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Location, location, location versus yield, yield, yield
In property investment the mantra is “location, location, location”. Currently in wealth management and asset allocation the mantra is “yield, yield, yield”.
At present across Australia the highest yields are from commercial property, often purpose built and professionally managed, such as:
- Student accommodation
- Hotel Serviced apartments
- Child care centres
- Aged care centres
- Car parks
- Shopping centres
- Office blocks
The gross yield is in the 7%-11% range*. The net yield after all outgoings, yet before tax, is 5% to 8%. Student accommodation provides the lowest capital entry point of $118,000. Other commercial properties are $0.5m to $50m so they are perfect for fractional property investment.
*Estimate only and may change from time to time
Why Student Accommodation has been a popular choice
From 2012 to 2015, each year there were between 185,000 and 217,000 international students enrolled into higher degrees in Australia, mostly in the cities of Melbourne and Sydney according to Australian Government Statistics on International Student Enrolment data April 2015.
Higher education services is a major income earning channel for Australia. At March 2015, there were 217,000 higher education enrolments, with students coming from the following top ten countries:
- China (#1 at 77,000)
- India (#2 at 25,000)
- Malaysia (#3 at 13,000)
- Indonesia (#7 at 7,000) and
- Singapore (#9 at 6,000).
Several DomaCom private book-builds have been completed on student accommodation in Melbourne. The Student accommodation yields a higher than average net income for investors generally in the 6%- 8% range.
Whilst this type of property sometimes needs a cash buyer and can be limited in its capital growth, 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 AUD$100,000 to AUD$250,000 making them more affordable.
To give you an idea of the range of student accommodation available in the Melbourne region, we have prepared the following list.
|Address||University Nearby||Price (AUD)||Rent (Gross Yield % and AUD)||Managed by:|
|Sophia House Apartments, 127 Leicester Street, Carlton VIC 31||Melbourne University, RMIT||$165,000||$270 per week.(8.5% p.a.)||SHA|
|308/2 Easter Place, Hawthorn East||Swinburne University, 15-minute train ride to Melbourne CBD for Melbourne University & RMIT||$110,000+||$205 per week.(9.5% p.a.)||SHA|
|36/16-18 Poplar Street, Box Hill||Box Hill TAFE, Deakin University||$120,000||$225 per week.(9.7% p.a.)||SHA|
|336/484 Elgar Road, Box Hill||Box Hill TAFE, Deakin University||$118,000+||$210 per week.(9% p.a.)||SHA|
Please note that an example of the main outgoings for student accommodation are:
|SHA||8% of gross rental (Based on a 9% gross yield on a $118,000 property = $10,600 per year)|
|Body Corporate||Between $1500-$2000 per year|
|Rates & water||Between $600-$900 per year|
|*Please also note that the DomaCom platform fee of 0.88% (including GST) will be deducted from the sub-fund. **DomaCom distributions will incur a 15% withholding tax, whereas foreign direct ownership tax is 32.5% to 45% on net rental income and capital gains on sale.|
Student Housing Australia (SHA) specialises in the management of purpose built fully furnished student accommodation complexes with a portfolio of over 2,500 apartments. In addition to management services, SHA also conform to the planning permit conditions of the building, providing student accommodation specialist services which include Pastoral Care, Car Park monitoring, Resident Eligibility and 24 hour onsite Caretaking, which is a requirement to be an approved Managing Agent for Student Accommodation in addition to normal estate agency management requirements.
These services together with their specialised Local University and International marketing programs and contacts, ensure that your apartment will be a desirable choice for both local and international students.
If you are interested to explore student accommodation as an investment consideration for your clients, please contact Paul Zaman, Managing Director of DomaCom Singapore at +65 3158 0487 or email@example.com . DomaCom is also looking for more Singapore Advisory firms to become our strategic partners.
Arthur Naoumidis @ Wholesale Investor Conference in Singapore
Arthur Naoumidis, CEO of DomaCom, was at the recent Wholesale Investor conference in Singapore on 21st May. The Wholesale Investor conference was a by-invitation-only private conference for accredited investors and wealth advisors at the NTUC Auditorium overlooking the Marina Bay area of Singapore’s financial CBD.
Over 500 delegates attended this conference and DomaCom was one of several Australian businesses showcased. The focus was on briefing accredited investors on DomaCom -background of the company, brand, legal and technology platforms, and equity investment opportunity.
We hope to see many more of you at this Conference in the near future.
Fractional Property Investing versus Property Syndication
Property syndication is a buzz across the world. Yet DomaCom is in Fractional Property Investing – so what is the difference?
There are three online property syndication sites in Australia, many across the world, and no doubt even more will emerge. Property syndication operate by raising money from accredited investors, as an online business to consumer (B2C) model. Property syndicators are generally unregulated, to date.
As these sites are marketed online directly to end investors, they may reach your clients. This could pose a potential risk to your advisory business, if you are unable to provide a suitable property investment solution, not to mention if your clients overcommit or invest in inappropriate property and lose their wealth.
Property syndication typically lacks regulatory oversight and so comes without the consumer protection afforded to the regulated products.
Also property syndication is often a closed fund, targeting riskier property developments, with a long term lock up, which means it may present issues with liquidity in the event your clients want or need to exit their investment.
At DomaCom, we offer a fractional property investing solution, which is a regulated offering. 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 in underlying sub-fund units, DomaCom is able to create liquidity in a secondary market for investors wishing to exit and investors wishing to enter or simply top-up on a great investment.
At DomaCom, the platform enables you to make a fractional property investment in new and existing property – removing the property development risk. This is also true for foreign investors, as DomaCom is an Australian fund, the Foreign Investment Review Board (FIRB) restrictions, do not generally apply to a broadly held Australian fund.
DomaCom recently signed a Heads of Agreement with one such Australian syndicator, 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.
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.
- 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.
- 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.
- 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
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- Real estate fintech deal turns property into shares
DISCLAIMER: DomaCom Australia Ltd ABN 33 153 951 770 and holder of AFSL No 444365, a wholly owned subsidiary of DomaCom Limited, is authorised to provide general financial product advice in Australia. 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. It does not contain and is not to be taken as containing any financial product advice or securities advice or recommendation. DomaCom Singapore Private Limited is not authorised to provide advice or market the Units in the DomaCom Fund. This information is strictly for distribution to Singapore licensed financial advisors, wealth managers or private wealth bankers only.