When valuing new properties for the purpose of providing a mortgage, the banks and their valuers can use a slightly different method when determining a property’s true market value. Sometimes the valuation meets contract price, and sometimes the valuation comes in lower than expected.
How Do Bank Valuations Work?
Is This Investment Right for Me?
MRD specialise in providing a proven financial program that works with you on a personal basis to identify your goals for wealth creation and financial freedom. The MRD point of difference is industry expertise, generated from many years of experience and exposure to financial and property markets.This expertise has been successfully implemented for many clients who have achieved financial security, creating a more flexible and profitable lifestyle.
Do property prices ever fall?
Property prices go up and down depending on supply and demand. If property owners need to sell quickly, prices drop. If everybody wants to buy in a particular area, prices rise. The good news is the property market is not as fragile as some other markets and you can minimise the effect of a downturn by investing for the long term. Other safeguards:
Every property MRD recommend is an average property in an average area. This means your property will appeal to the maximum amount of tenants.
MRD do not look at oversupplied areas. For instance, there was a large development in Melbourne where hundreds of units were sold to investors. All of a sudden a flood of investment properties hit the market. More investment properties, in fact, than there were tenants. This means a tenant can name their own price.
When MRD recommend a development, it is because MRD have completed the essential research to ensure the property is in an area in high demand with limited supply.
Can I still make money in property?
Here are a few questions that may help you answer this question for yourself:
Can you imagine people preferring to sleep in tents or without a roof over their heads?
Can you imagine technology producing a ‘new invention’ to allow us to manufacture unlimited amounts of cheap, vacant land near busy metropolitan areas?
Can you imagine a time when people stop having children?
Think about it. Do you really think people will ever stop investing in real estate? Do you think there will ever come a time when people won’t desire financial independence? Of course not.
Sure, the market may fluctuate over the years, but real estate is more stable than any other form of investment. The key to success is sticking around long enough to see the rewards.
What are the risks of tenants damaging my investment?
Take out landlords’ protection insurance.
Always use a Property Manager.
With very few exceptions, MRD only select brand new properties (to maximise the depreciation benefits), in suburbs that attract quality tenants.
What if negative gearing is abolished?
The Hawke Government in the mid 1980s abolished the right to claim losses from rental property against other income, but they didn’t abolish the right to negative gear. However, this undesirable situation meant that investors left the market in droves and placed the burden of housing the rental population to the government – and they simply can’t provide for everyone.Given the extreme shortage of rental accommodation that resulted, the government was forced to repeal the legislation in 1987.
It is considered unlikely that the government will make the same mistake twice.But should it happen it is doubtful that the change would be retrospective and negative gearing would still be possible by matching your rent to your outgoings.
What if interest rates rise?
Your tax refund in part buffers any increase in interest rates. Like any business, if your costs increase you will pass them on to your customer, in this case, your tenant. Alternatively, you can fix the interest rates to ensure you can budget successfully and insulate yourself against any possible rises.
Why is it so important to get the finance structuring right?
Structuring the way you borrow is only marginally less important than buying the right investment property.
Example: John has purchased three investment properties from MRD, but decided to look after the loan process through the bank he had used in the past. The bank manager didn’t understand how to structure John’s finances to cater for multiple investments, so now John will have to pay thousands of dollars in penalties to free himself to buy further properties.
Isn’t debt a bad thing?
It’s important to understand that there are different types of debt.
Three types of Debt:
Bad debt is a loan used to purchase things that depreciate such as cars, furniture, white goods, and which incur no tax deductions.
Tolerable debt refers to the type of debt we incur when purchasing an item that appreciates in value but offers no tax relief. The family home falls into this category.
Productive debt is used to buy appreciating items (ones that are worth more in time) that also attract tax relief. Investment properties fall into this category.
If understood and used wisely, debt is a powerful tool that can create wealth.
With no spare cash, how can I afford the cost of getting an investment property up and running?
With the family home, there is generally only one person who pays the bills and that’s you! However, an investment property is different because the tenant and the taxman pay most (and eventually all) of your bills; including interest and insurances. Your contribution is made only after they have contributed their share.If you are in the higher tax brackets, you may be surprised to learn that your contribution could in fact be nil. MRD will show you how to manage any cash-flow shortfall so that it has no impact on your current disposable income.
I’d like to invest in a property, but I don’t have a deposit. What can I do?
If you have equity in your own home, you can use this instead of cash, as a temporary deposit. As the value of your investment increases, the need for your other equity is diminished.
What makes MRD different?
MRD is not in the business of selling properties. Property is simply the vehicle MRD use to help clients increase personal wealth.
MRD believe in sharing valuable insight, enabling people to make their own, informed decisions, even if they decide not to invest through the company.
MRD select specific developments which have the best potential to maximise rental return and capital growth.