Research & Resources

The Financial Planning Association of Australia recommends that you ask these questions:

Generally you should consider meeting with a financial planner at major events that occur in life which may result in a review of your financial or personal situation. Examples of milestones at which time you may consider seeing a Financial Planner include:

• Wanting to set up a Self Managed Superannuation Fund SMSF
• Have equity in your property you wish to invest
• Just paid off your home
• Job change, redundancy payment
• Received an inheritance
• Pending retirement
• Just retired
• Looking to increase your investment portfolio
• Starting or running a business.

A couple of hours of your time could make all the difference to your financial future.

They can assist you in the following areas:

• Make the most of your superannuation
• Maximise your income in retirement
• Review ways to secure your lifestyle and financial goals
• Learn how to diversify your investments
• Discuss strategies to help reduce tax
• Investment gearing strategies and risk protection
• Provide expert advice on redundancy or early retirement.

Depending on where you are in your life, a financial planner will map out a strategy for your long term financial needs. S/he will help you fix a budget, understand your risk tolerance, save for a home and help determine how to finance it, plan for children’s educations, develop a savings and investment plan, advise on insurance needs, calculate retirement dates and projected retirement needs and income, advise on the use of credit, plan tax strategies and charitable gifts, plan your estate and work with legal advisors to draft your will.

If you have any financial investments, or are thinking about making an investment, you should see a financial planner. Investment can start from as little as $1,000, or $150 per month.

Other issues that affect us all are paying off a mortgage and superannuation. A financial planner can help you manage this, as well as ensuring you get the best possible return.

Most people are willing to give an opinion, however to provide ‘financial service’ advice, a person needs to obtain an Australian Financial Services Licence (AFSL) or become an authorised representative of an AFSL holder. Thus an accountant or solicitor must have a Licence or be authorised before providing advice. ‘Financial Services’ are defined very broadly and include providing financial product advice and dealing, or arranging to deal, in financial products. So unless they are covered by an AFSL, an accountant or solicitor cannot offer investment advice or recommend specific financial products.

All financial planners must have an FSG. It is a simple document that gives you details on a planner. You should check whether the planner holds an Australian Financial Services Licence (AFSL) or is an authorised representative of an AFSL holder. If they don’t meet this criteria, then look for another planner who does.

The planner should be able to give you an estimate of possible costs. This could include the cost of the planner’s services (their time and expertise) and the percentage they would receive as commission on products you may purchase.

Any investment involves ‘risk’, that is, the chance that you will not achieve your financial goals. Generally, the higher the expected return, the higher the risk.

Your planner should provide you with a written financial plan or ‘statement of advice’ (SOA) whenever giving personal financial advice. This written plan should set out the basis for the advice and the reasons for the particular recommendations.

Your goals will change over time, and so your financial plan should be reviewed and changed too.

What are your goals?
Decide on your specific short and long term goals so you have something to work towards. If you expect to retire and lead a five-star lifestyle, your investments need to be leading you towards these goals.

What is your investment horizon?
A short-term horizon will attract a different investment strategy to a long-term one. If you are saving for a deposit for a house that you want to buy in two years’ time, you would probably opt for more secure investment such as fixed interest.

Do you want your investments to provide you with income or growth?
Retirees generally seek income providing investments, whereas those not retiring for many years are more likely to seek investments for growth.

How would you cope if the value of your investment fluctuates?
As an investor, you will become more familiar with the concept of risk and return and the fact that investments with a higher risk are generally offset by a higher return. So, what is your appetite for risk? How will this influence the investment decisions you make?

What are your tax considerations?
A young investor on a higher income will be seeking to minimise their tax while this may not be such as large consideration for a retiree. If you are seeking to minimise tax, then choose investments that provide you with growth not income.

Your goals will change over time, and so your financial plan should be reviewed and changed too.

Provincial Financial Services has made every effort to ensure the accuracy of information provided on our website and that information and opinion provided is based on data obtained from sources believed to be reliable. The opinions expressed herein represent the views of Provincial Financial Services at the time of writing and are subject to change due to circumstances beyond our control. Any calculator that may be used illustrates as a guide only and by no means is this tool alone to be construed as financial advice. Any calculator is to determine your current financial position in the context of your retirement expectations. Provincial Financial Services recommends every individual must seek independent financial advice. Provincial Financial Services accepts no liability for any loss whatsoever (including consequential loss) however such loss may arise in respect to any error or omission in the information provided. Any person’s financial decisions should not be based solely upon information provided on our website. We strongly recommend that you contact us for a confidential discussion regarding your financial needs.

You can use your own bank if you wish but you should be aware that banks are in the business of making money from lending and are very conservative which means they will often put their own interests of obtaining security and a good profit before your interests. Your Financial Advisor will ensure that your loans are structured to best suit your goals and aspirations. If your current lender can provide the right products for effective structuring of your loans, the right attitudes towards investment strategies and at the right price then you will be able to stay with your current bank. Your Financial Advisor will only recommend a move when there is a clear and direct benefit to do so.

Generally, the purchase of an investment requires a deposit of at least 20%. However, because you have equity in your home you can use this as security. There are a number of different ways to structure your loans and your Financial Advisor will determine the best structure for you to achieve your investment goals.

We are more than happy for you to discuss your options with your accountant. In fact we are happy to assist by communicating directly with your accountant to ensure they have all the relevant information to assist you in your decision making.

A Financial Advisor, not just a broker, to structure your loans so that they are optimized for tax deductions and wealth creation strategies.

A financial advisor to assess your whole financial and risk scenario and provide a financial plan.

A budget coach to help you manage your finances better and pay your mortgage off faster.
E-tracka membership to assist with your budgeting, projections and goal setting.

Your first year’s tax return including one rental property and or other investment (for PAYE tax payers).

A Quantity Survey to optimize the tax return you get from your depreciation schedule.
Regular, ongoing reviews to ensure that you stay on track to achieve your goals

The weekly cost shown on the report is calculated on the basis of the information that you have provided with regards to your income and an estimated purchase price for the investment. This calculation includes all costs that can be reasonably quantified. In the case of a property investment it would include interest on the borrowings, depreciation, property management fees and government fees and charges. Maintenance costs are not included as generally with new property these would be minimal and will vary with each property.

However, if you decide to purchase a particular property the weekly cost will be calculated in accordance with the specific price and purchase costs particular to that property. Your property consultant will be able to show you a range of properties with calculations based on each one to assist you in making your choice.

The Financial Advisor will always set aside a fund to provide for expenses like interest during construction and insurance in the borrowings, to ensure that these contingencies are covered. Following settlement, any leftover funds are refunded to your account, but these funds are generally earmarked for things like interest and insurances, so don’t spend them!

One of the most important factors in preparing a finance package is to build in as much protection as possible. Accordingly, for the portion of the debt that you are not looking to repay immediately we recommend using a fixed rate to cover against the contingency of rising rates.

However, it is important to remember that interest rates are very closely aligned to inflation. If the inflation rate increases then you would generally see an upward trend in interest rates. But, you would also likely see an upward movement in salaries, rents and property values. The highest increase in property values historically occurs in times of higher inflation and interest rates.

Rising interest rates are generally good news for the property investor because property values increase, while during periods of low rates it is a good time to buy.

LVR stands for Loan to Value Ratio. Basically it is the ratio of your loan to the value of your property. For example, if you have a loan of $320,000 and your property is worth $400,000, your LVR is 80% which means you have borrowed eighty per cent of the value of the property.

In most cases, when your LVR is greater than 80%, the banks will charge lender’s mortgage insurance. Mortgage insurance is an insurance that banks take out to cover their exposure should you default on your mortgage repayments. The cost of this insurance is tax deductible.

No, relatively speaking, you are borrowing the same money now as you would have borrowed 20 years ago to buy your own home and surprisingly people sacrifice all sorts of lifestyle decisions to make this purchase. This time we not only structure a package to have minimum impact on your lifestyle but you have two others helping you own this property that you didn’t have with your first home. THE TENANT and THE TAXMAN are both going to contribute towards the cost of your investment property.

Affected by overall increased immigration and changing retirement lifestyle patterns South East Queensland (SEQ) is Australia’s fastest growing region. By 2031, its population is expected to grow from 2.8 million to 4.4 million people. The region covers 22,890 square kilometres, stretching 240 kilometres from Noosa in the north to the Queensland-New South Wales border in the south, and 160 kilometres west to Toowoomba. The region’s growth will generate demand for 754,000 new dwellings, as well as supporting infrastructure and services. It will impose significant social, economic and environmental pressures on the region. Of the new dwellings that will be required in SEQ by 2031, nearly half will be built in established urban areas through infill and redevelopment, and the rest in suitable undeveloped (broad hectare) sites. An increased proportion of the region’s population will be accommodated in the Western Corridor, reducing pressure on the heavily populated coast. (Source: Queensland Government Department of Infrastructure & Planning).

The South East Queensland Infrastructure Plan and Program 2009–2026 outlines the government’s infrastructure priorities for the South East Queensland (SEQ) region to support the SEQ Regional Plan. It represents a long-term commitment to infrastructure delivery in SEQ. The 2009 edition of the plan identifies $134 billion in estimated infrastructure investment (inclusive of federal government contributions and other revenue sources), which is expected to create up to 930,000 jobs through to 2031:

• $97.7 billion in transport
• $6.8 billion in health
• $3 billion in education and training
• $5.4 billion energy
• $1.5 billion in water
• $3.8 billion in community services
• $16 billion in completed projects

This is the largest infrastructure program in the country today comprising 378 identifiable projects to 2026. Four years into the program, 87 projects are complete, another 173 projects are underway, $16.4 billion has been invested and 130,000 jobs have been created. In the next year, expenditure is forecast to increase by around $5.8 billion to reach around $22.2 billion, creating a further 45,000 jobs.
(Source: Queensland Government Department of Infrastructure & Planning)

Over the past few decades the Australian labour market has changed considerably. Ageing of the population, increased participation of women in the workforce, changes in industry structure, technological advances and a need for greater flexibility have all contributed to change. Retail trade, health and community services and property and business services are industries where the most employment growth is expected to occur between now and 2011. (Source: Career Advice Australia)

Areas that have the infrastructure to support these industries will therefore indicate good prospects for residential growth. Despite earlier forecasts for high levels of unemployment, current indicators are pointing tentatively to a quickening pace of jobs growth. As official data confirms this, both confidence and improved economic conditions will foster demand and both price and rental income growth.

Queensland has enjoyed a better rate of employment than the national average for several years now and this is expected to continue with the infrastructure growth outlined above.

If you want to achieve both consistent income and capital growth it is important to select an area that has consistent demand and is supported through continued infrastructure growth. Quite often we have clients who cite high rental returns and growth in their local areas as a convincing reason to invest. However, what we generally find is that the returns and growth in regional areas tend to fluctuate a great deal in accordance with the local economy. Often these regional areas are heavily dependent on one particular industry such as mining which is great when there is high demand for mining resources. However, if there is a downturn in this industry the local economy can be severely affected which translates into loss of employment and reduced demand for housing.

It is also important to manage your risk exposure through diversification. If you live, work and invest in the same area you are likely to be hit very hard if there is a downturn in your local economy.

Banks in general are the most conservative investors of all. Consider the following:-

Shares:
Banks will lend 50% of the value of the shares with a margin call. This means if the shares fall too far in value you have to reduce the amount of your loan to 50% of the new value. Unless you have money in the bank, this means you have to sell some of your shares at a loss to reduce the loan.

Rural Property:
There is a limited market for rural property. Many banks won’t lend at all against rural property.

Commercial Property:
There is also a limited market for commercial property. Banks only lend up to 70% of the value.

Residential Property:
Banks, credit unions, building societies, insurance companies, superannuation funds etc will easily lend 80% of the value of the property. In some cases they will lend up to 100% plus costs with mortgage insurance.

Buying new has distinct advantages over an existing property in that a new property will provide you with greater tax deductions through depreciation allowances. There is also a six month builder’s maintenance period and six year structural guarantee available with new property and its desirability to a tenant is greater. The property is also likely to be in a new area, which means infrastructure is still to pour in, thereby increasing the value of your investment. Few of the above advantages exist with second hand property.

You are looking to purchase a product which provides a basic human need (i.e. shelter). Think back 15-20 years ago as to what a property would cost to buy in your area and compare it to now.

Most people understand that if you have $100,000 in cash to invest you would not put it in a bank because in 10 years’ time it would only be worth $50,000. This is because cash devalues as its purchasing power reduces. Its purchasing power reduces because the cost of goods increases. It is therefore logical to assume that if $100,000 cash is worth $50,000 in 10 years (1/2 its value) it’s because the cost of everything has doubled, including housing.

Historical records for median house prices have shown that in recent years property prices have doubled every 7 to 10 years. Whilst past performance is no guarantee of future performance it is logical to assume that this trend is likely to continue given the supply and demand factors that are a feature of the Australian property market and particularly in South East Queensland.

While they would be nice, no one can predict what level of capital growth will occur. There are only two ways to increase wealth through investment be it in shares, coins, stamps, property or paintings. One way is capital growth, which is unknown and uncontrollable. The other is the elimination of debt, which is both known and controllable. If you eliminate the debt on an asset the capital growth becomes a bonus.

We believe that investing should be a 7 to 10 year plus exercise. If you are thinking of a lesser time frame we do not advise that you invest in property. The length of time you need to hold a property depends on several factors such as; the economy generally and your personal situation. Ideally you should hold investment properties until you are ready for retirement and rather than sell you should consider using the increased equity to build your property portfolio.

Before you sell a property, you should always evaluate the cost of the real estate agent’s commission and capital gains tax against other options like borrowing against your equity. The latter is usually the most cost effective option. Remember you only lose money on any investment, if you sell at the wrong time.

Whilst it is possible to make large capital gains quickly with the right timing, property investment should always be viewed as a long term investment as it is very difficult to know when the property market is going to reach the top of its cycle.

There are really only 3 ways to invest in property: to speculate, develop or invest. If you speculate you are purchasing a property on the basis that some event or infrastructure change is going to occur which will cause the value of your purchase to increase in value rapidly. The Olympic Games were a good example of this with a lot of speculation occurring. The risk is that the event or infrastructure either doesn’t occur or doesn’t have the impact that was expected. Other factors such as low interest rates, increased demand and government intervention can also have significant effects on property cycles but these are difficult to estimate with any degree of preciseness.

If you develop property you are purchasing something which you intend to improve, either by building or renovation to offload quickly. The risk is that holding costs can rapidly diminish your profit if the property does not sell as anticipated. Remember, if you are not renting it there is no tax benefit.

If you invest you are purchasing a property specifically to hold long term. The assistance of rental income and tax benefits helps you to hold the property long term.

The right debt reduction strategy will see the property freehold in time, thereby providing you with an income later in life. The capital growth is not as important if you eliminate the debt as soon as possible but you will find that even if you don’t repay the debt your asset will increase in value over time allowing you the leverage to build your portfolio.

We recommend that the property be purchased predominantly in the name of the highest income earner taking into consideration the fact that there are unlikely to be any changes in the family income stream in the near future. By purchasing the investment predominantly in the name of the largest income earner (i.e. 99% and 1%, as tenants in common) you are able to maximise the tax benefits available thereby minimising the cost to you. If both parties are on similar incomes and this is unlikely to change in the foreseeable future then joint names 50/50 would be fine.

Keep in mind also that calculation of cash flow in relation to the actual cost of owning the property is based on the highest income earner (in the case of 99/1 ownership). If the other party were to cease work it makes no difference to the physical ongoing cost to you of owning the investment property. You should seek legal advice to understand the implications in the event that your circumstances change.

Everyone has a different opinion of the value of an asset depending on the position of the person assessing the value. In the case of a residential property the vendor may have a different opinion than the purchaser and the bank or their valuer may have a different opinion again. All these parties are assessing the value of the property for their own purposes. It’s difficult to quantify this question but if the bank valuation is within 10% of the purchase price it is probably acceptable.

Ultimately, if you are happy with the product and the price, buy it. If not, don’t.

Remember a bank valuation is for a specific purpose, which is to prevent the bank from lending too much without security. So they err on the side of ‘being conservative’. If you were going to sell your house would you ask the bank’s valuer to value it for Mortgage Security purposes and then put it on the market at that price?

We will refer you to a licensed experienced agency that will provide you with property management services. This agency will contact you prior to the completion or handover/settlement of your property to let it as quickly as possible. These managers are very knowledgeable and this experience reduces the delays in finding good suitable tenants.

It is important to use a licensed agency with property management experience. A good Property Manager will ensure that prospective tenants are thoroughly checked out before approval for a tenancy and will ensure that your lease agreement is properly executed in accordance with the Residential Tenancies Act. This is very important to ensure that any insurance cover that you take out is not voided.

It is also advisable that any investor takes out Landlord’s Insurance. This covers for loss of rent and tenant damage and is in addition to your building and contents insurance which is important to ensure that you are covered for any unforeseen events. These costs are tax deductible.

Like every professional involved with your purchase, the property manager works for you. Your property manager must comply with the PAMD Code of Conduct and the Residential Tenancies Authority, but remember they are there to make sure that your interests are looked after. They don’t get paid while there is no tenant in your property.

If an investor decides to purchase a townhouse in a complex, the common property is owned collectively by all the unit owners. Every complex that is listed has a professional body corporate manager to decide what fees are payable. They must base this on a budget, where recurring expenses are expected, e.g. building insurance or common property rates. And make allowances for occasional long-term repairs, e.g. entry road upkeep, swimming pool refurbishment, etc. The former is paid for out of the “administrative fund”; the latter from the “sinking fund”. Occasionally, a “special levy” may be added, e.g. purchase of lawn moving equipment at the opening of the complex.

All unit owners contribute on a pro-rata basis to these funds. For investors, levies on these funds are tax-deductible, and usually total around $40-$50 per week.

To be eligible for NRAS funding, properties must be approved by the government. This means that the property must fit the criteria that the government has identified as a priority for the National Rental Affordability Scheme. Currently, applications for approval of NRAS funding must address priority areas of interest including proposals involving 100 or more rental dwellings, which are consistent with state, territory or local government priorities and proposals for tenants with special needs. The approval process can take up to six months and only existing applicants from round one are currently being considered for round two offers. Further applications will only be considered after these opportunities have been exhausted.

You must agree to rent your property at twenty per cent below the market value. Market value must be assessed by a registered valuer. Registered valuers typically assess the value of a property ten per cent or more lower than asking prices in order to ensure that banks and insurers are adequately covered. This means that you could end up being forced to rent your property for even less than twenty per cent below market value. Valuations must be lodged with the Department of Housing within 30 days of the property first being allocated and subsequently at the end of the fourth and seventh years of the incentive period. Rental increases may only be applied at the commencement of a new lease or for existing leases, no more than 12 monthly intervals. However, the rent must remain twenty per cent below market at all times.

You can only rent the property to eligible tenants. Tenants must first apply to the Housing Authority and will only be approved if they meet certain financial criteria. Only tenants who are currently registered with the Housing Authority may rent an NRAS funded property.

Most NRAS schemes require you to sign a head lease with the approved applicant for the scheme, locking you into a contract for the period of the scheme which is ten years. You can sell the property within this time period. However, you must sell to someone who will continue to rent the property under the scheme. Property management fees are typically higher than those generally charged in the market.

A Statement of Compliance must be lodged for an approved dwelling for each NRAS year stating that at all times the premises were occupied by eligible tenants, detailing the rent charged over the year and that this was maintained at twenty per cent below market, details of any vacancies, and compliance with all residential tenancy laws, building, health and safety laws of the State or Territory and Local Government area.

Good capital growth generally occurs where demand is consistent and infrastructure development and employment growth ensues, producing continuous improvement in socio-economic factors in the area. However, there has been significant concern in the community that these developments will produce enclaves of lower socio-economic status, thus reducing the value of neighbouring properties. Many communities have lodged protests with the local government to stop these developments from proceeding. Capital growth will be dependent upon a number of factors which should be considered carefully before purchasing an NRAS property.

Unfortunately, only some banks may fund them with a lower LVR or loan to value ratio. However, this may reduce the tax effectiveness and leveraging strategy of the investment.