive times of year to list your property. Here are some tips on how to prepare your place at this hectic time and make your property stand out from the crowd.

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Mark Foy

Advice for selling in spring

For the past few years I’ve been cautious about encouraging people to sell their property in spring. Why? Lots of people think this is the best time of year to sell, but actually a healthy buying market has less to do with the season and more to do with stock levels.

It may surprise you to learn that the number of buyers in the property market is fairly steady throughout the year. When there are fewer properties on the market, demand and prices go up, but if everyone thinks they should sell their property in spring, there’s a glut and results may not reflect the quality of the stock.

This spring is a little different to the past few. Interest rates are low and people aren’t selling at the rate they have in recent years, so the lack of stock means it’s a better spring than most to list your property. That being said, it’s still a competitive time to sell, so you’ll need to make sure your property is at its best.

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Image courtesy of Belle Property

Preparation and presentation

You only get one chance to impress a buyer, so make it count. Milder weather means people are happy to spend a little more time outside looking at the exterior of the property, so pay attention to the condition of your home. The facade should be neat, well maintained and inviting.

If you have a garden, make sure it is tidy and well kept. If it’s too early in the season for flowers or lush greenery, consider hiring a landscape gardener to plant something that blossoms early.

I strongly encourage homeowners to engage a property stylist to neutralise the space and enhance its positive features. The more you can remove your personality from the place, the easier it is for buyers to overlay their vision for the property, which encourages better sales. If you have psychedelic walls, for example, paint them white. A good stylist will give your place the edge over comparable properties for sale, so it is well worth the money to hire one.

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Image courtesy of Belle Property

Timing is everything

Every property has an optimum time for inspection, dependent on ambience. As the days become longer during springtime, the best time/s in terms of favourable natural light and comfortable temperature will change compared to winter. Identify the best time to show your property and schedule an inspection as soon as possible to ensure you secure that timeslot.

Because more sellers tend to list their properties at this time of year, it’s also a good idea to line up all the professionals you need to help you sell yours—your choice of real estate agent, property stylist and/or auctioneer—as early as possible. Keep an eye on demand for other services you may need, for example someone to make minor repairs, paint your property or landscape your garden, so you can engage the people you need when you need them.

Spring may be a traditionally competitive time of year to sell your property but with a bit of planning and knowledge about what’s going on in the market you can certainly edge out similar listings and use the season to your advantage. As I mentioned, this year stocks are lower than usual so it’s a good time to put your place on the market because the weather and the competition are less fierce.

Mark Foy is one of our resident experts and a director of Belle Property Surry Hills in Sydney.

Read all Mark’s articles

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Before & Afters RENO ADDICT

Selling before you buy… patience is a virtue!

Before: front

When clients came to talk to us recently about organising finance for the purchase of their next family home, it was time to action the “slow and steady wins the race” approach.

Leah and Brett bought their first home in a sleepy lakeside suburb of Lake Macquarie, with the plan of giving it a bit of a facelift while they lived in the granny flat out the back.

Before: front
Before: front
After: front
After: front

“We built the granny flat so we could live there while we gave the house a cosmetic makeover,” says Leah. ‘But once we started to pull things out we realised it was more of a project than we realised – and my husband is a builder!’

So what began as a freshen-up quickly escalated into a complete renovation, with the home stripped back to its foundations before any new work could begin. What was to be a three-month job for Brett blew out by six months and as for costs…

But nine years down the track it’s (almost) a fond memory for the couple. “We lived in the granny flat for three years,’ Leah explains. “It was great!”

With two small children and a yearning for some more space, the family is moving on and has put their home on the market. And, despite already finding their next dream project, after chatting with us they have chosen to sit tight and wait until they sell their home before making an offer on the next.

“It’s hard to wait,” Leah says. “We’ve found a place that’s perfect for us. But once we sell this place, we’ll know where we stand, we’ll have our finance in place and we can make an offer from a position of strength. I just hope it all works out!”

Before: front
Before: back yard
After: back yard
After: back yard

Even though Brett and Leah are probably in a position in which they could organise a bridging loan, after working through their options, they decided to take our advice and wait it out and try to sell their own home first before doing anything else.

This way, they will know just how much money they have to offer and it also means they won’t be tempted to take a lower price on their own home just to relieve the financial pressure of a bridging loan. The worst case scenario will be having to find somewhere to live if they miss out on the home they want to buy.

While there is a good cased for bridging finance for a lot of people, it just wasn’t the approach the couple wanted to take. Bridging finance is no longer as expensive as it used to be and if you have the means to service the loan, most lenders should negotiate with you on a rate that is usually pretty well in line with the current home loan offering.

However, it can be expensive to set up and you will have to service two home loans until you sell your existing home; which may put you under financial pressure and tempt you to sell your home for less than it is actually worth just to ease the stress.

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas. 

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Outdoor & Exteriors RENO ADDICT

Hot property: how to sell in summer

Spring has always been the darling season on the property sales calendar, but summer is hot for sales too—if the timing’s right.

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When is the best time to sell a property? Many people assume it’s spring, but the answer is not a season. The best time to sell is when there’s not much stock on the market. The best sales results are achieved when your property is selling in isolation, not competition.

Summer then, is a great time to sell property, but you need to get your timing right. A lot of ‘new year’ stock comes on the market in February after everyone has had a break and has finally gotten around to talking to an agent. The best time to sell in summer is therefore January, before everyone lists their property.

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There’s a myth that there aren’t as many buyers during summer but, the truth is, buyers are always looking. On a lazy summer’s day people browse property listings and start dreaming of a new life and plenty of new year’s resolutions centre on finding a new place to live. Sellers should take advantage of this.

Want to sell in summer? Follow this schedule:

December

If you’re going to sell in December, the first two weeks is the best window you have before everyone (including most agencies) take a break over Christmas and new year. Buyers will still be looking during the holidays but very few agencies will show a property during this time.

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Otherwise, December is the best time to prepare your property, especially the garden. Lawns need a decent lead time to look their best, so cut and treat the grass so it looks lush by January. Clean the gutters, give the property a lick of paint and declutter. When you retrieve the Christmas tree from storage, it’s a great time to look around and see what you can sell or throw away.

Talk to your agent in December and have photos taken after sprucing up the place but before the holidays so you are ready to list the property in January.

January

List the property and get ready for inspections. If your house tends to heat up, consider scheduling showings for the morning or evening. A sunset viewing when the days are longer is one advantage summer has over other seasons.

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While it may be too hot for baking bread or burning a candle, seasonal scents from fresh flowers or fruit can set a good mood. Have fresh cold water or lemonade on hand to give to visitors.

Summer showings are also an excellent time to play up any appealing outdoor area your property may feature. Set up your deck, courtyard or balcony as an inviting space so buyers can instantly see it as a place for friends and family to gather. Highlight other warm weather features such as breezeways and, if you have one, your pool—which you have cleaned, of course.

February

If all has gone well, you’ll have exchanged contracts by February. If your property is still on the market, however, rest assured that you don’t have to compete for tradespeople and painters and agents to get your property ready.

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If you’re selling at auction, book the auctioneer for late January or early February, giving you enough time to show in January but closing the sale before the rush in February.

In my experience, the best times to sell are before the rush periods. For me that’s August, before the spring listings, and January, before lots of stock comes on the market in February. With a bit of planning, you can get the jump on the summer sales period by listing in January, making it a very happy new year indeed.

Photography by Belle Property Surry Hills

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RENO ADDICT

To fix or not to fix (your loan)

Credit

If you’re planning a renovation, just finished one, or you’re right in the thick of one, you may well be re-evaluating your mortgage options. And if you are, you are also probably asking yourself the question: “Should I fix my loan rate?”

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Credit: Three Birds Renovations

There are always questions around fixed and variable rates, because people really want to know what they should do!

Some people take the crystal ball perspective – they try and predict what’s going to happen in the future, but to be honest, it’s a bit like being at the casino table and trying to figure out whether the ball is going to drop on a red or black number. Banks employ rooms full of economists who try to figure this out every day and they still get it wrong!

After: backyard
Credit: Three Birds Renovations

The most accurate (and there’s still plenty of room for error) approach is probably the rear vision mirror view, which is to look backwards at what has happened with rates historically.

At the moment, interest rates are at an almost-60-year interest rate low, which is great for buyers right now. But if you speak to people who were buying houses in the ’80s, they’ll be able to talk to you about the pain of borrowing on rates of 18%. I’m 35 and in my ten-year borrowing life I’ve seen a big fluctuation with rates. One of my first loans sat in the 8 or 9% range and now we are seeing them halve to sit in the 4% range.

With all of that in mind, what looking in the rear vision mirror tells us is that right now interest rates are incredibly low and if it suits you, it is probably a great time to lock in a fixed low rate.

Credit: The Block Shay and Dean's kitchen
Credit: The Block Shay and Dean’s kitchen

The third approach to take is to have a good look at your plans for the next few years and see what is on the radar that may dictate or limit the choices you make about whether or not to fix your rates.

Statistics show that every three years people adjust their home loan. And that’s usually because they are doing something in their life that requires them to make changes to their loan – they are renovating, getting married, divorced, having a baby, moving house etc.

For some people, the certainty of knowing what they will be paying out for their loan every month and that their rates won’t change over the term of their loan suits them perfectly. But for others – especially when you bear in mind the three-year average loan adjustment – locking into a loan may not be the way to go.

You might be planning on flipping the house and buying again, you may want to renovate, you may be planning on having another baby. For whatever reason, locking into a fixed loan might not suit your life at the moment.

Credit: The Block Caro and Kingi's kitchen
Credit: The Block Caro and Kingi’s kitchen

If you do settle on a fixed rate and then decide to change things, the bank will charge you for breaking the contract of your loan. This is called a fixed-rate break cost and it is set at a rate that covers what the bank will lose out on by you breaking the contract.

Something else to keep in mind when thinking about a fixed rate is while you do have the certainty of knowing what you’ll be paying on your mortgage for the term of your loan, a fixed rate means that you will not have the flexibility of a variable loan.

And that means you cannot pay extra off the loan. You can only make the scheduled payments over the life of the loan (although some do give you a capped additional amount, usually around $10,000).

So if you get a bonus at work, or you come in to an inheritance etc, you will be penalised with a fixed-rate break cost if you pay a lump sum into your loan.

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Credit: Rebecca Judd

But the good news is, you can have your cake and eat it too!

You can do this by fixing a proportion of your loan and leaving the balance on a variable rate. That way, whichever way rates move, one half of your loan is always winning. If you are going to do this, have a really good look at what you have planned in the next few years to ascertain the best proportion of fixed to variable.

The final thing to consider once you have decided to fix all of your loan – or just a proportion – is how long you want to fix it for. This is the million-dollar question. Different terms will have different costs – sometimes the longer the term, the cheaper the rate, while at other times, the shorter the term, the cheaper the rate.

Your plans will be a good guide to the length of your term as well. If you plan on flipping your property and buying again, you don’t want to be locked in to a loan and incur a break cost when you sell.

On the other hand, if you plan on renovating and holding on to the property as an investment or as an owner-occupier for a few years, now is probably a great time to lock down a loan at historic low rates, keep your repayments low and maybe even use some of the extra cash you are saving to buy yourself a second property.

— Paul is the director of CVG Finance, a leading brokerage offering financial services across all areas.