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10 Tips For Choosing An Investment Property

So, you’re thinking of buying your first residential investment property? There are a few things to consider before making the move. Here are our top 10 tips for avoiding potential difficulties and ensuring success.

  1. Know your goal

Understanding your financial objectives is key to finding the right investment property. The actual property itself is rarely the end goal when it comes to investing – the financial elements should be your key focus. First, decide what your investment goal is and then create a plan to achieve it within a realistic time frame.

Are you looking for a plan for retirement? An income-generator to fund your children’s education? Or building equity to gain a regular income? Define a plan and review it regularly as your situation and the market changes.

  1. Research, research, research

Understanding which property is going to work best for your situation is key. It needs to be one that will be of high demand from renters and, possibly, owner-occupiers down the track. Be sure to research which types of properties are in demand and rents quickly in particular areas, and those that don’t. Is this an area popular with families who want three- or four-bedroom homes, or with singles looking for studio apartments? Speak with property managers and check ads to find out what renters are currently looking for, and how their needs may change in the future. What developments are planned nearby? Get to know the neighbourhood you’re planning to invest in.

  1. Old or new?

It’s the age-old debate: should you buy a renovator’s delight or something you can rent straight away? It’s great if it can be rented out as is, but potential to renovate should also be considered. The ability to easily and economically add value to a property is a plus, as it could increase rental returns. Don’t immediately write off a property just because it needs a paint job or the kitchen cabinets need replacing, but at the same time avoid overcapitalising if it’s not going to deliver returns. It’s a balancing act, so consider your skill levels, the extent of makeover required, and your access to funds to pay for renovations.

  1. Location, location, location

Location is critical to performance. Some of the things to consider include:

  • How far is the property from the CBD or business areas?
  • Are there schools nearby?
  • How’s the shopping? Can tenants walk to local shops or will they need to drive?
  • What and where are the public transport options?
  • What other amenities are close by? Are there cafes, a medical centre, a pharmacy, a gym?

  1. Do your sums

Always check your finances before deciding to purchase a property. Get pre-approval and make sure you can cover repayments as well as extra upfront costs such as conveyancing, inspections and taxes. There are also ongoing costs to consider including landlord insurance, strata and property management fees, property maintenance, council rates and utilities.

You need to set yourself a realistic picture of a property’s cash flow, rather than vague idea of whether rent will cover expenses, so use a spreadsheet to calculate all foreseeable expenses. If cash flow is negative, can you afford to maintain the property? What happens if it’s vacant for a couple of months? Do your sums carefully and always ensure you factor in a financial buffer to avoid mortgage stress.

  1. Choose the right setup

When it comes to investing, it’s important to understand how to set up the purchase to receive the most benefit. The entity should be tax-effective and protect any existing assets. You can purchase in your name, through your super or through a trust, but always understand how the purchase will affect you and your family. Expert advice can assist in maximising your benefits.

  1. Pick the right features

You want to appeal to the highest number of tenants, so look for properties that offer that little something extra, like a second bathroom or a lock-up garage. Also, look at properties that appeal to many segments. For example, a lift may appeal to both retirees and a young family, as both will be looking to avoid stairs. Just make sure the benefits outweigh any extra costs.

  1. Check your emotions at the door

Remember, you won’t be living in this home, so there doesn’t need to be an emotional connection to the home or the area. Your decision should always be about which property will give you the best return, not which one is most suited to your own tastes and lifestyle.

  1. Timing is key

It’s a great idea to keep on top of the market’s movements and its dynamics. While there are investment opportunities available most of the time, some market conditions are more favourable. Do plenty of research and, if you don’t fully understand it, ask for help.

  1. Get expert advice

Your broker can put you in touch with experts when it comes to real estate and investment. This means accountants, real estate agents, lawyers, and valuers. These people are immersed in the industry and will be able to guide you in your decision-making.

 

 

Article source here.

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Self-Managed Super Funds: The Importance Of Getting The Right Advice

The Australian Securities and Investment Commission (ASIC) has released a report detailing its findings from a large research project undertaken into self-managed super funds (SMSFs). The research looks into member experiences in setting up and running an SMSF and whether advice providers are complying with the law when providing personal advice to retail clients to set up an SMSF.

Since the introduction of SMSFs in 1999, many consumers, motivated by a desire to gain control over their investments and financial futures, have opted for SMSFs over retail superannuation products. Today, there are more than 590,000 SMSFs holding assets worth nearly $697 billion. This figure represents 30 per cent of all funds held in superannuation. Amazingly statistics from the ATO show that people under 40 are the fastest growing segment of the sector. People who earn less than $60,000 a year now account for 55 per cent of SMSF members, and 20 percent of members are under 45 years old.

Considering the immense and growing popularity of SMSFs, ASIC saw the need for consumers to be fully aware of the risks and obligations involved with moving their superannuation into a self-managed super fund, and wanted to highlight the important role that access to quality financial advice plays in guiding consumers to make the right decision.

Consumers can be caught out by the complexities of SMSFs

The report highlighted a number of areas where consumer expectations around SMSFs are misaligned with the reality of running one. The research found that 32 per cent of members found setting up and running their SMSF to be more costly than expected, and 38 per cent found running their fund to be more time consuming than expected[1].

Additional findings that highlight the lack of understanding consumers have around their SMSFs and their corresponding legal obligations as SMSF trustees include[2]:

  • 33% of members did not know that an SMSF must have an investment strategy;
  • 30% of members had no arrangements in place for their SMSF if something happened to them;
  • 29% of members thought they were entitled to compensation in the event of theft and fraud involving the SMSF; and
  • 19% of members did not consider their insurance needs when setting up an SMSF.

Adviser advice inadequate when it comes to SMSFs

The research report also reviewed 250 client files where an adviser had provided personal client advice to set up an SMSF. Unfortunately, the results indicated that there were a number of instances where the advice provided was non-compliant, ranging from poor record-keeping and process issues to situations where clients were at risk of significant financial detriment.

It’s a big wake up call for both clients and advisers. Clearly, lots of people are setting up self-managed super funds without knowing whether this is the best option. Also the report highlighted that some advisers aren’t doing a good enough job in this space to support their clients.

What should I do if I am interested in setting up an SMSF?

If you’re interested in setting up an SMSF, you should not be put off by the findings of this report, however, we urge you to seek reputable advice to ensure that an SMSF is the right approach for your finances.

When selecting a financial planner, you need to ask about their credentials and get an overview of their education to ensure they have the right knowledge around SMSFs. Additionally, they should be open-minded in regards to options outside of SMSFs. Actively ask your planner to outline the benefits and risks of SMSFs vs other super investment options to ensure they are the best option for you and your goals for the future.

How do I find the right financial planner for advice on SMSFs?

Firstly, don’t be afraid to shop around. Ideally, a relationship with a financial planning professional will be long-term, ensuring you are working towards and achieving goals that benefit you over the course of your life. It is crucial that you feel comfortable with the planner you select, so it can be a good idea to have initial meetings with a few planners to ensure that you are aligned in terms of how you want to approach financial planning, and that you feel like they understand your needs and can provide appropriate advice.

Secondly, ensure they are licensed. You should always look for a financial planner who works for a firm that holds an Australian Financial Services (AFS) License issued by the Australian Securities and Investments Commission (ASIC). If you have any doubts, you can use the ASIC Financial Adviser tool on the MoneySmart website to verify whether the financial planner is licensed.

Finally, ask about their education, qualifications and associations. Make sure your financial planner is properly trained to provide advice, and don’t be afraid to ask about what financial planning qualifications they have achieved. You should also look for a planner who is a member of a professional body, such as the Financial Planning Association (FPA). Members of the FPA must meet stricter criteria and higher standards than currently required by law.

In order to provide advice that will specifically benefit you, your financial planner should spend time asking questions and gathering information to gain an understanding of your current circumstances, your financial habits and your goals in order to develop a personalised financial plan that encompasses all areas of your finances, including the right approach to superannuation. If you encounter a planner who seems overly invested in selling you a particular product, particularly without spending time getting to know you, you should treat that as a red flag that they are not the right adviser for you.

I already have an SMSF, what now?

If you already have an SMSF, remember that you are not locked in to this investment structure. If you do some further research, or seek additional advice, and decide an SMSF is not right for you, there are options for winding up your SMSF and moving your super to a more traditional product, and the ATO provides some general direction on winding up your SMSF.

 

Feel free to contact us should you have more questions, we’re willing to set up a meeting with you.

 

 

Article Source Here.
[1]Pg 8, ASIC, “SMSFs: Improving the quality of advice and member experiences”, June 2018,https://download.asic.gov.au/media/4779820/rep-575-published-28-june-2018.pdf
[2]Pg 8, ASIC, “SMSFs: Improving the quality of advice and member experiences”, June 2018,https://download.asic.gov.au/media/4779820/rep-575-published-28-june-2018.pdf

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Top 10 Legislative Updates For Financial Year 2018-2019

As we kick off the new financial year, we thought we would provide you with a list of the top 10 legislative updates that are due to take effect in the 2018-19 financial year – either on or after 1 July 2018.

Please note: Some of the below listed legislative updates were proposed measures in the 2017-18 and 2018-19 Federal Budget, some which have now been legislated, whilst others are yet to pass through the legislative process. As such, where applicable, we have noted legislative updates that are still pending.

Importantly, changes could be made or the proposals may be rejected.

Superannuation

1. Contribution Caps and General Transfer Balance Cap.

Please note: From 1 July 2018, the new carry forward provision will apply for concessional contribution caps; however, the first year that you will be entitled to carry forward unused amounts is the 2019-20 financial year.

  • The general transfer balance cap will remain unchanged at $1.6 million.

2. Downsizing Measure. From 1 July 2018, the Downsizing Measure will allow those aged 65 or over to use the proceeds from the sale of their home, to make a downsizer contribution of up to $300,000 each into superannuation (subject to complying with some finer details).

3. First Home Super Saver Scheme. From 1 July 2018, the First Home Super Saver Scheme (FHSSS) will allow eligible prospective first homebuyers to withdraw their voluntary superannuation contributions, and an amount of associated earnings, to assist with the purchase or construction of their first home.

4. Superannuation Guarantee and Employees with Multiple Employers. From 1 July 2018, individuals who have multiple employers and earn more than $263,157 will be able to nominate their wages from certain employers are not subject to the Superannuation Guarantee. This will help them avoid breaching the concessional contributions cap of $25,000. This proposal has not yet been legislated.

5. Government Co-contribution. From 1 July 2018, the income thresholds for the 2018-19 financial year will be increased due to indexation. Moving forward, the maximum co-contribution of $500 will be reduced by 3.333 cents for each $1 of income earned over $37,697 (previously $36,813), and cuts out when your total adjusted taxable income reaches $52,697 (previously $51,813).

Taxation

6. Personal Income Tax Plan. From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased to $90,000 (previously $87,000). Below is a brief overview of the Personal Income Tax Plan income levels and tax rates for the 2018-19 financial year, as well as the other legislated changes due to take effect in the 2022-23 and 2024-25 financial years. This proposal has recently been legislated.

7. Personal Income Tax Plan – Continued. From 1 July 2018, a new non-refundable Low and Middle Income Tax Offset will be introduced, which is aimed at providing a benefit of up to $200 for taxpayers with a taxable income under $37,000; up to $530 for taxable incomes between $37,001 and $90,000, before phasing out at $125,333. This proposal has recently been legislated.

8. HECS/HELP Loan Repayment Rates and Thresholds. A bill has entered the Senate that if legislated in its current form (third reading*) would see the repayment rates and thresholds for HECS/HELP loans amended. Below is a brief overview of both the legislated and the proposed repayment rates and thresholds. This proposal has not yet been legislated.

Social Services

9. Child Care Subsidy. From 2 July 2018, the Child Care Benefit and Child Care Rebate will be replaced with a new financial assistance payment, the Child Care Subsidy. Moving forward, the level of Child Care Subsidy that you may be entitled to will be assessed against several interconnected factors: combined family income; activity test (the activity level of parents); and, hourly rate cap applied in relation to the child care service type and age of your child.

Please note: This is not an automatic transition process. You will be required to complete a ‘Child Care Subsidy Assessment’ task with Centrelink. If you do not complete the required assessment, the Child Care Subsidy will not be paid to your approved child care provider.

10. Age Pension Residency Test. From 1 July 2018, new applicants will be faced with enhanced residency requirements (however, existing exemptions would still be preserved). This proposal has not yet been legislated. The enhanced residency requirements to be deemed eligible to receive the Age Pension are as follows:

  • 15 years of continuous Australian residence, or
  • 10 years of continuous Australian residence, with at least five years of this during their Australian working life (i.e. between age 16 and Age Pension age), or
  • 10 years of continuous Australian residence, and not have been an activity tested income support payment recipient for a five-year cumulative period.

Moving forward

If you would like to discuss any of these legislative updates and their relevance to your financial situation, goals, and objectives, please do not hesitate to contact us.

 

 

 

Article source here.

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5 Bookkeeping Tips For Your Small Business

Setting up your business is exciting and challenging, and will hopefully bring you the rewards you deserve, along with the autonomy you dream of. However, if your business is going to be profitable, it’s vital that you get the accounts right. That starts with making sure you set up the books correctly.

1. Comply with the law

All businesses must register for an ABN. If you turn over more than $75,000, you will also need to be GST registered. Registering for PAYG Withholding Tax is also essential if you employ staff.

In addition, it’s vital that you keep all records relating to income tax, GST, payments to employees, superannuation, fringe benefits tax, fuel tax credits and business payments. The law requires you to keep all these records for five years and have them accessible on request.

2. Know what bookkeeping is about

Bookkeeping is the process of organising, recording and reporting on the financial transactions of your business. This involves several different processes:

  • Keeping track of daily transactions.
  • Sending out invoices and managing accounts receivable, including chasing late payments.
  • Managing accounts payable, including payment of supplier invoices, expenses and petty cash.
  • Maintaining the balance of income to expenses, to make sure the business doesn’t run out of day-to-day money.
  • Making sure the books are valid and up to date whenever the accountant needs them.

Good bookkeeping will keep your business running smoothly day to day, and will make your accountant’s job a lot easier.

3. Choose what type of accounts you want to keep

There are two main types of accounting systems:

  • Cash-based accounting. This records transactions at the time the cash was paid or received, not when the transaction actually occurred. It is a relatively easy system and involves little paperwork, but it can be prone to errors. It is usually used by small businesses who mainly deal with cash transactions.
  • Accrual-based accounting. This records transactions at the time they occur, even if the money has not been paid yet. This is the most widely used method and is more accurate but can be more complicated, although it makes it easier to record transactions like wages and credit.

Some businesses use a combination of the two. If you’re not sure which would work best with your business, check with your accountant – he or she is the person who will be helping you out come tax time.

4. Choose your system

Most businesses these days use some form of electronic bookkeeping. There are a variety of options to choose from here, but all require you to be accurate on a computer and have a good backup procedure where information is stored off site. Options include:

  • These are the simplest electronic option and are ideal if you’re accurate at data entry and don’t want to spend out on a full accounting package.
  • Accounting software packages must be compatible with Standard Business Reporting. It’s also vital that you make sure you choose a package that meets the needs of your business.
  • Web-based. “Cloud” systems have the advantage of being able to be accessed from any location, and also solve the problem of off-site data storage. They are usually cheaper than standard software, but are thought to be slightly less secure at present.

5. Stay on top of it and have a great accountant!

It’s vital that you stay on top of the books in order to make sure your business is running as it should. Allocating a set time each week to devote to your books ensures that this habit becomes part of your work routine. It also should help you maintain your profitable business, without getting you too confused in the process.

Make sure you choose an accountant who you feel comfortable asking questions of, and who can guide you through the setup of your books. Great accountants can act as advisers and really make a difference to the success of your small business.

 

Article source here.

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Farmers Offered More Financial Flexibility

Australia’s biggest agricultural lender has admitted it lost touch with farmers as it moves to relax rules around loan repayments and make it easier to save for droughts.

National Australia Bank will allow primary producers to offset farm management deposits against loans, with other banks being urged to follow suit.

Farm management deposits allow farmers to remove money from their taxable income during good years to later use during tough times.

“The royal commission and other inquiries reveal that in some cases we have lost touch,” NAB chief executive Andrew Thorburn said in Wagga Wagga on Monday night.

The bank will also no longer charge penalty interest payments on farmers who fall into debt on loans.

NAB came under fire during the banking royal commission for charging struggling Queensland cattle farmers more than $2.6 million in default interest over more than five years.

Agriculture Minister David Littleproud wants other banks to follow NAB, encouraging farmers to “vote with their wallets” and tell banks who refuse to “bugger off”.

Rural Bank has until now been the only lender to allow the FMD offset since it was introduced in 2016.

One in three farmers bank with NAB, meaning the other big banks will face increased pressure to join them in making the change.

National Farmers’ Federation chief executive Tony Mahar is hopeful other lenders will allow greater flexibility for primary producers.

“We need to make sure farmers get through these challenging times and are able to continue to produce food and fibre for Australia and the globe,” Mr Mahar told Sky News on Tuesday.

Mr Littleproud tore shreds off the foreign-owned Rabo bank for “turning up its nose” at Australian farmers last week by ruling out an FMD offset product.

“You have to ask how serious that bank is about agriculture in Australia. It’s fantastic an Aussie owned bank has shown a social conscience and led from the front,” the minister said.

Mr Littleproud also wants other banks to follow NAB on removing penalty interest payments for farmers in drought, urging lenders to reassess the practice more broadly.

“I don’t think the charge truly reflects the cost to the bank. It’s really a kick in the guts when someone’s down, which isn’t the Australian way,” he said.

 

 

Daniel McCulloch and Matt Coughlan

Article source here.

 

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