DomaCom Newsletter – April 2015

New! DomaCom Property SMSF

With a minimum annual administration fee of the greater of $495 or 1% (capped at $1035), DomaCom Property SMSF is a low cost, start-up Self Managed Super Fund (SMSF) service that nurtures young investors with a ‘seed’ investment in property within a SMSF.

DomaCom Property SMSF is a collaboration with leading service providers to nurture small balance accounts from as low as $20,000 in a SMSF until they are sufficiently viable to be managed by the financial adviser.

The idea is that as the Gen Y’s SMSF grows and the trustee diversifies into other asset classes, the superannuation fund becomes a more mainstream SMSF that will require the adviser’s asset allocation and diversification expertise. It is, in effect, a ‘nursery’ for fledgling SMSF trustees.

The initial investments are limited to DomaCom fractional property interests. For more information, please contact our Sales Team at sales@domacom.com.au.

Why Student Accommodation has been a popular choice


Several DomaCom private bookbuilds have been completed on student accommodation in Melbourne, yielding a higher than average income for investors in the 6%- 8% range.

Whilst the greatest concern by many for this type of property is the limited scope for capital growth and the difficulty encountered when trying to sell these apartments, student accommodation may be the right type of investment if you are heading into retirement, want to minimize your borrowings and simply want a good income.

Generally, student accommodation prices tend to be on lower side of the property spectrum ranging from the low $100,000 to $250,000 making them more affordable. However, due to their relatively small size, bank finance is often not available on this type of property.

As always, investment strategies need to take into account your current stage of life as well goals for the future.

If you are interested to explore student accommodation as an investment consideration for your clients, please contact our Sales Team at sales@domacom.com.au.

Crowd Funding


There are three online property crowd funding sites in Australia, and no doubt more will emerge. Crowd funders operate by raising money from sophisticated (wholesale) investors to fund developments.

As these sites are marketed online directly to end investors, they may reach your clients. This could pose a potential risk to your business services if you are unable to provide a suitable property investment solution, not to mention if your clients overcommit or invest in inappropriate property.

Crowd funding typically lacks regulatory oversight and so comes without the consumer protection afforded to the regulated products with which you normally deal. As it is an unregulated offering it may present issues with liquidity in the event your clients want or need to exit their investment.

As a direct-to-consumer model, there is often no interposed advice process to ensure full understanding by the investor.

At DomaCom, we have gone to great lengths to ensure robust corporate governance and compliance are adhered to within a regulated product environment. Furthermore, with an authority to make a market, DomaCom is able to create a secondary market for investors wishing to exit.

DomaCom recently signed a Heads of Agreement with one such crowd funder, Estate Baron, to provide the fulfilment engine to their distribution which will enable them to reach the retail market. To do so, Estate Baron must engage with DomaCom Accredited Advisers so this will provide additional business for the adviser and expose the adviser to new potential planning clients.

Having a crowd funder partner with a regulated product offering is a world first, as far as we are aware, and we look forward to the success of this venture.

Is a Professional Development (PD) Day presentation of interest?


The DomaCom Fractional Property Investing model is an ideal solution for your clients who want or need limited exposure to the direct property market, be it residential or commercial, high yielding or growth.

DomaCom can tailor a PD day session on the model to present the business opportunities that await accredited advisers. The accreditation process, with 4.25 CPD points, is available at no cost to you and can be conducted in just a couple of hours. The presentation includes:

  • What are the business drivers for Fractional Property Investing (FPI)
  • How FPIs solve the property asset allocation problem
  • How the fractional model works
  • Where property fits into multi-generation financial planning
  • What FPI means for an advice practice – the revenue model
  • What FPI means for advice clients
  • Advisers and equity release/reinvestment advice
  • How DomaCom can assist

Please contact our Sales Team at sales@domacom.com.au and we would be happy to arrange a presentation for your AFSL PD Day or for a small number of advisers.

How do you report on property investments?


Each property investment in the DomaCom Fund resides in a segregated sub- fund with its own individual APIR code. This means the DomaCom property reports include details of:

  • Unit holdings
  • Income
  • Valuation

and all this information can flow straight to your portfolio administration system in the same way as any other managed fund.

If you would like to view DomaCom Fund’s sample report pack, please email: clientservices@domacom.com.au.

The three common Property Investment Myths


By Ben Kingsley, CEO & Founder of Empower Wealth

Deciding to invest in property can be intimidating especially when everyone else seems to have plenty of cash to throw around. Even then, it isn’t usually the cash that keep people from getting started. People are hesitating because of the various ideas frequently thrown around about property investment which are mostly just myths.

Here is a look at three common myths and why they shouldn’t keep you from growing your property portfolio.

1. You need a lot of money to get started

Just because your property-investor friend has a lot of cash now, it doesn’t mean he or she started out that way. Purchasing a house on a full block certainly would cost a lot, but you can start with much smaller investments, such as townhouses, units and apartments. When you start earning income from these investments, you’ll have more money to finance others. On top of that, if you pick the right asset at the right location at the right time, the property would appreciate in a few years’ time which translates to more equity to fund your next purchase.

You don’t need a large savings account initially, either. If you are just getting started, you can benefit from the equity in your home. If you have significant equity and have made timely payments, you may be eligible for a loan to make a new house or apartment purchase. Owning another asset may provide a tax advantage, thus extra cash, as well.

2. Buying purely for a Negative Gear (tax benefits)

Negative gearing is owning a rental property that generates less income than it costs to possess it. As a result, the negative income can be treated as a tax loss which can offset other income, which has had tax paid. The hope with negative gearing is that over time the asset will grow in value, and as it grows, so will the rental income. But this is not always the case. Nobody should ever invest with the idea that running an asset at a loss is a smart investment. Instead, the property asset should be bought with the view that the long term growth and income will justify the short term lost (and if applicable, losses).

Instead of just focusing on the tax benefits, buying an investment property should be more about the long term performance and how it fits in with your cash flow position. Some household works well with negative gearing as an ancillary benefit because of the high liquidity of their cash flow but some others might require a positive gearing investment.

3. All property values go up

Perhaps one of the most commonly heard myths is that property values will always increase. This cannot be more wrong in the Australian Property Market. Land and housing are not immune to downturns, at least not in the short term. When investing, you need to take into account many factors when deciding if it is going to pay off for you. Are you in it for the long haul or are you just trying to flip it?

When you consider a purchase, take a look at its initial acquisition cost as well as ongoing maintenance costs such as management fees, regular maintenance and potential upgrading cost. Then contrast that with possible rental income now, as well as possible future increases. Look at your surroundings to find indication of rental demand increasing; is there a school nearby? Will there be a potential development in the area? What kind of lifestyle drivers are there that would push up the value of the property? Taking into account these differing costs and factors, the price may outweigh the possible return on the investment, or it may highlight a great potential for growth.

Keep in mind that worrying too much about numbers can also rob you of possible opportunities. While others fret over inflation or unemployment rates, you’ll have less competition and can take advantage of lower buying prices. By thinking creatively, you can ignore any stock market downturn and instead see your long-term real estate values increase.

It can be difficult to decide whether direct property investment is right for your clients, and they too might have a lot of questions. Before you or your clients explore the idea, bear in mind that many of the reasons against it are really just myths. Investing can bring good returns in the form of rental income and capital appreciation. If your clients are nervous about directly investing in property, the right professional call is to contact a qualified property investment adviser. He or she are specialist property investment professionals, they will know what pitfalls to avoid, and what can work best with the financial plan you have put in place. In this way you have a professional referral to help your clients achieve their goals, you’re protecting them from selling agents and property marketers and inappropriate investment properties and you can bring property into your service offer.

First published in www.empowerwealth.com.au

About Ben Kingsley – CEO & Founder of Empower Wealth

Ben Kingsley is the Founding Director of Empower Wealth and Chair of Property Investment Professionals of Australia (PIPA). A qualified Property Investment Advisor (QPIA), Ben holds a Real Estate Agency License (QLD), a Diploma of Finance and Mortgage Broking Management, a Diploma of Business and has become one of Australia’s leading experts in property investing for wealth creation. Ben has over 20 years of experience as a property investor. Last year Ben was awarded the Best Property Investment Advisor in 2014 by Your Investment Property Magazine.

In the media

 

DISCLAIMER: DomaCom Australia Ltd ACN 153 951 770 is the holder of an Australian Financial Services Licence (AFSL) 444365 and is authorised to provide general financial product advice, to deal in certain financial products and to make a market in units in sub funds of the DomaCom Fund ARSN 167 020 626. Whilst DomaCom has taken all reasonable care to produce the information in this material, it does not make any representations in respect of, or warrant the accuracy, timeliness or completeness of any of the information. The information provided in this material is general information only. It does not constitute financial, tax or legal advice or a forecast. This information has been prepared without taking into account your personal objectives, financial situation or personal needs. Before acting on the information or deciding whether to acquire or hold a financial product, you should consider its appropriateness. It is recommended before making any investment decision, that you seek independent financial advice and read the relevant Product Disclosure Statement (PDS) and any Supplementary Product Disclosure Statement (SPDS) available on the DomaCom Ltd website, www.domacom.com.au , or by phoning 1300 365 930.