RentCover Report we ve got you covered

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September 2012

RentCover Report – we’ve got you covered

Welcome to the September edition of The RentCover Report.

As the footy season wraps up and sporting passions reach a pinnacle, it’s worth remembering that property investment is also a team affair.

Investors’ teams can include accountants, mortgage brokers, tradies, mentors, property managers, settlement agents, quantity surveyors for depreciation and, of course, insurance brokers.

We’d like to thank you for having EBM RentCover on your investment team! EBM is ready to lend a hand at any time – and in this issue we meet a member of the EBM team who helps people making claims, Executive Account Manager, Lush Edirisinghe.

I hope you enjoy this edition and look forward to bringing you more insights next month. Sharon Fox-Slater

General Manager, RentCover

News in brief…

The three-bedroom Richmond cottage Polly and Waz renovated during The Block

2011 has rented out at $975 a week, unfurnished, according to a tweet from Advantage Property Consulting. The rent equates to a 5.9% gross yield on the $855,000 auction sale price for the investor owners – or a claimed 10% if you count depreciation. Last year, the property rented at a higher $995 per week, but that included furniture.

Sandgropers are claiming the bragging rights after Your Investment Property

magazine’s annual “top 100” suburb guide picked five metropolitan Perth spots in their top 10 – Morley, Como, Perth CBD units, Wembley and Fremantle. The top metro picks for other states were Coburg (VIC), Campbell (ACT), West Hobart (TAS), Rosebery (NT), Unley (SA), South Brisbane (QLD) and Alexandria (NSW).

Also out west, increasing numbers of tenants are breaking leases as rents continue to rise to a current median of $450 per week for houses, according to the Real Estate Institute of Western Australia. Institute president David Airey said some were buying their own homes while others were moving to more

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Paving paradise to put up a parking lot? Not in inner-city North Melbourne, where residents have convinced the council to create a new park by closing a roundabout and portions of three streets which lead into it. Some local residents had been lobbying for the move for five years, but council received 12 submissions in favour and seven against.

Relatively expensive housing hasn’t stopped four Australian cities from dominating a top 10 list of the world’s most “liveable” cities, as judged by the Economist Intelligence Unit. The survey ranked

Melbourne as the most liveable city in the world. Perth (9th) and Sydney (7th) also got guernseys but were

“out-liveabled” by Adelaide (equal 5th) which benefited from new infrastructure investments. Brisbane

was 20th. In other news, The Economist magazine recently estimated Australian houses were 36%

overvalued.

Property Potentially Super Investment

The taxman has clarified previously-confusing rules on renovating and improving investment property within self-managed

superannuation.

Combined with sharemarket volatility, the Australian Tax Office ruling SMSFR 2012/1 could boost the numbers of people borrowing within self-managed super funds to buy residential investment property.

According to the ruling:

• Cosmetic renovation, such as retiling, can be done as a “repair” under super law, even though it can’t

under income tax rules – and, as such, can be done within super using borrowed money.

• More significant improvements to a property, such as moving internal walls, are allowed so long as

the “fundamental character” of the asset does not change – but can only be done using non-borrowed

money.

• Improvements which fundamentally change the nature of the asset, such as turning a single dwelling

into a duplex, are not allowed if there is still a loan on the property.

The recent decision is just one of many applying to self-managed super funds and the rules are complex – so it’s crucial to obtain professional advice before signing any contract, let alone paying a deposit.

The chief advantages of buying property within self-managed super include:

• access to an investment type seldom held by retail super funds; • the ability to use leverage (borrowed money) to buy an asset;

• the ability to use salary-sacrificed (pre-tax) dollars to pay off the loan for the property; • the SMSF pays a maximum of 15% tax on the rental income;

• the ability to select your own asset, i.e. personal control; • capital gains tax savings when the property is sold; and

• “non-recourse lending”, which means the bank can’t seize other assets to repay the loan in the event

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Disadvantages include:

• the performance of a single asset potentially dominating your retirement future; • administration headaches to make sure your fund complies with rules;

• all the risks that normally apply to any property investment such as the market falling or the risk of

poor property selection;

• the need for a plan as to how the property will be paid off in super;

• banks require a bigger deposit, typically only lending 75% of purchase price; • bigger bank fees;

• the risk members might need to kick in extra money if cash flow is insufficient; and • super-fund set-up and compliance costs.

General Manager, RentCover, Sharon Fox-Slater, said it was important to have landlord insurance regardless of whether property was held within super or separately.

Property in the Courts

A falling fence, fed-up father, body corporate bungle and handshake home improvement deal gone wrong are among recent property-related issues to hit the courts.

Good fences make good neighbours – and the reverse certainly applies in an ugly six-year dispute over a retaining wall between two properties in picturesque Hawks Nest, NSW.

One witness said a new fence could have resolved the dispute for as little as $9,000 but a report in The Sun Herald estimated legal costs to date at more than $100,000.

The court awarded one couple, Andrew and Anita Hill, a paltry $200 for “trespass” of their neighbour, who had picked up a pile of bricks on their land from a demolished bit of wall and $20 for the leaning retaining wall’s encroachment on their property.

A claim for “nuisance” based on the unkept state of a strip of the neighbours’ land was dismissed as “really a fuss about nothing” which would only require a few minutes with a “whipper snipper” to resolve, Justice Ian Harrison ruled.

However, the court found the Hills would not have been able to get the wall removed without litigation and ordered the neighbours, Alan and Anita Higgins, to pay the Hills’ costs up to May last year – an unspecified, but far more significant, sum.

Both sides in the “long and unhappy saga” copped a serve from the judge who criticised their rigid legal approach instead of one characterised by “common sense, basic intelligence and reasonable give and take”.

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In other cases,

• A tenant who set fire to his kitchen in the hope of clearing a $1,100 rental debt caused almost

$110,000 damage, the Victorian County Court heard. When drunk, David Jonathon Springett punched a hole in a passage wall of the two-bedroom home in Traralgon, Victoria, to make it look as if someone else had set the fire. He didn’t remove his belongings beforehand – and returned later after remembering a cat had been left inside. Springett was convicted of arson, put on a two-year community corrections order and ordered to reimburse an insurance company for the damage.

• The ACT Magistrates Court has ordered landlord Anthony McInnes to pay Canberra tenant

Jaqueline McCauley more than $35,000 compensation after she spent time and money improving a Wanniassa property on a “handshake” understanding she would profit when it was sold. The property was bought for $110,500 in 2000 and sold for $389,000 in 2009. The tenant was ordered to pay $4,010 in unpaid rent.

• VCAT ordered the owners corporation of a Clifton Hill block of flats to shell out more than

$32,000 – $16,130 in lost rent to a landlord whose property could not be leased because of water leaking indirectly from a sliding door in the flat above and $16,600 to recompense the owner of the upstairs flat for repairs. The sliding door was judged “common property” as it was part of a structural wall.

EBM a Pilbara Resource

Property investors riding the Pilbara boom have a new resource – EBM Insurance Brokers’ new Karratha office.

The firm has now established the Pilbara’s first permanent insurance broking office at the newly constructed Pelago West building. The Pilbara team will be headed by Owen Connolly, a 13-year EBM veteran, supported by assistant account manager, Suzanne Kimpton, a Karratha resident with insurance industry experience, both in the UK and Australia. Also joining the EBM Pilbara team in the coming weeks will be Grant Homann as the EBM account manager for the region. Grant is relocating from New Zealand with his family and is very much looking forward to the opportunity of being part of the local

community.

The office offers business insurance and risk services as well as insurance for individuals. Real Estate Agents should continue to refer their enquiries through the RentCover team as they currently do General Manager, RentCover, Sharon Fox-Slater, said having someone “on the ground” was valuable in the event of a claim – even in these “wired” times.

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The Big Picture

As property investors feverishly track the latest hot spots, interest rates and price data, a new report is taking a longer-term view of the “market” – over the last century.

The Commonwealth Bank Centenary Report, prepared by demographer Bernard Salt, traces the history of home ownership in Australia. “Prior to WWII, a middle class did not exist in Australia. It was only with the arrival of the Baby Boomer generation that things began to change and the purchase of property was a key indicator of a boom in wealth,” Bernard says.

Immediately after WWII, only 8% Australians had a mortgage – 45% rented and 47% owned their homes outright, reflecting a divide between the wealthy, who didn’t need a home loan, and the working class, who had no way of buying.

Rising incomes from women joining the workplace and immigration were the key drivers of change in home ownership and rising middle class in Australia in the latter half of the 20th Century, according to the

report.

The growth of the middle class is reflected in the mortgage figures; by 2006, 35% of people lived in a home with a mortgage, 35% owned their homes outright and 30% rented.

The report also points to the trend for smaller block sizes as the quarter acre plots popular in the 1950s now on average more likely to be half that, no longer routinely boasting an incinerator and veggie patch, although house sizes have grown.

Lush Embraces Change

Lush Edirisinghe moved from Sydney to Melbourne to get married seven years ago – and decided to make a career change while she was at it.

Formerly an IT business analyst, she decided to switch to the insurance industry, which she had previously been exposed to via IT projects.

Lush had three job interviews lined up on the same day – and the first was with EBM Insurance Brokers General Manager, RentCover,

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“I deal with claims, policy cover queries and liaise and guide agents to achieve a smooth claim outcome. My key objective is to maintain a good working relationship with all agents whilst working through the many, varied aspects of claims,” she says.

Lush offers the following tip: “To get the fastest possible settlement, ensure the claim is lodged with all the documents listed on the claim form – even if you think they might not be relevant.”

Lush and her husband have a West Highland Terrier she named Jonty after her favourite cricketer, Jonty Rhodes who she admired for his energy, passion and drive – even though she has no connection with South Africa.

“I’m very ‘on-the-go’ all the times, passionate and driven in every aspect of my life, so I tend to gravitate towards people like that,” she explains.

Outside work, Lush is getting towards the end of a long renovation on her Art Deco home in Rosanna in Melbourne’s north eastern suburbs – and also enjoys gardening, photography and spending time with friends and her husband’s family.

“Most of all, I love shopping – handbags and shoes are my weakness,” she laughs.

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