Investment House Newsletter July 2005

Property Management - Management Models

If you’ve ever had the experience of placing a rental property with a property manager only to be disappointed, then you’ll understand the frustration that can come as part of the experience.

It seems simple. Engage a professional team to take charge of your property to make sure everything runs smoothly and keep you up-to-date.

But if it’s so simple, how is it that so many owners are so regularly disappointed with the service they get? The only time you find out about what’s going on is when you ring them… and then you have to time it right and catch them – it’s no good leaving a message as they rarely return your calls anyway. Why is it so hard to get good service? To understand that, we need to take a look at what happens behind the scenes in most offices

There are generally two models that rental management groups tend to fall into.

Portfolio Management – where you have one person looking after all aspects of your property management (letting, inspections, rent collection etc); and

Task Management – where you have a team of specialists focusing on individual components of the management (a letting specialist, an inspections specialist, a rental collections/accounts specialist, and so on).

So which is the better model? Let’s explore it.

The “task” model is generally considered to be a more economic method of managing large rent rolls (and this is why many “big name” real estate agencies use it). Sometimes you’ll have your main contact for your property but should anything need fixing, you’ll need to talk to the maintenance specialist. Your tenant has left and you need to re-advertise the property? Oh, that’s the rental specialist! And invariably the left hand doesn’t know what the right hand is doing – which is where the disappointments seem to start.

The alternate “Portfolio” model provides a better service to the owner (the customer – remember them?!) because you can talk about all aspects of your property with the one contact person. And because they look after all aspects of your property, you get it from the horses mouth.

One potential weakness of the Portfolio model surfaces when under-trained staff are responsible for looking after too many properties. At Investment House, each property manager has a maximum of 80 clients, not the usual 150+ of most agencies, which means they can give you the individual attention you deserve.

This model is clearly superior providing the team comprises well trained staff and has a manageable workload. Having put this in place (and after a couple of “learning experiences”), Investment House Property Management now offers a money back guarantee for all of our management clients…, at the end of any month, if you’re not delighted with the service – you don’t pay the management fee.

If you have Brisbane property that isn’t being looked after to your satisfaction, let us take the worry and frustration out of your property management - give the team at Investment House a call. They’ll take the time to find out about your particular property and show you how you can now have a true partner in your rental property, someone who will care for it the way you would, if you had the time. To find out more about our premier service, call Wanda or Yolanda today on (07) 3369 0111.

Investment House focuses on potential development sites in the 8-10 km radius of the CBD. This particular “splitter” site (a “splitter” is generally a double block of land with an old home that can be demolished) was for sale for about 2 months for $480,000. We knew it had been on the market for some time as Investment House is constantly researching real estate in the area. Based on this information we were able to successfully negotiate a great deal for our client – who bought the site for $435,000.

More importantly, (and even better still for our client), we were able to negotiate a 60 day settlement. Normally with a 30 day settlement a contract only becomes unconditional 21 days after the contract is signed and consequently it leaves only 9 days before settlement. With a 60 day settlement period, Investment House was able to organise all the necessary documentation, consultants and engineers allowing the client to submit the Development Approval (DA) prior to settlement. The DA period takes approximately 3 months (including the DA preparation). We submitted the DA 14 days before settlement and a massive 30 days “ahead” of schedule, saving our client time and money. With a reduced holding cost of 30 days our client was able to save over $3,000 and increase their bottom line.



	Land Tax and how it's calculated... If you already own several investment properties in Queensland, the last few months would have brought the joy of opening a letter from the Office of State Revenue regarding your land tax assessment. If you didn’t receive a letter, don’t get disheartened - you just need to keep building your property portfolio! So what is land tax and how is it assessed? Although these calculations vary from state to state, in Queensland land tax generally applies to investment properties and is only applicable to the unimproved capital value (UCV) of the land - and then only when that cumulative value reaches a certain threshold. The good news in Queensland is that your own home (principal place of residence) is exempt from land tax. There are a host of Sydney-siders that would dearly love to have the same exemption! The Queensland Government calculates land tax on freehold land owned at midnight on June 30 each year, with your assessment arriving in the post early the following year – typically in February/March if the owner is a “natural person” and in June if it’s a corporate entity. If you’re receiving a letter for the first time, make sure you’re not being taxed on your own home. It’s not unheard of for an “oops” to happen. The amount of tax you pay is also affected by the way you choose to purchase your property in the first place. If you have purchased it in your own name, (what the state likes to categorise as a “Natural Person” - meaning the owner is a living person and not a company or a trust) and you are residing in Australia, you receive a statutory deduction of $220,000 on the taxable value of the land (remember your own home is excluded). This means that for the financial year, if the unimproved value of the land in your investment portfolio does not exceed $220,000 you will not receive an assessment. However, in Queensland land tax assessments aren’t issued if the tax payable is less than $350, which buys you another $55,997 worth of land value. So if your total unimproved value is less than $275,997 you probably won’t be receiving a land tax bill this year! However, with the recent growth in values over the last few years more and more UCV’s will be sneaking over the threshold. It’s likely next year will see many more investors joining the “land tax club”. If however you have purchased your investment property through a company or a trust, or are a person who doesn’t usually reside in Australia, the thresholds are very different. Here the deduction starts at just $170,000 – so you have to pay more tax. The tax then charged is calculated on a sliding scale which varies from year to year (and also from state to state). So how much does it amount to? The following illustration assumes you purchased properties as a natural person and usually live in Australia, and your total unimproved value is $200,000 you pay $0 $500,000 you pay $2,855 $800,000 you pay $6,982 Nobody likes paying taxes – but as taxes go, it’s not too bad. From 1 July 2005, the threshold at which land tax begins to be levied increases from $275,997 to $450,000, and the rate for investors with land holdings of approximately $3 million will be reduced from 1.8% to 1.25%. The land tax threshold for companies and foreign residents will increase from $170,000 to $300,000. To find out more about Queensland’s Land Tax law, log onto www.osr.qld.gov.au, or to discuss how this may affect your development, please call the team at Investment House. Back to the Top
	Investment House Each issue we plan to give our readers an overview of what our company is up to. Clearly there are many different areas within the property industry and as Investment House provides a “one stop shop” service, it comprises a number of specialist divisions. Given that, the company maintains a very close ear to the ground in all areas of property investment. So it is well placed to keep you fully informed. If you’re interested in a specific element of the market, pick up the phone and talk to one of our researchers. Investment House specialises in developing an investment / development strategy that’s right for individual clients. We help you find the right property that will fit into your strategy, help arrange the right loan/s for your strategy to work effectively and project manage all aspects of the property development for you. And on completion of the building, Investment House selects the best tenants and manages your property, and/or helps sell your project for the right price. This issue we’ll talk about what is happening in two of the company’s divisions - research and property management.
	Research - How to build wealth in a slow market In Brisbane, the real estate market has changed significantly over the last 12 months – there is evidence to suggest we are back to where we were early last year (though new houses have generally held up well). Price growth has slowed and homeowners are not increasing their wealth as quickly as in the past. While prices in Sydney and Melbourne have stalled and even declined, Brisbane is still experiencing moderate growth in local pockets. However, the extraordinary rises we saw during the boom are unlikely to return for some time. But this doesn’t mean that you can’t or shouldn’t invest in property. Excellent buying opportunities abound and if you look at different ways of adding value to property you can capitalise on the slow market. Currently, there a two key ways of increasing your wealth through property investing. The first is to buy well. This means you need to buy real estate below market value – there are some sellers who NEED to sell. To win here you need to know the market intimately, avoid overcapitalising, choose areas with potential growth and look for opportunities to develop and thereby quickly add value. It takes a lot of time to “know” your market and one of the easiest ways of doing this is to hire a Buyers Agent. This new type of licensed real estate agent represents the buyer rather than the seller. They receive a brief from you, their client, and then find properties that match up with your requirements. They work for the buyer - not the seller. This means that you (as the buyer) are taking full advantage of the “Buyers Agent’s” local knowledge and will therefore benefit by having them find the right property at the right price. Investment House acts in a similar fashion to a Buyers Agent - we start with you, our client, and then scour the market to find the right property for you. That way you get a property that fits your requirements precisely. And you get it for the right price! More importantly, Investment House conducts this service for you for FREE on the basis you’ll engage us to undertake the development (normally a Buyers Agent would charge you about 2.5% of the purchase price). The second way to increase your wealth in a flat market is to add value to your property. With the following “value add” strategies you can fast track your wealth creation by making a healthy profit each time you acquire an investment: Raise and Renovate You purchase a “renovators delight” and add value by doubling the size of the house (though right now good deals are thin on the ground). Buy Land and Build You purchase a block of land and build a quality home (right now there are some excellent opportunities). Undertake a Small Lot Development (splitters and sliders) You purchase a large block, demolish or move the existing house and subdivide the block into two smaller blocks (also some good deals to be had). Undertake a Townhouse Development Purchase a block of land, demolish the house and then build townhouses (again, the good ones are thin on the ground – but well worth the looking). If you are interested in buying Brisbane property below market value and using these techniques to increase your net worth (or even just making an extra $50,000 this year without working any harder), call Investment House on 07-3369 0111. Back to the Top
	Property Management - Management Models If you’ve ever had the experience of placing a rental property with a property manager only to be disappointed, then you’ll understand the frustration that can come as part of the experience. It seems simple. Engage a professional team to take charge of your property to make sure everything runs smoothly and keep you up-to-date. But if it’s so simple, how is it that so many owners are so regularly disappointed with the service they get? The only time you find out about what’s going on is when you ring them… and then you have to time it right and catch them – it’s no good leaving a message as they rarely return your calls anyway. Why is it so hard to get good service? To understand that, we need to take a look at what happens behind the scenes in most offices There are generally two models that rental management groups tend to fall into. Portfolio Management – where you have one person looking after all aspects of your property management (letting, inspections, rent collection etc); and Task Management – where you have a team of specialists focusing on individual components of the management (a letting specialist, an inspections specialist, a rental collections/accounts specialist, and so on). So which is the better model? Let’s explore it. The “task” model is generally considered to be a more economic method of managing large rent rolls (and this is why many “big name” real estate agencies use it). Sometimes you’ll have your main contact for your property but should anything need fixing, you’ll need to talk to the maintenance specialist. Your tenant has left and you need to re-advertise the property? Oh, that’s the rental specialist! And invariably the left hand doesn’t know what the right hand is doing – which is where the disappointments seem to start. The alternate “Portfolio” model provides a better service to the owner (the customer – remember them?!) because you can talk about all aspects of your property with the one contact person. And because they look after all aspects of your property, you get it from the horses mouth. One potential weakness of the Portfolio model surfaces when under-trained staff are responsible for looking after too many properties. At Investment House, each property manager has a maximum of 80 clients, not the usual 150+ of most agencies, which means they can give you the individual attention you deserve. This model is clearly superior providing the team comprises well trained staff and has a manageable workload. Having put this in place (and after a couple of “learning experiences”), Investment House Property Management now offers a money back guarantee for all of our management clients…, at the end of any month, if you’re not delighted with the service – you don’t pay the management fee. If you have Brisbane property that isn’t being looked after to your satisfaction, let us take the worry and frustration out of your property management - give the team at Investment House a call. They’ll take the time to find out about your particular property and show you how you can now have a true partner in your rental property, someone who will care for it the way you would, if you had the time. To find out more about our premier service, call Wanda or Yolanda today on (07) 3369 0111. Back to the Top
	Deal of a lifetime.., they say it comes along once a month! One the best deals currently available includes a Low to Medium Residential (LMR) development. A LMR site is generally a townhouse or unit site. This property is in a perfect location, with a Development Approval (DA) and Building Approval (BA) ready to go for 5 townhouses with 2 bedrooms. The preliminary feasibility suggests the cost to undertake the project will be in the order of $1,500,000 (this includes buying the land, building the five townhouses, holding costs and other fees) with a likely value on completion of $1,725,000. That is a healthy profit of $225,000. The project shows an excellent return of 15% (which is impressive for a low risk venture with DA and BA in place). One way strategic possibility to do the development would be to sell 4 townhouses and keep one with a mortgage of only $200,000. The property value would be about $335,000 with a rental of $320 per week. That would be a positive cashflow investment only 4 km from the city. Plus it would be a brand new property, allowing for all those high depreciation items. If you would like to find out more about this current deal or other opportunities like this, please contact us on (+61 7) 3369 0111. Back to the Top
	Case Study - A great site at a great price! Investment House focuses on potential development sites in the 8-10 km radius of the CBD. This particular “splitter” site (a “splitter” is generally a double block of land with an old home that can be demolished) was for sale for about 2 months for $480,000. We knew it had been on the market for some time as Investment House is constantly researching real estate in the area. Based on this information we were able to successfully negotiate a great deal for our client – who bought the site for $435,000. More importantly, (and even better still for our client), we were able to negotiate a 60 day settlement. Normally with a 30 day settlement a contract only becomes unconditional 21 days after the contract is signed and consequently it leaves only 9 days before settlement. With a 60 day settlement period, Investment House was able to organise all the necessary documentation, consultants and engineers allowing the client to submit the Development Approval (DA) prior to settlement. The DA period takes approximately 3 months (including the DA preparation). We submitted the DA 14 days before settlement and a massive 30 days “ahead” of schedule, saving our client time and money. With a reduced holding cost of 30 days our client was able to save over $3,000 and increase their bottom line. Back to the Top
	Disclaimer
	All information in this report is general information only. Nothing in this report is meant to be specific investment advice, nor should you treat it as such. Everyone's individual circumstances will vary widely and you must seek advice from your own independent licensed investment adviser before investing into any form of investment. Investment House, its employees and representatives take no responsibility for the result of any actions taken by the readers of this report. Investment House and its related businesses makes no representation and gives no warranty as to the accuracy of the information in this document and accepts no liability for any errors, misprints or omission herein (whether negligent or otherwise).