What 2012 will bring for investors?
There’s good and bad news for investors in 2012, depending on where you want to invest.
If you’re cashed up and ready to buy, then the news is good, because you have the unique ability to get involved in the mining and resources boom. Let me be clear: this is not a “once in a lifetime” opportunity, it is a ONCE EVER opportunity, as the emerging markets of China and India and the industrialisation of these countries will only happen once.
China is experiencing a building boom of epic proportions, which is creating an insatiable demand for coal, a key ingredient in steel. Make hay while the sun shines, as the saying goes, as the mining and resources boom means many areas around Australia are presenting that rare, sought-after mix of strong capital growth and high positive cash flow returns. More on that below…
On the downside, those investors who already have assets in capital cities (myself included) need to be aware that metro areas are going into neutral mode. Capital cities will no longer continue to provide us with the levels of capital growth that we have been enjoying over the last few years.
It is therefore our jobs as investors to explore other opportunities, which is why – particularly in this current two-speed economy, underpinned by the mining and resources boom – my attention is firmly fixed on regional mining towns. If you want capital growth and positive cashflow, you have to be prepared to look outside of the big cities. Those who do will be richly rewarded.
Until next time, happy investing!
Helen Collier-Kogtevs
Hot Picks for 2012:
a Moranbah, Queensland – With over a dozen operating mines and the new $4.2 billion Caval Ridge mine project sending thousands of workers to the region, Moranbah is in the midst of a huge property boom. At the time of sending this market wrap, properties in Moranbah were priced at around $750,000 and were realising a weekly rental income of $2,200. It doesn’t take a genius to calculate that even after council rates, property management fees and the odd repair and maintenance bill are factored in, these figures will deliver serious positive cash flow returns… In fact, the average Australian wage can be replaced in just one deal.
|
Property purchase price |
$750,000 |
|
Deposit (10% – cash or equity) |
$75,000 |
|
Mortgage |
$675,000 |
|
Annual mortgage interest (6.5%) |
$43,875 |
|
Annual rental income @ $2,200 |
$114,400 |
|
Total gross positive cashflow |
$70,525 |
a Dysart, Queensland – A rural town of 3,500 people, Dysart is 250km south west of Mackay and around 60km south of Moranbah. The small town picks up the overflow of residents who can’t find housing in Moranbah and provides accommodation to workers at the nearby Saraji, Norwich
Park and Lake Vermont coal mines. Property values and rents have surged in the last 18 months, lifting from an average of around $400,000 to $600,000, with rents upwards of $1,500 per week.
|
Property purchase price |
$600,000 |
|
Deposit (10% – cash or equity) |
$60,000 |
|
Mortgage |
$540,000 |
|
Annual mortgage interest (6.5%) |
$35,100 |
|
Annual rental income @ $1,500 |
$78,000 |
|
Total gross positive cashflow |
$42,900 |
a Port Headland and South Headland, WA – These neighboring towns boast more than $17.7 billion of committed upcoming iron ore projects and more than $30 billion worth of gas investments. Furthermore, Rio Tinto is spending $20 billion on new mines in the area, so it’s no wonder that Port and South Hedland are considered a major port infrastructure region for iron ore and offshore gas platforms. All of this mining growth is putting pressure on the local housing market; with the current population of 14,000 expected to swell, REIWA stats show that Port Hedland’s median house price has jumped from $600,000 in 2007 to more than $1 million in 2011. While this higher property price tag may scare some investors off, keep in mind that homes are renting for around $3,000 per week!
|
Property purchase price |
$1,000,000 |
|
Deposit (10% – cash or equity) |
$100,000 |
|
Mortgage |
$900,000 |
|
Annual mortgage interest (6.5%) |
$58,500 |
|
Annual rental income @ $3,000 |
$156,000 |
|
Total gross positive cashflow |
$97,500 |
a Gladstone, Queensland – A major industrial township that is home to around 29,000 people, Gladstone is expected to undergo a major population surge over the next five years, as the region is set to benefit from $77 billion of estimated resource projects (currently under construction or in advanced feasibility assessment stages). These include major aluminium refinery expansions, aluminium smelter upgrades, power station upgrades, new major coal terminal at Wiggins Island and at least four CSG projects committed at Curtis Island. The number of employees required for construction is predicted to grow the local population by 31% within five years and more than double the population in the next two decades.
|
Property purchase price |
$400,000 |
|
Deposit (10% – cash or equity) |
$40,000 |
|
Mortgage |
$360,000 |
|
Annual mortgage interest (6.5%) |
$23,400 |
|
Annual rental income @ $480 |
$24,960 |
|
Total gross positive cashflow |
$1,560 |
Spots to watch:
These regions are speculative, meaning the risks and rewards involved aren’t quite as assured as in the boomtowns mentioned above – but the Queensland towns of Alpha and Chinchilla are certainly worth keeping an eye on.
a Alpha, Queensland – There’s a good reason why this central Queensland township, located around 450km west of Rockhampton, landed on Terry Ryder’s famous “Hotspotting” report for 2011. With a strong, diversified economy that relies on cattle, agriculture and mining, Alpha – together with nearby Emerald and Barcaldine – is part of the Galilee Basin, which is being touted as the new Hunter Valley or Bowen Basin. With a population of just 350 people, the tiny town experienced a mini property boom in 2010-11 when values jumped 20%, up to $220,000. There’s a chance this trend might continue with the area’s emerging profile as a future mining boomtown.
a Chinchilla, Queensland – The small town of Chinchilla, 300km west of Brisbane, is part of the Surat Basin. It is transforming from an area that was struggling after a decade of drought, into a modern energy hub, where new housing is being sold before it is even built. Initially driven by an influx of workers for the $900 million Kogan Creek Power Station, the median house price of just $86,000 in 2003 had doubled to $167,500 by June 2005. Today, good quality houses sell for an average of $350,000 to $400,000, while brand new executive residences can fetch up to $600,000. Investors can expect solid yields of 6-8%.
Sources: Data throughout this market report sourced from realestate.com.au, RP Data and Queensland Residential Tenancies Authority.
Have you done a Bank Plan?
Any mortgage broker can help you get a loan. A really good broker will guide you towards a lender that genuinely suits your needs. But at Real Wealth Money, we will transform the process of applying for finance into a stress-free, hassle-free, financially empowering experience.
How? We use two strategies to deliver the best results for our clients:
1. Our exclusive, personally tailored Bank Plan
Every lender has a varying risk appetite and uses different restrictions and criteria when assessing loans. This means that as you go on your journey of buying multiple properties, different banks will be suitable at different times.
So at Real Wealth Money, we won’t just arrange finance for you. We will take the time to discuss your investing goals and analyse your unique situation upfront, so we can create a customised a financial framework known as a “Bank Plan” that suits you now and in the future.
For example, some banks will assess a property’s rental income at 80% of the real figure, while others will allow the whole amount to be used. I recently saw a situation where a particular lender’s policy capped the allowable rental income at 4% of a property’s purchase price, regardless of the actual rental returns. As you can see, these different policies can have a huge impact on your borrowing power and the outcome of your application.
We work with different lenders every day and we know their various policies and criteria. We use this information to create a tailored Bank Plan, based on your current and future financial situation and goals. Best of all, this service is completely free of charge for our valued clients. For serious buyers who are interested in taking the next step towards building their financial framework, we are also offering a free RP Data report, valued at $59.95.
2. Easy online application system
There’s no getting around that fact that there is a lot of work involved in applying for finance, from sourcing payslips and tracking down tax statements to scanning and sending countless documents.
That’s why it’s our policy to make the application process as smooth as possible by using an online application system. In your own time, you can login to our exclusive website and enter the information required to apply for finance and once it’s stored on our system, we can access, analyse and update it at the click of a button.
The added benefit for you is that, in 12 months time when you’re ready to buy your next property, our system can crunch your data automatically so there’s no need to fill our new application forms or cobble together mountains of paperwork. Rather, we just need to update certain aspects of your file to proceed with the loan application. It’s that easy.
For more details please call Ben on 1300 888 796 or email him at ben@realwealthmoney.com.au
CH towns in Investment top-50 list
MORANBAH and Dysart have been named the best Queensland suburbs for investment, according to latest data from Smart Property Investment.
The inaugural report named the top 50 Australian suburbs and identified there remained strong investment opportunities in certain key growth markets, particularly those in the Bowen and Surat basins.
Emerald rounded out the Queensland list behind Chinchilla, Roma, Gladstone and Rockhampton.
According to report contributor Helen Collier-Kogtevs, rental yields in Moranbah were between 10% and 20%, proving the town offered great price growth prospects and compelling rental yields.
"High capital growth, high positive cash flow, medium to high entry cost, low risk, strategic importance to the national economy... low vacancy rates... and a shortage of and high demand for housing all make this suburb a fast grower," Ms Collier-Kogtevs said.
"Dysart is supported by four major mines in the region and has experienced gross rental yields of between 10% and 15%.
"Affordable with median house pricing at around $400,000 and good rental yields of more than 5%, Emerald is a good low-risk investment given the low buy-in prices."
Resource towns in Queensland made up a significant portion of the top-ranking investment suburbs with 11 making the top-50 list.
"With mining and resources continuing to underpin the national economy, resource centres also represent enormous opportunity for investors," SPI editor Phillip Tarrant said.
What is the impact of carbon tax on property investors?
You can find out more about the Carbon Tax, including the effect it will have on your household budget, here – but what about the impact it will have on you as a property investor?
Firstly, let’s set out the facts. The tax, which will come into effect from July 1 next year, is aimed at helping Australia reduce its carbon emissions to 80% below 2000 levels by 2050.
The carbon tax will start at $23 per tonne of carbon pollution and increase to about $25 by 2015, when the tax changes to an emissions trading scheme.
Analysts have found that a carbon tax at $50 a tonne would "barely" affect the majors, like BHP Billiton, Rio Tinto and Wesfarmers, with net profit after tax (NPAT) expected to fall by 1%.
Independent assessments estimate that it will affect only 1-2% of mining companies’ profits. Those companies with greater Australian operations such as MacArthur Coal, Coal and Allied, Whitehaven Coal and New Hope Corporation will be heavier hit than companies who have diversified exposure, such as BHP, Rio Tinto and Wesfarmers.
Clearly, mining magnates are in the business of making a lot of money, and they’re not going to absorb that profit loss without passing it on to consumers. But in terms of profit margins, they really do have a lot of room to move.
At present, it costs between $79 and $100 per tonne to pull coal from the ground and ship it. It is currently being sold at $330 per tonne for coking coal and $130 per tonne for thermal coal, so there is plenty of buffer in their profits.
These prices are considered to be at their peak and are expected to fall in the medium term, to $275 per tonne and $110 per tonne respectively.
For the mining industry, and property investors who buy real estate in mining towns, we believe the carbon tax may have some impacts – but to what extent we’re just not sure. New mine announcements will have had the carbon tax factored into their feasibility studies.
I believe that the carbon tax may subdue but not stop future growth in mining (although to what level is unknown), because of the loss of competiveness compared to overseas mining operations that do not have a carbon tax.
‘Gassy’ marginal coal mines will be taxed higher due to fugitive emissions, and therefore maybe at risk of closure because of their potential inability to compete with overseas mines that do not have a carbon tax imposed.
It may, but is unlikely to put the brakes on burgeoning LNG industry centred around Northern NSW, Queensland and north-west WA, but to what extent, is still unknown.
And all mines – not just coal and gas – face a 16% increase in diesel prices.
Marginal (smaller) coalmines are more likely to be adversely affected over time, as new investments are less likely if they cannot compete with overseas mines. The larger mining operations with multi-layered industries and robust economies are more likely to fare better.
So with all of this in mind, would I still invest in mining towns? My answer is yes – but only in the low risk towns, and only once I’ve done all of my due diligence to ensure that the investment stacks up to my buying criteria and my investment strategy. And, as always, I would need an exit plan. I also have one caveat to add – the carbon tax will increase after 2015, so it’s important to keep the long term in mind.
There’s one final impact that the carbon tax may have on property investors, and that’s the influence it will have on actual property prices.
The Real Estate Institute of Australia estimates that the cost of new housing construction will increase by $5,000, and also that renovations will increase, with the average kitchen and bathroom renovation to increase by around 2%.
That means a $15,000 renovation project may blow out to $15,300; it’s not ideal, but in context, it’s not going to make or break the profitability of your project either. If you shop around for materials and negotiate well with your contractors, you’ll be able to offset any increases with a bit of clever bargaining.
Warm regards
Helen Collier-Kogtevs
How to Boost your Borrowing Power by $10,000’s – In One Simple Move
Many investors end up hitting the 'financial brick wall' because they have the wrong kind of debt.
If that's you, I've discovered a way you can potentially add $10,000's to your borrowing power in one simple move.
Watch this short video below
Tackling The Interest Rates Monster
A while ago I prepared a short video (3 minutes) which reveals the number 1 strategy I have used to tackle the interest rates monster - and how you can do the same. You will also discover exactly when I suggest you should 'fix' your interest rates.
This video could save you a lot of financial heart ache so make sure you check it out.
How to Find Positive Cashflow Properties
In this short video I give some great tips on how to buy positive cashflow properties.
Discover:
- Where the resource boom is hiding perfect opportunities for positive cashflow
- Why giving students what they love can double what they pay in rent
- How to think 'outside the square' to find hidden cash in your property
My Embarrassing Property Investing Mistake
Watch this quick 2 minute video of a very common property investing mistake.
Focus on the numbers in your investing without becoming emotionally involved in the property.
The Day I Quit Work Financially Free!
It was one of the three most special days of my life - along with getting married, and having a baby of course!
I told my boss I was retiring from work for GOOD - at the tender age of 38.
You can find out the whole story about how it happened, and what my colleague's reactions were, on this short video.
I also reveal the three most important factors that allowed me to retire at such a young age, so you can follow in my footsteps!
Investing in the USA
I am getting a ton of questions from folks about investing in positive cashflow U.S. Property, so I've made a quick video with my uncensored views on it.
I will probably get some 'flak' for this from the property spruikers, but your financial welfare is all that's important to me.
10 Properties in 10 Years Made Simple
You can catch me going crazy on the whiteboard here...
I'll uncover for you:
- Why just spending 20 hours per year can yield a multi-million portfolio after only 10 years
- The clever secret to use in Year 9 that shoots your profits through the roof
- How even only a 5% yield on your properties can still leave you retiring on an income of over 3 times the average 'dream pension' most people have
- Why it's so important to learn how to create your own strategy for massive R.O.I
