In March the RBA kept rates on hold, however most of the major banks moved rates, so it will be interesting to see what happens in April. Over the next few days we will find out which lenders will adjust rates.

My take is that, banks and other major lenders have now entered a competition cycle and they will all be trying win more business. Look out for good deals on the fixed interest side and also the application fee.

Home loan interest rates are on the move. Lenders are offering discounted fixed rates. So should you stick with the variable rate loan, or move to a fixed rate loan. This is something you’ll have to decide for yourself, who knows where we are at in the interest rate cycle? See a list of historical Australian variable home loan interest rates from 1959 to 2012.

What Do The Gurus Think?

The general consensus in property investing circles is to stick with the variable rate. By switching to a fixed rate home loan you are making a bet with the lender that rates may go up. The major disadvantage of fixing rates is that you generally lose any flexibility you enjoyed with your variable loan. I suggest you stay with variable if selling in on the cards, but if you are sure you will be staying put, and think you will be able to make extra repayments, you could consider converting your loan to a “cocktail”, where part of the rate is fixed and part is variable. Then you could pay any surplus funds into the variable portion of the loan without penalty.

Flexible Home Loan

There is more to a home loan than the interest rate and the fees and charges. One of the most important things to consider is flexibility. What happens if you decide to move house, or borrow some money for renovations or investment, or need to reduce your repayments as the kids are at high school. If you have one of the no frill loans it generally won’t have a redraw facility and you may be required to take out a second mortgage for the extra money. Rates will come and go, but your main focus should always be to live within your means and get that home loan paid off as soon as you can. If you have a smaller debt, movements in interest rates will matter less to you.

So the RBA puts up interest rates in April?

The message, get ready to cash in on some bargains in a rising property market.

If you have the capacity and are contemplating buying an investment property, start making ridiculous offers on house’s you like. The higher rates go and the nastier the banks become, the tougher it will be for those who are highly committed.

Many will be tempted to sell. Be ready to be ruthless. There will be no place for compassion.

Your rents should reflect rental demand. The government will have some hand out available for those who need to rent, so charge as much as you can.

You need a competent mortgage broker if you are going to get the best mortgage finance deals. Shop around and get your advice in writing.

It seems all the major lenders are tinkering with their home loan offerings. They are playing their cards pretty close to their chest, but you can be assured of one thing, old loan holders will be treated like lepers’ were in the olden days once the new offering is about.

You will be getting plenty of encouragement from the tellers at the bank to speak to their home loan professional.

The “new stuff” will no doubt be irresistible, but will include new clause’s enabling the lender to boot you out of your home if you don’t comply with their current whim or fancy.

Please be prepared. Use a mortgage broker if you can. Heck, use two and play them off against each other.

Rates are on the way up, be ready.

Talk about making money out of misery! The world wide housing price bubble is the source of all the recent financial turmoil, threatening our very way of life. Yet State and Territory governments across Australia have raised $53 billion from stamp duty on property purchases for both residential and commercial property over the past five years according to report just released by Bankwest.

Like many I have felt the pain of State Government fees such as mortgage stamp duty, title transfer fee and property stamp duty. You cannot avoid them, they are just a part of doing business in Australia. However, was not the GST going to lead to abolishment of all these State Government taxes and charges? The recent First Home Owners Boost is really just a transfer of funds from Federal to State Government coffers, as it mainly goes to pay the stamp duty!

As expensive as stamp duty is, I do not think it is a contributor to the housing price bubble as it is called by the popular press. The main reason is without doubt the easing of home loan mortgage lending criteria. In fact the easing of lending criteria full stop. The lender’s have let loose a wave of credit fuelled consumer demand on a limited finite resource of desirable property. The result: State Governments with fat budget surplus to waste and home ownership out of reach for future generations. At least interest rates are coming down!

Why not spend some of this money creating jobs in manufacturing or environmental salvage? My local engineering works and the Murray river could do with some help.

Don’t forget to take stamp duty and other government fees into account when you do your home loan calculations.

Down here in Australia, the big four banks, namely Westpac, NAB, Commonwealth Bank and ANZ have played their typical arrogant role by refusing to rule out paying their executives higher bonuses or incentives this year, despite their failure to provide better customer service, shareholder profits and share value. Last year the big four paid their chiefs in excess of $20 million. Given the Banks have not passed on the entire official interest rate drop, and their share price’s in the main, are in the toilet, refusing to limit their excessive pay demands is typical. Do they deserve our loyalty? I say no. Give the alternative lenders a go next time you talk to your mortgage broker or are thinking home loan refinance or property purchase.

Where you have your mortgage borrowings does not really matter beyond your interest rate and fee structure. Being with one of the major banks is no benefit. In fact it can cost you thousands. Banks make big profits and with their focus on profits and not on customer satisfaction make huge errors, usually in their favour.

The following extract from one of my previous blogs is very pertinent when thinking about how loyal you should be to your bank:

A major Australian bank was recently cited for errors of this nature to the tune of $2,646,326.06. that’s 2.6 million dollars. It was calculated that at the date of judgement, they had made interest overcharges to a number of bank customers to the tune of $2,646,326.06 – yes, you read it correctly – in excess of 2.6 million dollars!! It was found that these overcharges arose principally as a result of the Bank’s use of an illegal formula to calculate accrued interest, and on systematic computer errors. With reference to the Bank’s management of its computers systems, the Commercial Tribunal of NSW made the following observations:

“The range of errors attributable to deficiencies in the Bank’s computer systems in these proceedings attest to a most serious failure by the Bank to properly program the systems and/or adequately check their functions once programmed”.

A recent survey of over 200 bank statements from 18 different lenders found that over 54% of loan statements contained errors. Not surprisingly the vast majority of these errors favoured the lenders.

Get some mortgage checking software or make your own loan interest checking spread sheet, to keep the banks honest.

If you are residing out side Australia and love property like I do, but are wary about a new purchase due to the credit crisis, I have some good news for you. There is a strong rental market in Australia that could provide steady returns for you as an overseas investor.

Australia has a strong economy, is politically stable and safe with strict consumer protection laws. A Residential Tenancy Act of Parliament offers protection for both tenant and landlord, so you get plenty of quality people renting. There are also considerable tax incentives in Australia for landlords. There is also a Privacy Act in Australia that protects consumers. This Act stops unwanted marketing or soliciting. The Australian Competition and Consumer Commission and the Office of Fair Trading are the legal watchdogs appointed by the Government to make investment safe and reduce risk.

Experts agree that as an increase in rental demand pushes rents upwards, Sydney, Melbourne and Brisbane/Gold Coast will have the best rental return potential and capital growth over the next few years. They are also great places to live.

There is one small prerequisite for non-residents investing in Australian property: All non-residents who would like to invest in Australian property have to apply for Foreign Investment Review Board approval. If you have been granted Permanent Residence or citizenship in Australia you will be exempt from this prerequisite. One rule you need to be aware of is that as a non-resident you can only buy new properties and not second-hand properties. A second-hand property is one that has been registered in someone else’s name other than a developer before the non resident purchases it. I suggest you contact the Foreign Investment Review Board for an exact explanation of this rule. The laws of Australia are based on British law which means that the laws behind real estate title are similar.

Experienced property investors can capitalise on the tax incentives in Australia and clean up for years to come. Our home loan interest rates are a little higher than the US, but have generally been fairly stable over the last fifty years and our reputable mortgage brokers and most of the lenders love overseas borrowers.

So consider Australia for your next property investment, better still emigrate here, we would love to see you.

Could Australian property prices collapse and go bust as part of a domino effect from the US Sub Prime crisis and credit default swap dilemma?

Last week many popular media outlets reported that the US credit markets may be headed for the drain. Maybe it could happen, and maybe Australian property owners and mortgage holders would be hit with more mortgage stress. Well that was until the US government stepped in with a so called “conservatorship” of the two giant us domestic mortgage providers Fannie Mae and Freddie Mac in a bid to avert what many doomsayer’s prophecy as a global financial system meltdown. The US government as I understand it have taken over the running and financial backing of these two companies.

What a great move. In the past all I have ever seen is governments selling off public assets in a time of crisis. Literally, throwing billions of potential income to the private sector. Buying private assets when they are cheap? This surely is a move in the right direction. This purchase may give the government of the US the largest public ownership of housing outside the China and Russia. You see in the US, mortgage holders are not as personally liable for the mortgage debt as they are in Australia, they can simply just hand back the keys to the house and walk away, leaving the bank to worry about the mortgage and the house. People are dying to get to the USA to improve their lives, and they will want the American dream. Watch out China, this could be the catalyst for the USA economy and its people to resurrect the great boom nation and move it to a new higher plain of economic strength.

If sanity prevails and greed is good as the fictitious Gordon Gecko from the movie Wall Street extols, the worlds debt security markets should be back on track in no time. The US government and therefore tax payers may even make some profit from the recovery. Please be assured, someone will profit big.

Historical Australian Mortgage Interest Rates may indicate more than you think? Cast your mind back to when our Australian Mortgage Interest Rates were 18%. I am sure some people got rich in property, by making a few sacrifices? Recent financial media speculation centres around our Australian Mortgage Interest Rates moving down. I hope they are right. With the downward move I expect an improvement in the liquidity of Australian Property, but maybe not a price increase. The US credit situation will continue to dampen enthusiasm.

My advice? Start scouting for your next property. Some folks will get scared with all this media doom and gloom and sell up, in that case you could find some bargains in the Australian Property market very soon. Make an appointment with your mortgage broker or mortgage home loan coach and be prepared to move quickly before everybody gets on the property boom band wagon again.

I believe Australian residential property is the very best place to invest your money for consistent long term growth. I am also a great believer in keeping a cash reserve or having a line of credit home loan with unused limit available to cover periods unforseen financial or mortgage stress. I also believe every property investor should have a valid will, various power of attorney’s, as much life insurance as your budget will bear and a mortgage checker program. I don’t think I need to spell out why you should consider these products, you are smart, you are considering a residential property investment!

All the risk management products mentioned above are available online, so there is no excuse if you have made the decision to be wealthy, start today, effectively managing your risks is a priority.

Historical evidence backs up my belief in residential property, and the longer you can keep a property in our capitalist society the wealthier you will become. However, there are a couple of myths about residential property I would like to clear up.

Myth 1. “Australian Residential House Prices Will Never Fall”

I would like to continue to proliferate that myth, but the facts don’t allow me too. The sad fact is House price’s have fallen in the past and a fluctuation in pricing is just a fact a of life that mortgage holders and property investors, rental property owners have to learn to live with while they make a fortune. When demand is high, prices will rise. If demand is low some prices will continue to rise (Location, location), but on the whole prices will tend to slide, but you will still have the rent. Factors that effect demand like interest rates, job’s, business sentiment, government interfering and population will always be present. The underlying factor that drives my confidence in Australian Residential Property is the simple fact that usable land is a finite resource, especially in our capital cities.

Myth 2. “Any Home Loan Mortgage Will Do”

“Just get me the lowest interest rate. I have found the place I want.” My Mortgage Broker bemoans this statement every time we talk about property investment finance. He generally agrees with the notion that his client has the ability to choose a suitable investment property, but he takes exception with the direction to find the lowest mortgage interest rate. The lowest interest rate home loan does not always match with the clients needs and the ideal mortgage loan for the clients circumstance may need to include features that demand a higher interest rate. So there is always a trade-off between cheap and right or quality. Right and quality should always win, because the property investor should be in it for the long haul, and the quality will last. The cheap will probably need to be replaced. (This is why I like my guy, he tells the truth, except for a recent mortgage for a purchase, my loans are all over five years old. Some mortgage brokers would rather churn your loans every three years and make a fat commission every time.)

So I say anytime is a good time to acquire a residential home or investment property. After all you have made the decision to wealthy haven’t you? Plan to keep it for a generation if you can. Cover yourself with the various insurance’s and estate protection legal device’s. Find a trustworthy mortgage broker mortgage coach, a competent lawyer, conveyancer, accountant, builder, real estate agent, insurance broker, planner, quantity surveyor, mortgage statement checking software and friendly property investment mentor. Get it happening, now!

“To be a successful property investor there are three different types of systems you need to master.
These systems are:
1. Property systems
2. Money systems – your capital plan,
cash-flow plan and finance plan
3. People systems – your team and
self management

When thinking about your ‘people systems’ you must consider team management and self management.

Team management
Investors in many other types of asset classes (like shares, managed funds, indirect property, deposits, super, etc) play a relatively passive role in the investment decision-making process.
The majority of these type of investors allow their advisors (fund managers, etc) to take the driver’s seat and make their decisions for them. However, being a direct property investor, you’ve chosen a different type of niche to focus on. This niche is usually too deep for general advice and, given the nature of property, you need to be more ‘proactive’ rather than rely on others to make investment decisions for you. You’re fully responsible – not a fund manager or a financial planner – for your success or failure.

This is where your team comes into play. If you’re like a majority of people who conduct their property business on a ‘part-time’ or ‘casual’ basis, then it’s critical that you leverage your time and capacity. The best way to do this is to focus a good proportion of your time carefully selecting and managing your team of advisors. To be successful, you need to assemble and manage the best team you possibly can.

Who do you need on your team?
There are a number of key players who can help you:

? A mortgage broker – to help you plan your debt structure to maximise your potential as a property investor and manage your financing risk.

? A lawyer – to help you with setting up the correct structures to invest in and conveyancing.

? An accountant – to advise you on asset protection and taxation.

? A buyers agent/s (property sourcer/s) – to assist you with your property selection and negotiations,
particularly if you’re time poor and want to invest in different markets that are interstate.

? A property manager – to assist you to find tenants and manage your properties.

? A builder – to help with more active property strategies like renovations and developments.

? An architect or draftsman – to assist with renovations or developments.

? A town planner – to help you get your application through the local council if you want to get into
renovations or developments.

? An insurance broker – to assist you with public liability insurance, landlord insurance, home and
contents insurance.

? A mentor – you can learn by reading books and magazines, watching DVDs and attending seminars, but finding an experienced investor who has already achieved what you want to and is willing to give you some of their time and knowledge is a surefire way to take your investing to the next level. Never underestimate the importance of experience If you’re a beginner investor, it may look daunting to find good advisors in all these areas but, in reality, finding a good advisor can usually lead you to other good advisors. Similarly, one bad advisor can also lead you to other bad advisors. It’s been said that you can tell a lot about a person by the friends they keep, and this is applicable to advisors. You can also tell a lot about an advisor by their client base. In general, you should seek advice from advisors who have been specifically servicing property investors for a period of time. Dealing with experienced professionals means you won’t become a guinea pig. It will be more cost-effective for you because you aren’t paying them to learn. Only go to an advisor with a specific task, not a general idea, otherwise you’ll be paying them to learn and coordinate with other advisors. It’s critical that an advisor has performed a particular activity both recently and successfully. If they haven’t, you should reconsider your options or ask for a referral to someone with more recent experience. For example, a mortgage broker focusing on property investors will give higher priority to higher leverage than lower cost, whereas a mortgage broker focusing on homebuyers will give higher priority to lower cost than
higher leverage. It’s very hard to switch the two types of thinking as it’s habitual for most mortgage brokers. Instead of hoping that they’ll change to your liking, it’s much easier to go for the right one in the first place. Take responsibility for your team We’ve all heard of the expressions ‘surround yourself with people who are smarter than you’ and ‘nobody cares about your business more than you do’.
Together, what these mean is that there isn’t much point surrounding yourself with smarter people who don’t care much about your business. It’s your job to make sure these smarter people are accountable for the outcome you want to achieve. This is probably the main reason why the best advisors still have unsuccessful clients, because these clients either didn’t know what they wanted or simply left everything to the advisors to decide what’s good for them. When you don’t know what you want, anything will do; when you don’t care, nobody else does either. Many people use the notion of ‘surrounding yourself with people who are smarter than you’ as their excuse for ignorance in certain areas. You need to think of all your advisors as contractors to your business, ie you’re the boss in your own property business Invest. The truth is that the more you know, the better the results you can achieve with your advisors. It’s critically important for you as a property investor to understand that you’re ultimately responsible for the success or failure of your own property investment business. You’re responsible for selecting your team members and are responsible for managing their performance in your property investment business. There are many tasks you can delegate to your team members, but not this task – ever! Treat all your advisors as contractors to your business, i.e., you’re the boss in your own property business. They may know more than you do in certain areas, but you’re still in charge and need to hold them accountable for their performance and contribution to the success of your business. We teach others how to treat us, and we get what we can put up with generally. Therefore, it’s important that you take some time to define and then clearly communicate to them your boundaries and expectations upfront. You need to make them very aware that you have high expectations for your financial results. Remember, your primary goal isn’t necessarily their primary goal. The more you communicate openly with them about what you want to achieve, and in what timeframe, the better. There’s no need to make one-sided assumptions or take things personally. You’re in the property investment business to make money, not friends.

Self management
Know your strengths and
weaknesses: play to your strengths

We touched on the different types of property investors in the article on property systems. We can roughly put them into three categories:

? Passive property investors
? Normal property investors
? Active property investors

Passive property investors
‘Passive’ here means the investor spends very little time looking for investment properties or finding out about property investment. They rely on others to tell them what to do without having enough knowledge themselves or doing sufficient due diligence. But investment is an ‘effort for reward’ kind of business. It’s important for you to recognise what type of investor you are. Recognising this will drive how you conduct your business, enable you to understand what type of system you’ll need to build, and dictate what team members you’ll need and how closely you’ll need to work with them. You’ll also need to explore and understand your own personal strengths and weaknesses. Business guru Peter Drucker has observed that “most people think they know what they’re good at. They’re usually wrong… and yet, a person can perform only from strength”. The world of business has developed countless competency models over the years, most of which are oriented towards describing what’s wrong with you and how to improve.

Recent behavioural science research indicates that understanding and having the opportunity to develop your strengths is much more important for your success compared to improving on your perceived weaknesses. The same is true for investing. What are your strengths and talents? What
property strategies can you pursue that will complement these strengths? Do you need to find partners with complementary strengths to help you achieve your goals? If you can become aware of what type of investor you are and what your Dealing with experienced professionals means you won’t become a guinea pig.

Because investors in this category put in very little effort, they normally could expect lower returns for their investment, at least initially.

Normal property investors

‘Normal’ here means the investor puts in some effort to get the basic understanding of property selection and spends some money on advice or sourcing services. These investors can usually expect
higher returns for their investment compared to passive investors because they do work on it a bit. Investors in this category will buy properties with reasonable due diligence and get advice on structuring; many will pay for professional help to purchase properties.

Active property investors‘Active’ here means DIY.

Investors in this category usually want to know just about everything they need to know about property – selection, tax, legal and finance. Many of them not only select the properties themselves, but tend to pursue more active property strategies like renovation and development. Investors in this category would usually expect a higher return on their investment due to the fact that they’ve
put in so much more effort – as long as they don’t spend too much time finding out how and what to do instead of actually doing it. strengths are, you’ll be ahead of 95% of the investors out there. If you can align both of these and incorporate them into your system, you’ll multiply your profits time and time again.

Leave emotion out of the equation. Emotion is useful to help us commit to planning something new, but when it comes to the execution of the plan, it’s better to leave emotion out. For example, you may be angry that you’re overweight and decide to go to the gym for a year, so the emotion
or anger gets you started. If your attendance is based on how you feel and what you think every morning when you get out of bed, it’s very unlikely that you’ll go consistently. If your day-today
feelings dictate your performance, your results won’t be as predictable. It would be almost impossible to stick to the plan if you’re relying on how you feel in the morning to decide whether you should go to the gym.

Creating wealth through property tends to be a very emotional subject. When you’re spending many hundreds of thousands of dollars, using your own hard-earned savings and a mortgage, it’s hard not to be emotional. However, our emotions aren’t very dependable, so it’s wise to take the emotion out of your execution process so that you can give your plan a fair go. This is one of the key reasons why we
focus so much on the importance of building systems. Remember that systems take the emotion out of what you do. Create a regulated action plan A regulated action plan is the sum parts of your property system and money system (capital, cash-flow and finance plan). Having a regulated action plan is a
much more systematic and reliable way of achieving your goals than following your feelings. Consider setting up a regular time for a review by yourself or with key members of your team. The more active you are, the more regular you should review your situation. The larger the portfolio you have, the
more regularly you should review. For a more passive investor, you should have at least an annual review for every three properties you have. For example, if you have six properties, you should have a review every six months. For a more active investor, you should have at least an annual review for every two properties you have. For example, if you have four properties, you should have a review every six months. Very often, we rely too much on how we feel or what we think when we come
to an investment decision. A regulated action plan can take out the feeling and thinking on the day, and often deliver a more predictable result. Sometimes I come across clients that I haven’t seen for a few years. They often tell me they wish they’d invested a bit more a few years ago. When I ask them why they didn’t do so, their answer is usually not because they weren’t in a financial position to invest;
it’s usually because: “I had other stuff going on in my life at the time and I didn’t feel like doing nything else”. We all have stuff going on in our lives most of the time; if we have to wait till we feel better to do certain things, we may have to wait for a long time to do them. Unfortunately, property
investors can’t afford to wait, as time is where the money is.

While we know emotion can motivate us into doing certain activities, it can also stop us. This notion that ‘feelings follow behaviour’ also has huge implications for people who have great difficulty starting something new, such as:

? Buying the first investment property
? Carrying out the first renovation
? Conducting the first development
project
? Taking on more than $1m worth of
mortgages the first time
Let me apply ‘feelings follow
behaviour’ to this situation:
? Behaviour = thinking about
something and doing nothing
? Feelings = fear of the unknown
See that our feeling fear about
the unknown actually follows the
behaviour ‘thinking about them and
doing nothing’?

So, if we want to feel better, all we need to do is change our outlook and our behaviour to be opposite of what we habitually do. In this case, that’s ‘stop thinking about it and do something’.
That’s why you hear the saying ‘too much thinking can do your head in’. We aren’t what we think; we are what we do. We often need to take actions before we even understand why. That is, to
act first. The understanding will follow. Taking action is one of the fastest and most effective ways to get out of our own thinking and emotional traps. While you’re taking action, you’re less likely to worry and are more likely to be intuitive. Having an action plan to follow is the only way to ensure that we can take the planned actions beyond all reasons and excuses.

Finally, like anything else, the investment journey is a homecoming journey. The longer you stay on this
journey, the more you’ll realise that you’re the most powerful person in your life – and never let any one make you believe otherwise.”

This article was written by Bill Zheng,
founder and CEO of Investors Direct
(with contributions from Tim Riley).
Investors Direct provides financial solutions
exclusively for property investors and
understands that your
mortgage is an asset, not
a liability.
To subscribe to
their free monthly
e-newsletter on
investment property
finance, visit www.
investorsdirect.com.au

The need for a competent mortgage broker cannot be overstated as your finance structure will be crucial to your success. Your mortgage interest rate and terms and conditions have a bearing on your ability to grow your portfolio so a mortgage broker who has experience dealing with investment property owners is essential. A good mortgage broker will also have access to the various mortgage, home loan calculators can be very useful for the what if scenarios, but you must get some mortgage statement checking software as well. Run it on your home pc, check your mortgage home loan statements regularly, especially if there has been a change of interest rate or mortgage security structure.