How a Self-Managed Super Fund Works for Property Investment

Blog Post How a SMSF Works Sept 2024 (1)

How a Self-Managed Super Fund Works for Property Investment

Understanding the Basics of SMSFs

A Self-Managed Super Fund (SMSF) is a powerful tool for those looking to take control of their retirement savings. Unlike traditional superannuation funds, an SMSF allows you to manage your investments and tailor your retirement strategy to your specific needs. Understanding how a Self-Managed Super Fund works for property investment is crucial if you’re considering using your SMSF to diversify your portfolio. As a mortgage broker, Bayland Finance is here to guide you through the financial aspects of SMSFs, particularly when it comes to property investment within your fund.

What is an SMSF?

An SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO), that you manage yourself. It can have multiple members, all of whom are trustees or directors responsible for the fund. This means you’re in control of how your super is invested and managed.

Key Features of SMSFs
  • Control: You make all the investment decisions.
  • Flexibility: Invest in a wide range of assets, including property.
  • Tailored Strategy: Customise your investment approach to suit your retirement goals.
The Role of Property in SMSFs

Investing in property through an SMSF is a popular strategy among Australians looking to diversify their retirement savings. However, it’s essential to understand the rules and regulations that govern SMSF property investments.

SMSF Property Investment: The Essentials
  1. Borrowing to Buy Property

One of the significant benefits of an SMSF is the ability to borrow funds to invest in property through a Limited Recourse Borrowing Arrangement (LRBA). This means the lender’s recourse is limited to the asset purchased, protecting other assets within the SMSF. At Bayland Finance, we can help you navigate the complexities of securing an SMSF loan together with an accountant.

  1. Compliance and Regulations

Investing in property through an SMSF requires strict adherence to ATO regulations. Key compliance points include:

  • Sole Purpose Test: The investment must solely provide retirement benefits to members.
  • Related Parties: Generally, you cannot purchase property from a related party of a member.
  • In-House Asset Rule: Limits the value of in-house assets to a small percentage of the fund’s total assets.
Benefits of SMSF Property Investment
Control Over Investments

With an SMSF, you’re not at the mercy of external fund managers. You decide what to invest in, whether it’s residential or commercial property, and manage those investments to suit your retirement goals.

Tax Advantages

SMSFs offer significant tax benefits. Income from property investments within an SMSF is taxed at a concessional rate, and if the property is held until retirement, rental income and capital gains may have even greater tax advantages.

Steps to Buying Property with an SMSF
  1. Establish Your SMSF

Before you can purchase property, you need to set up your SMSF and ensure it complies with legal requirements. This includes creating a trust deed, appointing trustees, and registering with the ATO. Bayland Finance works with several great accountants who can assist you in setting up your SMSF.

  1. Develop an Investment Strategy

Your SMSF must have a documented investment strategy that outlines how it will achieve its investment objectives. This strategy should consider diversification, risk, liquidity, and the fund’s ability to meet its liabilities.

  1. Find the Right Property

Once your SMSF is set up, you can start looking for suitable properties. Ensure the property aligns with your investment strategy and complies with SMSF regulations.

  1. Secure Financing

Securing an SMSF loan is more complex than a standard home loan. At Bayland Finance, we specialise in SMSF loans and can help you find the best financing options.

  1. Manage Your Investment

After purchasing the property, you’ll need to manage it according to your SMSF’s investment strategy and comply with ongoing reporting and auditing requirements.

 
Potential Pitfalls and Considerations
Complexity and Responsibility

Managing an SMSF requires time, effort, and expertise. You’re responsible for compliance, record-keeping, and investment decisions. Failure to adhere to regulations can result in severe penalties.

Costs

Setting up and running an SMSF involves costs, including establishment fees, legal and accounting fees, and ongoing administration costs. Ensure these costs do not outweigh the benefits of having an SMSF.

Risk Management

Diversification is key to managing risk within an SMSF. Avoid over-concentration in property or any single asset class to safeguard your retirement savings.

Bayland Finance: Your Partner in SMSF Property Investment

At Bayland Finance, we understand the complexities of SMSF property investment. Our team of experienced mortgage brokers, in collaboration with skilled accountants and financial planners, is here to help you navigate the process. From setting up your SMSF and developing an investment strategy to securing financing and managing your property investment, we offer comprehensive support. We work closely with several great accountants and financial planners to assist in setting up and managing your SMSF effectively.

Final Thoughts

Investing in property through an SMSF can be a rewarding strategy for those looking to take control of their retirement savings. While the process can be complex, with the right guidance and expertise, it offers significant benefits, including control over investments, tax advantages, and the potential for substantial returns. Bayland Finance is here to support you every step of the way, ensuring your SMSF property investment journey is smooth and successful.

For more information or to discuss your SMSF property investment needs, contact Bayland Finance today. Let us help you achieve your financial goals with confidence and peace of mind.

To learn more about what you can and can’t buy in your SMSF, click here.

Buyers gain upper hand | Govt passes housing scheme | How rates affect borrowing capacity

Even though Christmas is around the corner, there’s still a lot of activity in the finance and property markets. Here are four interesting stories that caught my eye:
  • Property buyers gain upper hand
  • Parliament approves housing scheme
  • How rates affect borrowing capacity
  • 3 in 4 homebuyers using brokers
Good news for anyone planning to buy in early 2025, with the latest data suggesting conditions have turned in favour of buyers. During this year’s spring selling season, sales volumes across the country were 4% lower than the spring average in 2019-23, according to CoreLogic. At the same time, the median amount of time required to sell a home rose from 28 to 32 days between the August and November 2024 quarters. All this points to a market in which, increasingly, vendors are having to compete with other vendors to sell their home, rather than buyers having to compete with other buyers to purchase a property. That suggests there will be pressure on vendors to reduce their asking prices as we head into 2025, which will give buyers more negotiating power. If you’re thinking about entering the market in 2025, I’d recommend that you consider:
  • Looking for ways to increase your savings rate
  • Avoiding making any unnecessary large purchases
  • Trying to improve your credit score – by paying all your bills on time
  • Maintaining your current role – it’s hard to get a loan when you’re still in the early stages of a new job
  • Contacting me for a home loan pre-approval
If you’re a lower-income or middle-income earner, you will soon have a new way to buy a property, after the federal parliament passed legislation for Help to Buy. Under Help to Buy, individual buyers who earn less than $90,000 per year or joint buyers who earn less than a combined $120,000 will be able to purchase a property in tandem with the government. The government will take an equity stake of up to 30% in an established property or up to 40% in a new property, thereby reducing the amount of money you must contribute to enter the market. If you eventually sell the home, the government will receive some of the sale proceeds, equivalent to their stake. Property price caps apply, which vary from location to location, from $450,000 in the regional areas of Western Australia, South Australia and Tasmania to $950,000 in Sydney. Help to Buy will be open to any Australian citizens who do not currently own a home and who intend to live in the property they purchase. Buyers will need a deposit of only 2% and will not need to pay lender’s mortgage insurance. However, while the scheme has been approved at the federal level – and therefore in the ACT and Northern Territory – it has not yet been approved at the state level. For that to happen, each individual state will need to pass supporting legislation; once a state does so, it will be able to participate in Help to Buy. Ideally, that will happen sometime in 2025, although it depends on each state’s circumstances. Higher interest rates make it harder for borrowers to qualify for larger loans or even loans of any size. That’s because for every increase of 0.50 percentage points in interest rates, the average person’s borrowing capacity falls by about 5%, according to PropTrack senior economist Paul Ryan. Since 2022, the Reserve Bank of Australia (RBA) has increased official interest rates by 4.25 percentage points, thereby reducing the average person’s borrowing capacity by about 40%. If and when the RBA starts cutting rates, borrowing capacities will rise. In the meantime, the banking regulator, APRA, could achieve the same outcome by reducing a thing called the mortgage serviceability buffer. Currently, to protect borrowers and the banking system, lenders need to add a buffer of at least 3 percentage points when assessing someone’s ability to repay a home loan – so if, hypothetically, you applied for a loan with an interest rate of 6.20%, lenders would assess whether you’d be able to make your mortgage repayments if the rate rose to at least 9.20%. If APRA reduced this buffer requirement to say 2.5 percentage points or 2 percentage points, the assessment rate on the hypothetical loan mentioned above would fall, thereby increasing your borrowing power. However, APRA recently ruled that it would keep the buffer at 3 percentage points. “In reaching the decision to keep the settings steady, APRA took account of high household indebtedness and a pick-up in credit growth, persistent cost-of-living pressures, a weakening jobs market and heightened geopolitical risks,” the regulator said.About three-quarters of homebuyers are now using mortgage brokers, according to the latest data from Comparator. About three-quarters of homebuyers are now using mortgage brokers, according to the latest data from Comparator. In the September quarter, brokers originated a record-high 74.6% of all new home loans, while banks originated a record-low 25.4%. Choice is the number one reason homebuyers prefer brokers – a broker will compare home loan products from a range of lenders on your behalf, while banks will tell you about their own products only. For the same reason, many people who already own their own home turn to brokers when they’re thinking about refinancing. It’s generally a good idea to consider switching home loans every few years, because lenders often give special deals to new customers. The Australian Competition & Consumer Commission’s most recent home loans inquiry found that borrowers with home loans between three and five years old paid, on average, 0.58 percentage points more in interest than those taking out new loans. That’s why you could potentially save tens of thousands of dollars over the life of your loan by refinancing to a comparable loan with a lower interest rate. If you’re thinking about refinancing, get in touch – I’ll be happy to crunch the numbers for you, to see how much you could save by switching loans.

Top 3 Ways to Finance Your Renovations

Are you considering renovating? If so, you’re not the only one, because renovations are incredibly popular, with homeowners investing $2.84 billion on alterations and additions in the June 2024 quarter, according to the Australian Bureau of Statistics. Typical costs range from about $2,000 to $5,000 for bedrooms, $15,000 to $30,000 for bathrooms and $25,000 to $50,000 for kitchens, according to JDL Constructions.

Here are three ways to finance your renovations:

Take out a construction loan. With a construction loan, the funds will be distributed in stages throughout the project, rather than in an upfront lump sum, and you’ll be charged interest only on the funds you’ve already received. Your construction loan will be interest-only during the building phase and will then revert to a standard principal-and-interest home loan once the building has been completed.
Take out a personal loan. Compared to a construction loan, the application process is likely to be faster and your chance of approval is likely to be greater, but your interest rate is likely to be higher as well.
Pay cash. This is the simplest option.

If you’re thinking about paying for the renovations with a credit card, please be careful, because while you will not have to go through an application process, the interest rate will be extremely high and could leave you susceptible to falling into a debt trap.

More and more Australians are turning to property investment, new analysis has revealed.

CoreLogic’s head of research, Eliza Owen, found that the number of investors entering the market was exceeding the number exiting, by comparing home loans data with listings data.

“Investor inferred listings have been trending higher since March this year, to 13,000, but remain well below the peak of investor listings activity in November 2021,” Ms Owen said.

“As investment listings remain below these highs, the number of new loan commitments remains high at 18,400. The previous five-year average for the month was 14,516.”

Why is property investing so popular? Probably because it offers three big potential benefits:

Capital growth – if your property rises in value
Ongoing rental income – which can be used to pay down your mortgage
Tax benefits – you can reduce your taxable income if your property is negatively geared

Reach out if you’re thinking about buying an investment property. I’ll model different repayment scenarios for you, so you can make an informed decision about whether investing is right for you.

There’s a lot more to a home loan than just the interest rate. The features of the loan can also have a big impact on your total mortgage costs and repayment flexibility, which is why it’s important to understand the potential benefits of a redraw facility and an offset account.

Redraw and offset have one thing in common – they reduce the amount of interest you get charged. If, for example, you have $500,000 outstanding on your loan and $40,000 in either redraw or offset, you’ll be charged interest on only $460,000 (i.e. $500k minus $40k).

But there are subtle differences between the two features.

Redraw is a facility that sits within your loan. The way you accumulate money in redraw is by making extra home loan repayments. The lender will allow you to borrow back (or redraw) these extra repayments, subject to certain conditions. But because this money belongs to the lender, it’s technically possible the lender might decide one day not to allow you to reclaim the money, or change the conditions of redraw.

Offset is a separate transaction account that’s linked to (but separate from) your home loan account. The way you accumulate money in offset is through deposits – for example, salary payments. The money in your offset belongs to you, so the lender can’t prevent you accessing it.

Pros: you can use redraw and offset to reduce your interest bill and pay off your home loan sooner.
Cons: your lender may charge you a higher ongoing fee or higher interest rate to access these loan features. Also, you may be charged a fee for each redraw transaction.

The federal government is aiming to improve housing affordability by increasing the supply of housing, which would be expected to reduce demand and put downward pressure on prices. As a result, the government is attempting to facilitate the building of 1.2 million homes in the five years from July 2024. So what does the latest homebuilding approvals data show?

Unfortunately, it suggests the government will struggle to achieve its target.

In the five years to September 2024, only 937,950 approvals were issued. This is a drop-off from the five years to September 2023, when 949,469 approvals were issued, according to the Australian Bureau of Statistics.

It’s also worth noting that because some projects never proceed after receiving the green light, the building of 1.2 million homes will require an even greater number of approvals.

But there is some good news: Housing Industry Association economist Maurice Tapang said “the market is past its trough” and more buyers are now choosing to build new homes.

“The cost of homebuilding materials are growing at a more normal pace, while build times for houses are back to pre-pandemic levels,” he added. If that trend continues, it would represent good news in terms of affordability.

Finance Update October 2024

This month, I closely analyse what’s happening with home loans, while also sharing a surprising trend among property buyers:

  • Mortgage competition heating up
  • What is the average loan size in your state?
  • 22% of buyers looking interstate
  • Why most borrowers are going variable

Lenders are competing strongly for borrowers, especially those with strong credit profiles. As a result, borrowing activity jumped 18.2% between January 2024 and August 2024, according to the most recent data from the Australian Bureau of Statistics.

During that time, owner-occupier borrowing climbed 14.9%, while investor borrowing surged 23.7% and refinancing also increased, rising 1.2%.

If you have an existing loan and have not had it reviewed in the past two years, there’s a good chance a better deal might exist, or if you are in the market to purchase, please get in touch to find out.

I can help you:

  • Compare loans from a diverse range of lenders
  • Maximise your borrowing capacity
  • Choose a strategy and loan structure that suits your personal circumstances

The average borrower is taking out a $636,209 home loan, with loan sizes ranging significantly in specific states, based on mortgage data from the Australian Bureau of Statistics. Check out the chart below for the figures:

Regardless of whether your mortgage is higher or lower than these figures, you probably want to reduce your loan balance. Here are some tactics to help you achieve that goal:

  • Switch from monthly to fortnightly repayments – this means you’ll make the equivalent of 13 months of repayments each year
  • Use your offset account or redraw facility (if you have them), to reduce your interest bill
  • Refinance to a lower interest rate – there are really good deals available for borrowers who have at least 20% equity in their home

All of those things really depend on your personal circumstances and financial position – so please get in touch if you want me to help you run some numbers.

More home-hunters are looking to buy property in a different state – but why?

In the year to August, 22% of all enquiries to buy property on realestate.com.au came from buyers based in a different state, compared to 17% in the previous 12-month period.

Some people are looking to buy interstate for reasons of affordability. New South Wales, for example, which is the priciest state, recorded the highest share of local buyers making enquiries in other states and the lowest share of receiving enquiries from other states.

Meanwhile, some investors are targeting out-of-state locations that seem to offer better returns. The prime example is Western Australia – where property prices have been booming – which experienced the biggest increase in interstate enquiry over the past year.

Here are some due-diligence tips if you’re thinking about buying interstate:

  • Use data to research the suburbs where you’re thinking about buying
  • Order building and pest inspections of homes that seriously interest you
  • Consider hiring a property manager to conduct property inspections for you or a buyer’s agent to manage the entire process for you

Finally, please contact me for a home loan pre-approval before you start your property search, so you can get certainty around your budget.

The vast majority of home loan customers are currently choosing variable-rate loans over fixed-rate loans.

In August 2024, 98% of new loans were variable, while 2% were fixed, according to the most recent data from the Australian Bureau of Statistics.

By comparison, in August 2021, when interest rates were at record-low levels, 46% of borrowers decided to fix, while 54% went variable.

Interest rate expectations appear to be guiding borrowers’ decisions.

In 2021, when rates were at ultra-low levels due to the pandemic, most borrowers assumed they would rise sooner or later – so many chose to lock in those lower rates.

Today, most borrowers assume rates have peaked, so they want a variable loan that will get cheaper if and when the Reserve Bank of Australia starts reducing the cash rate.

Fixed vs variable
  • Fixed loans simplify budgeting, because your monthly repayments won’t change during the fixed period
  • As a result, you won’t suffer when rates rise and won’t benefit when they fall
  • Variable loans are unpredictable, because your repayments can change at any time
  • Variable rates go higher when rates rise and lower when they fall

Thanks for reading. I hope you pick a winner in the Melbourne Cup next week.

Finance Update September 2024

Finance Update 2 September 2024

In this month’s newsletter, “Finance update September 2024,” you’ll find some interesting insights about the rise in borrowing activity, the federal government’s housing assistance program, and the spring surge in listings:

  • 35.4% jump in investor lending
  • Govt scheme helping tens of thousands of buyers
  • More choice for buyers as listings rise 7.9%
  • Why buy & hold can be a lucrative strategy
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According to the Australian Bureau of Statistics, property investors committed to $11.71 billion in home loans in July 2024, the second-highest month on record.
 
It was also 35.4% higher than in July 2023, showing the enormous growth in investor activity during that time.
Sept 24 ActivePipe 2
Here are five reasons why so many Australians consider property investing a great way to build wealth:
  • Capital growth –  property prices have increased significantly over the long term
  • Rental income – the income you collect from your tenants can contribute to paying off your mortgage
  • Tax benefits – you can potentially reduce your taxable income if your expenses exceed your income
  • Diversification – property can balance out any shares you may own through your superannuation
  • Flexibility – once you’ve accumulated enough equity in your investment property, you can use that to fund the deposit on another property
 
As highlighted in Finance Update September 2024, property investing offers significant potential benefits. If you’re interested in learning more, I’d be happy to run some numbers for you.
The federal government’s Home Guarantee Scheme (HGS) helped 43,800 buyers enter the market in the 2023-24 financial year, Housing Australia has revealed.
 
The HGS contains three separate programs:
  • The First Home Guarantee helps eligible first home buyers, and people who haven’t owned a home for at least 10 years, to purchase a property with a 5% deposit without paying lender’s mortgage insurance (LMI)
  • The Regional First Home Buyer Guarantee is almost identical but is limited to regional buyers purchasing regional properties
  • The Family Home Guarantee helps eligible single parents and single legal guardians buy a property with a 2% deposit without paying LMI
The federal government has allocated a combined 50,000 places for the three programs in the 2024-25 financial year.
 
All three programs are reserved for owner-occupiers, have income limits ($125,000 for single applicants and $200,000 applicants) and property price caps (see table above).
 
Please contact me if you’re thinking about taking advantage of the HGS. I can advise you if you meet the eligibility criteria and manage your home loan application.
Home hunters have considerably more stock to choose from than earlier in the year, putting buyers in a stronger negotiating position.
 
SQM Research has reported that the total number of listings across Australia in August was 7.9% higher than the month before and 11.1% higher than the year before, while the number of new listings (those less than 30 days old) rose 11.8% month-on-month and 8.5% year-on-year.
 
“Going forward, the spring selling season will provide a significant level of choice for buyers, particularly in Sydney and Melbourne, with listings at their highest levels in some years,” according to SQM Research.
 
This is good news if you’re thinking about buying a property because it means you’ll face less competition from other buyers. But it’s not such good news if you’re thinking about selling, because you’ll face more competition from other sellers. As a result, buyers will be encouraged to make lower offers and sellers might be forced to settle for less.
About 20% of homeowners bought their property in the past five years, CoreLogic has estimated. The data shows that 2021 was the most common year in which homes were last purchased, with 5.3% of all homes being bought in that year.
 
It makes perfect sense for people to buy and sell homes every few years, because as circumstances change, we may need to upgrade, downgrade or relocate. That said, if you can hold onto a property for the long term, there can be enormous benefits.
 
First, you can avoid the transaction costs associated with buying and selling. Second, you can potentially enjoy strong capital growth. CoreLogic reports that the nation’s median property price has increased by 70.2% over the past 10 years, 157.9% over the past 20 years and 425.9% over the past 30 years.
 
Depending on your financial circumstances, it might be possible to move without selling your existing home if you turned it into an investment property. While you’d then have two mortgages, some of that extra cost would be offset by the rent you’d start collecting.
 
If you want a larger or newer home, another alternative would be to renovate instead of moving: potentially, you could finance the project by borrowing against the equity in your home.
 
The spring season is often the busiest time of the year, with a lot of buying activity taking place. As highlighted in the Finance update September 2024, reach out if you’d like assistance with securing a home loan pre-approval or refinancing an existing loan.

High Earners: How to Buy a Home with Low or No Deposit

How to Buy a Home with Low or No Deposit Blog Post 1

High-Income Earners: How to Buy a Home with Low or No Deposit

Buying a home can be challenging, even for high-income earners. Many find saving enough for a deposit difficult due to high living costs, lifestyle choices, and other financial commitments. However, there are options available that can make homeownership possible with a smaller deposit. This article will explain how high-income earners can buy a home with low or no deposit, focusing on the benefits of the Home Affordability Solutions (HAS) scheme.

Why High-Income Earners Are Still Renting

It may seem surprising, but many high-income earners continue to rent. Despite earning more, they face challenges such as high living costs in major cities, rising property prices, and strict lending rules that require large deposits. Additionally, lifestyle choices like frequent travel, dining out, or paying off loans often take priority over saving for a deposit.

High Costs of Living and Financial Commitments

Living in cities with high living expenses makes saving for a home deposit difficult. For high-income earners, maintaining an expensive lifestyle often means little is left over for savings. Car loans, credit card debt, and other financial commitments also eat into potential savings, making it harder to accumulate the necessary funds for a deposit.

Rising Property Prices and Strict Lending Rules

Property prices in desirable areas tend to rise faster than people can save, creating a gap that’s tough to bridge. On top of this, banks often require large deposits, making it difficult for high-income earners to get into the property market. This combination of factors leaves many still renting, even though they may have the income to afford mortgage repayments.

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How to Buy a Home with a Small Deposit

The Home Affordability Solutions (HAS) scheme offers a way for high-income earners to purchase a home with a much smaller deposit (Can be as low as 2.5%). Instead of the usual 20% deposit required by most lenders, the HAS scheme allows you to buy a home with a lower deposit. This is particularly helpful for young professionals, families, and others who struggle to save a large sum upfront.

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Key Features of the HAS Scheme
  • Low Deposit Requirement: The HAS scheme lets you buy a home with a lower deposit compared to the standard 20%.
  • Investor Support: An investor, through a registered trust, provides additional financial backing to help meet deposit requirements.
  • Accredited Brokers: HAS works with accredited brokers who guide you through the process, ensuring you make informed decisions and secure the best loan.
  • Lower Interest Rates: You can benefit from lower interest rates, providing financial stability and predictable repayments over time.
  • Refinancing Options: After three years, you have the option to refinance, possibly securing better terms and lowering your costs.
  • Government Grants: You can access various government grants to further boost your deposit, making homeownership more attainable.
How the HAS Scheme Makes Homeownership Easier

For high-income earners who want to know how to buy a home with low or no deposit, the HAS scheme provides an ideal solution. It addresses the challenge of saving a large deposit by offering flexible loan options and lower initial financial requirements. With support from investors and accredited brokers, the HAS scheme simplifies the process of buying a home, ensuring you can take that first step into homeownership with confidence.

Steps to Get Started with HAS
  1. Review Your Finances: Start by assessing your current income and savings to see if you meet the scheme’s requirements.
  2. Consult with a Broker: A certified broker will guide you through the HAS scheme, helping you develop a tailored plan based on your financial situation.
  3. Secure Your Deposit: Explore all available options, including government grants and other financial incentives, to boost your deposit.
  4. Complete Your Loan Application: Work with your broker to complete your loan application and submit the necessary documentation.
  5. Plan for Future Expenses: Once approved, budget for your monthly mortgage payments and plan for other financial responsibilities related to homeownership.
Taking the Next Step

For high-income earners, the path to homeownership doesn’t have to be blocked by a large deposit requirement. With the HAS scheme, you can buy a home with a much smaller deposit and begin your journey to owning a property. At Bayland Finance, we’re here to help. Contact our team of experienced mortgage professionals to learn how high-income earners can buy a home with low or no deposit and start planning for your future today.

For further information about the scheme https://yourhas.com.au/

Growing Your Small Business

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Growing Your Small Business: A Guide to Funding, Forecasting, and Managing Growth

As a small business owner, growing your business can be an exciting journey, but it also comes with its fair share of challenges—particularly when it comes to funding. Scaling up means taking on more risk, planning for the future, and ensuring you have the right resources to keep up with demand. Let’s explore how you can fund your growth, manage your expansion effectively, and make strategic forecasts that help guide your decision-making.

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Funding Business Growth

Expanding a small business often requires additional capital. Whether you’re looking to hire more staff, purchase new equipment, or expand into a larger facility, you’ll need to explore funding options that best fit your goals and financial standing. There are several avenues to consider:

  1. Traditional Business Loans: Banks and financial institutions offer business loans tailored to growth. With a strong credit history and a solid business plan, you may qualify for competitive interest rates. However, it’s essential to assess your repayment capacity to avoid putting unnecessary strain on cash flow.
  2. Lines of Credit: If you prefer flexibility, a line of credit allows you to draw funds as needed. This is ideal for covering unexpected expenses or managing seasonal fluctuations. The key here is to use the credit wisely, ensuring you’re not borrowing more than your business can comfortably repay.
  3. Government Grants and Incentives: Depending on your industry and location, there may be government grants and incentives to support small business growth. These can provide a much-needed financial boost without the pressure of repayment.
  4. Private Investment or Partnerships: If you’re open to bringing in external partners, venture capital, angel investors, or private equity could be viable options. Keep in mind, this often means sharing control or ownership, so it’s important to weigh the pros and cons carefully.
  5. Self-Funding or Bootstrapping: For those who prefer to maintain full control, reinvesting profits into the business is an option. While this may slow down the pace of growth, it allows you to expand without taking on debt or diluting ownership.
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Forecasting for Growth

Growth isn’t just about having the funds in place—it’s also about knowing where you’re headed. Forecasting helps you anticipate the future and plan your next steps accordingly. Here’s how to effectively forecast for your business growth:

  • Revenue Projections: Start by estimating how much revenue your business can generate over the next few months or years. Be realistic—while optimism is great, it’s crucial to base your projections on actual market trends and your business’s historical performance.
  • Expense Management: As you grow, your expenses will increase. This includes staffing, production costs, marketing, and operational overhead. Make sure to factor in these new costs when forecasting your budget, and always leave room for unexpected expenses.
  • Break-even Analysis: Knowing when you’ll hit the break-even point is essential in growth planning. This analysis shows when your business’s revenue will cover all expenses, helping you determine how quickly you can start turning a profit after expansion.
  • Cash Flow Forecasting: Cash flow is the lifeblood of any business. A cash flow forecast allows you to predict the timing of incoming and outgoing funds, ensuring you’re not caught off guard by shortfalls, especially during times of rapid growth.
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Managing Growth: Key Milestones

Funding and forecasting are the foundation of growth, but managing the process effectively is where many businesses stumble. Here are some key milestones and strategies to keep in mind as you scale:

  • Hiring and Team Expansion: One of the first signs of growth is the need to expand your team. As your business grows, you’ll need to consider not just hiring more people, but hiring the right people. Developing a recruitment strategy and nurturing company culture becomes increasingly important as you scale.
  • Infrastructure and Operations: Growth often requires investment in infrastructure—whether that’s physical space, technology, or equipment. Before making these commitments, ensure your business has reached the necessary scale to support these investments without overstretching resources.
  • Customer Retention and Expansion: As you grow, your existing customers become even more valuable. Focusing on customer retention can ensure stable revenue streams, while customer feedback can help you refine your offerings and attract new business.
  • Adaptability and Risk Management: Rapid growth can expose your business to new risks. It’s important to remain flexible and agile, ready to pivot when necessary. Regularly reviewing your business plan and financial forecasts allows you to adjust to market changes and keep your growth on track.
Conclusion

Growing a small business is a dynamic and complex process. It requires careful planning, strategic funding, and consistent management. By leveraging the right financial tools and forecasting accurately, you can manage your growth sustainably and achieve long-term success. Remember, every growth stage comes with its own set of challenges—but with the right approach, you’ll be well-positioned to overcome them and thrive.

At Bayland Finance, we understand the unique challenges small businesses face when scaling. We’re here to provide the insights and support you need to make informed financial decisions as your business grows.

SMSF Property Purchase Guidelines

SMSF Property - What you can & can'y buy

SMSF Property Purchase Guidelines – Understanding What Properties You Can (and Can’t) Buy in Your SMSF

Investing in property through a Self-Managed Super Fund (SMSF) can be an attractive option for many Australians. However, understanding the SMSF property purchase guidelines is essential to ensure you’re compliant with regulations and making the right financial decisions. 

SMSF Property Purchase Guidelines: What You Can Buy

Residential Property

Your SMSF can invest in residential property, but it must be for the sole purpose of providing retirement benefits to fund members. This means you cannot live in the property or rent it to family members. It must be rented out to unrelated third parties at market rates, ensuring the investment remains aligned with SMSF regulations.

Commercial Property

Commercial property is an excellent investment option for SMSFs. Properties such as office spaces, warehouses, and retail shops are common examples. A distinct advantage is that your SMSF can lease the commercial property to a business owned by a fund member, provided it is done on an arm’s length basis, meaning it is leased at market value and under normal commercial terms.

Mixed-Use Property

Mixed-use properties, combining both residential and commercial components, are also permitted in an SMSF. However, it’s crucial to remember that while the commercial part can be used for business purposes, the residential portion cannot be occupied by fund members or their relatives.

What You Can’t Buy

Property Owned by Fund Members or Relatives

Under SMSF property purchase guidelines, your SMSF is prohibited from purchasing property from a fund member or their relatives. This restriction ensures that all transactions are conducted on a purely commercial basis to avoid conflicts of interest.

Holiday Homes and Lifestyle Properties

Although buying a holiday home or lifestyle property might be appealing, these properties are not allowed for personal use within an SMSF. The property must only be used to generate rental income or capital growth and cannot be for personal enjoyment.

Residential Property for Personal Use

As previously mentioned, residential property purchased through your SMSF cannot be lived in by fund members or their relatives. This rule ensures the investment remains solely for retirement benefits, not for personal gain before retirement.

Key Considerations

  1. Compliance with the Sole Purpose Test

    All investments made by your SMSF must comply with the Sole Purpose Test, which ensures that the investment is only for providing retirement benefits to its members. Violating this rule can lead to significant penalties, so it’s important to carefully follow these SMSF property purchase guidelines.

  2. Arm’s Length Transactions

    Every transaction your SMSF undertakes, whether buying or selling assets or signing rental agreements, must be conducted on an arm’s length basis. This means that all deals should reflect market value and follow standard commercial terms.

  3. Investment Strategy

    Your SMSF should have a documented investment strategy that outlines how your investments, including property, will help you achieve your retirement goals. Make sure to review and update this strategy regularly to stay aligned with both your objectives and changing regulatory requirements.

Conclusion

Investing in property through your SMSF can be a highly effective way to grow your retirement savings. However, it’s essential to follow the SMSF property purchase guidelines to ensure compliance and maximise the benefits of your investment. 

If you’re considering purchasing property through your SMSF, contact Bayland Finance today. Our experienced team is ready to guide you through every step, ensuring your investments align with both your financial goals and regulatory obligations.

Finance Update August 2024

With the spring selling season just around the corner, here’s what’s making news in the mortgage and property markets:

  • Rental market cools
  • 3% mortgage buffer explained
  • Borrowing rises 19.1%
  • Construction loans explained


Property investors have enjoyed a golden run over the past five years, during which the national median rent increased 39.7%. However, in July, rents increased just 0.1%, which was the slowest growth since 2020, according to CoreLogic.

At the same time, annual rental growth has been trending down over the past few months.

Between February and July, rental growth fell from 9.7% to 8.0% in the combined capitals, although it rose from 5.4% to 7.1% in the combined regions. The big cities appear to be close to their rental affordability limit, while the regions, which have had less rental growth, might have more capacity to absorb higher rents.

Despite the slowdown of the national rental market, CoreLogic economist Kaitlyn Ezzy said rents were likely to keep increasing.

“Low supply will likely continue to put upward pressure on rents, albeit at a slower pace,” she said.

“With dwelling approvals and commencements at historic lows, providing sufficient new housing will not be a quick fix and remains a genuine challenge for policymakers, the property industry and, of course, tenants.”

In other words, while rents are likely to keep rising, tenants are likely to get some relief and investors shouldn’t budget for the double-digit-percentage increases of previous years.

When you apply for a mortgage, the lender uses a series of criteria to assess how likely you’d be to repay the loan. As part of this process, the lender also considers whether you’d be able to continue making your repayments if interest rates were to rise.

Generally, lenders will apply a buffer of at least 3.00 percentage points – so if you applied for a loan with an interest rate of 6.50%, this would mean calculating whether you’d be able to make repayments at 9.50%.

This ‘mortgage serviceability buffer’, as it’s known, is mandated by APRA, Australia’s banking regulator.

Partly, it’s designed to prevent lenders from issuing risky loans; because if a large number of borrowers defaulted on their loans, that would undermine the banking system. And, partly, it’s designed to protect borrowers from taking on loans they might not be able to afford.

The serviceability buffer can make it harder for borrowers to qualify for loans, but is ultimately designed to be in their best interests.

The latest home loans data from the Australian Bureau of Statistics has revealed three key trends.

  1. Borrowing is rising strongly. The total value of home loan commitments in June reached $29.19 billion, which was 1.3% higher than the previous month and 19.1% higher than the previous year.
  2. Investor activity is incredibly strong right now. While the volume of owner-occupied loans rose 13.2% year-on-year to $18.17 billion, investment loans jumped 30.2% to $11.02 billion.
  3. While refinancing activity remains quite high, it’s well below the record levels of mid-2023. Borrowers refinanced $15.79 billion of loans in June, which was 20.9% lower than the year before.

Contact me if you’re thinking about buying a property. I can get you a home loan pre-approval and, if you’re interested, introduce you to a good buyer’s agent.

One of the great things about constructing your own home is that it can be tailored to your specifications. If you’re interested in building rather than buying your dream home, here’s the process you need to follow:

  • Speak to your broker about your goals, so you can create a finance plan together
  • Buy the land
  • Design your home
  • Find a reputable builder
  • Obtain building permits and approvals
  • Build the home

With a traditional home loan, you receive the money in one lump sum; but with a construction loan, you receive the money in five stages throughout the project. You pay interest-only on the portion of the funds you’ve received to date, rather than the whole loan; and at the end of the build, your loan reverts to a traditional principal-and-interest mortgage.

It’s worth noting that the rate of annual growth in house-building costs increased from 3.9% in September 2023 to 4.3% in June 2024, according to the Australian Bureau of Statistics.

Given that costs will likely continue to rise, the sooner you build, the cheaper it could be in the long term. If this is something you’re thinking about doing, you should explore your options soon.

I can help you buy a home, build a home, purchase a vehicle or refinance an existing loan, so please get in touch if you need assistance.

Finance Update July 2024

In this month’s newsletter, I’ve got four timely stories about loan sizes, investor activity, housing incentives and property sales. Here are the headlines:
  • Why you should shop around for loans
  • Home Guarantee Scheme update
  • Vendor data shows sales trends
  • Investor borrowing jumps 29.5%

Why you should shop around for loans

With property prices at record levels, the size of the average mortgage has also hit new highs, making it more important than ever that you shop around for the right loan.
Australia’s median property price reached a record $794,000 in June, up 8.0% year on year, according to CoreLogic.
Meanwhile, the size of the average owner-occupied loan reached a record $626,055 at the end of May (the most recent month for which we have data), up 7.1% year on year, according to the Australian Bureau of Statistics.
Just as interest rates can vary significantly from lender to lender, so can your borrowing power, depending on your financial profile, the type of property you’re planning to buy and the location of the property. Sometimes, one institution might be willing to lend you tens of thousands – or even hundreds of thousands – of dollars more than another institution.
Trying to source all this information yourself would be very time-consuming. But brokers have an intimate understanding of the credit policies of many different lenders. That’s why, if you get a home loan through a broker, they can recommend a lender that is suitable for someone with your profile and scenario.

Home Guarantee Scheme update

The federal government has allocated another 50,000 places across Australia to its Home Guarantee Scheme (HGS) for the 2024-25 financial year.
That includes 35,000 places for the First Home Guarantee and 10,000 for the Regional First Home Buyer Guarantee.
Under the first program, the government supports eligible first home buyers to purchase a property with a 5% deposit, without having to pay lender’s mortgage insurance (LMI). The second program is identical but applies to regional applicants purchasing regional properties.
The HGS also includes 5,000 places for the Family Home Guarantee, through which the government helps eligible single parents and single legal guardians purchase a property with a 2% deposit, without paying LMI.
For all three schemes, applicants must be owner-occupiers. Income caps apply ($125,000 for single applicants, $200,000 for joint applicants), as do property price caps (which vary from state to state).
The HGS has strict conditions and is not available through all lenders. If you’re unsure whether you’re eligible or how the scheme works, reach out and I’ll be happy to help.
Record property prices are proving to be good news for vendors, with 94.3% of all vendors in the March quarter selling their home for more than they’d originally paid, according toCoreLogic. That was the fourth consecutive quarterly increase and the highest share since 2010.
However, the share of vendors who made a gross profit varied significantly from capital city to city, reflecting different market performance.
Another significant finding was that house owners were more likely to record a profit than unit owners, by a share of 97.1% to 89.0%.
Also, there was a clear link between the amount of time someone had owned a home and the size of their profit. Vendors made a median profit of $82,000 with a hold period of up to two years, $275,000 for up to 10 years, $435,000 for up to 20 years and $780,000 for up to 30 years.
 
Home loan volumes have significantly increased over the past year, especially among investors.
Investors committed to $10.67 billion of mortgages in May, according to the latest datafrom the Australian Bureau of Statistics. That was 29.5% higher than the year before.
At the same time, owner-occupier borrowing activity rose 12.2%, to $18.13 billion.
Investors were responsible for 37.1% of the home loans that were issued in May. Despite the surge, that’s only slightly higher than the long-term average (in records dating back to 2002) of 35.9%. 
By way of comparison, investors’ share of home loan activity bottomed out at 22.4% in 2021 and peaked at 45.9% in 2015, while owner-occupiers’ share reached a low of 54.1% in 2015 and a high of 77.6% in 2021.
If you’re thinking about applying for a home loan, here are three important tips to make yourself more creditworthy in the eyes of lenders:
  • Reduce your spending, to free up money to pay off a loan
  • Pay all your bills on time, to maintain a good credit score
  • Contact a broker, who will compare the market for you