In this article, the Capital Properties experts look at the ins and outs of industrial property investment, to help you determine if it’s a good choice for you. We’ll explain how industrial property investment can provide a positive cash flow and has the potential for impressive long-term returns. However, as with all investments, it’s important to do your homework before you dive in.

Industrial commercial property investment is a complex market with many differences to residential investments. Investors must understand varied property management options, leasing arrangements and financing obligations.

The Capital Properties team has extensive experience in residential and industrial property investment. We are dedicated to educating, mentoring and guiding Australian Defence Force members through successful property investment.  We provide numerous tools and resources, with updated blog posts covering topics such as  ‘buying a house while in the defence force’, and ‘the types of home loans available to those in the ADF’, to make sure you are empowered in your investment decisions.

So, let’s look at industrial property investment more closely, and where better to start than with the basics: What is industrial property?

There are a variety of factors to consider when investing in industrial property. If you want in-depth, personalised recommendations, we recommend that you book a free discovery session with Capital Properties today.

On the go? Here’s 30 seconds of take outs:

• Industrial property is a type of commercial property that is not usually considered as public facing, e.g., factories & warehouses.
• Post-pandemic uses of industrial properties are expanding to include “dark stores” & micro fulfilment centres for online retail & new entrepreneurial businesses.
• The demand for industrial property spaces is higher than ever and continued growth is forecast.
• Industrial properties offer double the rental yield of residential properties with great capital growth potential.
• Expect longer lease periods, annual rent increases and a wide range of purchase price points.
• Capital Properties buyer’s agent service specialises in sourcing industrial properties for investment.

Keep reading >>

You probably already have an idea of what industrial property is, and it may be quite accurate, although if you were asked to define it, you might find it a little trickier.

Industrial property has traditionally been defined as a type of commercial property that is generally not public-facing. To date this has included operations like factories, warehouses, and storage centres, etc. While this definition has been historically true for the most part, with the recent rise in the industrial-chic style and the popularisation of converting industrial property into hip bars and restaurants, the definition of industrial property and what it means to be an industrial property investor is changing.

Some industrial property investors might feel that expanding the use for these industrial properties might complicate the investment process. But at Capital Properties, we strongly disagree. Now that industrial property isn’t limited to its original purpose, the possibilities have expanded greatly. That warehouse can be a block of refurbished loft-style apartments, that old factory can be a trendy new distillery – the potential is endless.

From an initial investment point of view however, the closer we can design a building to serve its intended purpose, the better. It will save time and money on set-up costs and give you and your renters clarity on its use. Still, it’s good to know you’re not limited to just a few ideas.

How is the industrial property investment market performing right now?

The aftermath of Covid-19 has significantly affected the Australian economy and both the residential and commercial property market. We’ve seen a holding pattern in some urban retail and office spaces, but industrial warehousing space is in higher demand than ever. In 2021, almost 5 million square metres(sqm) of industrial and logistics space was leased in Australia, a whopping 80% increase on the 10-year average.

In fact, industrial property investment has become one of the most sought-after asset classes by investors.  The surge in online shopping has created a new demand for “dark stores” and micro fulfilment centres, i.e., warehouse spaces to store inventory and act as a retail distribution centre that caters exclusively for online retail. CBRE recently forecast of $1billion of ecommerce in the next 4 years, fuelling the requirement for an extra 70,000sqm of industrial space by 2025.

And the rise of enthusiastic entrepreneurs means that new business activity is booming, with the Australian Bureau of Statistics showing 365,000 new businesses trading in 2020-21, an 8.6% rise on the previous year. As well as the online space, there’s an increased trend towards using industrial spaces for microbreweries, gyms, recreational facilities, showrooms etc.

Is Industrial Property a Good Investment?

Yes! We can unequivocally say that industrial property is a good investment. Industrial property generally offers yields of about 8%, compared to 4% for residential property.

Another thing to note is that during the pandemic, logistics and warehouse businesses were labelled as essential services. This means when other industries were slowing down, industrial property kept on ticking and kept on returning on investment. Investing in industrial property ensures you have secure income for trying times if anything like that happens again.

Still need to be convinced? Here are 8 more reasons that explain why industrial property is a good investment.

1. Industrial property generally has a higher return than other commercial or residential properties.
2. There is growing tenant demand for industrial properties.
3. Small site coverage ratios (meaning they are usually reasonably priced).
4. Projected capital appreciation for the foreseeable future.
5. Longer lease periods than residential (generally at least three years, often more).
6. Rent is usually increased each year.
7. Tenants usually pay outgoings (council rates, insurance and land tax, maintenance, etc.).
8. Wide range of price points – lots of great entry-level options such as car parks.

Based on the evidence above, we hope we’ve convinced you that industrial property is a good investment! So now, let’s look at how to buy industrial property.

How to buy industrial property

If you want a hassle-free way of buying industrial property, then why not use our Buyer’s Agent Service? Our experts at Capital Properties will take care of all the hard work for you and make sure you get the best deal.

If you’d prefer to look into buying industrial property yourself, check out our top 10 tips to help you buy your first investment property:

1. Research thoroughly before buying your property.
2. Choosing the right location is vital.
3. Work out your budget, including projected expenses & profit.
4. Refrain from making emotionally charged decisions or let our expert Buyer’s Agent Service team negotiate for you.
5. Prepare thoroughly for negotiations; don’t be scared to ask for what you want.
6. Choose investment partners wisely & clearly assign duties & tasks.
7. Be finance-ready – seeking pre-approval for a loan is free, easy, & will save you money.
8. Check the condition of the property & don’t over-capitalise on improvements.
9. Make sure you have time to invest in your property or hire an expert to help.
10. Stay updated on property maintenance & regulations.

How to Find Industrial Property for Sale

The most common way people search for industrial property is by looking at property aggregators such as realcommercial or commercialrealestate, or looking at their local real estate agent’s commercial listings.  Although, that will give you a good overview of what’s happening in the market, people often discover that the most desirable industrial spaces are sold before they make it online for public viewing. That’s why it pays to have relationships in the industry.

The Capital Properties buyer’s agent service specialises in sourcing all types of property options, including industrial properties. We live and breathe the ins and outs of industrial property investment.

Not only do we hear about available properties first, but we’ll also evaluate the potential return on industrial and commercial properties. We examine the potential to add value with subdivisions and renovations and support you throughout the full property investment experience. During the Capital Properties free discovery session, we’ll get to know you and devise a plan that’s suitable for your circumstances. Our aim is to help you turn your disposable Defence income into the kind of financial freedom your parents and grandparents will want to brag about!

We understand the unique demands of Defence life. We’re an approachable bunch of energetic, knowledgeable property investment experts with ex-Defence personnel within our ranks. In fact, our Founder, Marcus Westnedge, started right where you are now.

So, if you’re looking to start investing in industrial property, contact us today.

As Australia’s Leading Defence Force Housing & Property Investment Specialists, Capital Properties’ mission is to help you turn your Defence income into financial freedom.

Book a free Discovery Session today and let’s get started.

Capital Properties buyers agent service

Are you in the Defence Force and are considering buying a property within your posting locality? Or maybe an established investment property? Our buyers agent service will help you find your ideal property and negotiate the lowest price and settlement with ease.

Capital Properties buyers agent service specialises in sourcing all types of property options. We research current market value for owner-occupied properties. We recommend investment properties with higher yield potential, as well as high growth property investments. And we’ll evaluate return on industrial and commercial property and investment properties that have value add potential with subdivisions and renovations.

How our buyers agent service works

Meet with one of our Capital Properties buyers agent experts for a Free Discovery Session and we’ll give you a taste of what it will be like to work with us. If you like what you see – and we’re confident that you will – we’ll grab your information and determine your borrowing capacity. Then we’ll follow up with a second meeting, or “Strategy Session”.

During this Strategy Session, we’ll ask questions like “How much do want to be worth when you retire?” and will develop a strategy to help you achieve your goals. Once we’ve nailed your criteria and agreed a plan, we’ll help you complete an engagement letter and contract to buy.

Then we find the most suitable property candidates and present you with the best options.

Although we have a 3-month buyers agent service engagement period, we’ll check in with you weekly for updates and to discuss options.

What you get with Capital Properties buyers agent service

We offer full buyers agent services to help you find the ideal property. No stress. Just results.

This includes:

• Strategy development and practical advice.
• ‘Wish list’ analysis to determine needs vs wants.
• Relevant research reports including RPdata, Forecast Id and Council Site Maps.
• A short-list of suitable properties.
• Evaluation of recent sales data with written appraisal.
• Skilled negotiation of property purchase price and terms.
• Liaison with mortgage broker and settlement agent to effect finance approval/settlement.
• Pre-settlement inspections.
• Overseeing contracts and exchange.
• Asset/property management/leasing
• Due diligence management: building and pest inspections, surveys, and engineering reports

What is a buyers agent?

Buyers agents are licensed professionals who specialise in locating, evaluating, and negotiating the purchase of property on behalf of buyers. They do not sell real estate. They are engaged independently and paid for by the buyer to act on their behalf. Whereas a selling agent can accept a commission from both parties in the same transaction, a buyers agent can only legally act for the buyer.

Benefits of using a buyers agent service

Get the edge in a competitive market. Having your own property professional representing your interests throughout the purchasing process saves you:

Time:

• Your property professional will search for and analyse property on your behalf.
• Buyers agents have access to databases and information not readily available to the public, including off market opportunities.

Money:

• You can rely on your buyers agent to source the correct property, in the right location, with better prospects for capital growth and/or rental yield.
• A buyers agent will negotiate to obtain the very best price and terms.

Stress:

• You’ll have one dedicated representative looking after your needs, rather than having to deal with several different selling agents.
• Experienced buyers agent services will make sure you avoid any property pitfalls.

To get started now, call us on 1300 653 352 or fill out the contact form and we’ll get back to you ASAP.

When you’re searching for property, finding the ideal house or block of land can feel all consuming. Many of our clients tell us that they spend an exorbitant amount of time on realestate.com.au without ever finding anything suitable. A lot of that time online is fruitless when you don’t know exactly what you’re looking for.

They often come to us with the same questions. What’s the best way to find the ideal property? Then once you’ve found it, what do you need to do to make sure you secure it?

Engaging a Capital Properties buyers agent means we answer these questions and more to ensure you find your perfect property. Our Capital Properties 7-step process allows us to short list suitable property options, and we work with you to ensure you have everything you need to make offers and close the sale. The first step of this process is locking down your requirements and our Capital Properties Buyer Checklist is the perfect place to start.

On the go? Here’s 30 seconds of take outs:

• Online property searches are time consuming and often unsuccessful.
• Capital Properties 7-step process helps you to find suitable property options.
• Asking some essential questions (see below) before your property search will save you time.
• The Capital Properties Buyer Checklist helps to streamline the purchasing decision across these key areas:
• FINANCE: know your budget & secure pre-approval or conditional approval.
• CONTRACT CONDITIONS: be prepared to negotiate conditions of sale, including purchase subject to finance, pest inspections, due diligence etc.
• DEPOSITS: make a small initial deposit.
• SETTLEMENT: figure out your most realistic time frame – 28-days is standard.
• LOCATION: choosing the best location also depends on the type of property you want.
• SIZE: consider land size & use for residential, commercial, industrial or development.
• STYLE: the style will vary according to personal taste, e.g. modern or contemporary.
• FEATURES: what does the property need to have, e.g. air conditioning, solar power etc.

Keep reading >>

ESSENTIAL QUESTIONS

When kicking off this Capital Properties Buyer Checklist you must first ask yourself what specific type of property you’re looking for. For example:

• Is the property primarily an investment? Will you live in it for period of time? Think through the lifetime of the property from purchase to eventual sale.
• What does the property need to offer? We suggest you create a list of the must haves. For example, you might require four bedrooms with ensuite bathrooms, two living areas and a double garage with some room to tinker.
• Are there specific requirements for the area that you need to buy in? For example, do you have certain regions/suburbs in mind? Do you need proximity to infrastructure/amenities such as public transport etc.
• What are you willing to compromise on? Although it’s good to have a wish list, the reality is it’s rare to find a property with everything that you want (within budget). If you’re going to have to make a compromise somewhere, then decide what’s important before you become emotionally invested.

YOUR PROPERTY BUYER CHECKLIST

In this blog post we’ll share some tips to help you choose the best location and speed up your property search. The Capital Properties Buyer Checklist will streamline the process for you to ensure you have a clear picture of what you want and a strategy to get it. Try to be specific as possible when working through this list for the best outcome.

FINANCE

We start with finance, simply because it’s the best place to start. When you know your budget and have finance sorted, you’ll have the confidence to start making offers and be in the best possible position to negotiate on properties.

• Talk with your mortgage broker or banker about getting your finance pre-approval or conditional approval in place.

CONTRACT CONDITIONS

Take time to think about what types of conditions you might want to insert in the contract prior to making offers. Then when your offer is accepted you can communicate those conditions through the vendors agent.

Here are some examples of contract conditions to communicate with your offer:

• Subject to finance
• Subject to approval building pest inspections
• Subject to due diligence
• Subject to the style of another property

As there are some unfortunate schemes that set out to con potential buyers, having a buyers agent to help you negotiate the conditions of sale is wise. For example, your buyers agent can provide title searches to confirm if the seller is the actual owner.

DEPOSITS

As buyer, you can negotiate when deposits are paid. We recommend that you put down a small initial deposit of approximately $1,000. Then the balance deposit will be due once the contract of sale goes unconditional.

SETTLEMENT

The settlement terms are one of the key negotiating contract conditions in purchasing. In ‘hot’ markets vendors prefer shorter time frames, so its advantageous if you can settle quickly. However, you need to be realistic that you can achieve those milestones.

Consider what you’ll need to achieve to meet your ideal settlement timeframe first, and then work out what the pessimistic time frame might be.  The realistic time frame might sit somewhere in between. A 28-day settlement is a pretty standard timeline. Longer settlement periods would apply to properties without a finance cause.

LOCATION

You can’t decide on a location without also considering what type of property you’re looking for. This is where the answers to the first question above will come into play. For example, decide if you’re purchasing a home to live in or buying an investment property? If it’s an investment, are you focused on residential, commercial and/or industrial? Are you considering using the property as holiday home? Is the purchase for your business and/or for development? Each of these different scenarios should strongly influence your decision-making process about where is best place to buy.

To settle on the best location, create a wish list with some broad areas of interest or specific suburbs and concentrate your search there.

SIZE

When considering the size of the property, you must first think about the size of the land. Is the land suitable for residential, commercial, industrial or development? Clarify how many bedrooms/bathrooms/living areas you require. Will open plan or separate living be best? How much off-street parking is required for vehicles?

STYLE

There are many different construction methods, so this comes down to personal taste. For example, do you prefer brick veneer over timber weatherboard? What styles suit your personality? Modern or contemporary? Are you more likely to choose a Queensland colonial style, workers cottage or art deco? Are you looking for an un-renovated project, or a turnkey project?

FEATURES

Consider what property features you want/need? For example, in hotter climates air conditioning is a must. If sustainability is important, then properties with solar power/batteries are worth the investment. If you, or any potential future buyer, is likely to work from home then the property will require access to technology like NBN or 5G mobile phone coverage. If you want to keep animals, you’ll need to consider fencing and water supply. Or you might want a pool and/or views?

This Capital Properties Buyer Checklist should give you a good start in formulating a buying strategy. It will also help you to narrow down and create a short list for your property search. Spending a few moments to consider these points will end up saving you heaps of time and stress and allow you to focus on getting you exactly what you’re after.

As always, our Capital Properties buyers agent service is available to help you source all types of property options. A great place to start is with our Free Discovery Session which will give you a taste of what it’s like to work with us. Then our follow-up Strategy Session will help nail a plan to help you find your perfect property and achieve your goals.

Victorian upper house passes the Windfall Gains Tax. What does this mean for land and property costs?

The Windfall Gains Tax (WGT) was first announced by the Victorian government in May 2021. On 20^th November the ‘Windfall Gains Tax and State Taxation and Other Acts Further Amendment Bill 2021’ was passed into Parliament. The WGT is scheduled to come into effect from 1^st July 2023, with widespread concern that it will lead to an increase in land costs and resulting housing shortages in regional areas.

On the go? Here’s 30 seconds of take outs:

• The Windfall Gains Tax (WGT) is due to commence on 1^st July 2023.
• The tax is payable by the landowner/developer if they’ve had an uplift in land value exceeding $100,000.
• The Treasurer may allow exemptions to the WGT for “excluded rezoning”. See examples below.
• The WGT will mostly affect developers in regional areas who purchase development sites to be rezoned to a more valuable land class, e.g., from farms to residential land.
• The maximum tax payable is 50% of the uplift.
• There are concerns that the WGT will impact housing affordability in regional areas and create a further divide in housing supply between metro and rural Victoria.
• The rising cost of land could result in a $7.7bn hit to the economy, including $170m in lost stamp duty, 20,000 lost sector jobs and impact another 100,000 indirectly linked jobs.

Keep reading >>

What is the Windfall gains Tax?

The Windfall Gains Tax (WGT) is a new Victorian tax, that will be payable to the State Revenue Office after there’s been an uplift of more than $100,000 in land value due to rezoning.  See below for exemptions*.

Who will the Windfall Gains Tax affect?

The WGT applies to Victorians with land that’s been rezoned resulting in a land value increase of more than $100,000. If the land is held on trust, the trustee will be assessed for the WGT. If the land is owned by multiple parties, the owners will be jointly assessed. Where the land is managed by corporations and/or trusts, all members of the group will be liable for WGT.  The legislation for grouping rules is wider than the comparable rules for land tax purposes, especially when applied to groups of trusts.

To put it simply, the WGT targets developers in regional areas who purchase development sites that will be rezoned to a more valuable land class, for example from farms to residential land.

When is the Windfall Gains Tax payable?

The landowner/developer will become liable for WGT at the time of the rezoning event. The Commissioner of State Revenue will issue a ‘notice of assessment’ which states the liability and the due date of payment.

It’s up to the person that’s been sent the ‘notice of assessment’, to notify the Commissioner if there are any errors or omissions within 60 days of the assessment issue date.

*Is anyone exempt from the Windfall Gains Tax?

The Treasurer may allow exemptions to the Windfall Gains Tax, for “excluded rezoning” such as these examples:

• A same-zone rezoning between schedules, e.g. rezoned from a Neighbourhood Residential Zone Schedule 2 to a Neighbourhood Residential Zone Schedule 1.
• Rezoning to the Urban Growth Zone within a Growth Areas Infrastructure Contribution (GAIC) area which typically occurs in city-fringe areas rezoned to allow for Melbourne’s urban growth.
• The first rezoning after 1 July 2023 of land that had been in the GAIC area before then.
• Rezoning between different public land zones, or to a public land zone.

How much Windfall Gains Tax will be payable?

The maximum tax payable is 50% of the uplift. If the rezoning adds $100,000-$500,000 in value to the land, the landowner/developer must pay 62.5% of the uplift above $100,000. If the rezoning adds $500,000 or more, there’s a 50% tax rate on the purchase.

How will the Windfall Gains Tax impact construction?

Despite the Victorian ‘building boom’ being predicted to last for at least another year, industry experts are predicting a slump by mid 2023, meaning the Windfall Gains Tax will hit builders at the worst possible time.

Matthew Kandelaars, Chief Executive of the Urban Development Institute of Australia (Victoria) says that the industry has calculated an estimated $170m in lost stamp duty, 20,000 lost sector jobs and a further 100,000 jobs indirectly linked to the WGT.

What does the Windfall Gains Tax mean for regional Victoria?

There is widespread concern that the WGT will negatively impact housing affordability in regional areas and create a more significant divide between metro and rural Victoria. We’ve already seen a significant shift of population to regional areas in the last 2 years, due to the pandemic and rising costs of property in Melbourne. With the increasing land costs due to WGT many developers will now reconsider development meaning fewer new homes are likely to be built.

When speaking to Nathan Mayby at The Herald Sun, Fiona Nield, Executive Director of the Housing Industry Association (HIA – Victoria), suggests that the Windfall Gains Tax could have a detrimental impact on regional Victoria. She said, “HIA modelling shows that the price of a housing lot in the Geelong growth area is set to increase by as much as $53,000 under the windfall gains tax”.

This significant increase in land costs could result in the loss of thousands of proposed projects, including the building of 300 affordable, social or disabled-access homes. Thus, resulting in a massive $7.7bn hit to the economy.

Also, home prices in some areas would surpass the regional cap on the government’s Homebuyer Fund, reducing homebuyers access to homes below $600,000. Incidentally, the Homebuyer Fund cap for Metropolitan Melbourne and Geelong is $950,000.

How will the Windfall Gains Tax impact Melbourne’s outer suburbs?

The Windfall Gains Tax will also likely lead to raised home and commercial prices in key infill pockets around Melbourne.

For example, in anticipation of the new Metro Tunnel’s Arden Station opening in 2025, the Arden Precinct in North Melbourne was pipped for rezoning to facilitate approximately 15,000 residents and provide 34,000 jobs. While developers have costed several projects at the site, some rezoning is yet to take place. If developers don’t meet the 1^st July 2023 deadline, costs for buyers will increase dramatically and housing supply will be severely impacted.

What’s next for the Windfall Gains Tax?

The Windfall Gains Tax now is now awaiting Royal Assent before it can be implemented. As always, the team at Capital Properties will keep you updated on any changes to the WGT roll-out as well as any other relevant changes in the property market.

Got FOMO? Then join our like-minded, Switched-on Property Investors Program.

While you’re here, book your free Capital Properties discovery session and check out our free investor tools: Online property investment toolkit | Book Your Pinnacle Program Review

 

 

Have you heard about the most recent APRA lending changes? 

On Wednesday 6^th October 2021, the Australian Prudential Regulation Authority (APRA) sent a letter to all authorised deposit-taking institutions (ADIs) – that includes banks, building societies and credit unions – to advise them of changes to mortgage serviceability buffers.

This letter stated that the minimum interest rate buffer on home loan applications needed to increase from 2.5 to 3 percentage points, effective from 1^st November 2021. Thus, bringing the buffer in line with international practice.

We’ll discuss what the APRA lending changes mean for everyone, from first-time buyers to property investors with large portfolios.

On the go? Here’s 30 seconds of take outs:

• APRA have asked banks to increase their mortgage serviceability buffers from 2.5% to 3.0%.
• The APRA lending changes come into effect for new loan applications after 1^st November 2021.
• Residential real estate values have jumped 20.3% in the past year.
• In June quarter 2021, one fifth of new approved home loan applications were for people who borrowed more than 6 times their income.
• It’s estimated that the lending change will reduce maximum borrowing capacity (MBC) by 5%.
• The MBC for an average family might be reduced by approximately $35,000.
• The impact of the lending changes is likely to be felt more significantly by first-home buyers and investors with existing debts.

 Keep reading >>

Why has APRA increased the lending buffer?

In Australia, the average household debt, in comparison to income, is historically high. APRA acknowledged in its letter that current residential mortgage lending is “underscored by very low interest rates and rapidly increasing housing prices.” And the rate of demand for loans is expected to continue to exceed household income for the near future, driving even more debt.

Although the Australian banking sector is currently sound, these increasing levels of debt are risky for the financial system. Therefore, APRA, with the support of the Council of Financial Regulators (CFR), is taking this step to reduce financial stability risks.

APRA chairman Wayne Byres said: “While the banking system is well capitalised and lending standards overall have held up, increases in the share of heavily indebted borrowers, and leverage in the household sector more broadly, mean that medium-term risks to financial stability are building.”

How does this buffer contribute to less risk?

Residential real estate values have jumped 20.3% (nationwide average) in the last 12 months. Although the market is strong, many are concerned that this level of credit growth is not sustainable. APRA noted that in the June quarter of 2021, more than one in five new home loan applications were approved to people who were borrowing more than six times their (pre-taxable) income.

Although the economy is expected to gradually recover post lockdowns, lenders still need to ensure that their customers can afford to service their loans. The 3% buffer provides a safe contingency to allow for changes in the borrower’s income or expenses, or any increases in interest rates during the lifetime of the loan. APRA estimates this lending change will reduce a household’s “maximum borrowing capacity” by approximately 5%.

How is the lending buffer changing?

Most ADIs are currently operating with a buffer of 2.5 percentage points. From 1^st November, this will increase to 3.0 percentage points over the loan interest rate. This means that banks will have to ensure that any new borrowers can still afford their mortgage repayments if their home loan interest rates rise to be 3 percentage points above their current rate.

For example, if you were to apply for a mortgage with an interest rate of 2%, the bank needs to allow a 3% buffer. That means they will ask for evidence to make sure you can make repayments of a 5% interest rate. If you can’t, your loan application will be denied.

How will the APRA lending change be implemented?

Each bank/lender will implement these changes differently, so, as always, it’s best to speak to your mortgage broker/bank directly to find out how this will affect you.

The expectation is that any existing pre-approvals will be honoured. For example, the Commonwealth bank have assured their customers that if they have exchanged contracts, even if they haven’t settled yet, they will honour their existing loan approval. Therefore the 3% buffer will only apply to any new applicants.

Although lenders have flexibility with how they intend to implement the increased buffer, there will be a fine if they hold more reserves against losses, so swift implementation is expected to avoid any drop in profits.

What does it mean for my home loan application?

The reality is that most people don’t borrow at their full capacity, so these changes may not affect you. In fact, the Commonwealth Bank says only 8% of its home loan customers borrow the maximum amount they are approved for.

The 3% serviceability buffer means that the maximum amount you can borrow relative to your income and expenses will be lower than it was under the old serviceability test of 2.5%.

For example, if the most you could borrow up until now was $500,000, then after November 1^st you will only be able to borrow $475,000. RateCity.com.au estimate that the maximum borrowing capacity for the average Australian family could potentially be reduced by approximately $35,000. That assumption is based on a household with one full-time worker, one part-time worker and 2 dependent children.

Current borrowing capacity	5% less borrowing capacity	Difference
$500,000	$475,000	$25,000
$600,000	$570,000	$30,000
$750,000	$712,000	$37,000
$1,000,000	$950,000	$50,000

 

What does the APRA lending change mean for first-home buyers? 

Mortgages have increased significantly since the Reserve Bank started reduced interest rates in 2019. In NSW, the average mortgage has jumped by 36% to $755,000 while in Victoria it has increased by a third to $634,000.

The Housing Industry Association (HIA) is concerned that the new rule will make it increasingly difficult for first-home owners to get on the property ladder. HIA’s chief economist, Tim Reardon said “Over 90% of renters aspire to own their own home but less than half of them expect that they will ever achieve this goal.” This “will make this goal even harder“.

How will the APRA lending changes affect investors?

Although the interest rate buffer increase applies to all new borrowers, APRA said the impact is likely to be felt more by investors than owner-occupiers. That’s because investors tend to borrow at higher levels of leverage and often have other debts.

APRA says the increased buffer was essential due to a significant increase in the borrowing of large amounts in recent months. APRA also confirmed that, together with other members of the CFR, they are monitoring any increase in key risk trends.

They said “Growing portfolio concentrations of high debt-to-income loans also need to be monitored closely. Should concentrations of this lending continue to rise, APRA would consider the need for further macroprudential measure.”

Source: www.apra.gov.au

As always, at Capital Properties, we’ll do our best to keep you informed of these, and other changes in the property market. To make sure you never miss out, join our like-minded, Switched-on Property Investors Program and learn about future possibilities.

While you’re here, book your free Capital Properties discovery session and check out our free investor tools: Online property investment toolkit | Book Your Pinnacle Program Review

The National Disability Insurance Scheme or ‘NDIS’ is an Australian Government program that funds costs associated with disability. It was legislated in 2013 and went into full operation in 2020. You probably already know someone who’s benefiting from it, so what are your chances of making it work for you?

Let’s start by saying it’s not a straightforward procedure. If it was easy, then everyone would be on to it! But because the returns are through the roof it’s definitely something worth investigating. Feel free to get in touch with us at Capital Properties so we can help you work through the process in more detail. For now, we’ll attempt to keep our guide to NDIS as simple and succinct as possible and have included some links so you can access more information.

On the go? Here’s 30 seconds of take outs:

• NDIS stands for National Disability Insurance Scheme and helps Australians with disabilities.
• Some people with disabilities can access Specialist Disability Accommodation (SDA).
• SDA needs to meet certain standards within 4 design categories of design:
• Silver: improved liveability & robust
• Platinum: fully accessible and /or high physical support
• Catering for Silver & Platinum Level tenants allows for more rental opportunities.
• SDA builds are a great prospect for experienced investors who can work with a proficient SDA builder. You’ll need to make sure the following is in place:
• Finance qualification – Extra construction costs = valuation shortfall
• Location – Urban with strong capital growth
• Property type – Silver or Platinum level?
• Run cash flows – Use the 2021-22 SDA price calculator
• SDA design – Engage an SDA assessor at design stage
• Private SDA provider – To manage the SDA property
• The nitty gritty – Deposits, Contracts, Settlement, Construction & Specialised Insurance

Keep reading >>

Here’s what you need to know about NDIS:

What is NDIS?

The National Disability Insurance Scheme (NDIS) has committed to providing more than $22 billion in funding a year (within the next 5 years), to an estimated 500,000 Australians who have permanent and significant disability. Let’s break it down…

National: The NDIS is being introduced progressively across all states and territories.

Disability: The NDIS provides support to eligible people with an intellectual, physical, sensory, cognitive, and psychosocial disability. Early intervention supports can also be provided for eligible people with disability or children with developmental delay.

Insurance: The NDIS gives all Australians peace of mind that they will get the support they need if they, their child, or loved one, is born with or acquires a permanent and significant disability.

Scheme: The NDIS is not a welfare system. It is designed to help people get the support they need so their skills and independence improve over time. This means providing people with information about services in their communities that can help.

What is SDA?

SDA stands for Specialist Disability Accommodation which is a range of housing designed for eligible NDIS candidates that have extreme functional impairment and/or require a lot of support at home. SDA aims to help residents to live more independently. If you’re building or modifying a build to rent to a person with a disability, knowing the standards required to meet SDA approval is essential.

To meet SDA standards of accommodation, you must comply with 4 categories of design, as set out in the SDA Rules (2020). These are:

• improved liveability (Silver Level)
• robust (Silver Level)
• fully accessible (Platinum Level)
• high physical support (Platinum Level)

To learn more about each category and read what the definition and minimum requirements are, click here to access the SDA Design Category Requirements Guidelines PDF. At Capital Properties we recommend that you build to cater for Silver & Platinum Level tenants. This opens up far more opportunities which will ultimately make your property more rentable.

Make sure you choose the right builder

Building a house within SDA guidelines means more restrictions than a ‘normal’ build. These homes must deliver an outcome which satisfies the needs of the investor, providers, and residents. Only a specialist builder will be able to meet the needs of each shareholder and in particular, the residents.

Where to start?

Finance qualification – In our experience, experienced investors would be best suited to working within NDIS guidelines. Due to the extra construction costs of building this type of property, investors can expect a valuation shortfall.

It’s also worth noting that not all lenders provide lending for this type of property. Investors may need a minimum 20% – 30% deposit depending on the lender. Also (again, depending on lender), this type of transaction could be viewed as a commercial project and therefore may require commercial lending.  We’ve discussed being finance ready in this blog: “Why being finance ready pays dividends”.

Location, location, location – Take your time to do your homework and scout the best location. We would suggest a location with good capital growth and an increasing population. Preferably near a major capital city that provides good infrastructure and easy access to health care.

Property type – Speak to NDIS providers in your preferred location and ask for insights on the accommodation best suited for the area. They can confirm if your plan for Silver/Platinum level housing is appropriate and in demand.

Run cash flows – It seems to be common practice with an NDIS property investment that the sales consultant will over-quote the achievable rental. The 2021-22 SDA price calculator is a useful tool that allows you to run through a couple of different scenarios. Click here or above to access the calculator.

Nail the design – It’s vital to choose an appropriate design. Make sure you work within the building accredited SDA design standard.  You will need to engage an SDA assessor at the design stage. This assessor is the only person that can issue an SDA category compliance certificate, to confirm that the design has met the requirements of the SDA design standard.

Partner with private SDA provider – As an investor, the easiest and best approach is to partner with a company that provides the interface with the tenants and government to manage the SDA property on your behalf. As owner, you will essentially enter a SDA Management Agreement with a SDA Provider Group so that the lease agreement will be with the SDA Provider Group. That means that they’ll take care of the property management, maintenance, compliance, SDA recertification, participant engagement and placement audits, making your life much easier.

Deposits – Place deposits down on the land and get set to build.

Contracts – Enter contracts and get valuations under way. Then confirm finance.

Settlement – Land Settlement. We’ve written about this process in the blog “Yay! My property settled. Now what?”.

Construction – Start construction! As always, we recommend you use a building inspector when constructing.

Specialised Insurance – It’s vital to get specialist insurance advice for a SDA build. Bear in mind that insurance costs are likely to be over the odds for the build due to the extra SDA requirement. That’s despite the fact that these builds are government backed, because there’s always a risk that with a change in government those circumstances could change. A valuation short fall is to be expected and there’s potentially a higher risk securing the right tenants. Given these circumstances and the 10 – 20 year average lease, these builds are not recommended for the first timer buyer.

Check out this earlier blog post where we discussed further insurance requirements in “How to choose the right insurances for your investment property”.

Pros of a National Disability Insurance Scheme SDA build

• High cash flow
• Multiple tenants
• Government backed subsidy

Cons of the NDIS Specialist Disability Accommodation build

• Increased construction cost
• Potential for higher vacancy
• Valuation shortfall
• Not straight forward
• Limited pool of buyers when selling
• Requires specialist property design
• Smaller pool of finance lenders / finance brokers that understand these builds

If you’re interested in learning more about an NDIS build, or any property investment, we can help. Click on this link to access a free Capital Properties discovery session. And if you’re already onboard, our Pinnacle Support Program will support you in finding out more.

While you’re here, check out our free investor tools: Online property investment toolkit | Book Your Pinnacle Program Review | SDA Relationship Map PDF

What’s the Victorian Homebuyer Fund all about?

On the back of a tough couple of years for Victoria, the Victorian Government has launched a new home-buyer fund called the Victorian Homebuyer Fund (VHF). This is essentially a shared equity scheme which allows successful applicants to purchase a property with a minimum deposit of 5%. The Victorian government will then pay up to 25% of the purchase price in exchange for an equivalent share, or proportional interest in the property.

With a total fund of $500 million, the scheme is expected to support approximately 3,000 home buyers. We’ll share full eligibility requirements and answer some of the most common questions about the Victorian Homebuyer Fund below.

On the go? Here’s 30 seconds of take outs:

• The Victorian Homebuyer Fund (VHF) is a shared equity scheme that will help Victorians purchase a property with a 5% deposit.
• The government funds 25% and 70% will be financed by the home buyer’s chosen lender.
• Eligible Aboriginal or Torres Strait Islander homebuyers require a minimum deposit of only 3.5%.
• Australians older than 18 years with a minimum gross income of $125,000 PA (individuals) or $200,000 or less for couples can apply if they intend to live in the property.
• A maximum purchase price of $950,000 in Metro Melbourne/Geelong, or $600,000 or less in eligible regional locations is acceptable.
• Certain ongoing obligations are required, e.g. maintaining the property to a good standard.

Keep reading >>

Is the Victorian Homebuyer Fund the same as the HomesVic Shared Equity Scheme?

The VHF is an expansion of the government’s HomesVic scheme which was a pilot scheme implemented in 2018 to help low- to medium-income-earning Victorians purchase their first home. Under that $50 million scheme, the government helped over 300 first home buyers onto the property market in 33 target areas. Those “priority areas” included 7 peri-urban towns, 85 Melbourne suburbs and 130 regional towns. Applicants were invited from people with incomes up to $75,000 for singles, and up to $95,000 for couples/families.

So how is the Victorian Homebuyer Fund different?

With the VHF, the eligibility is broader than the HomesVic pilot scheme, making it accessible to even more home buyers. Buyers can now purchase homes in a wider range of locations, and income limits are not as restrictive as the initial pilot.

Plus, it’s no longer restricted to just first home buyers. What remains the same is that eligible buyers only need to pay a 5% deposit for the home. The government will then fund 25% and the remaining 70% will be financed by the home buyer’s chosen lender. Currently, both Bank Australia and Bendigo Bank are participating in the scheme. For eligible Aboriginal or Torres Strait Islander homebuyers, the government will contribute up to 35% and the minimum required deposit is 3.5%.

Eligibility requirements for the VHF 

Home buyers are eligible to apply if they:

• Are an Australian citizen or permanent resident over the age of 18 years
• Have a gross annual minimum income of $125,000 (individuals) or $200,000 or less for couples/families.
• Have the required minimum deposit (5% or 3.5% depending on circumstances) of the property price
• Will live in the purchased property, as a primary place of residence
• Do not purchase the property from a relative
• Don’t own interest in any land or are shareholders in any private corporation that owns land at the time of purchase (including as trustee, or beneficiary under a trust)
• Do not act as a trustee of a trust
• Are a ‘natural person’, i.e. not an organisation, company, trust or other body or entity

What type of property is eligible?

Both new and existing residential properties are eligible, as long as a certificate of occupancy has been issued prior to the contract of sale date. The property must be ready for the buyer to live in, or if it’s under a lease, that lease must have expired within 1 year of the sale date and be ready for the owners to move in. Off-the-plan properties and vacant land are not eligible.

The property must have a maximum purchase price of $950,000 in Metro Melbourne and Geelong, or $600,000 or less in eligible regional locations, see below.

Does the Victorian Homebuyer Fund allow you to purchase anywhere in Victoria?

Eligible participants can purchase in Metropolitan Melbourne, Geelong or other eligible regional locations. The State Revenue Office has a full list of Victorian Homebuyer Fund  eligible locations.

Can you access other housing schemes or grants if you apply for the Victorian Homebuyer Fund?

Yes! Homebuyer Fund candidates may also be eligible for other Victorian government housing schemes, including the First Home Owner Grant (aka the 5% Deposit Scheme) and other grants – read this blog: “Great Government Grant Grab”.

Does the state’s share remain unchanged?

As a Shared Equity Scheme, the value of the state’s share/interest in the property will change in line with property value.  Appreciation in the home’s value means that the VHF will share in any gains in the home buyer’s property’s value.

Home buyers can (with prior approval), repay the fund’s share in their property or buy out the government’s share of the property at market value by refinancing, using savings or using the proceeds when they sell the property. The government will reinvest those funds to help other prospective home buyers enter the market.

Are there strings attached to the Victorian Homebuyer Fund?

If you are an eligible candidate, then there are few limitations to the fund. Once you have been provisionally approved for the Homebuyer Fund, you have six months to enter into a contract of sale for an eligible home.

Successful applicants for the VHF must meet certain ongoing obligations. For example, you will need to notify the State Revenue Office of any changes to your circumstances (e.g. change of employment) within 10 business days. See below for some of these ongoing responsibilities:

–          Annual review

After you’ve purchased your home, you must provide the State Revenue Office with an annual update confirming that you’re still eligible for the Homebuyer Fund. This includes payslips (for employees), tax returns (for self-employed candidates), utility bills, home loan statements and a building insurance certificate.

–          Maintaining your property

You are expected to maintain the property to prevent unnecessary devaluation. Any structural modifications or renovations costing more than $10,000 or requiring council approval must be approved before works begin.

–          Repayments

You must make all relevant payments on time. This includes utilities, body corporate fees, council rates, stamp duty and home loan repayments. You may be required to start repaying the Homebuyer Fund’s interest in your property should your financial circumstance change, e.g. if your annual income exceeds the agreed threshold for two years in a row, or you receive a windfall of $10,000 or more.

–         Exiting the fund

You must seek approval if you choose to refinance or sell your property. You must also get approval if you want to make additional payments with an intent to exit the Homebuyer Fund or reduce the State’s equity below 5 percentage points i.e. from 25% to 4% in the first two years.

–         What happens when the property is sold?

When you sell your property, the proceeds must pay off your remaining home loan to the bank and the equity share to the Victorian Homebuyer Fund. Of course, payments must also be made if there are other outstanding debts e.g. council rates. The remaining profit belongs to you, the homeowner.

Before you apply, check your eligibility and the list of eligible locations where you can purchase a property. If you meet these criteria, then prepare the documentation required to apply for a home loan. We’ve discussed this in the blog “Why being finance ready pays dividends”.

This link will take you to the Victorian Homebuyer Fund application.

If you have any questions about your eligibility for the Victorian Homebuyer Fund, we can help.

While you’re here, book your free Capital Properties discovery session and check out our free investor tools: Online property investment toolkit | Book Your Pinnacle Program Review

Most ADF members are so busy working they don’t have time to focus on other aspects of their life, not to mention long-term planning. Sure, the idea is to work an eight-hour day and then make time for you, but with training, exercises and deployments it sometimes seems impossible get off base. We know, we’ve been there.

Lucky for us, we had some great mentors who encouraged us to set aside some time for the important stuff. That’s why we encourage you to take some time to really think about your goals. Because what you invest in now will pay dividends in the future. You can mind-map it. Write it down. Or just wake up every day with a plan. It doesn’t matter, just as long as you promise to make that commitment to invest in yourself.

We’re not going to assume we know what’s important to you, but we want to share our top 6 things we believe are worth the investment.

On the go? Here’s 30 seconds of take outs:

• It’s important to set aside time for the most important things in your life, before it’s too late.
• Prioritise education. Enrol in courses that will help you upskill to prepare for life after the ADF.
• Look after your physical and mental health.
• Invest the time required to build strong relationships with friends, family and significant others.
• Allow yourself time to indulge in a passion project – it pays off in ways you might not expect!
• Take care of the planet. Reduce, reuse and recycle.
• Cultivate financial independence with property investment. Capital Properties can help you get started.

Keep reading >>

1. Education

Education is the ultimate investment in yourself. As most military positions don’t have a ‘civi’ equivalent, it’s important to consider a plan for a future outside of the Force. Waiting to upskill once you pull in the pin is a risky strategy as many courses have entry requirements that you might not be eligible for.

The Defence offers a great range of training courses and study opportunities that you can do part-time. To find out more, visit unsw.adfa.edu.au/study/ or contact UNSW Student Administrative Services by email on [email protected] or on (02) 6268 6000.

At Capital Properties, our mission is to empower and educate Defence Force members to set goals for building financial independence, so our ‘Learn and Grow’ meetings are great learning opportunities and we have a heap of resources and tools designed to help you get ahead.

2. Health

This is an easy one to take for granted. But in the words of Herophilus, “When health is absent, wisdom cannot reveal itself, art cannot manifest, strength cannot fight, wealth becomes useless, and intelligence cannot be applied.” And who are we to argue? We’ve all seen it. Those people that work every day of their lives only to retire and collapse with a heart attack within weeks. The reality is, you need to put the work in to stay healthy, just as you must with any other investment.

And look, we all know what that means. Take care with your diet. Put simply that means eating real, whole food. Eat ethically sourced meat and fish if you’re carnivore, or substitute with healthy protein sources if you’re vegetarian (and don’t forget your B12 supplements). Then enjoy plenty of vegetables, some nuts and seeds, some fruit, a little starch and minimal sugar. Avoid highly processed foods and keep your food/calorie intake to levels that support exercise but not excess body fat. Don’t over-indulge in alcohol and don’t smoke.

Exercise every day. Find something you love and do that but change it up every now and then to challenge your body. Whether that’s surfing, CrossFit, trekking, Olympic weightlifting or dancing, it doesn’t matter.  Just get your body moving, elevate that heart rate and enjoy the feel-good hormones afterwards! Which is a great segue to the next key element of health…

Look after your mental health. This looks different for everyone but there are a few things we can all get better at. Take time out when you need it. Learn how to talk about your feelings and find someone you can talk to if there’s something getting to you. A problem shared is a problem halved remember! Utilise services like the ‘All-hours Support Line’ (ASL). This is a confidential service for ADF members and their families that’s available 24 hours a day, seven days a week. Organisations like www.beyondblue.org.au also provide information and support to help you achieve your best possible mental health.

3. Build strong relationships

Human beings are hardwired to connect to others from the moment we’re born. Brené Brown, Research Professor at the University of Houston and author of five #1 New York Times bestsellers explains that “We are biologically, cognitively, physically, and spiritually wired to love, to be loved, and to belong.”

Healthy relationships are a vital component of health and wellbeing. We know that maintaining a strong social network actively contributes to a long, healthy, and happy life. On the other hand, feeling isolated can lead to depression, decreased immune function and high blood pressure. In fact, one survey by the National Bureau of Economic Research found that doubling your group of friends improves your wellbeing as much as a 50% increase in income!

So, how do we nurture relationships? Firstly, make time for the people most important to you. Try to physically be there for them as much as possible and stay in touch when you can’t. When you’re there, pay attention. Put down your phone and communicate. Practice speaking honestly and listening well. Tell them and show them that you appreciate them. Own up to your mistakes and work on your faults. Be ready to forgive if they’ve mucked up and let them know that you’ve got their back. Commit to putting in the hard yards and talking through the tough times. And if you’re struggling – get some help. Relationship counselling can help you find tools and strategies to really enrich your relationship and move past the tricky stages.

4. Passion projects (hobby)

We all have innate talents or interests. Some of us are lucky enough to discover these early in our lives and pursue them as hobbies or “passion projects” through the years. Others get caught up in day-to-day life and forget to make time for interests outside of work, kids, etc.

We now know that passion projects are thoroughly beneficial for our wellbeing. Apart from being super satisfying, it also promotes creativity and innovative thinking. Pursuing any passion project will give you a sense of purpose and will help you feel like you’re living life to the fullest.

To help you find your passion project, start with listing ideas that interest you, whether that’s fitness, food, finance…whatever! Then consider how much time and resources you can commit to it. Schedule the time to pursue your project into every day/week/month and set a goal to work towards. Remember, this is about investing the time for you to work on something you love, so there doesn’t really have to be an outcome other than enjoying the flow state. But you never know, one day you might end up making it a side hustle.

5. Look after the planet

At Capital Properties we believe that it’s our moral responsibility to help combat climate change. Making small, but intentional changes will make all the difference to our future and our kids and grandkids future. After all, if we want our communities to thrive, we must ensure that nature thrives as well.

We’re not going to tell you to run away and join Greenpeace, but there’s a huge amount of satisfaction in developing an eco-friendly mindset and knowing you’re doing the right thing by the planet. It’s as simple as choosing to use eco-friendly products where you can, avoid plastic, minimise food waste, buy less crap, teach your kids to turn off the taps, use LED lights and plant a few trees. And take on board our suggestion to use solar energy in our blog “To solar or not to solar, that is the question”. You’ll see that being good to the planet also has advantages for the savvy investor!

6. Financial independence – property investment

We’ve suggested these “lifestyle investments” to help you make the very most of your one and precious life. But it would be remiss of us not to talk about planning for your financial future. And let’s face it, in Australia is the very best way to plan for your future financial security is by investing in property.

Property investment continues to deliver consistent capital growth over time and is far less volatile than investing in shares or cryptocurrencies. Property investors benefit from tax deductions and exemptions from the Australian Tax Office, including corporate fees and charges, advertising costs and rates reductions from the council, insurance and land taxes.

Buying-to-let means you’ll receive a monthly rental income while the home appreciates, giving you significant capital gains when you’ll need it most, in retirement.

If you want to talk about securing your financial future, we’ll help get you on your way with a free Capital Properties discovery session. And if you’re already onboard, our Pinnacle Support Program will keep you moving in the right direction.

As always, our free investor tools are available to help you with your property investment journey: Online property investment toolkit | Book Your Pinnacle Program Review | Property Investor – Self Evaluation

How important is the finance component to the property buying process?

Very.

In fact, aside from choosing the right property, in the right location, finance is the most important component to property investment. So, it’s essential to get it right.

But nobody’s born knowing this stuff. And many financial institutions seem to love making the process harder than necessary. That’s why the team at Capital Properties are passionate about helping Defence Force members improve their financial literacy and get started on their home-buying journey and/or increasing their property investment portfolio.

And because forewarned is forearmed we’ll break the process down here.

On the go? Here’s 30 seconds of take outs:

• The Capital Properties Discovery Session preliminary assessment is an essential starting point to work out your financial capacity.
• You’ll need to submit some key supporting documents for a home loan, including, but not limited to: ID, proof of income, a list of assets and liabilities.
• We recommend you apply for Approval in Principle (AIP) when you’re ready to commit to searching for your property. This will give you an idea of how much you can borrow.
• Once you’ve found the right property, it’s best to start applying for unconditional approval asap.
• You’ll need formal/unconditional approval to confirm the loan.
• Once the loan’s been approved, you’ll need to sign mortgage documents to prepare for
• After settlement a ‘Transfer of Land’ document will be registered at the State/Territory Land Registry Office on your behalf. And as long as everything has gone to plan, you’ll get the keys to your new property! Hurrah!

Keep reading >>

Before you even think about browsing the property market, you’ve got to do some due diligence and nut out where you stand financially. We make this process really straightforward in the Capital Properties Discovery Session. In just one meeting we’ll help you collect all the information you need to provide to the finance broker/lender to work out your financial capacity.

We’ll work through a preliminary finance assessment form that details your assets, liabilities, income and investments which will help your Finance Broker to work out exactly what your borrowing power is. But that’s just step 1. We’ll talk you through all the stages you’ll face in a home-loan application here. It sure seems like a lot, but we promise you, doing it properly the first time is worth the effort in the long run.

LOAN PROCESSING STAGES

1. Prepare supporting documents

Here’s a comprehensive list of the documents you’ll need to provide the bank/lender for a home loan application.

Recognised identification:

That means your passport, driver’s license, and/or state or territory-issued photo ID card such as a ‘Proof of Age Card’. If you can’t provide at least one of these primary IDs, then you’ll need to present two forms of secondary ID such as: your birth certificate, Medicare card, tax assessment notice, citizenship certificate, utility bills with name and current address and/ or debit/credit cards.

Proof of Income

This is a biggie, as your income determines your borrowing power. If you’re an employee, you’ll need to present:

–          3 latest payslips.

–          Employment contract or a letter from your boss that details your employment contract, how long you’ve been working there and confirmation of your basic pay (salary) as well as any allowances (e.g. additional allowances for exercises and deployments).

–          Last 3 months of bank statements showing your income.

–          Most recent tax return and ATO notice of assessment.

If you’re currently self-employed, you’ll need to go back even further! The lender will want your last two years personal and business tax returns and Australian Taxation Office (ATO) assessments. As well as the last two consecutive years’ profit and loss from your business.

If you receive a government income, they’ll need to see a letter from Centrelink confirming your benefits.

The lender will also need to see evidence of any other sources of income, such as:

• Superannuation
• Share dividends
• Foreign income
• Rental income (along with a letter from your real estate agent confirming the income and a copy of your current Residential Tenancy Agreement and bank statements showing rent payments)

A list of Assets

As well as the above sources of income, you’ll also need to provide details of any assets you hold. That includes savings (you’ll need to show them your bank account), any vehicles that you own outright, share investment portfolio and your superannuation.

List of Liabilities

You’ll need to confess any outstanding debts, such as credit card balances and ongoing loan repayments.

2. Prepare deal for Approval in Principle (AIP)

Now that you’ve collated all the necessary paperwork, the next step is to get a clearer idea of how much you can borrow. This will allow you to narrow down your search for suitable properties and place you in a much stronger position when it comes to making an offer. We’ve explained why this is so important in “Why being finance ready pays dividends.”

Ideally, you’ll want to apply for AIP when you’re ready to commit to searching for your property. You’ll need to do your homework to choose a lender that offers a loan that suits you or discuss potential lenders with your finance broker. They’ll want to see all the supporting documents, confirmation of your deposit amount and an idea of the price range of the property you’re looking for.

3. Sent for Approval in Principle (AIP)

Once you’ve submitted your application for AIP, the lender will complete a full credit assessment and responsible lending assessment, which includes details about where you’re looking to buy and the type and size of property you’re looking at.

Applying for AIP is free and usually lasts for 90 days once approved, assuming your circumstances haven’t changed in the meantime.

4. Approval in Principle issued

If your AIP has been issued by the lender, you’re ready to start property hunting! Yay! Just remember that if anything significant in your life changes, e.g., your income, employment type or expenses, you must advise the lender as it can affect how much you’ll be able to borrow. If you haven’t found a property or signed a contract within 90 days, you’ll need to re-apply for another AIP.

5. Prepare deal for formal approval (unconditional)

AIP doesn’t guarantee approval for a home loan. If the property that you want to buy doesn’t meet the lender’s loan-to-value requirements or you’ve had a change in your life that affects your financial situation, formal approval might be declined. So, it’s important to start moving towards applying for unconditional approval as soon as you’ve found the right property.

You’ll need to supply the ‘contract of sale’ or ‘offer and acceptance’ on the property and confirm that your financial situation hasn’t changed. They’ll also ask you to submit First Home-Owner Grant forms (if that applies). We’ve discussed everything you need to know about First Home Owner Grants in The Defence Force First Home Buyers Guide.

6. Deal is sent for formal approval with no valuation

If you have more than a 20% deposit some lenders won’t require a physical property valuation before formally approving the loan. Many banks now use electronic valuation services like RP Data to confirm the property’s value. This blog post explains the process of valuations here in Australia: Desktop, kerbside & full property valuations – what’s what?

7. Conditional approval – deal has been conditionally approved by the lender

Conditional approval means that your lender has assessed and approved your loan based on the information they’ve already received. However, they may still impose restrictions or “conditions” before formally approving your home loan, so conditional approval is not a done deal. 

8. Deal is sent for formal approval with valuation         

This is often the last step for unconditional approval. Your lender will request a formal inspection of the property.  That means that an independent property valuer will be appointed by the bank to physically visit the property and confirm its valuation. This valuation is then submitted with your loan for formal approval.

9. Formal (unconditional) approval

It’s time to celebrate! Formal, or “unconditional” approval of your home loan means that all your hard work has paid off and the lender has approved your home loan based on the property you’ve chosen to buy. Although you’re not completely done just yet, just a few more steps before you can call that house yours!

10. Mortgage documents issued and posted          

Your lender will now send you confirmation of your loan – or your ‘mortgage documents’, to read, sign and return. These will include:

• A letter of offer detailing the conditions of your home loan. Make sure you take time to read these, along with your lender’s terms & conditions.
• Mortgage document – a copy of this will be lodged with your State or Territory to register your mortgage.
• Witness acknowledgement – you’ll need to get an independent witness to confirm your identity.
• A disbursement and settlement form that will allow the bank to withdraw funds from your account to pay the amount due for settlement.

11. Mortgage documents returned     

As conditional approvals are only valid for a few months, it’s vital to get them signed and returned to your lender as soon as possible to allow you to settle on your new property. Once your lender has received your signed mortgage documents the next step will be the settlement process.

12. Ready to settle

Settlement means you’re ready to transfer ownership of the property from the seller across to you, the buyer. Your solicitor /conveyancer will agree on a date, place and time of settlement. Two weeks before that date your solicitor will prepare a ‘Transfer of Land’ document for you to sign. This will then be registered at the State/Territory Land Registry Office on your behalf.

13. Settlement booked

As well as the exact time of settlement, your solicitor/conveyancer will confirm the amount of funds that you’ll be required to provide. The funds need to be in your account at least a few days before settlement. 

14. Settlement has occurred

As soon as settlement has taken place, your solicitor/conveyancer will confirm by sending you a ‘Statement of Adjustment’ to confirm that funds have been paid. Now you can arrange to pick up your keys from the real estate agent and give yourself a pat on the back! You’ve just bought yourself a house!

15. Lost/declined   

In the unlikely event that there’s a problem with the deal and it can’t proceed, (for example in case of a fraudulent representation), the deal will be automatically archived after 2 weeks.

Although it seems like a lot, understanding this process will make buying a property so much easier. So, well done! If you’ve made it this far, you’re already ahead of the game. The reality is managing the finance component of buying a property is one of the most stressful events many of us will undertake in our lives.

That’s why we’re happy to lend you a helping hand to get you through the process. We’ll get you up to speed with our Capital Properties Discovery Session before you apply for a loan and help you clear any hurdles along the way.

Our Pinnacle Support Program will support you in finding out more. While you’re here, you can also check out our free investor tools: Online property investment toolkit | Book Your Pinnacle Program Review | Property Investor – Self Evaluation

Guest Blogger: Brian Beck | Mortgage and Financial Consultant

[email protected] | www.quickselect.com.au

Free investor tools: Online property investment toolkit  |  Need to get a pre-approval underway?