McCarthy Group | Property Investment, Loans & Tax Planning Services
McCarthy Group provides tailored property solution to meet your financial goals. We offer investment advice, mortgage reduction and tax planning services. McCarthy Group can help you easily own an investment property even if it seems out of reach. Our mission is to release you from the burden of interest and tax to provide you with better control of your finances.
This report is authored by respected Queensland economist Colin Dwyer to give our investors an independent assessment on the short-to-medium term outlook of key regional markets. Colin is widely regarded as a leading economist and social commentator by business, the media and the broader community. We hope it will give you a good understanding of the factors currently in play and give you confidence in your investment decisions.
Welcome to our investor update on Townsville, the first in our 2017 series of research reports specially commissioned for our investor clients. By way of introduction, here’s a true story about the famous American financier and businessman, J.P. Morgan. When he was asked “What is the market going to do?“, J.P. Morgan allegedly replied, “I’ve been studying this market very carefully and for a long time, and I’ve reached a conclusion; the market is going to fluctuate.“ This is probably the only sure thing we can say in the short term as to what our Australian property markets are going to do. History has shown that markets will fluctuate, and consequently they reward the patient investor.
Townsville’s diverse economy combined with the potential of recent project announcements and consequential job creation provides emerging confidence that North Australia’s largest city is in the early stages of recovery. The Townsville property market can be assessed using population, production, potential growth and comparative price information.
Townsville is a long term quality regional property market. It is the 13th largest city in Australia and has a diversified economic profile. It has various quality industries of national significance including the largest regional hospital in Queensland, largest Army barracks in Australia, a nationally significant port facility and an internationally recognised tertiary sector. These facilities have quality surrounding suburbs with lower vacancy rates, lower unemployment and easily accessible lifestyle facilities for workers.
If we look at the recent past, Townsville economy produced $13.5b but with spare capacity. Townsville has employment specialisations in a variety of industries, including Health, Higher education, Transport, Scientific research and Defence. Lavarack Barracks has a strong positive influence on Townsville’s economy with over 5,000 personnel earning above average incomes.
Are you in the minority by owning a property? Domain seems to think so, and sadly, the data would suggest that they are correct! Is this right? Why are so few Australians owning their own properties? Is this really a question of affordability, or does it come down to a lack of knowledge?
The HILDA (Household, Income and Labour Dynamics in Australia) report, released just a couple of months ago outlined the changing dynamics of home ownership from the 2001 to 2014 period, with some disturbing results. From that 2001 period, home ownership rates per household have reduced by around 5 percentage points, from 68.8% to 64.9%.
While this might not seem like such a drop, when you look at the historic graphs of home ownership over time, you notice that the rate has been sitting consistently around 70% since the late 60’s. So why the sudden shrink?
Professor Roger Wilkins from the University of Melbourne suggests that affordability is the key to the issue. A lack of supply means that property prices are driven up, and perhaps being driven by FOMO, many are buying without taking into account the long term consequences of doing so. Owner occupied dwellings don’t make cash flow, so paying off a loan becomes a real long term burden when considering the cost of living and any unexpected bumps like income changes, or starting families.
The University of Melbourne
On top of all this, Business Insider gives a couple more reasons why affordability is the culprit to our housing problems. High deposit requirements and lifting property prices mean that hungry investors keep waiting on the perfect home, struggling to find the extra little bit of money needed to put a deposit down. Adding to this, younger aged investors are still paying off a higher education loan by the time they start looking for a property, putting them behind the pack before they’ve even started!
But with all this doom and gloom there is always a silver lining.
But the facts and figures mentioned above are really only relevant to those investing in real estate the ‘traditional’ way. With affordability as it is, buying the home you live in might not actually be the best way to spend your money. We’ve talked at length about Rentvesting as being one strategy around this issue.
The government benefits those who invest in real estate, but don’t offer those same benefits to owner occupied homes. It may be a worthwhile strategy to switch the traditional view for something that may actually work better for you. For instance, you could invest in a home you don’t live in, rent it out and also benefit from the tax incentives that come with investing. From there you can use the leftover cash to rent yourself, benefiting from both tax savings and home ownership.
This process is ultimately much cheaper than purchasing a home that you live in, and could be a perfect work around for the poor affordability of a local market. For those who are looking to buy their first home, you might want to reconsider your long term strategy, as it might not be the one which will have you on top in the end.
If you’d like to learn more about Rentvesting and how it can work for you, just get in touch below!
Should every individual have the right to own their own property? This very question was brought to the spotlight during discussion on negative gearing, with the suggestion that the process only benefited wealthy individuals. Could this be a sign that property is reserved only for a few?
During late April Malcolm Turnbull had this to say about negative gearing and its effect on property ownership in Australia.
Negative gearing & capital gains: Turnbull says high earners make highest gains - YouTube
Turnbull correctly suggests that negative gearing helps investors own property, with Leigh Sales also asserting that negative gearing is only really used by the highest 10 per cent of income earners. But what does that tell us? That negative gearing is a detriment to society? Or that a majority of earners are not making the most use out of the legal processes in place to get into investment property?
It is our belief that property can be made affordable for everybody. This month, for example, we discussed the concept of Rentvesting and how it can drastically increase the affordability of property. Even somebody on an average income, with a small deposit can be a property owner.
Cairns remains one of Australia’s best investment locations. Picture: Wikimedia
So if almost everybody can afford a property, and the systems in place help support investors, is there actually a problem? There may well be.
The Australian released a report showing how affordable or unaffordable a geographic region is (a comparison between median house values and annual incomes). If you zoom into the Sydney region, unaffordable housing fills the majority of the area. But once again there is a problem with this thinking.
While you might find it difficult to own a property in the traditional sense of saving for a deposit then taking a home loan to live in a property, it may be affordable when you take on a different approach, such as through Rentvesting.
With alternative strategies and your own specific financial circumstances in mind, property can become perfectly attainable if you find the right balance of leverage, location, timing, and expertise. Ultimately it is a fantastic means of achieving your financial goals.
If you’d like more information or a review on your current financial situation, make sure to click below to get in touch.
The Census has found itself off to a rocky start. As tax payers, we paid a fortune to have it go off without a hitch but with a number of difficulties in its execution it turned into a nationwide joke. However, the Census is a much needed part of governance and it makes perfect sense to keep it around. Here’s our thoughts.
If you were to look at the controversy of the Census, it all comes down to two main things; privacy and ineptitude. These two factors have dominated the media’s enquiry into the Census’ failure, and it is what we have come to judge the process on. And for good reason too, it is the right of the Australian people to scrutinise the process’ failings, however it is all too easy to forget just how important this data is. And it is important.
A 1940 Census worker counts a family.
Imagine that you are in charge of 100 people. How would you best serve these individuals? What do they want? What do they need? These are the things that a government has to think about, and the only way to make sure you know that information is make everybody in the nation fill out that very well-known (and now notorious) form.
Normally we are all too happy to give away some vague information about ourselves, but when we are asked to give our names with the knowledge that our data will be linked to us on a much more personal level, things start to get a little uncomfortable. Even more so when you think about the simplicity with which the Census was brought down on its opening night.
However, if we step back from the controversy and look at what the Census informs, we might be able to get a better idea of just how important this information is to give. In 2011 from the last Census, at least 2 major government institutions used Census data to make informed decisions on how to best serve small disadvantaged communities. Businesses also use Census data to inform their own decisions on audience sizes and characteristics, so that they aren’t spending money on anything unnecessarily. You can be sure that the Census has also been the catalyst for many public policies, and it ultimately acts as a way to connect the Australian people with those who determine our futures.
Australia’s demographic pyramid, a form of statistical analysis that reveals our aging population.
We know that we have looked at a lot of data from previous Censuses and have found a number of disturbing results which we try to help fix. For example, the retirement age has been pushed back further and further as income struggles to keep up with the cost of living. More recently home ownership has sunk to all new lows, and we have more people coming into the country than housing to support them! It might all seem doom and gloom, but it is important information for the government and we as enterprises to understand. By understanding what the country as a whole needs, we can best create solutions to the issues that we find.
From an individual’s stand point we can also look into the benefits of the Census for you. When key statistics are found they are published throughout media agencies, and we as the public get to see the major trends that the Census has picked up. All the issues we mentioned above influence how we as individuals look at our own lives. I know that once I found out about the retirement age being pushed back further, I increased the amount I was saving by almost double! Is it fair though for the Census to be collecting personal data such as your name? There might be a number of logical reasons to collect such data, but ultimately it comes down to your own opinion on what the government should have access to.
If you’re concerned about the rising costs of living and the retirement age being continuously pushed back, you’re not alone. McCarthy Group has aided thousands of people like yourself take control of their futures.
Are you a goal setter? It almost seems cliché, but without specific goals that you can reach, you won’t get anywhere financially. With the Olympics still going, we can’t help but draw parallels between the drive of our Olympians and those who really succeed financially.
If there is one thing which ties all our Olympians together, it is the idea that to succeed you first need the desire to win. By having the desire to come first, to get that gold, they know who they have to beat, the times they have to get, and the records they have to break. It is only by having those goals that they can actually reach and beat them, and from a look at the record breaking medal count, it seems pretty fair to say that we are doing a fine job of hitting our targets.
We can apply that lesson to everything in life. If you want something badly, you don’t just do little bits and pieces, knowing that eventually you’ll probably hit your target. You make the sacrifices you need to make to get to where you want to go, and when it comes time to reap the rewards, you do so knowing that you gave it your all to get to where you want.
Some of our country’s best athletes, so proud of our Olympians!
If you set yourself the goal for running a marathon without stopping, and you really wanted to achieve that goal, what would you give up? How much effort would you go to, to make sure you could hit that goal?
Now apply that same logic to saving for your own home.
How much effort do you actually put into building up your savings? How much work do you put into improving your finances?
Shockingly, the answer nationwide is not a lot. Even though the median disposable income per week is $998, we only save around half that figure, $427. While that might not be so bad, it only exists because we were scared into it by the GFC. Our savings got hit hard, and only those who were diligent survived relatively unscathed. But here today, people are saving and yet home ownership is at an all-time low.
Data from ABS
Understandably it’s difficult to get into the market. Affordability is low, and many individuals report getting close to having a deposit, only to have prices jump and their saving efforts extended out even longer. When it comes down to it though, people who are diligent with their savings will always be in a better financial situation than those who aren’t, and it all comes down to having a set goal.
When I was 18 I decided that I wanted to start saving for a house. I was adamant that I had to hit this figure, it was all that I wanted to achieve with my money, everything else was secondary. I stopped going out for lunch on work days, I didn’t buy any new clothing and I reduced my nights out. I made sacrifices, so that I could get into property.
What did I get for my hard work?
I hit my goal with a year to spare, using the money I saved during that last year to treat myself to a holiday, with still some cash left over to pay off a nice chunk from my new mortgage. At the end of the day, if you want to afford something, then you work to get to that goal just as hard as our Olympians have worked for theirs. Saving might seem hard on the surface, but it all comes down to having some structure and maintaining it.
If you need some help setting yourself up with a goal for the future, be sure to get in touch.
This month we’re looking at change, and what better way to examine it than to look at how the property industry of Australia has evolved over the years. Almost everyone is thinking about affordability at the moment, so let’s look into what forms an affordable property by looking at data from the past and understanding what drives up property prices.
Have a look at this graph of the median Sydney house price from 1970 to 2003.
Data has been gathered from Land Titles Office, Real Estate Institute of Australia and ABS
The trend seems fairly clear; property has come from low price origins to being one of the most expensive purchases an individual makes. So how is it that we’ve come to this point? Obviously natural inflation is one of the key drivers, but if it was just that the graph would not have such large price fluctuations. Rather than a steady climb, we have large jumps around 1986 onwards. So what else is going on here?
One of the larger drivers of property price is population. The more your population grows, the more property is needed. If supply doesn’t catch up then prices will increase, if supply is too high then prices will drop. The simple truth to successful property investing is that you must pick an area in which population growth is sustainable. If you can, investing as early as possible allows you to benefit from low prices before letting the property sit and grow over time.
Let’s extend this logic to the Australian market, with an obvious trend of population over time.
Source: ABS Data
Population has gone up and up, so there has to be more property to support it. While this might not look dramatic, that is an increase of 9.4 million people over less than 40 years, or 235,000 people each year. So how does this graph relate to house prices?
New housing stock is not constant, so while population may be increasing consistently each year, housing prices will not be constant, as demand increases but supply inconsistently increases.
This alone is not enough to cause the fluctuations in price which we have seen in Sydney, however in a micro sense it does logically give reason as to why a property may well be worth $500,000 one year and $600,000 the next.
There can be a lot of complexity in understanding the role of the economy on housing, however this page by the Parliament of Australia effectively sums up the main points. To briefly summarise; a strong economy allows for higher incomes, which pushes up the disposable income of all individuals. To match this, property prices become higher than what the market can bear. Demographic changes can lead to changes in house prices, especially when considering immigration. Average house sizes and number of working individuals as part of a couple can also impact the typical price of a property, all in line with affordability.
LOWER INTEREST RATES
From when interest rates peaked in the late 80’s to the current day, the amount that an individual can borrow has increased significantly. This has allowed individuals to purchase properties they otherwise would not, or simply speaking, a higher valued property can be purchased using the same deposit amount. On a 30-year mortgage of $100,000 at an interest rate of 14% as can be seen around the late 80’s, repayments would be around $1185 a month. Fast forward to the current day, and the same monthly repayment can service a loan amount almost $80,000 greater!
TYING IT TOGETHER
All this data is great, but what does it all mean? How does it all relate to one another?
Put simply, the property industry is not a static entity. There are hundreds of factors that all influence the demand and supply for housing, with the above mentioned only being a few of the main characteristics. Nobody can predict the future, but we can isolate a few of the characteristics we think are most important for determining success of a property, and then apply them to the nation as whole. From there we can understand what area is likely to perform the best, and thus where we should invest.
Did we miss something? If you have an opinion on what drives property prices, be sure to leave a comment below!
This August is all about change. We believe that change is a fundamental part of life, and to embrace change is to move with the times. To get ahead. However, for the most part, when change comes most reject it! Preferring instead to keep the status quo the same and not have to learn anything new. Why would anyone take this view?
Last month we held a seminar on Rentvesting, a process in which weekly affordability can be reduced through the process of renting out an investment property and then renting a property yourself, benefiting from the tax breaks that investors receive but owner occupiers do not. The purpose of this seminar was to change attitudes towards investing, and we think we did fairly well. However, we don’t want to stop at just one investing strategy, we want every individual to understand the truth of what investing is all about, and this month we want to share that with you.
To that end we are holding a new seminar, a 5 Step Plan to making the most of your financial future, a Money Makeover!
For those wanting to get stuck in straight away, you can click this image to be taken straight to the sign up page!
After doing a bit of reading over the weekend, we found this article in the Australian Financial Review. To briefly summarise; it has for a long time been an overlooked and often hush, hush part of both business and property investment, that women will not perform as well as their male counterparts. The main reasons are not for lack of trying, but rather misrepresentation. Within property especially, the idea that the industry is a ‘boys club’ has permeated through to wider society, disillusioning women to the idea of investing. Added to this, there is the continuing gender income gap which remains an issue across all industries.
Obviously this is ridiculous, gender equality should have been the norm in all elements of society decades ago. But nevertheless, the problem remains, and we want to do something about it. To that end we are going to be running the Money Makeover seminar on the 23rd of this month. Aimed at women looking to get the most out of their finances, this discussion is going to completely change your perspective on what your own money can do for you in the financial world!
On top of this we are going to be sharing a lot of great content from all over the world on our social media channels, so if you aren’t already, be sure to follow us on Facebook, Twitter and LinkedIn. Each channel is going to be receiving different material, so if you want to make the most from your financial education be sure to follow us on each one!
Investing in property is an excellent decision for building a strong financial future. But what investment is best, residential or commercial? There are definite pros and cons for both, however the main point to differentiate is the risk that you can take up.
Looking to invest? See our list of 7 mistakes to avoid here!
How risky do you think it is to start your own business?
Most people say, ‘pretty risky’, and for good reason. A large percentage of start-ups fail, and they do so for a number of different reasons, but at the end of the day the result is the same.
Now if I were to ask you how much return you could make by starting up your own business, most people would say, ‘a lot’, and they would also be correct.
This is the most fundamental part of being an entrepreneur, and indeed an investor of any market. Can I take on the risk of starting my own business knowing that if I fail I may lose everything, but if I succeed I may stand to gain a lot of money? We can extend this idea to investment in commercial property. The risk is higher, but the potential rental return is also high.
Why is the risk high?
Commercial properties tend to have long periods of vacancy. Business is largely dependent on the economy, so when a downturn is in effect commercial properties can be vacant for what may seem like a lifetime. During these periods the owner of the property must handle all of the outgoing costs, which can be detrimental for those who might not have the funds to keep the property going. Adding to this, commercial property does not historically make a lot of capital growth, so for return on investment, income from rent is where it will all likely be coming from.
For older investors with a large number of existing assets however, commercial property might not seem like a bad idea. Cash flow can be more desirable to capital growth for those who are looking at retiring, and periods of vacancy can be supplemented by cash flow from other investments, all the while waiting for a tenant who can offset any losses made during that period.
If you are an older investor looking at commercial property, we suggest a thorough analysis of your asset base before making the jump!
Why is return high?
Commercial properties have a number of benefits which make them desirable for investors. Rent is significantly higher than that of residential, and lease periods are also far longer. This means that once a tenant is secured, return is guaranteed for as long as the lease runs. On top of this, the ongoing costs of the property are typically paid for by the tenant. All of this is also supported by a higher depreciation rate, so rent can be discounted when paying tax. So not only are there fewer outgoing costs, but the income from a commercial property is also much higher than that of residential.
While commercial property might be lacking consistent tenancy during poor economic conditions, it can certainly make up for the fact with higher rental return and better cash flow prospects to residential property. If you are an investor with a number of existing assets, commercial property might not be such a bad idea, however consider the risks involved before you take the plunge into the commercial market.
If you are a business owner and renting your premises, why not consider buying the property itself using your super fund? If you want to learn more, give us a call!
This Wednesday we held a conference on an investment strategy known as Rentvesting. We had an excellent reaction to the content, so we thought that we’d pass on some of the knowledge to our investors! You’ll find below a guide and brief overview of what Rentvesting is all about.
At McCarthy we want to make a real difference to Australians’ financial futures. Whether it be securing lower interest rates, getting more deductions on tax work, or investing in a property, our goal is always centred around the individual. How can we improve your financial situation?
To that end we recently came across an investment strategy which has the potential to make investment in property much more affordable for everybody, and we pounced at the opportunity to spread the word to potential investors. That technique is called Rentvesting and involves moving away from a traditional process towards property, into something a bit more innovative.
Traditionally, somebody looking to purchase their first property wants to look at a property they can live in. Nobody wants to pay rent forever, and owning the property you live in is the first step to achieving that. But when you think about the cost of living on top of loan repayments, how are you meant to make any savings? How are you even meant to keep up with all of the loan repayments at all?
Rentvesting changes the amount of money you have coming in at any given time. With an owner occupied home your only source of incoming cash is the money you make from your job. Rentvesting instead brings in cash from a number of different sources. If you own a home that you don’t live in and rent it out as an investment property, you get income from rent and tax benefits as well as your standard income.
If you do the math for the cash flows of an investment property in comparison to an owner occupied home, you can clearly see just how much money you can be saving per week. Check out the examples below to see how Rentvesting can take your finances to the next level!
These examples of how Rentvesting works for you, show just how simple the principles are. Own a property and rent it out, use the rent money and tax benefits to rent yourself, and service the loan with which you purchased the investment. From there, keep servicing the loan until you are at a point where the property’s equity can be used to repeat the process and continue expansion of your asset base!
If you would like to hear the full story of Rentvesting, let us know that you’re interested by leaving a comment below. Whilst we haven’t set a date for the next conference, we would be happy to discuss this further with you – just drop us a line and we’ll set something up for all our clients on the topic of Rentvesting.
In June of this year, Townsville Enterprise created a comprehensive report outlining the key economic developments within Townsville. For those who already own a property in Townsville, this publication should help your confidence in the area. For those who haven’t yet invested, we believe that Townsville is a market set for growth, and by reading this publication, you might gain an understanding of why this is the case.
There are a lot of reasons you would think that Townsville is a great place to invest. Not only have property investment magazines discussed the strength of the Townsville market, but there are key economic and social developments within the area which suggest it is set for growth.
In recent times the Townsville area has seen some hard times however, with large scale employer Clive Palmer pulling his Nickel Refinery out of the area, leading to a drop in rental prices in the area. While this was a short term hit for investors, it was only ever going to be a brief blip on an otherwise stable local economy. Nickel is not the only thing going for Townsville, there are many jobs across many different industries, so property will bounce back given a short amount of time.
The below report gives an in depth analysis of the Townsville market, showing off seven key priorities that the area is developing to ensure the strength of the region. We would suggest giving it a read if you want to stay up to date on the happenings of the market.