Professional Advice Model

Education is a natural barrier to entry

 

and enhances

 

consumer protection.

 

“Knowledge is power” and so congratulations on educating yourself by completing this course. Hopefully, you feel motivated to embrace self-determination and have the confidence to explore your options, ask the right questions and make good decisions based on the things that count.

Community expectations are changing. According to the PIPA Annual Investor Sentiment Survey 2019, 83% of property investors recognise the need to be educated and 93% agree it’s important to engage professionals who have the authority and experience to provide qualified, competent and comprehensive advice.

The decision to invest, regardless of the asset class or risk profile, should be made based on qualified, expert and experienced advice.

The investor who is most likely to experience success is the one who is prepared to take advantage of the specialist advice available. They gather a reliable and trusted talent bank around them, understanding that education, guidance, research, planning and support are crucial in the investment journey.

As we have already covered, in the property investment space, in particular, everyone is an expert, or so they think. Often their opinions are not based in fact, but crowd mentality, media sensationalism and lack of experience and sometimes from fear.

Without a clear strategy and advice tailored to their specific circumstances and taking into account all the essential considerations, a potential investor is at risk of ill-advised decisions, following the crowd and entering into risky investments or putting ‘all their eggs in one basket’.

The results are likely to be a disappointment and ultimately, a smaller pot of wealth for the future.

 

The advice model assumes that the advisor works in the best interest of the client, not their own.

Through transparency and rigorous compliance with legislation and community expectations, our Advisors qualify for Professional Indemnity Insurance for the advice they provide – a real vote of confidence!

No insurer underwrites a risk they think is likely.

Ours is a professional fee for service offering following a structured process to provide the investor with honest, personalised advice.

The ASPIRE Professional Advice Model follows

a detailed, structured approach

to formulate a

Property Investment Report :

 

 

 A Property Investment Report

will include:

 

As a professional organisation, the ASPIRE Property Advisor Network adheres to a comprehensive Code of Conduct including a commitment

 

to strive for continual improvement

in knowledge and skills

to be

professionally competent and confident

 

This requires continuing education, training and personal development to maintain the standards of research, analysis and personal service necessary to provide highly professional and expert property investment advice.

It requires a high degree of competence to source and meaningfully interpret and synthesise large amounts of information and to be able to identify and evaluate” the things that count” expertly.

Below is an example of some of the sources our advisors consult to verify and refine their strategy to make evidence-based recommendations. It isn’t an exhaustive list. Nor does it include the supplementary location-specific resources that would also be reviewed such as Council websites, developer collateral, commissioned studies and the first-hand knowledge of the ‘boots on the ground’ insights of our Acquisitions Manager and team.

It indicates our commitment to providing quality information and sound recommendations on the “balance of evidence”.

 

.

 

 

PAYG Variations

The Australian Tax Office 

 

assists the investor

 

When a property is negatively geared, and tax rebates calculated, the investor has the option to either collect the credits progressively over the year or to wait until the end of the financial year and receive the refund then.

Which option you choose will depend on your circumstances, cash flow, fiscal discipline and preferences.

The Australian Tax Office provides online access to submit a variation, though relying on professional assistance is recommended.

 

If cash flow is not an issue, perhaps for a first or second property purchase, the investor can elect to hold off and wait until the end of the financial year to receive their entitlements.

In the case below, the investor decides to carry all the costs of ownership and wait until the end of the financial year to collect their rebates, in a lump sum or offset against other tax outstanding.

In this case, what would be due from the ATO is foregone and carried by the owner until the EOFY. The out of pocket or holding costs, therefore, are more substantial pay by pay.

This constitutes forced saving. Remember the opportunity cost! Covering the expenses along the way will prohibit some discretionary spending, but that may be a beneficial strategy for those who struggle with delaying gratification!

You are effectively giving the tax office an interest-free loan of your money!

The alternative is to collect the tax rebate entitlements each week (may also be fortnightly or quarterly depending on the investor’s pay period).

The pay office takes less tax out of each pay in line with an Income Tax Withholding Variation form submitted to the ATO.

As an example, if your accountant calculates that you will be entitled to a $7215 rebate at the EOFY, you can elect to have $138.75 ($7215/52 = $138.75) less in tax withheld. Your pay office adds that to your pay instead of remitting it to the ATO as they usually would.

Effectively you end up with more in your pay packet, but the ‘extra’ $138.75 must be directed into the account from which your property investment expenses are paid.

Your accountant is best equipped to submit an Income Tax Withholding Variation. The ATO imposes strict tolerances around how far out you can be when estimating what you are entitled to collect. Their limit of a discrepancy is usually no more than 10%, so it’s best to have a professionally prepared estimate lodged on your behalf; otherwise, penalties may apply.

Collecting your rebates pay by pay assists with cash flow and may become more important as your portfolio expands or perhaps as your life circumstances change, for example, an addition to the family.

The example below illustrates the situation where rebates are collected pay by pay and the investor’s contribution is subsidised week by week so that they now only have to find an extra $25pw to hold the property.

 

 

 

 

 

 

 

 

Cashflow Worksheets

What’s the bottom line?

 

A very important step in choosing an investment property is to have the cash flow figures worked for you to make sure that the property suits your financial circumstances.

 

There are several professional programmes designed for this purpose, but with any computer-generated information, the output is only as good as the input.

A qualified and professional Property Advisor will provide the assumptions their model is based on and explain why these are important.

EXAMPLE ASSUMPTIONS:

 

 

 

 

Based on these assumptions after rent and tax rebates and all associated costs, the property should return approximately + $35 per week to the investor.

This result assumes that the tax rebate of $4,420 is collected week by week after submitting a PAYG Withholding Variation. If it weren’t, then the investor would need to contribute approximately $50 per week.

Calculated by taking away the expenses ( interest cost and the rental expenses) from the income the property generates (rent) :  $21,403 – $16,195 – $7,818 = – $2,610 / 52 = $50.19 per week:

Manipulating inputs such as anticipated rent, vacancy rates, inflation rates etc. will distort the truth and impact the bottom line result, making the costs appear better than they are or implying growth in capital value and rental income that cannot be guaranteed.

Be wary of rental guarantees – these sometimes provide a subsidised rent from the developer or the vendor at higher than market rates for a limited time. These can be very worthwhile and a great way to start with rental income right from the point of settlement, BUT if the cashflow is worked based on this ‘inflated’ rent, it will not give an accurate long term view of the holding costs. Sometimes they are used, and after the guaranteed period ends, the property owner receives a shock when suddenly they are asked to contribute more to the property than was projected at the point of purchase. Always ask your advisor to work the figures at verified market rates to see if you are still comfortable with the bottom line.

However, if the vendor is offering a rental guarantee that corresponds to current verified market rates or has identical properties in another development already achieving that rent, then the guarantee is a legitimate bonus.

 

 

A powerful way of looking at the affordability of a property investment purchase is to see who will pay to cover the holding costs of the property.

In this particular case, after rent and importantly, PAYG tax credits are collected, the property costs, on average, are serviced by both the tenant and the ATO: