Rate Rollercoaster

We've spent the year expecting interest rates to go up and as you would have seen in early November, the rates have dropped by 25 basis points. It's an unusual reversal of fortune and one that took many economists by surprise when just a few months ago the Reserve Bank was widely tipped to lift rates at least twice before Christmas.

The Reserve Bank's move over the next few months is anyone's guess, but the progression of Europe's debt crisis and America's economic slowdown may have a part to play.

In the meantime a number of lenders are cutting their fixed and variable mortgage rates, so if you are considering taking advantage of the lower rates on offer, call us and we would be happy to talk you through the process.

Old Versus New

If there's one topic property investors rarely agree on, it's what makes a better investment: old or new?
Proponents of buying 'old' argue that established dwellings are typically more affordable and can be renovated to create equity, whereas those buying 'new' argue that this is outperformed by the tax incentives that new properties deliver.

Confused? Here are the arguments for both sides of the debate, but remember there’s no 'right or wrong' answer, regardless of which corner you stand in! Old and new properties both have distinct, unique advantages and what counts as an investor is that your decision matches your individual strategy and goals.

Reasons to buy 'New':

1. Tax depreciation - If you're an investor, one of the big advantages of buying a newly constructed property is that you can claim depreciation as a tax-deductible expense. This includes the depreciation of assets in the buildings and the cost of the building itself, as well as for wear and tear on fixtures and fittings in the property. The newer the property, the higher the level of depreciation.
2. Better quality tenant - Brand new properties tend to attract a better quality tenant, which means a higher rental income and fewer headaches for the landlord!
3. Less maintenance - Unlike new homes that require little maintenance, owners of second-hand properties are often faced with immediate maintenance issues. The costs of repair in older homes can significantly inflate ongoing expenses.
4. Warranty - As a purchaser of a new property you are protected for a number of years against major building defects by home warranty insurance, which all builders of new homes in Australia are required to carry.

Reasons to buy 'Old':

1. Equity - There is little opportunity to add value to a new home, whereas the investment made in an old home can grow in the future should you choose to renovate or extend.
2. Affordable - It’s often said that you get more house for less dollars buying a second-hand home than when buying a new one. For entry-level investors, old properties can have the advantage of an affordable price tag.
3. Unique appeal - Older homes often have great features that can't be replicated in new homes. A well-maintained period-style home, for example, will reap rewards in capital growth down the track
4. Established sales history - There's less guesswork in buying an established property because you’ll be able to trace back the property's appreciation and find out how the suburb has performed. This can help give you the assurance you need that you're buying a good property.

Book Review

Steve Jobs

by Walter Isaacson

From bestselling author Walter Isaacson comes the landmark biography of Apple co-founder Steve Jobs. In iSteve: The Book of Jobs, Isaacson provides an extraordinary account of Jobs' professional and personal life. Drawn from three years of exclusive and unprecedented interviews Isaacson has conducted with Jobs as well as extensive interviews with Jobs' family members, key colleagues from Apple and its competitors, iSteve is the definitive portrait of the greatest innovator of his generation.

House versus Apartment

Does a house make a better investment than an apartment? It's a common question but like the 'old versus new' debate, the answer depends on who you speak to!

Houses are often perceived as slightly ahead on price growth than apartments; however, a recent RP Data Property Pulse report states that apartment values are increasing. Over the past five years (July 2006-July 2011) apartment values for combined capital cities have climbed 6.0 per cent, up 1.2 per cent on housing values during the same period. 

So where does that leave you? Well, it's important to remember that regardless of whether you buy a house or apartment, your ultimate goal is to find a property that will deliver the best return on your investment in the long term. Factors like how much you can afford and what you want to achieve from your investment should drive your decision-making.

Here are some issues to think about that may help clarify which type of property best suits your investment goals:

• Rental demand: do your research about what type of dwelling will be popular in what area. An investment apartment near a university, for example, can allow you to tap into the demand for accommodation by overseas students. 
• Affordability: apartments are cheaper to buy, making them a good option if you are a first-time investor and want to break into an up-and-coming market you couldn't otherwise afford.
• Fees: in addition to the usual landlord costs like council and water rates, you will have to pay strata or body corporate fees if you own an apartment. The more facilities on offer - such as pools, gyms or lifts - the higher the strata levy. 
• Maintenance: houses generally require more maintenance than apartments but the upside is you can decide when to spend money on repairs. With an apartment, you are locked into a strata levy but at least much of the maintenance is taken care of by the body corporate.
• Capital growth: knowing the median prices and sales history of properties in the area you are considering buying into will give you a more accurate idea of whether a house or apartment will attract more capital growth.

Did you know?

When it comes to a choice between living in a house or apartment, a recent survey by PRD nationwide shows the house comes in as the top choice among Australians. 

The survey of 1500 people nationwide found that a detached house on a 600sq m block within the inner 15 km ring of a CBD is the most preferable type of home.

A third of respondents said they would consider a coastal or regional property, 18 per cent wanted to live in a townhouse located six kilometres from the CBD and 12 per cent wanted to live in an apartment only three kilometres from the city.

Banish Work Blues

We all have periods when we feel less than enthusiastic about being at work. When this happens, consider the following tips for achieving greater job satisfaction.

• Develop realistic standards – strike a balance between what you ideally hope for and what you are likely to get.
• Work smarter, not harder – look for ways you can better organise your time, systems you can develop, or options for using technology to your advantage. It might take time to set up, but once you've made changes you’ll find yourself working more efficiently and effectively.
• Learn to laugh – laughter is a cure for many ills and a great way to provide balance for stressful situations. A daily injection of laughter improves morale, clears the cobwebs from the brain and helps get the creative juices flowing. 
• Give yourself praise and encouragement – don't wait for someone else to.
• Stop for lunch – it's tempting to wolf down a sandwich at your desk when you're busy but it's actually not a very productive use of time. Even a small break outside in the fresh air will do wonders for boosting your mood and energy levels for the afternoon ahead.
• Banish negative thoughts – focus on what is positive and rewarding about your job and relieve mental tension and gloomy thoughts by making exercise a part of your daily routine.
• Turn colleagues into friends – start a social club or lunch group.
• Do it now – when faced with a difficult task, break it up into a series of smaller, more manageable jobs.
• Give yourself a distraction – it might be saving for a holiday, training for a marathon or re-decorating your home. When you have a personal goal to work towards, your job no longer dominates your life.
• Create a list – if you are overwhelmed with endless tasks and deadlines, ticking off things from a to-do list can help you regain control and give you the satisfaction of knowing you are making tangible progress.

About Us

Barrett Lending Solutions is a boutique mortgage broking business, specialising in finding solutions to assist client's needs in relation to their lending requirements. We provide assistance in setting up strategies, borrowing structures, and finding loan options - be it for residential, investment or commercial lending needs.Why not let us do it for you?

Need an accountant?

Gregory Thomas Accountants offer:

• Income tax returns
• Financial reporting
• Business setup
• Small business advisory & support services
• Cash flow statements & management accounting

Contact Gregory Thomas Accountants by calling 07 3821 5929.

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Investment structures

Most taxpayers will purchase their properties in their personal names without any thought of the implications. This is generally done to make use of the negative gearing opportunity. However there are many more issues which need to be considered, including asset protection, family relations, and long term tax planning. In any event a little tax planning at the outset may easily achieve your goal of immediate tax relief through negative gearing as well as the long term goal of asset protection and tax structuring. You should be asking your advisor about this at the very beginning of your investment journey.

SCM's market neutral strategy removes market risk, so we are 'not investing in the share market'. Instead, we make profits through intelligent stock selection due to our most preferred shares outperforming our least preferred shares and we profit from both rising and falling prices, achieving good returns without experiencing the roller-coaster performance that is often associated with investments 'in the share market'. Some of the many benefits of our Individually Managed Account (IMA) service are:

1. Higher Returns - consistent and stable returns (after fees and transaction costs) of up to 27% per annum, dependent on the leveraging option chosen by the investor.

2. Lower Risk - our strategy is capable of generating a higher long-term return than the share market with less than a third of the risk.

3. Proven Strategy - our quantitative equity market neutral investment strategy has been thoroughly tested over 6 ½ years, covering up, down and sideways market conditions.

4. Liquidity - no lock-up period and high liquidity, as we only invest in the top 200 shares in Australia - and investor funds are available at short notice.

5. Higher Risk- Adjusted Returns - higher returns with lower risk than can be achieved by investing in real estate or the share market.

6. Portfolio Enhancement - adding a SCM IMA to a portfolio of other assets such as real estate, shares and/or bonds will provide a substantial diversification benefit, in many cases increasing portfolio return and reducing portfolio risk, at the same time.

7. Control & Transparency - having an IMA means all cash and assets remain in the name of the investor and do not get pooled. We also provide you with details of every transaction.

8. Safety - investment funds remain in the investor's name at a major Australian bank where they are also guaranteed by the Australian government.

9. Cash Flow - the nature of our strategy makes it ideal for providing an income for retirement purposes, additional investment income, accelerated loan repayment or reducing the overall cash flow burden of an otherwise negatively geared portfolio.

10. No interest rate stress - the expected return of our strategy rises in line with interest rates.

As we only deal with wholesale clients, the minimum investment is $500,000 - but this can come from one or more sources, such as: the equity in your real estate, cash, managed funds, or shares.

Lastly, our strategy is allowable for Self Managed Super Funds (SMSF) and complies with SMSF rules.

For a no-obligation copy of our detailed Investor Summary, or to arrange a free consultation, please contact our Business Development Manager, Mr Glenn Rushton at: glenn@sovereignmarkets.com or phone (07) 3272 6000, or 0413 948 888.

AFSL 341926
ABN 46 116 555 732

Disclaimer: This newsletter is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this newsletter as a substitute for specific legal or financial advice. All material is copyright 2011.