'Articles'

Many people who are self employed struggle with the financial management aspect of running their own business. Harry Pontikis has been running seminars for the self employed for over 9 years and has identified 8 common financial headings which cause them the most hardship and often leads their profitable businesses to unnecessarily difficult times.

1. No emergency cash reserves

• The worst time to approach a lender for money is when you need it
• Therefore, the best time to apply for a loan is when you don’t need it.
• This is done by attaching a Line of Credit onto equity and leaving it as reserves

2. Paying commercial rates

• If a loan is secured by residential property, you shouldn’t need to pay commercial rates

3. Starting projects with own funds and then applying for finance

• Lenders will not consider a development or construction project which has already begun.
• This is because it is no longer considered land and can’t be valued as a home;

4. Fixing rates and limiting ability to pay off loans

• You need to know when to fix your interest rates and when to leave them variable.
• Trying to preempt the movement of interest rates is not a good reason to fix your interest rates.Limiting your exposure and ‘hedging your bets’ may be a good reason to fix your interest rates.
• Fixing your interest rates and then refinancing to access more equity or because your situation has changed can be an expensive exercise.
• Good planning is necessary regarding your future financial needs

5. Failing to complete tax returns on time

• Not having financials to show a lender when borrowing money may lead to higher interest rates and more fees
• Always better to have your tax returns completed and up to date

6. Allowing a default to be registered against your name on the Credit Register

• Defaults can cause major issues with obtaining any sort of credit - whether they are loans, utilities, mobile phones, etc
• Not worth allowing one to be registered against your name as it remains for up to 7 years

7. Growing too fast

• Many businesses face the greatest challenges when times are good - not having strict financial disciplines in place may cause excesses in spending and cash flow often causes a business undue hardships.
• Lenders have many products to help businesses with their cash flow challenges. Including lending money without requiring property - often known as invoice or cash flow finance.

8. Giving too much business to one lender

• A misconception that a lender is likely to treat a self employed person better if all their business is with them.
• Better to spread the risk across multiple lenders
• Competition with lenders is a healthy way to get great rates and loans

Shares or residential property? This is the question every investor has asked at one stage or another. Depending on who you ask the question to, the answer differs dramatically. In the current market, shares are on a high and the residential property on the east coast is on it’s way up. Again, this splits the investment advisors into two some say you should get into the stock market because it’s doing well, whereas there are just as many investment advisors who say the time is perfect to get into the property market. Therefore, please find some general information to help you make your own mind up:

Yes to Property:

• Consistent capital growth of 9% in Australia for the past 100 years
• Capital growth is based on the entire investment not just the cash injected
• Tax advantages depreciation, capital allowances,
• Population and immigration growth will drive demand
• Can insure your property to unforseen damages or loss
• Able to personally increase the value of property via renovations
• Can negotiate the purchase of property to get a discount or a bargain
• Easy to borrow money to purchase property
• Potential cashflow - positive opportunities, meaning no or little cost to hold a property
• Easy to access capital growth in properties for other investments

No to Property:

• Tenancy issues
• Investment income returns can be low currently 3 to 4% in the eastern states
• Cost of selling and of buying properties. Tax, real estate agent fees, lender fees, etc are very expensive.
• Money tied up not easily accessible.

Yes to Shares:

• Shares are very liquid and very accessible
• Better after - tax performance in the Australian market compared to property in the past 20 years
• Income via dividends
• Tax advantages via franking credits.
• Able to be involved in international markets with ease
• Low cost of entry and exit
• Highly regulated via ASIC providing some security
• High Transparency - able to see all bids for sales and purchases
• Able to limit your losses via puts which act as an insurance of sort
• Realistic understanding on your net worth daily.

No to Shares:

• Seemingly volatile market with value changing daily in front of our eyes (e.g. Global Financial Crisis)
• Complex company prospectus sending out confusing information for the unsophisticated investor
• Many factors influencing an organisations profitability and therefore share price. These can range from strategy, managements ability, market, etc.
• Transparency can lead to emotional pricing of shares

The lists can be endless as you can see from the above sample of the main advantages and disadvantages of both investments. Therefore, the decision is a personal one but some investment strategies apply to all markets. These are:

• Research, research, research.
• Diversify dont put all your eggs in one basket
• Buy low sell high
• Dont get emotional about investments - be clinical about your decisions
• Seek as many qualified opinions as possible but make your own decisions based on the various competing advice you receive.

Hope this helps simplify an otherwise complex and often emotional question of shares vs. residential property.

Harry Pontikis is the Director of the Chocolate Group - consisting of Chocolate Money (Finance Broker) and Chocolate Property (Real Estate Agency)

Do what you want, when you want to do it!

• It’s never too late or too early - it’s always the right time!
• Waking up one morning and deciding that you need to get your life in order and making a decision to purchase your first home or your first investment property is as easy as that - just a decision.
• Obtaining your financial freedom equates to winning your personal freedom to make choices - truly a worthy goal in life.

Own more of your home quickly!

• Mortgage reduction strategies are simple, effective and usually free! They may involve strategies like:
• Making extra repayments on your loan
• Changing your payment frequency
• Offsetting any savings against your mortgage
• Possibly refinancing to a cheaper or more flexible loan

Long term goals; short term objectives

• To identify your goals, you need to specify what you want and when you want it
• To realise your goals, you need to be realistic and frequently assess your objectives
• If your fundamental goal is to pay off you mortgage, you need to focus on driving down the principal loan amount

Budgeting

• The most effective way of reducing your mortgage is reallocating money from non essential items and directing these funds towards your loan.

Windfalls

• Make sure you consider what you do with any cash windfalls, e.g. Income tax returns, bonuses or gifts.

Remaining Inspired

• Life can start to get boring if you do the same thing day in and day out and same can be said of you personal goals and objectives. Focussing on paying off your mortgage may become uninspiring for you; this would be the time to speak to your financial advisor about creating wealth and your investment options.
• Finding a new venture to focus on, like purchasing an investment property can help you remain motivated to stick to your budget or even become more disciplined.

Managing your peaks and troughs

• You will go through times where you will astound yourself with the amount you have been able to save and you tuck away heaps of money, but you will also go through times where unforseen circumstances will cause you to save less or even eat into your savings.

Keeping the faith

• It’s easy keeping positive in times of triumph - it’s much harder ‘keeping the faith’ when times are tough. Tough times are when you stray from your chosen budgeting path, or when unforseen circumstances blow your budget sky high.

Emotions felt by potential property buyers in Melbourne are: disappointed, confused, annoyed, shocked and at times angry!  As buyers miss out on properties that sell for far more than the advertised quote, the question needs to be asked whether this is a result of under quoting or a warming market about to make another bull run.

We seem to be on the fringe of another silly season in the property market, with houses often selling for hundreds of thousands of dollars more than their advertised price. 

These price blow-outs devastate buyers who are trying to scramble into the market before the seemingly imminent property ‘surge’.  The environment of low interest rates, economic stability, low unemployment and very strong rental returns is driving investors back into property. 

“Under quoting”  is the practice of advertising a very low sales price for a forthcoming auction, thus casting the potential buyer’s net far and wide to encourage more people to attend the auction.  It can be argued that Real Estate agents are doing their best for their clients by trying to get the best prices for their clients, but buyers are spending money on building inspections and bringing along their parents to the auction thinking they’ve got a chance. But in the end they’re ‘blown out of the water’ and disappointed once again.

Harry Pontikis, Director of Chocolate Property, believes that the best time to get into the property market is when it suits each person’s individual situation.  If you have a stable job, with enough money left over each month to pay back a mortgage (instead of paying rent), negligible personal debt like credit card debt, then the time is right to buy for you.  There are enough choices in the mortgage market to cater for all first home buyers and investors to buy a house. 

“Attempting to predict peaks and troughs in the property market as the triggers to purchasing property is certainly a recipe for disaster.  Property investment should rarely be seen as a transactional investment type.  This is because of the sizeable entry and exit fees, taxes, mortgage fees and other costs associated with purchasing property.”  For this reason, Harry states that “if you wish to buy a house for investment purposes, you should look for long term investment through capital gain, rental returns or if you are fortunate – both.  Otherwise, buying a home to live in, has a totally separate set of rules to buying an investment property and these two motivators should not be confused or interchanged.”

The ‘true market value’ of a property, is putting it in front of the public and seeing how much they are prepared to pay for it.  In the current climate for properties within a 15km radius of the Melbourne CBD, Harry believes you should budget for a 25% premium above the stated auction price.

The Estate Agents Act says that ‘the quoted price must be based on an estimate of the expected price the agent gives the vendor – either as a range (less than 15 per cent) or as a figure’.

That is based on what would be expected to be paid for the property by a “willing but not anxious buyer” in a normal market, says Real Estate Institute of Victoria CEO Enzo Raimondo. The reserve at which the vendor will sell does not have to be listed on the authority until just before the auction.

Mr Raimondo says there is no legal requirement that agents adjust the quote price unless they receive at least one written offer, with a 10 per cent deposit, that far exceeds the quote price. “Until the offer is in writing, there is no guarantee that the buyer is truly willing to pay that amount for the property.”

What Buyers Can Do:

• Understand that it’s the buyer interest that pushes up prices.
• Accept that agents err on the side of conservatism with their pricing to ensure a big crowd of bidders.
• Research recent sales of comparable properties to get a more accurate idea of what property is likely to sell for.
• Assume, but don’t expect, a 25 per cent mark-up on the advertised price. Sometimes a property sells for less than expected.
• Obtain a pre approved limit which is the maximum their mortgage broker has been able to arrange without putting financial strain on them BEFORE they attend the auction.  This will ensure that emotion does not tempt them to bid more than they where prepared to pay.

If you have decided to begin a career in real estate investing, you will need to start out with the basics before you begin investing your money. The fact is that understanding the fundamentals of real estate investing is crucial for you to become a success. The following information will help you to understand what you need to do to become successful.

Why You Want To Invest

Generally speaking, there are only three reasons to invest in property. The first is to get cash immediately. This can be done a couple of different ways. This is done by purchasing a property at a low price then selling immediately at a higher price, otherwise called flipping properties.

The second reason to get involved in real estate investing is to get cash monthly. This can be done by generating a positive cash flow from the rentals you’ve purchased as an investment. Of course, the third reason is to get cash at a later date.

These properties are kept for a time until they appreciate in value and then they are sold. It is kind of like having cash in the bank that you can not touch. Understanding why you want to invest in property is one of the fundamentals of real estate investing that you must know before you begin the process.

The Buying and Selling Process

In order to be successful in your investing, you must first understand how the buying and selling process works. You need to understand what steps to go through before you close on a property. This includes learning about the purchases and sale agreement, contingencies, cash flow statement, and, of course, how to negotiate as both a buyer and a seller. These things are the fundamentals of real estate investing and must be understood before you begin.

Understand The Market

Understanding how to research the real estate market is also the key to your success. Knowing where to go, such as the local registry of deeds and town office, to research the history of the property can make or break you in this business.

If you do not have the history of the property, as well as information on how properties are selling in your particular area, you may find that you are lacking the fundamentals of real estate investing and find yourself on the losing end.

Your Financing Options

One of the most important things to learn is what your financing options are when investing in property. If you plan to finance your property investments, you will need to understand the terms and conditions of your loan. Without this knowledge, you may end up not making as much money as you could with your investment.

When you set out to learn the fundamentals of real estate investing, you will find that there is no one particular “right way” to begin investing in property. There are many different methods to use and some will bring you success while others will cause you to lose money.

However, if you can learn the fundamentals of real estate investing, you will find that you are successful with your investments far more often than not. You will find there are many property classes on the buying and selling process, financing, and negotiating online, as well as held by local financial institutions. Take advantage of the classes around you and you might be surprised in your success.

About the author:
Casey Yew. Get Your Property Investment Guide for Your Success Now. Find Out Which Strategy Gives You Good Return.

Chocolate Money personnel can talk you through all the lending options available to you and how they may be used to your benefit. There is no charge to use our expertise and in fact, it is our pleasure to help you build your portfolio by allocating a Lending Consultant to join you in your wealth creation journey. Contact us today to find out how.

Chocolate Property can assist in helping you choose the best property for you!  Chocolate Property has a unique business model aimed at introducing Vendors (sellers) to Property Purchasors.  This is relevant to builders and developers as they transact properties often.    This model achieves an optimum outcome for the vendor by being able to negotiate directly with the buyer - therefore removing a third party that may slow down the process.  It’s also a ’sweeter’ experience for the buyer by dealing directly with the property owner - no tricks, no games - no poor service!