Finance

To Rent or Buy?

Owning your own property is normally very high up on the list of things people want to achieve in their life. However, depending on your financial goals and what stage of life you’re at, what you hope to achieve with property will likely differ quite considerably.

For first home buyers, the biggest question is usually whether to rent or buy?

 

To Rent or Buy?

Advantages of Buying

 

Capital Gains

The most obvious advantage of buying a property is that you own it and benefit from the capital gain on the property, should its value increase. However, you also have to pay all the costs such as council and water rates and ongoing maintenance.

 

You Control It

When you own a property, you get to do anything you want to it. A common complaint from renters is that they aren’t even allowed to put up a picture hook. That’s not an issue if you buy a house.

 

Add Value

If you own a property, you’re able to add value to it and manufacture equity in certain ways. The most common strategy for this is to do a small renovation or even a subdivision.

 

More Affordable

In a lot of cases, you will find it is more cost effective to buy than rent, in the current environment, thanks to record-low interest rates. If you’re living in an area where you can pay less on your mortgage than you would renting, then the incentive is certainly there to go out and buy.

 

Advantages of Renting

 

Flexibility

One of the greatest benefits renters enjoy is flexibility. Many people who choose to rent do so because they are able to rent in highly desirable locations, like the inner city that offers a great lifestyle and amenity. For many of these high-demand locations, purchasing a property can be very expensive and outside the budget.

 

Lower Fixed Costs

Costs are usually less of a burden for renters as the landlord is generally required to pay many of the ongoing costs of the property, including strata fees, water and council rates, and maintenance.

 

Cash Flow

Renting can allow you to free up more cash, so you can put it into other ventures. If you’re trying to start a business or you want to spend your money on things like travel, then renting can be advantageous.

 

Rentvesting

Over the past few years, there has been a growing push from property investors in Australia to continue renting and purchasing an investment property instead of a home to live in. This is a way you can get the best of both worlds – you can live in a great location and still invest in property elsewhere. Rentvesting is increasingly common in places like Sydney and Melbourne, where house prices are higher.

By |November 4, 2021|Categories: Finance|0 Comments

Is a Bridging Loan Worth It?

In the current market where property prices are trending higher and there’s a shortage of stock, upgraders and downgraders can find it difficult to get into a new property. For many, the age-old question of whether to buy first or sell first is more prominent than ever with the present housing market favouring sellers.

Fortunately, there is an option that can help in the form of a bridging loan. A bridging loan is a short-term loan that helps buyers purchase a property before needing to sell their current property.

In a perfect world, you would sell your property and then go out and find a new property. However, if the perfect home comes along beforehand, you might not want to miss out on the opportunity. That said, there are advantages and disadvantages to bridging loans.

 

Is a Bridging Loan Worth It?

Advantages

 

Speed

The main benefit of a bridging loan is that you can buy a property right away. You don’t have to wait for the property to sell or even to settle, which can be a long time in some instances. It will also give you room to sell your property, so you aren’t forced to sell immediately at a worse price than you might have received otherwise.

 

Capitalised Interest

When you take out a bridging loan, it is normally an interest-only loan, where you pay back all the interest at the end when you sell your original property. With this type of loan, you’re only needing to pay back one mortgage at a time and can pay off all the accrued interest when you sell and settle on your current property.

 

Standard Rates

In years gone by, bridging loans weren’t as appealing as they often came with very high-interest rates. These days many lenders will offer standard variable rates, but as always, policies differ between lenders and products.

 

Disadvantages

 

More Interest

When you are taking on a bridging loan you are technically carrying two properties and therefore will be paying interest on both. The longer it takes to sell your current property the more interest you will be required to pay. Some lenders might even force you to pay higher interest rates after a set period of time.

 

Higher Costs

There are certain areas where you will need to pay additional costs when using a bridging loan. For example, given that you have two properties, you will need to pay for two valuations. There can also be costs involved with breaking your current loan to take on a bridging loan.

 

Need To Service the Debt

To qualify for a bridging loan, you still need to be able to service the total amount of debt based on your income and expenses. In some ways, this is similar to getting an investment loan. You will also need to have a reasona

By |November 4, 2021|Categories: Finance|0 Comments

What’s the difference between net yield & gross yield?

Commercial real estate is attractive to investors for several reasons, and it’s normally the high yields on offer in comparison to residential property that are particularly appealing.

However, commercial property comes with an added advantage in that the tenant generally pays many of the outgoing costs. This can be a significant amount of money and can make an investment in commercial property even more attractive for those investors in search of cash flow.

 

Understanding net vs gross yield

Gross yield is the rental income you receive before taking into account the expenses. Net yield is your income after expenses.

When you purchase a residential property and rent it out as an investment, as the owner, you’re obligated to pay many of the ongoing costs of the property. This can have a significant impact on your rental yield. These costs include things such as the council rates, strata fees, maintenance and repairs, gardening, insurance, property management fees and water costs.

While you have an attractive gross yield of 5%, when you factor in the expenses that you’re paying, your net yield might be only half that. When we look at commercial property and the fact that the tenant is paying many of the outgoing costs, your net yield might be very close to your 5% gross yield. It’s important to note that every commercial tenancy agreement is a little different, and what the tenant is required to pay will be different in most circumstances.

The other advantage of commercial property from a yield perspective is that it is normally far greater than its residential counterpart. It’s not uncommon for commercial yields to be well above 7% or even 10% at times, and with the tenant paying outgoings, this is very appealing. For an investor in search of cash flow, it can be an attractive proposition.

When looking at the high net yields on offer in commercial property, it is also important to factor in periods of vacancy. Generally, when you have a residential property, it’s quick and easy to find a new tenant to take over.

Commercial properties can be harder to find tenants for, as it is businesses that take up the space. With commercial properties, the lease agreements are normally for a lot longer; there are many cases where businesses stay in the same building for decades.

By |October 9, 2021|Categories: Finance|Tags: , |0 Comments
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