Where did The Block Glasshouse go wrong?

By Todd Schulberg for Property Observer on 13 October 2014

To all of Australia, The Block Glasshouse auction results were a massive shock.

It was the first time in a very long time there was a harsh realisation that vendors don’t necessarily make hundreds of thousands of dollars above their reserve, and people do buy within their limits.

Take it back a few months, and people were high fiving and celebrating the success; last night we saw reality.

A lot of people expressed sympathy for the contestants that didn’t make a lot of money from their sale.

It served as a somber reminder of the gauntlet you run when you play the property market.

There are thousands of everyday Australians who have missed out on gains from their own projects, with an even harsher rationality hitting them with no cameras, media interviews, endorsements after the hammer has hit.

But why did The Block go wrong? Here are the main reasons:


The contestants were trying to sell such a premium product, making investors very cautious. When people buy property, they want to see the potential upside and where they themselves can make money. The problem with having the apartments so impeccably finished, is it made it harder for buyers to add value. Because of that, they realised they were most likely buying them at the peak of their value.

The reserves were set with what the production needed to get back to make it viable, and it seems they may have put too much money in to making a high end product.


There are a lot of factors that go into a property’s price. But at a fundamental level, the rules of supply and demand hold firm.

Prahran has seen a huge amount of redevelopment in the past 24-36 months. Trilogy apartments, which is approximately 200 metres further up High Street, has 323 apartments on offer, with an apartment complex across the road also offering brand new apartments. With so much on offer, it’s hard to compete with buyers shopping for value.


It’s easy on a design show to create a beautiful showpiece, but this doesn’t necessarily transfer to practicality, or ensure you get your money back.

People want value for money above anything, and some of the apartments were so lavish that they lacked genuine real living opportunities. It’s all good and well to live in a luxury masterpiece, but you have to ask if it provides a home for someone and if it is what they are after.


A simple reason to understand why consumers didn’t bid the properties up, is their belief they could get something better for those prices. If you have a look at other homes for sale, prospective buyers could have bought:

204/4 Cromwell Road, South Yarra

An open spacious apartment in South Yarra available for less money.

Or 3 Mary Street, Prahran for $1,030,000. Mary Street offers three bedrooms, two stories and an open verandah on its on title of land.

The free standing house pictured above is quoted at $1,030,000.

Either way, the lessons learned are that reality TV shows aren’t necessarily the way to success and people won’t just buy anything.

With strong demand, people do want to see value for money and something that can offer capital gains over the long term. Properties that are unique, have land, and potential upside for redevelopment will trump established apartments most of the time.

Todd Schulberg handles all things marketing for Homely.com.au.

Significant Investor Visa

The New South Wales Government welcomes applicants for the 188 and 888 Significant Investor Visa program. Applications are welcome from 24 November 2012.

The Significant Investor visa is a new stream of the Business Innovation and Investment (Provisional subclass 188) and the Business Innovation and Investment (Permanent subclass 888) visa.

Visa applicants must:

  • Be nominated by a state or territory government
  • make an investment of at least $5 million into complying investments.

Applicants for this visa subclass do not need to meet the Department of Immigration and Citizenship (DIAC) points test. The visa does not have any upper age limits or English language requirements.

Complying investments

Complying investments for the Significant Investor visa include:

  • Commonwealth, state or territory government bonds
  • Australian Securities and Investment Commission (ASIC) regulated managed funds with a mandate for investing in Australia; and
  • Direct investment into Australian proprietary companies. The enterprise must be operated for the purpose of making profit through the provision of goods, services or goods and services, with the exception being the provision of rental property, to the public. The company must not be operated primarily or substantially for the purpose of speculative or passive investment.

To be eligible for NSW nomination, applicants must invest at least 30% or $1.5 million of the $5 Million into NSW Waratah Bonds.

Information about NSW Waratah Bonds for Significant Investors is available here.

Processing times

Applicants can expect their applications for NSW Government nomination to be processed in 5 working days. The nomination is then processed by the Commonwealth Government.

Business Innovation and Investment (Provisional) Significant Investor Visa 188

To qualify for NSW nomination under the Business Innovation and Investment (Provisional) Significant Investor Visa 188, applicants must:

  • Demonstrate that they have at least A$ 5 million in assets that are unencumbered and lawfully acquired and readily available for transfer to Australia
  • Sign a declaration that they will invest at least A$5 million in complying investments including a minimum of A$ 1.5 million in NSW Waratah Bonds. To gain nomination, the NSW Government requires evidence that the applicant will invest in NSW Waratah Bonds; and
  • Commit to spending at least a total of 160 days in Australia for the duration of the Provisional Visa. The applicant will need to nominate that they intend to live in NSW.

Residency requirements

To fulfil the residence requirements of the Provisional Business Innovation & Investment Visa (188) and subsequently to be eligible to apply for a permanent Significant Investor visa, applicants must reside a minimum of 160 days in Australia over 4 years. This requirement can be met in any year.

As applicants will need to be nominated by the NSW Government to apply for a Significant Investor Visa, there is an expectation of NSW Trade & Investment and the NSW Government that the applicant has a genuine intention to reside here.

If an applicant chooses to extend their provisional visa, additional time spent in Australia is required. Applicants can only extend their provisional visa twice, by two years each time. Therefore, if an applicant nominated by the NSW Government chooses to extend their provisional visa once, they will be required to reside in NSW for 240 days over 6 years; if they choose to extend their visa twice, they will need to reside 320 days in NSW over 8 years.

Business Innovation and Investment (Permanent) Significant Investor Visa 888

To qualify for NSW nomination under the Business Innovation and Investment (Permanent) Significant Investor Visa 888, applicants must:

  • Demonstrate that they have invested at least A$5 million in Australia including at least A$1.5 million in NSW Waratah Bonds in the last four years.
  • have spent at least 160 days in Australia (not limited to NSW) while holding a subclass 188 (Provisional) visa in the last four years immediately before your application for NSW nomination
  • Demonstrate that neither they or their spouse have had any involvement in business or investment activities that are of a nature that is not generally acceptable in Australia.

How To apply

Applying for NSW Government nomination is simple. To apply for NSW nomination you must:

  • Complete the State Nomination Application Form for Significant Investor (Provisional) Visa subclass 188 which details the applicant’s:
    • Name, date of birth and country of origin
    • contact details
    • passport and visa details (where applicable)
    • proposed investment/s detail
  • attach supporting documents; including:
    • Passport
    • Birth Certificate
    • Marriage Certificate
    • Commitment to invest in NSW
    • Evidence of funds
  • pay the application fee ($820 for offshore applicants)

 Top 10 Most Expensive Homes in the World

10.  Rybolovlev Estate – $95 Million


This house is the most expensive single family home in the country and, since it was owned by Donald Trump, it’s obviously the most expensive home ever fought over in a divorce case.  The 33,000 square foot oceanfront mansion has become a key part of the proceedings since Trump’s ex-wife Elena Rybolovlev demanded jurisdiction due to infidelity.

This home has 18 bedrooms, 22 bathrooms, and retails for $95 million, making it the most expensive single-family house in the nation…weird, we’re pretty sure we found nine more for this list.  Unless we’re suddenly on TopOnez.Net

Originally on sale for $125 million, it ended up being haggled down to a mere 95.  We guess the economy is hurting everyone these days.

9.  Silicon Valley Mansion — $100 Million


As the most expensive single-family home in the US, this house… wait, didn’t we just say that the Rybolovlev Estate was the most expensive single-family home ever?  Well, okay, this one went for 100 million so I guess it wins.

With 5 bedrooms and 9 bathrooms, and an indoor and outdoor pool (in case it rains, we guess), it’s all-in-all a pretty fancy house.

8.  Fleur De Lys — 125 Million


Despite being marketed as the world’s most expensive house, the Fleur De Lys somehow only falls on number 8 on our list.  Wow, that’s weird, huh?  It’s almost like people on the Internet are wrong.

Fleur De Lys has 41,000 square feet and 15 bedrooms, but apparently no bathrooms, which we think is a huge oversight either by the architect or the person writing the articles we’re using as sources.

7.  The Manor — $150 Million


Here we are, finally, the most expensive residential real estate listing in the US, according to Wiki-freakin’-pedia.  $150 million.  Feels pretty good to put that part to rest, doesn’t it?  Thanks, Aaron Spelling, for having the (7th) most expensive house in the world.

This house features 56,000 square feet, 123 rooms, a bowling alley, an ice rink and allegedly an entire wing devoted to Spelling’s wife’s wardrobe.

6.  The Pinnacle — $155 Million


Owned by Tim Blixseth, in Montana, this house is unique for two reasons: it has a private chair lift directly from the house to a nearby ski-resort (which Blixseth owns), and is the only house on this list so far named that doesn’t claim to be the most expensive in the world.

Also, we’re gonna call it right now: best back yard.  Because it’s a ski resort.

5.  Franchuk Villa — $161 Million


This five-story, freestanding 10-bedroom Victorian Villa also features an underground indoor swimming pool, panic room, and private movie theatre.  It’s also the world’s most expensive home (yeah, sure it is), at $161 million.

How fancy is this place?  Allegedly, during some remodeling, the noise made the Mayor of Moscow angry.  The house is located in London.  That’s right: the house is so fancy it doesn’t make sense.

4.  The Hearst Mansion — $165 Million


Top Three Facts about the Fourth Most Expensive House in the World: it was used in The Godfather, JFK spent his honeymoon there, and (holy crap, get this): it’s the most expensive home in the US!

It features three swimming pools, 29 bedrooms (you have to supply your own horse heads har har har), movie theatre and, for some reason, a disco.

3.  Fairfield Pond — $198 Million


Currently valued that way due to its property taxes, this 66,000 square-foot main house has a basketball court, bowling alley, and a $150,000 hot tub. The most valuable home in the US (again, according to Wikipedia).

2.  Villa Leopolda — $736 Million


Wow, that’s a big jump in price.  Built by King Leopold II of Belgium in 1902 and located on the French Riviera, this home was purchased by Russian billionaire Prokhorov, who is so rich he lost billions to the latest economic collapse and still had enough fun money to buy himself a three-quarter-billion-dollar summer home.  It has 27 stories, 19 bedrooms, and a rumored 50 full-time gardeners.

1.  Antilla – $1,000,000,000


This is it. The one you’ve been waiting for. The grand finale. The one billion dollar home. We give you…Antilla.

Located in Mumbai, Antilla challenges pretty much everything you’d expect about “what is possible in a home” and “what is possible for architecture.”  The 27-story house features six floors of parking, a health level with a jacuzzi, gym, and “ice room,” a ballroom level (for dancing?) several floors of bedrooms and bathrooms and even a four-story garden — because, yeah, we guess that’s possible.

The architecture is based on an Indian tradition called Vastu Shastra, which is supposed to be conducive to the movement of positive energy.  In keeping with this, each floor has not only a unique design, but an entirely unique set of materials and aesthetic design — meaning each room is meant to look like it’s from a different house.

Basically, this house has everything — things you can imagine, things you can’t imagine, and things you never thought to imagine but are now imagining because they sound like the greatest thing you’ve ever heard of.

Written By JF Sargent for toptenz.net


With the end of financial year fast approaching, we thought we would provide some general tax strategies for property investors to consider:

1. Documentation: Keep summaries of all your rental income and expenses.

This is much easier if you have your management agent looking after your property where they pay all expenses and collect all income. They will normally provide a monthly and annual statement.

Ensure you have all bank statements showing interest expense. The annual statement should show a summary of interest expense.

A specialist property accountant can assist by ensuring all allowable tax deductions are made.

2. Depreciation: Only registered quantity surveyors are generally authorised to prepare depreciation schedules.

If you are contemplating a renovation a quantity surveyor can produce a scrapping schedule, which puts a value against all items to be thrown away. This value is expensed in the year of expenditure. The new items are then depreciated with a new depreciation schedule.

3. Travel: All your costs to inspect your investment property are tax deductible, including travel. Ensure you apportion any personal component.

4. Interest expenses: Only interest expenses on borrowed funds used to invest are deductible. It is the purpose of the loan that determines deductibility, not the security used to obtain the loan.

A split loan should be considered when a loan is used for both investment and private purposes.

If capitalising interest the Tax Office may require evidence of correct documentation and intention.

Interest deductibility should be easy but if not properly documented and managed this expense can cause frustration if the ATO decides to review and so the assistance of a specialty property accountant should be used.

5. Trusts: The use of a trust can be a major benefit to property investors by improving asset protection, estate planning and increasing flexibility. If using a trust ensure it has been correctly set up and operated to ensure you do not lose your interest deductibility, which is fully allowable by the ATO if you meet the requirements.

6. Pre-pay expenses: If you have a geared investment it is worth considering pre-paying next year’s interest to gain an immediate tax deduction, especially if you’re paying the flood levy this year. You can also get a deduction now by pre-paying next year’s income protection insurance premiums. Also, consider bringing forward expenditure that would otherwise be spent after June 30. If you are planning on doing repairs on your property, note: Care should be taken in determining whether a maintenance or repair is deductible or if it is considered a renovation or of a capital nature. Consider pre-paying other expenses such as rates, levies or possibly even interest (in the right circumstances).

7. Manage capital gains: Capital gains generated during the year can be minimised by offsetting it against capital losses or trading losses incurred during the same year. To reduce capital gain generated on sale of property or other assets during the year consider selling any assets which have lost value and their future is bleak. The 50% discount on capital gains is available where an asset is held for longer than 12 months. As this is a considerable saving consider the timing of any sale. The relevant date for calculating capital gains is the contract date, not the settlement date.

8. Manage capital losses: Capital losses incurred in any year are available to be carried forward to future years if there are insufficient gains to absorb it in the same year. It can be carried forward for an indefinite period. Capital losses cannot be offset against other income such as business trading income if you’ve made a capital gain this year, review your portfolio to see whether it is worth realising a capital loss to offset the gain. You can’t carry losses back. So if you’ve made a capital gain, you may want to trigger a loss to offset it against.

9. PAYG variation: Where you have negatively geared rental investments, the negative part offsets against your other income, e.g. salary, reducing your tax payable and resulting in a large refund when your tax return is lodged. This refund can be used to reduce your loan, pay your interest expense or help finance another investment property. To help with cashflow, would it not be great if you were able to access this refund throughout the year instead of waiting till the end of the year? This can help finance that extra property, which has potential to pick up some capital growth between the beginning and end of year. This can be done by lodging an application to vary the income tax withholding using a form from ATO. This can be done electronically on line or you can download the form, prepare and lodge it manually. PAYG instalment obligations should be reviewed and consideration given to varying the instalment for the June 2012 quarter, where the estimate of income tax payable for the year is less than the instalments raised by the ATO. This will reduce the impact of this instalment on your cashflow.

Written By Ken Raiss of Chan & Naylor Accountants, for Property Observer, on Friday, 15 June 2012

At an early stage in your house-buying plans you will need to make numerous decisions.   In order to help you, I have broken down some tips for what to look for when buying property that home buyers and investors need to take into consideration.

Subject to your budget, choose a suburb and property that suits your lifestyle or investment needs.

Residential home buyers

Choosing the type of house you want requires you to determine what you actually need and what your long-term goals are. You will need to think about the following:

Is this your dream home or a stepping stone?
Realistically, how long will you be living in the house?
Are you planning to have children?
Is the distance to work more important than having a garden or a big house?
Do you have the time, skill, patience and money to renovate or build a new house?
There will always be a trade-off between your needs and wants. Think carefully about what you really need and be honest about your own lifestyle and capabilities. All members of the household should be in agreement on basic needs.

If you work long hours or spend lots of time socialising at cafes or restaurants, a smaller home or apartment close to work may be more suitable than a large house that requires gardening and maintenance. If you are planning to start a family, maybe a quieter suburb close to parks might be more appropriate.

It’s a good idea to make a list of the features that you need and want in your home. You may wish to classify these features into “essentials” and “extras”, or to prioritise the features in terms of how essential they are to you and your family. You will never come across a house with every feature you want, and at some stage you may have to sacrifice one feature to get another.

If you are planning to be in this house long term, say for more than six or seven years, you will need to think about your future needs, especially if you have or plan to have children. Not only will the children like to have their own bedrooms, you may want to have an area into which you can escape, which makes open-plan houses unsuitable for the growing family. If the house has inadequate room, make sure that its floor plan is suitable for modification or an extension.


What sort of property do you want to invest in?
What is your financial position?
Do you want to be involved with an owners corporation?
Do you enjoy organising tradespeople?
Do you want to be able to drive past your property?
Location is essential. Good consistent capital growth is achieved in most areas where there is a stable and diverse economy. For that reason, inner-city areas are preferable to country or regional towns with a small population, and where the economy may be based on a single factor.

Once you have decided on a location, the area should be examined in terms of both the attractions and detractions of the immediate environment. In general, tenants dislike properties that have the following:

Railway at the back fence
Next door to public toilets
Facing a busy road
Small bedrooms with no built-in wardrobes
No off-street parking
Small living area
Small outdated bathrooms
Lack of heating and/or air-conditioning
No balcony or courtyard
Properties should be handy to:

Public transport
Parks or water
Areas of employment
Within sought-after “lifestyle” locations
In established residential streets

Written by Melissa Opie of Keyhole Property Investments for Property Observer on 30 May 2012.

granny flatsIf you are looking to become a property investor things are looking good for you right now. And, if you happen to be the grandmother of an investor in NSW, you could count your lucky stars.

Interest rates are steady after dropping over the past few months, rental returns are climbing and it’s a great buyers market.  But wait, there’s more… there is a way you can increase your return dramatically.

With the Affordable Rental Housing – State Environmental Planning Policy (SEPP) or granny flat initiative introduced by the NSW government in 2009, you can add a granny flat to your investment property and rent it separately, resulting in an increased yield and good depreciation benefits. You can also add a granny flat to your own home if you have a large enough block size.

This strategy allows investors to dip their toe in property developing starting with a smaller project like the granny flat to build their property portfolio.

The Sydney market can be expensive, which is what sent one me further afield to find a more affordable investment area.

After purchasing a few investment properties in Sydney, I found that they were all negatively geared. I needed to find properties that would assist with cashflow not drain me.  My research took me to the Hunter region of NSW, and it’s there that I found the perfect fundamentals for an investment market. The local economies are booming thanks to the coal mining industries but also very diverse with wine growing, tourism, manufacturing, agriculture, horse breeding and retail all supporting strong employment.  Coupled with massive government spending on infrastructure projects and strong demand for rental properties, I thought I’d struck gold.

Property Bloom now offers a granny flat service along with our other development strategies. We find properties suitable for a granny flat development, usually three-bedroom houses on large blocks, but not just any houses. They need to meet a long list of our criteria.  We manage all the fine details, including renovating the house and building the flat, creating a positively geared investment.

Investors will benefit from casflow from the rent on two dwellings and also receive good depreciation benefits on the new flat.  This means people can keep moving forward with their investment strategy.  Unlike buying a single apartment in a capital city for instance, which is likely to be negatively geared, adding a granny flat to a property that already has an existing dwelling can result in a cash-flow positive situation.

In the past granny flats were only permitted in certain residential zones, but this SEPP has opened up a whole new real estate door. The aim of the granny flat is to boost the supply of affordable rentals by providing housing for the elderly so families can support each other, as well as the younger generation who are living at home and are not in a position to move out just yet.

Government projections show us that single-person households are likely to be the fastest-growing sector over the next 20 years, so demand is definitely there.

Small secondary dwellings are an attractive option for singles and couples who don’t need a lot of room and are the most likely people to be under rental stress. Young people are also staying at home longer, and granny flats can provide extra space for them and be a lifesaver for baby boomers who were hoping to empty their nests sometime soon.

In the Hunter, we are finding properties for around $240,000 and with the addition of a two-bedroom granny flat, which we can build for around $95,000; it’s a really affordable investment for a total cost of around $350,000. These projects are creating a 9% to 10% gross rental yield, and like the northern beaches, the rental markets are extremely tight in the Hunter. This type of development suits someone starting out in developing or an investor looking to create a positively geared investment.

To take advantage of the NSW government’s Affordable Rental Housing – State Environmental Planning Policy (SEPP) the regulations include:

  • Granny flat must be no more than 60 square metres in size
  • Land must be more than 450 square metres
  • Can only be one house and one granny flat on the land
  • The land cannot be subdivided
  • You will need to comply with the LEP of your council (contact council re building
  • It must meet the requirements of the Building Code of Australia

For more information on the Affordable Housing SEPP visit the government’s website.

Source : Jo Chivers, Property Observer. 16 February 2012


What Buyers Want

Source : Your Investment Property. 14 February 2012

The results of a national poll of real estate agents have revealed some interesting insights into what they believe buyers are looking for in a home.

The poll, which was conducted by Turf Australia, garnered the views of 114 real estate agents nationally between November 2011 and January 2012.

Top of the list of ‘elements of a property most valuable to buyers’ was an extra bathroom, with 42% of agents saying that buyers were looking for a property with more than one bathroom.

Being on a quiet street came in a close second (41%), followed by a decent sized backyard (34%), being close to a bus route or shops (20%) and off-street parking (13%).

Interestingly for investors who own property with a patch of grass, Turf Australia claim that the survey results show that home buyers are prepared to pay up to $75,668 more for home with a lawn.

According to the survey’s results, lawns add the most value in Victoria (19%), followed by NSW (16%), Queensland and South Australia (12%), and WA (9%).

“Australians have changed their ideals for a backyard but a townhouse or larger suburban home with an area of grass is still important in 2012,” said LJ Hooker CEO Janusz Hooker.

“For sellers, the key is to put some time into making the lawn look well-cared for and perfect for the new owners – that’s how they’ll capitalise on the added value a lawn can offer.”

Source : Your Investment Property. 14 February 2012

Buying Property with super

Self-managed super fund property rules

Buying property with Super and your SMSF is only permissible if you comply with the rules.

The property:

  • Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
  • Must not be acquired from a related party of a member
  • Must not be lived in by a fund member or any fund members’ related parties
  • Must not be rented by a fund member or any fund members’ related parties.

However, your SMSF could potentially purchase your business premises, allowing you to pay rent directly to your SMSF at the market rate.

What it will cost you

SMSF property sales may have many fees and charges. These fees can add up and will reduce your super balance.

You should find out all the costs before signing up including:

  • Upfront fees
  • Legal fees
  • Advice fees
  • Stamp duty
  • Ongoing property management fees
  • Bank fees
  • SMSF borrowing

    Borrowing or gearing your super into property must be done under very strict borrowing conditions called a ‘limited recourse borrowing arrangement’.

    A limited recourse borrowing arrangement can only be used to purchase a single asset, for example a residential or commercial property. Before committing to a geared property investment you should assess whether the investment is consistent with the investment strategy and risk profile of the fund.

    Geared SMSF property risks include:

    • Higher costs – SMSF property loans tend to be more costly than other property loans which must be factored into your investment decision.
    • Cash flow – Loan repayments must be made from your SMSF which means your fund must always have sufficient liquidity or cash flow to meet the loan repayments.
    • Hard to cancel – If your SMSF property loan documentation and contract is not set up correctly unwinding the arrangement may not be allowed and you may be required to sell the property, potentially causing substantial losses to the SMSF.
    • Possible tax losses – Any tax losses from the property cannot be offset against your taxable income outside the fund.
    • No alterations to the property – Until the SMSF property loan is paid off alterations to a property cannot be made if they change the character of the property.


See ASIC’s Money Smart or the ATO website for more information on Self Managed Super Funds and property purchase.



This week I was really excited to find a fabulous property that we could add value to.  “Add value? In what way,” I hear you say.  Perhaps you are thinking through renovation – new kitchen, new bathroom, paint throughout, perhaps a deck out the back or even maybe add another bedroom?  Yes, this kind of work would usually add value to a property.  But actually, I was thinking along other lines and two words had sprung to mind: granny flat.

By adding a granny flat to this property, we could literally double the rental return.

This four-bedroom house, in a Hunter Region of NSW town, was renting at $260 per week.  But as soon as I saw it, I knew it could achieve much more. It is a large block, more than 1,000 square metres, with dual access.  By building a 60-square-metre, two-bedroom granny flat on the property it could be rented for around $270 per week on its own, just for the flat.  But it does get better – the house is way under-rented.  You see, I’m finding right now that as rental markets have continued to tighten over the past few years, there are some owners and managing agents who haven’t bothered to increase rents. This house was being rented by a long-term tenant and quite frankly, she is on a very good wicket!  The market rent in this town for a four-bedroom house isactually up to $350 per week.  So the house is under-rented by a whopping $90 per week.

So if we spruce up the house a little, and this one only needs a paint and new carpet, we can increase the rent to $350 per week.  The purchase price is $250,000 and we may spend $8,000 of a cosmetic reno, so already that’s gives us a 7% gross yield. Not a bad return when the average yield for houses in Sydney, for instance is 4.18%.

The granny flat will cost us $92,000 to build, this includes the design and complying development application fees. It also includes separate service connections for the flat so that we can rent it to a different tenant to the house if we need to. Remember, the flat will rent for $260 per week.  If we add the cost of the flat to the purchase price of the house plus the small renovation costs, and include purchasing costs of stamp duty, legal fees, reports etc then we end up with a gross yield of around 9%.

Did I already mention that the average rental yield on houses in Sydney is around 4.18%?

OK, here is the twist. If you have a self-managed super fund or are thinking of setting one up, you may be able to do all this from within your fund.

On September 14, 2011 the ATO released draft Ruling SMSFR 2011/D1 clarifying its views on key issues surrounding borrowing arrangements (Limited Recourse) as they apply to self-managed super funds, allowing fund monies to be used to renovate property.

Importantly the ATO has given clarity to concerns of fund trustee’s in regards to repairs, renovations and improvements to properties held in SMSF’s under Limited Recourse borrowing arrangements. It is clear these can now be done within such arrangements. Borrowed monies cannot be used in all cases for such work; however other monies within the SMSF can be utilized.

This information comes from Nic Ellis, director of The 2020 Group, who tells me he’s had more enquiry than ever on this topic.  People want to utilize their Super to not just invest in property but to renovate and add value.  With such a volatile global situation and stock market, Australians want more security around their retirement funds.  Nick says he’s happy to see the draft Ruling as it falls in line with his company’s interpretation. The SMSF Limited Recourse borrowing for purchase of property has seen significant growth in recent years and this draft ruling will help turbo charge this sector of the market.

However, the area remains complex and care needs to be taken to ensure expert advice, appropriate structures and experienced administration of this process.

Source : Jo Chivers, Property Observer, 22 September 2011