We had a representative from CBA in our office the other day who mentioned an interesting statistic; only 10% or so of the approvals they’re currently doing are for people purchasing property outright, including first home buyers, upgraders and investors.

So what’s the other 90% of their home loan business consist of? Refinancing of course. Yes, there’s a swag of borrowers out there who are fed up with their current lender and are ready to jump ship for a better deal.

While we’re not complaining about the refinancing frenzy going on right now – it certainly keeps us busy! – we can’t help but admire some of the purchases that are coming across our desk of late. Quite simply, the deals are getting better by the day.

Now we’d be the first to concede that selling in today’s market probably isn’t the easiest thing to do, but if you have equity and are considering an additional property, now is a great time to make your move. We hope that this little snippet of where our clients are buying will inspire you to seek out one of the amazing opportunities that exist in this ideal buyer’s market.

Although we specialise in investor finance, we will also assist owner occupier’s too, so this month we thought we’d show you what a smart young couple have done in buying their first home. I think you’d agree they both have their heads screwed on the right way!

Settlement Date – 26th August 2011

Client – Local – Canberra

Purchase type – Initially Investment

Purchase price – $875,000

Transaction type – On Market

Suburb – Campbell ACT

Property Type – Four Bedroom, Double Garage, 2 bath + granny flat

Attributes – Campbell is a tightly held suburb in the parliamentary triangle and as such, this property will command an excellent rental in the short term of $760 per week for the house and $360 for the granny flat, representing a yield of 6.66%. The purchasers intend to renovate the property and tenant it for a year or so in order to claim back the land transfer duty, after which time they will move in themselves. After being passed in at auction, the house had been on the market for 6 months with the desperate vendors dropping their asking price by $50,000. Interestingly, the final purchase price was below the vendors’ reserve. Maybe the old saying – ‘Your first offer is usually the best offer’ is true after all?

Want to know more about claiming stamp duty on ACT investment properties? Call David Thomas on 1300 657 132.

Settlement Date – 16th September 2011

Client – Blackburn North – VIC

Purchase Type – Initially Investment

Purchase Price – $770,000

Transaction Type – Auction

Suburb – Mitcham, VIC

Property Type – This older brick home on a substantial 910 m2 block was purchased primarily for its land value, as large blocks in this area are becoming increasingly rare – especially ones that boast great views over the Dandenong Ranges. It will initially be rented out to support the client’s debt while plans for a new dwelling are drafted and down the track, the old residence will be demolished to make way for their dream home.

Settlement Date – 2nd August 2011

Client – Hinchinbrook Sydney – NSW

Purchase Type – Investment

Purchase Price – $377,500 (asking $399,000)

Transaction Type – On Market

Suburb – Orange, NSW

Property Type – This newly built, brick veneer home with colourbond roof boasts 4 bedrooms, 2 bathrooms and a double garage under the roof line. It sits on a 622m2 block in the large rural town of Orange, which has a population exceeding 30,000. With a university built in the community during the 1970′s and the Cadia goldmine opening in the 1980′s, the local rental market has traditionally been fairly tight. Now, with the current resources boom in full swing, interstate mines have started poaching skilled workers from the region and running a fly-in-fly-out operation. This has put further pressure on the city, which is one of the reasons it has been enjoying some strong growth recently. This particular property was purchased with an exiting tenancy that currently returns $480 per week – a gross yield of 6.61%.

Settlement Date – 5th July 2011

Client – Interstate – Belmont North

Purchase type – Investment

Purchase price – $359,000

Transaction type – On Market

Suburb – Kotara, NSW

Property Type – This 3 bed house on the central coast of NSW was purchased from a deceased estate. The property was initially passed in at auction, however the clients managed to negotiate a good deal afterwards. Due to its state of disrepair, the purchasers spent $15,000 and 4 weeks making minor cosmetic improvements to the property, including replacing the carpets, patching holes, giving the walls a fresh coat of paint and updating the landscaping. Upon completion, the house was revalued at around $440,000 by a local agent and is currently fetching $420 per week in rent.

Settlement Date – 20th July 2011

Client – Local – Canberra

Purchase type – Investment

Purchase price – $599,000

Transaction type – On Market – Granny Flat Potential

Suburb – Kambah, ACT

Property Type – This four bedroom home with a 1 bedroom granny flat gives the owners an impressive total rental income of $800 per week, making it just on cash flow neutral before tax from day one. Although the house is in need of some cosmetic renovations, these will be scheduled for a later date as the property was snapped up by a Canberra based national company that required accommodation for some of their interstate staff. They were also nice enough to pay 6 months rent in advance to secure it.

Settlement Date – 14th July 2011

Client – Local – first home buyers

Purchase type – Owner Occupied

Purchase price – $252,000

Transaction type – On Market

Suburb – Coree, ACT

Property Type – Coree is 25 minutes out of Canberra’s CBD heading due west and unfortunately lost a number of homes in the 2003 bushfires. Today, many of them have been rebuilt and are now bigger and better, however a few older properties are still scattered throughout the suburb. This property is one of the bushfire survivors. It is an entry level, 3 bedroom home perched on an 800m2 block and although it requires a bit of TLC to the tune of around $15,000 (including new carpets, fresh paint and an updated septic) it’s structurally sound and represents a great stepping stone for these first home buyers who understand you need to walk before you run. Excellent buying given the median for Canberra is over $500,000 these days.

Most property investors have all heard that buying in your own backyard has its advantages. For one, you know the area intimately and have a much better opportunity to learn the ins and outs when it comes to generating income from a residential dwelling – who is your target market when it comes to finding a tenant? What type of resale value can you expect from the area? What type of capital growth has the suburb delivered over the long term?

Yes, buying close to home certainly has its advantages and makes the all important research that goes into a successful property investment a lot easier.

Trilogy Funding client Tim Munk, has taken the idea of buying in your own backyard quite literally, recently acquiring an ex-government property directly behind his family home in the Canberra suburb of Spence. It is Tim and his wife’s third addition to their growing portfolio, including their principal place of residence and an investment in Queensland’s Deception Bay.

“Our strategy has been to buy, renovate and hold,” says Tim. “But we might start looking at simple buy and holds because we now have a 2 year old, so it was a bit of a struggle finding time to renovate this property.”

The couple prefer negatively geared investments and agree with the “general consensus” in property circles, “that when you buy a negatively geared property the capital’s going to go up a lot quicker than a positively geared property,” according to Tim. “So that’s what we aim for.”

Tim says they saw the property go up for government auction in May this year and were confident that it would sell at a bargain basement price due to the state of disrepair it was most likely left in by the former tenants.

“I went to the auction on a Tuesday – obviously being a government auction they have to hold them during the day so there are people in the offices if they need to make a call or anything. There was only one other bidder who I ended up getting to know later because she lives two doors down from the property. She was renting at the time and wanted to buy her own home, but didn’t have her finances in place so she wasn’t aggressively bidding.”

At the fall of the hammer, Tim managed to snaffle the 3 bedroom house for $355,000; a good $50,000 below market value in his estimates.

They quickly proceeded to replace the old kitchen, bathroom, toilet and laundry with a new combined toilet and bathroom, moving the laundry wall and taking part of this space to make the bathroom facilities less claustrophobic and more family friendly.

“The kitchen and living area were also divided by a wall which we knocked down to create one large open space for a combined kitchen, living and dining area,” says Tim. “With all of that plus new carpets, paint and drapery, as well as landscaping, a bit of electrical work and new plumbing, the total cost came to somewhere between $25,000 and $30,000.”

Upon completion, the couple had the property re-valued and found they had generated an extra $80,000 within three months, when the house was determined to be worth $435,000.

“We’re expecting about $50,000 worth of net equity from the banks when we refinance after all the costs and fees are accounted for. Not bad for three months,” says Tim.

When it comes to future investment plans, Tim says his brother’s philosophy plays an influencing role in how many properties the couple hope to acquire for their portfolio.

“He’s an avid property investor as well and his theory is; no property is bad, some property is good, but lots of property’s great and I feel the same way. We’re aiming to get as many properties as we can, as quickly as we can without negatively gearing so much that we can only afford to eat baked beans each week!” laughs Tim.

“This particular property fits in to that idea nicely, as it’s quickly boosted the opportunity to continue purchasing more houses by manufacturing a good chunk of equity from the renovations we did.”

According to Tim, the refurbished home will be tenanted for $430 per week – a marked improvement on the $350 per week it was achieving as a government rental.

This is the type of strategy that can truly pay dividends in a quieter market such as the one we are currently experiencing. When things head south and capital growth all but dries up, generating your own through cosmetic refurbishments is an excellent option, as Tim and his wife have clearly demonstrated. Just another example of how you can always make sure the cup is half full when it comes to bricks and mortar!

Combine the continuing strength of our dollar against America’s Greenback with a flailing US housing market where historically low values are fostering bargain buys and you have the perfect ingredients for adventurous Aussie property investor’s looking to cash in on opportunities in “the promised land”.

According to data from the National Association of Realtors based in Washington, Australians invested around $600 million in U.S residential properties in 2010 alone.

I mean, how could you possibly pass up homes going for half their pre-GFC value at fire sale prices, particularly with local spruikers making lots of noise about growing rental demand and an economy in recovery mode?

It all sounds too good to be true!

Well, here’s where I burst your bubble and let you in on a little secret…it IS too good to be true for a number of reasons, not least of which is the inherently high risk, speculative gamble of parking your money in a property market you have very little knowledge of.

So let’s take a look at the numerous reasons you should stick to the local real estate market for pure investment to make money…isn’t that what it’s all about?

It’s cheap…for a reason!

I’ve had a number of clients discuss the prospect of investing in the US housing market with me over the past six or so months. After all, it is the latest craze and everyone wants in on the action.

One of the main things I hear is that American property is cheap as chips at the moment and the opportunities presenting themselves are too good to pass up.

But if you stop for a moment and ask yourself; why are people virtually giving homes away in some areas, suddenly “cheap” doesn’t have as much appeal.

Most of the trouble started for US housing when the sub-prime crisis hit. Banks had been throwing money at borrowers with little regard for their capacity to repay the debt prior to the GFC. When times got tough, millions of home owners simply walked away and left lenders to bare the burden of their unpaid mortgages.

We all witnessed the fallout from this, with some of the biggest banks in the country closing their doors and the US financial system collapsing almost overnight.

Opportunistic vultures have pounced on ridiculously under-priced property as thousands of homes sit vacant and started what’s known as “flipping” in investment circles.

A popular practice in America, this involves buying a “bargain” and then on-selling at inflated prices to unsuspecting buyers. Who better to target than overseas investors with no idea of what their getting into? In fact, a number of profiteering scammers have even set up agencies specifically targeting Australian purchasers looking to cash in on the downfall of America’s property market.

Too many houses for too few people

With lenders scrambling to recoup their funds as home owners literally fled (and continue to flee) in the cover of night, thousands of vacant properties have flooded the market at fire sale prices.

It’s been reported that some real estate has fallen in value by as much as 50 to 80 per cent in states where the economic downturn has had the direst effects. But it seems the worst is yet to come.

The saturation of stock is set to increase over the next few years, with experts predicting another 4 to 5 million foreclosures and as a result, a further fall in house prices.

In towns where unemployment has gone through the roof, people are leaving en-masse and “ghost towns” are becoming common place in areas that relied on one or two industries, which have since been forced to shut up shop, for their economic prosperity.

It is in these locations that most Aussie investors are finding so-called ‘bargain buys’. But with no knowledge of the local markets, they are often buying into bad neighbourhoods with rocketing vacancy rates, where the prospects for securing a halfway decent tenant are actually slim to none.

Some states can’t even give property away as crime rates soar and people make every effort to get the heck out of Dodge!

An ailing economy

Let’s face it, the one time world leader in economic prosperity has caught a very bad financial cold and the prognosis for future recovery is pretty bleak.

Ratings agency Standard & Poor (I didn’t make that up), grimly did an about face on the economic outlook of America in April, pronouncing it had changed from stable to negative.

In response the share market took a nose dive, while the flailing US dollar just keeps getting weaker. Then there’s the bane of Barak Obama’s life right now – an increasingly high unemployment rate and a national deficit of $A13.421 trillion.

Can we fix it? “Yes we can!”…or can we? It seems the government is yet to agree on just how to do that.

Essentially, the recovery that many Australian investors are banking on is not likely to happen any time soon. In fact I’d lay odds on that we are yet to see the bottoming out of the US economy, with too many fundamentals working against the possibility right now.

Get a haircut and get a real job…if you can

As mentioned, Obama is having a terrible time of it since gaining power, particularly with unemployment at record levels in some of the hardest hit US states.

The US Bureau of Labor Statistics reported unemployment at 9 per cent in April this year, however double digit figures are more likely in areas that have all but lost their primary industries.

Experts forecast that unemployment will remain high well into 2012 and while this might seem like a boon for landlords with more people forced to rent than buy a home; stop and think for a second. What type of tenant will you be getting? The most likely answer is one who has no job and no ability to maintain rental payments.

So how do you intend to chase the likely arrears that will add up as your less than desirable tenants fail to meet their financial commitments?

It can be hard enough to get wayward tenants out in Australia where we have a fairly robust system in place to deal with rent arrears. But in the US, it’s nigh on impossible! Landlords there have less rights than tenants and are at greater risk of litigation.

Then of course you have to find a reliable property manager from thousands of kilometres away who will collect your rent on time. It all sounds like a rather costly headache for what is meant to be an inexpensive investment doesn’t it?

And what about the requirements of the US tax system, which you’ll be required to meet even though you’re an Australian investor? Do you know how it all works?

I’m not telling you that you should never invest in an overseas property market. Nor am I telling you not to go anywhere near US real estate.

What I will say is that what appears cheap in the short term, can end up being very costly down the track and with this type of speculative investment, you should never outlay any money that can’t afford to lose. It’s that simple!

Everybody break out the piggy bank, it’s time to save, save, save! Remember that rainy day we all keep talking about? The one where you might need an umbrella made of money stashed away to avoid getting drenched in another global economic storm similar to that of 2008? Well chances are we will all be ducking for cover fairly soon if America’s mounting debt issues are anything to go by.

Admittedly, by the time you read this things may have done a complete 180 and Obama could be on the White House floor, spinning in circles of delight and whooping hysterically (a Homer Simpson reference). Let’s face it, every time we turn on the news or open one of the daily rags, a different song about the global financial markets is being belted out by the media, who are almost peeing their pants with delight at the fodder they have to feed on right now.

There is one consistency however, journalists have broken out the negative terminology thesaurus and are bombarding us with phrases like “economic Armageddon”, “market meltdown” and “catastrophic crisis” to add some spice to the “same old” stories.

Obviously the tumultuous US financial market has the world teetering on the brink of a global recession (again!), but are things really all that bad here in the “Lucky Country”? We still have some very strong fundamentals underpinning our economy (as discussed in my intro) and the Reserve Bank has thankfully left itself plenty of breathing space when it comes to the option of reducing interest rates to help stimulate Australia’s economy; they can slash rates to 1 per cent if need be, unlike those countries in the worst financial position where interest rates are already close to, if not there already.

Apparently some of the majors expect the Central Bank to pull the interest rate lever very soon in order to ensure our economy continues to grow at a steady pace, despite what might happen with the mounting debt and financial troubles faced by the US, Europe and Japan.

Westpac and the CBA have both slashed their fixed rate products to below 7 per cent, making fixed mortgages more appealing than the standard variable rates on offer at present, which is above 7 per cent. This is a good indication that our repayments could be shrinking over the coming months and illustrates just how dead the home loan market has been for the banks this year.

Another silver lining for Australia’s economy is the emerging trend toward conservatism that many of us seem to be on board with. The eighties mentality of “greed is good” saw us turn into a nation of spendthrifts almost overnight. Unlike our parents and their parents before them, we were enjoying some heady times and an overall sense of abundance. Things were good and just kept getting better – our future looked bright and our wallets were fat. Our overall national debt soared as consumerism took hold and we had a love affair with easy credit.

Many of the Gen X-ers and Y’s growing up during those last few decades of the 1900′s had never experienced true hardship and even the baby boomers had seemingly forgotten about the Great Depression that their parents lived through.

Then fortunes turned. America led the world into a global financial crisis and all of a sudden, Australians knew what it meant to be financially vulnerable. Many boomers lost thousands in superannuation and shares and were left with close to nothing. Why? Because saving money had become an obsolete ideal and we were all busy living beyond our means. Great while it lasted wasn’t it?

It seems though, that we took the lesson on board – most of us anyway! More and more Australians have elected to tighten their purse strings this year, spooked into saving by a shaky global economy and uncertainty surrounding interest rates and the local housing market.

This is good news as far as the RBA is concerned, as it means we have a more stable financial foundation and the potential to prop up our economy should things go pear shaped, as many commentators are suggesting they might.

So where to from here?

Well, it would be remiss of me to tell you that I know what tomorrow may bring. In fact I have about as much chance of making an accurate prediction regarding the fate of the global financial markets as the so-called experts do – slim to none! And they’re fibbing if they tell you otherwise!

What I can tell you, is that market sentiment is a very powerful force and right now, the collective market is tearing its hair out, screaming “OMG, OMG, OMG! Too much debt!” and flapping its arms around wildly in a state of unbridled panic! Maybe not literally, but you get the idea.

While I won’t deny that there is definitely a worst case scenario to avoid if at all possible, the concern many people are voicing about a global recession the likes of which could prove dire for the world could become a self fulfilling prophecy.

What do I mean by this? Quite simply, if the panic continues to take hold, businesses and consumers will lose what little confidence they have left and in turn, stop spending and investing altogether. All it will take is another stock exchange scare like the one we had recently and a further dent in the already battered US economy to have people heading for the hills.

I’m not suggesting that we all stick our heads in the sand and deny the current goings on, nor am I saying we should stop saving and go on a shopping spree borne from fear of the future. But I am going to tell you that despite the certainty with which many are predicting the end of the world as we know it, none of us truly know what tomorrow may bring; there are just too many twists and turns in this story to foresee where it’s heading with any accuracy. All I can say is, watch this space!