Mark Armstrong

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First home buyers are fighting with a 100 pound gorilla with one arm tied behind their backs as they compete with investors who have the luxury of negative gearing and superannuation funds.
But laws around negative gearing and super are unlikely to change so it’s time to revisit the issue.
I believe the answer lies in rethinking superannuation laws and first home buyer grants.
Historically the family home has been the corner stone of ones wealth but this is in danger of being lost. Superannuation was implemented to help people self fund their own retirement and compliment the wealth in their family homes. I believe that allowing first home buyers to access their super and assist them in laying that foundation keeps within the spirit of superannuation.
 A worker who earns the average Australian income of $50,000 a year will have around $36,000 in super by the time they are 30 not including any return on their investments. As a couple that is $72,000! They also have the benefit of diverting more of their income into a tax-sheltered environment. It would not be unreasonable for a first home buying couple to have in excess of $100,000 in super by the time they want to purchase their first home.
<blockquote>
Buying a property is only the first step to home ownership. Keeping up with the mortgage payments is where the real pain starts to bite.
</blockquote>
A large deposit like this would mean first home buyers have more equity in their home and as a result in a more stable financial position. It would also save a significant amount in interest. For example if a first homebuyer had a $100,000 deposit they would only need to borrow around 80% of the property value rather than 90% or more. On a $500,000 home that would save them $2,500 to $3,000 per annum in interest.
They would also avoid paying a hefty mortgage insurance bill of around $5,000 to $10,000 in most cases.
Buying a property is only the first step to home ownership. Keeping up with the mortgage payments is where the real pain starts to bite. If governments really want to help with home ownership they should look at providing ongoing assistance and review first home buyer grants.
First home buyer grants have evolved over the years but on average they provide first home buyers with around $10,000 cash or stamp duty saving benefits. Rather than paying first home buyers a lump sum payment that is usually paid to the banks for mortgage insurance, I believe annual payments will be more effective and a better use of taxpayer money. An annual payment of $2,000 a year for the first five years would help first home buyers establish themselves in the market.
While the devil is in the detail the points outlined above provide a win-win outcome. The government wins as it helps solve first home buyer affordability at no extra cost. The economy wins, as more money will flow into the important building industry. First home buyers win as they will enter the market without paying mortgage insurance and save around $5,000 per annum in holding costs for the first five years.
There is a potential downside in that it would place further pressure on property prices. However this is already happening even without first home buyers and these ideas will go a long way to levelling the playing field between first home buyers and investors.
They would help young Australians into the market and start the process of building wealth in one of our most powerful tax-free investments – our home.
Mark Armstrong is a director of <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>, which provides independent analysis and tailored advice to investors and home buyers.
This article was first published on Property Observer in October, 2013.
YOU MAY ALSO LIKE TO READ:
<a href="/expert-insights/buying/31501-exclusive-first-home-buyer-picks-from-the-experts" target="_blank" data-cturl="https://www.google.com/url?q=https://www.propertyobserver.com.au/finding/residential-investment/1st-home-buyer/31501-exclusive-first-home-buyer-picks-from-the-experts.html&amp;sa=U&amp;ei=4lSOU9OGBoLh8AWz04LoBw&amp;ved=0CAoQFjAC&amp;client=internal-uds-cse&amp;usg=AFQjCNEsLTG_yhrdXMWc6K0tUs4ExH4zkg" data-ctorig="https://www.propertyobserver.com.au/finding/residential-investment/1st-home-buyer/31501-exclusive-first-home-buyer-picks-from-the-experts.html">Exclusive: First home buyer picks from the experts</a>
<a href="/expert-insights/buying/65-first-home-buyers/31872-how-will-rising-student-debt-affect-first-home-buyers" target="_blank" data-cturl="https://www.google.com/url?q=https://www.propertyobserver.com.au/forward-planning/investment-strategy/65-first-home-buyers/31872-how-will-rising-student-debt-affect-first-home-buyers.html&amp;sa=U&amp;ei=4lSOU9OGBoLh8AWz04LoBw&amp;ved=0CBYQFjAI&amp;client=internal-uds-cse&amp;usg=AFQjCNGpdo7JW0MfB1BezFddwp63td8zaA" data-ctorig="https://www.propertyobserver.com.au/forward-planning/investment-strategy/65-first-home-buyers/31872-how-will-rising-student-debt-affect-first-home-buyers.html">How will rising student debt affect first home buyers?</a>
<a href="/expert-insights/buying/31603-the-national-guide-to-first-home-buyer-grants" target="_blank" data-cturl="https://www.google.com/url?q=https://www.propertyobserver.com.au/finding/residential-investment/1st-home-buyer/31603-the-national-guide-to-first-home-buyer-grants.html&amp;sa=U&amp;ei=B1WOU4udC5Pf8AXF_YDYDg&amp;ved=0CAYQFjAA&amp;client=internal-uds-cse&amp;usg=AFQjCNFHQorVTsJrTVRgPVX0IFEiP5Ph8w" data-ctorig="https://www.propertyobserver.com.au/finding/residential-investment/1st-home-buyer/31603-the-national-guide-to-first-home-buyer-grants.html">The national guide to first home buyer grants</a>
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marmstrong-sd3emVLPPb

It's time to re-think first home buyer grants

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First home buyers are fighting with a 100 pound gorilla with one arm tied behind their backs as they compete with investors who have the luxury of negative gearing and superannuation funds.
I believe the answer to improving affordability lies in rethinking superannuation laws and first home buyer grants.
Historically the family home has been the corner stone of ones wealth but this is in danger of being lost. Superannuation was implemented to help people self fund their own retirement and compliment the wealth in their family homes. I believe that allowing first home buyers to access their super and assist them in laying that foundation keeps within the spirit of superannuation.
A worker who earns the average Australian income of $50,000 a year will have around $36,000 in super by the time they are 30 not including any return on their investments. As a couple that is $72,000! They also have the benefit of diverting more of their income into a tax-sheltered environment. It would not be unreasonable for a first home buying couple to have in excess of $100,000 in super by the time they want to purchase their first home.
A large deposit like this would mean first home buyers have more equity in their home and as a result in a more stable financial position. It would also save a significant amount in interest. For example if a first home buyer had a $100,000 deposit they would only need to borrow around 80% of the property value rather than 90% or more. On a $500,000 home that would save them $2,500 to $3,000 per annum in interest.
They would also avoid paying a hefty mortgage insurance bill of around $5,000 to $10,000 in most cases.
Buying a property is only the first step to home ownership. Keeping up with the mortgage payments is where the real pain starts to bite. If governments really want to help with home ownership they should look at providing ongoing assistance and review first home buyer grants.
First home buyer grants have evolved over the years but on average they provide first home buyers with around $10,000 cash or stamp duty saving benefits. Rather than paying first home buyers a lump sum payment that is usually paid to the banks for mortgage insurance, I believe annual payments will be more effective and a better use of taxpayer money. An annual payment of $2,000 a year for the first five years would help first home buyers establish themselves in the market.
While the devil is in the detail the points outlined above provide a win-win outcome. The government wins as it helps solve first home buyer affordability at no extra cost. The economy wins, as more money will flow into the important building industry. First home buyers win as they will enter the market without paying mortgage insurance and save around $5,000 per annum in holding costs for the first five years.
There is a potential downside in that it would place further pressure on property prices. However this is already happening even without first home buyers and these ideas will go a long way to levelling the playing field between first home buyers and investors.
They would help young Australians into the market and start the process of building wealth in one of our most powerful tax-free investments – our home.
MARK ARMSTRONG is a director of <a href="https://ratemyagent.com.au/" target="_blank">ratemyagent.com.au</a>, Australia’s number one real estate agent rating website.
This article was originally published on Property Observer in October 2013.
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Allowing first home buyers access to super is the answer to the affordability dilemma

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Valuations are at the heart of property investment – particularly when it comes to getting finance, or being refinanced, with a lender.
You might also just be asking ‘<a href="/news/27120-how-much-is-my-home-worth-judging-a-propertys-value" target="_blank">What is my home worth?</a>’ and a valuation may appear to be the natural way to answer this question.
<blockquote>
MUST KNOW ELEMENTS:
IT'S NOT AN APPRAISAL
THEY'RE NOT AN EXACT SCIENCE
THERE ARE MULTIPLE TYPES OF VALUATION
COMPARABLES ARE HEAVILY RELIED UPON
YOU CAN ASSIST THE VALUER 
</blockquote>
There are also many reasons why you’d want to get an independent valuation – observer<a href="/expert-insights/investing/21919-five-great-reasons-to-get-an-independent-valuation-cameron-mcevoy" target="_blank"> Cameron McEvoy aptly describes five crucial reasons you’d consider this</a> - and so it pays to be aware of what is involved.
Here are five ‘must know’ elements of valuations:
1) It’s not an appraisal
You may have had an appraisal with a real estate agent, and now believe that your home can fetch in excess of $630,000 on the current market. This may be the case, however a real estate agent’s appraisal is not a valuation, and will not be accepted by the bank as such.
While most real estate agents act with professionalism, investors must be aware that it’s not unheard of for real estate agents to alter the appraisal they provide you to match your expectations, and to be fairly bullish with their appraisals to secure a listing.
A valuer, however, is immune to these pressures, tasked with one job and one job alone – valuing your home.
2) They’re not an exact science
It will be of no surprise to any savvy investor that figuring out the price of a property is never an exact science, even for those trained in the valuation field. Similarly, obtaining two different valuations also isn’t an unheard of occurrence, and is the reason many investors will head to a different bank to obtain financing, particularly after a renovation.
Observer <a href="/expert-insights/investing/24155-wednesday-july-3-upper-right-mark-armstrong" target="_blank">Mark Armstrong refers to bank valuations as being ‘murky waters’</a>. “Remember if a valuation comes in too high and the bank loses money on the loan then the valuer maybe legally liable,” he notes, which may suggest why there is also a general impression in real estate that valuers are conservative with their estimates.
Similarly, it has been pointed out time and time again, such as <a href="/expert-insights/investing/13600-home-valuations-can-be-subjective-" target="_blank">by Mal James in this article</a>, that valuers are subjective. This is because they are human beings, and they act with the information provided and their knowledge to come up with the best possible response.
3) There are multiple types of valuation
While we’re focusing on a fairly rigorous in-person valuation, there are a number of different types of valuations. From the DIY desktop valuation (which have <a href="/expert-insights/investing/16329-diy-website-property-valuations-mostly-askew" target="_blank">varying results of accuracy</a>), to the ‘kerbside’ drive by valuation, be aware that not all are created equal.
RP Data lists four different types of valuation that you'll want to understand:
<ol>
<li>Full valuation</li>
<li>Short form or pro forma valuation</li>
<li>Restricted valuation (to include “restricted assessment”, “kerbside” and “drive by” valuations)</li>
<li>Desktop (to include electronic valuer review - EVR)</li>
</ol>
4) Comparables are heavily relied upon
One of the major aspects that valuers look at to come up with a final figure is that of 'comparables'. That is, recent sales in your area that are close to your property in location and type. A valuer will be required to judge whether your property is superior or inferior to these sales, and so adjust their valuation accordingly. If you want to get an idea of how the valuation may stack up, it'd be worth finding out the latest sales that they will be looking at. This also means that for properties in remote areas, or unique style homes, it will be trickier for the valuer to come up with a figure and, therefore, more subjective and down to interpretation.
5) You can assist the valuer 
As with any property, present it with its best foot forward for the best change of securing a good valuation. While valuers do not want to be harassed, told how to do their jobs or provided information that could sway them against the numbers, you can be helpful and provide information about improvements undertaken since purchase.
Be on site, ready to ask and answer questions, and have all the information about your property on hand.
Despite the reasons to get a valuation, there’s always the other side of the argument. If you’re considering a valuation, you may also want to hear <a href="https://www.urban.com.au/expert-insights/investing/19324-tuesday-upper-right-terry-ryder" target="_blank">Terry Ryder’s thoughts on why valuations are a “waste of time and money”</a>. Late last year, Property Observer also covered a <a href="%20http:/www.propertyobserver.com.au/financing/26422-valuation-industry-needs-overhaul" target="_blank">heated debate that asked for an ‘overhaul’ of the valuations industry</a>.
Tips for those wanting to get the best from a valuer:
<ul>
<li>Provide them a list of comparable sales (potentially inside the same project, as well as some that are not). While not all valuers will use them, some will. 
</li>
<li>Apply for finance six months before completion, not six days and if you find the valuation comes in low it gives you time to get a third and a fourth. 
</li>
<li>Attain your own valuation, using a valuer that is on your bank's panel of valuers. 
</li>
<li>Ask to see a soft valuation so you can check the comparables used and the comments made. 
</li>
<li>Bear in mind that the valuer often has a different valuation for mortgage purposes as opposed to sale purposes. But mainly: 
</li>
<li>Do your research beforehand.  Go out and look at 100 or even 10 before you make a purchase decision. If you've done your research you should be confident it will value up.</li>
</ul>
Source: CPM Realty
FURTHER USEFUL READING 
<a href="/expert-insights/finance/15169-property-valuations-get-them-right" target="_blank">How to get property valuations right</a>
<a href="/expert-insights/investing/15397-property-valuation-101" target="_blank">Property valuation 101</a>
<a href="/expert-insights/26499-letters-to-the-editor-valuation-experiences" target="_blank">Letters to the editor: Valuation experiences</a>
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jduke-EHk3XBmHkn

Valuations: Five must know facts

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The RBA’s decision to leave interest rates on hold earlier this month is unlikely to have any negative effect on the property market. Interest rates have already fallen to a point where investors are being enticed to act and when investors come out so do the property marketers ready to sell.
But when you’re leafing through the glossy brochures and touring the display suites, remember that today’s financial benefits could be tomorrow’s financial headaches. These benefits are nothing new to the market as they are rolled out each time investors get active. Here are the most common ones to look out for:
Depreciation benefits
Buildings and their contents depreciate (decrease) in value, whilst land appreciates (increases). When you buy a new property, the tax office will enable you to defray part of the purchase price by allowing you to claim depreciation on certain items. This can be helpful in increasing your cash flow, particularly during the early years when the property is likely to be negatively geared.
However, the downside is that most of the depreciation you can claim comes from fittings and fixtures like the oven, air conditioner, blinds and carpets, which fully depreciate in five to 10 years. Furthermore, depending on the way you calculate your depreciation allowance, the amount you can claim may decrease each year. This means it will cost you more to hold the property as each year goes by.
Claiming depreciation can also have a hidden tax consequence because it will also increase the amount of capital gains tax you pay when you sell. I’m not saying you shouldn’t claim depreciation – but you should be aware that it may have financial consequences later down the track.
Stamp duty savings 
When you buy property off the plan in Victoria, you will only be liable to pay stamp duty on the property’s value on the date of purchase. If construction is partially completed, you’ll only pay stamp duty on that portion of the building, plus the land value. If construction hasn’t begun, you’ll only pay stamp duty on the land value.
<blockquote>
Don’t let short-term benefits hold too much sway when you’re choosing an investment property.
</blockquote>
Whilst this can help considerably when you first buy a property, it’s only a one-off saving that won’t help you after the loan has settled and you have to make repayments. What’s more, when you come to sell the property, potential buyers won’t have the same benefit of a stamp duty reduction, so there’s less incentive for them to buy it.
Rental guarantees 
When you buy a property brand new or off the plan, the developer will often undertake to provide a guaranteed level of rent each week for the first year or two that you hold the property. This kind of guarantee generally applies even when the property isn’t tenanted, because the developer picks up the tab.
Although it is reassuring to have certainty of rental income during the early stages of holding an investment property, there are two significant downsides. First, you’ll pay a premium to secure the rental guarantee; the developer will build it in to the sale price. Second, in accepting a guaranteed rent level, you’re insulated from market forces. Once the guarantee expires, the amount of rent your property can command will depend on a range of factors including supply and demand.
As newer properties come on to the market and tenants have a wider choice of places to live, the market rent for your property could fall. This is a particular risk in areas like the CBD and Docklands where there’s likely to be a substantial amount of new construction during 2009 and 2010 as developers scramble to keep up with demand from investors returning to the market.
Remember also that when you’re no longer protected by the rental guarantee, you’ll have to have sufficient cash flow to hold the property during periods when your property is not tenanted.
In summary, don’t let short-term benefits hold too much sway when you’re choosing an investment property. Focus instead on the long-term factors that will influence capital growth and rental demand: land values, demographic trends and the balance of supply versus demand. If these factors don’t add up, move on to another property.
You can visit Mark's website <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>.
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Buying an investment property? Be aware of short-lived benefits

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If you’re empty-nesters still living in the suburban home where you raised your kids, you may be planning to downscale to a lower maintenance home closer to the CBD and cafe culture.
The inner suburbs are more expensive than where you’re currently living, so you’ll need to maximise the profits from selling the family home to get a foothold a different market.
You face a choice. Should you play it safe, do a few cosmetic renovations to bring your home up to scratch and sell it pretty much ‘as is’ in the hope that strong demand from buyers will bring you a good sale price?
Or should you take a more aggressive approach towards increasing your potential profit by demolishing your old home, building two dwellings in its place and selling them on individual titles?
Many people think that subdividing is a sure way to make more money than simply selling a property in its current form — but like many ‘sure things’ in property, it ain’t necessarily so.
Working through the figures is the only way to make an informed decision. 
Start by getting a firm quote for demolishing your home and levelling the site. Factor in the cost of obtaining the appropriate council permits, and the fee an architect or draftsperson will charge to draw up plans for the subdivision.
Next, obtain an accurate costing for the labour and materials required to build the two new properties. Add a margin of at least 10% for unexpected changes and costs that may crop up when the job is underway.
Then, calculate the cost of interest. Even if you’ve paid off your home, the chances are that you’ll have to borrow money to fund the subdivision. Remember: the longer it takes to complete the subdivision and sell the properties, the more interest you’ll pay on top of the loan amount. It’s worth adding a margin onto the time you estimate the project will take.
Now, work out the rental cost. You’ll need a place to live while the project is underway, so speak with local property managers to find out the likely cost of renting a suitable property in your desired location. Paying rent as well as interest on the subdivision loan could make things tight financially, so it’s important to work out whether you can afford the additional outlay.
You’ll also need to calculate the cost of selling the new properties, including the real estate agent’s fee and marketing costs. These expenses can be significant, so it pays to negotiate a competitive commission with the agent and to satisfy yourself that the recommended marketing campaign will deliver the best value for your dollar by maximising the properties’ exposure to the right buyers.
Then, consider your tax liability. You’ll incur capital gains tax (CGT) when you sell. This could eat significantly into your profit, so seek advice from your accountant as to the exact liability that will apply in your situation.
Finally, ask local real estate agents for an appraisal of what your home is worth in the current market. 
It’s a common mistake to calculate the potential profit of a redevelopment by using the value of the property as it stood when you bought it. The land will have grown in value since then, so using the original value could lead to an over-inflated estimate of the profit margin — and bring you crashing down to earth when you actually sell. Make sure you use the property’s value in today’s terms. 
Once you have gone through these steps, you’ll have a clear idea if the project stacks up in financial terms. If not, it may be best to opt for the simpler route, undertake a few cosmetic renovations and sell your family home ‘as is’.
MARK ARMSTRONG is a director of <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>, which provides independent analysis and tailored advice to investors and home buyers.
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False profits? Why subdividing isn’t always the best option

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The RBA left the cash rate at 2.5% for the ninth month in a row, which is good news for property owners. 
However it always surprises me how people focus on the short-term movement in interest rates when deciding if they should transact in the property market. The reality is if a 2% increase in interest rates forces a property owner into a position where they have to sell then maybe they should not buy at all.
The main requirement of investing in property is to be in a position where you can hold the property for the long-term and to buy something that grows in value.
I’ve said it time and again that the residential investment property is a long-term proposition. The property market takes around seven to 10 years to move through a full cycle; from low capital growth/high rental yield, to high growth/low yield and back again.
Despite this, many property investors choose locations and property styles with little potential to survive and thrive throughout market fluctuations. Some investors choose locations that lack the long-term underlying demand to drive capital growth, whilst others choose property styles that don’t reflect trends in the way people want to live.
In other words, the property investment decisions that look good today may not prove so attractive in five, 10 or 20 years’ time. It’s essential to understand the nature of long-term economic and demographic trends, then select assets accordingly.
Interest rates rise and fall, but in the long-term, dwindling oil reserves and rising petrol prices will be a key economic trend influencing the property market. In the coming years, rising prices at the pump will make outer suburban living and commuting less feasible and less appealing. This will curtail the urban sprawl and increase demand amongst homebuyers for property in the middle suburbs close to public transport corridors, shops and schools.
At the same time, rising property prices in the inner and middle suburbs will put homeownership beyond the reach of more Australians, or at the very least, delay it significantly. Figures from the Bureau of Statistics tell us that the proportion of households renting from private landlords in Melbourne has increased from 22.8% in 2001 to 27.2% in 2011. Sydney is trending a similar way with almost 32% of its market inhabited by tenants.
The increase in tenant demand is not unique to Australian cities. Major global cities such as London and New York have 50% or more of their property tenanted. I am not suggesting we are a London or New York just yet but we are following a similar path and there’s every reason to expect that this trend will continue.
Because many tenants want to maintain the trappings of an urban lifestyle, the trend away from homeownership will increase demand for rental properties within walking or short driving distance from trams, trains, shops, cafes and entertainment precincts. For those that can afford to buy in these areas will also be their preferred choice. This two pronged demand from home buyers and investors will further boost capital growth prospects in the inner and middle suburbs.
Delaying having children is another trend set to influence the residential market well into the future. The median age for parents is 28.9 for women and 33.1 for men and women currently have an average of 1.9 children, compared with 2.8 in 1981.
This trend has resulted in the average number of people per house almost halving over the last 100 years from 4.5 in people to 2.6. In addition single person households have jumped from 22.9% to 24.4% over the last 10 years.
The shrinking size of the family unit means that demand for low maintenance, compact dwellings will increase, whilst demand for the conventional sprawling home on a quarter-acre outer suburban block will soften.
When you look at all these trends in their entirety, it’s clear that pockets of the middle suburbs close to public transport, shops and schools will provide feasible long-term opportunities for residential property investment, particularly for investors who have been priced out of the tightly held inner suburbs.
Mark Armstrong is a director of <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>, which provides independent analysis and tailored advice to investors and home buyers.
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Future-focused investing

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We live in a crazy world where we are encouraged to invest and fund our own retirement but are not provided with adequate information or legislative protection to assist us to do so.
People who are looking to enter the property market are forced to rely on patchy information, as disclosure of sale results is not mandatory and access to past sales is hidden from view. In addition consumer protection laws for property investors are almost non-existent. As the wheels of the property market begin to turn this is the reality property investors face.
Currently there is no obligation for real estate agents or vendors to disclose sale results to the public. For years the industry has hidden behind privacy concerns but consider this, even a property sold via a public auction can be undisclosed. If you are watching the auction you would know the result but because of privacy concerns the vendor can elect to hide the result. Have you ever heard of anything so ludicrous!  
<blockquote>
Lack of regulation enables practitioners to sell investors a product or concept, under the guise of providing advice without taking into account an individual’s personal or financial circumstances.
</blockquote>
On any weekend as many as 10% - 20% of all auction results are not disclosed. Imagine if the board of BHP was to keep that much information hidden from the market place. There would be up roar and rightly so!
Further the historical growth of an individual asset is a key piece of information anyone buying property needs to know to make an informed decision. However what the property last sold for is usually very hard for the average punter to find. Again imagine if you were looking to purchase some BHP shares but had no access to historical values. It would be very difficult to work out fair market value.
But it gets worse for property investors. Legislation administered by the Australian Securities and Investment Commission (ASIC) provides protection for investors in shares, managed funds and super. Financial planners are required to consider each client’s personal and financial situation, investment knowledge and risk tolerance before giving recommendations on strategies or products. They must also provide a rationale for the recommendations, and disclose fees and commissions they will receive if the client acts on their advice.
Investors in direct property, however, receive no such protection from the nation’s investment watchdog. This is a glaring anomaly given that, according to the Tax Office, around 1.5 million Australians declare rental income for investment properties.
The ASIC Act’s rationale for excluding direct property from the definition of what constitutes a ‘financial product’ is that — unlike shares, super and managed funds, where investors entrust day-to-day control to a third party to generate a return — direct property investors retain direct control of decisions and returns.
The fact that direct property investors retain control of their assets doesn’t mean they are any more likely to make sound investment decisions. On the contrary, the absence of a third party increases the need for inclusion in ASIC’s safety net.
Lack of regulation enables practitioners to sell investors a product or concept, under the guise of providing advice without taking into account an individual’s personal or financial circumstances.
The regulator’s attitude to direct property as an asset class is clearly out of step with the way it’s being utilised as an investment in the wider community. It’s time the legislation was amended to recognise direct property as a financial product and give property investors the same level of protection and access to information as those holding other asset classes.
The time is ripe for the nation’s corporate watchdog to step up to the plate. When investors turn their attention to property, they’ll be in a better position to make informed investment choices and less prone to the fallout from lousy investment advice.
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Full disclosure and property investor protection

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You’re sitting around a table with friends one night, downing a couple of glasses of red. The conversation turns to property investment, and how hard it is to get into the market. Emboldened by the wine, someone suggests beating the affordability barrier by pooling your resources and buying a property together.
In principle, it’s a great idea. By clubbing together, you’ll be able to afford a better quality investment property than you could as individuals. What’s more, your individual share of the mortgage is likely to be smaller than if you’d purchased on your own, which gives you more room to breathe financially.
Buying with friends can work well — provided that everyone has clear and consistent expectations before entering into the arrangement. It’s wise to draft a written agreement covering the key aspects and likely eventualities of the arrangement. You can do this yourselves, however it can be a complex undertaking so it may be best to see a solicitor with a specialist knowledge of contracts.
One of the most important considerations the agreement should cover is how long you intend to hold the property. Is this a short-term proposition, e.g. three to five years, or a long-term commitment?
<blockquote>
Remember, if you're planning on buying with friends you are entering a business deal, not a social arrangement.
</blockquote>
Ideally, you should hold residential investment property for at least seven to 10 years to ride out market fluctuations and make the most of compound capital growth. However, even with the best of intentions, unforeseen changes in the lives of the owners means there may come a time when it’s no longer appropriate or viable for one of them to continue the arrangement.
For this reason, the written agreement should address a range of possible life changes. For example, what will happen when one owner wants to sell their share of the property and free up funds to buy a home of their own to live in, start a family, or return to full-time study? What if one owner wants to buy the others out? How will the price be determined? What will happen if one owner loses their job, can’t work due to illness or injury, or dies?
The agreement should cover the dollar amount each person will commit to the investment, and the ownership split in percentage terms. It’s also worth including a reference to the terms of the contract you and your friends have with the lender. If you are borrowing money for the purchase, the lender will consider each of you ‘jointly and severally liable’ for the debt.
In other words, if one of you is unable to meet your repayments, the lender can hold the other borrowers liable for your share of the debt, and can take action to recover it from them.
To minimise this risk, each borrower should take out the relevant insurances such as life insurance and income protection insurance which will help cover their financial commitments in the event of illness, injury or death.
Your agreement should also detail nuts-and-bolts issues such as who will have responsibility for day-to-day management of the property.
Who will deal with the lender or broker, liaise with the property manager and (if relevant) Body Corporate? Who will ensure that council rates bills, insurance premiums and maintenance fees are paid on time and in full? If you have to make an insurance claim and you find out your policy has lapsed, no-one wants to hear the fateful words: “I thought you were handling that.”
The written agreement should also detail the procedure to be followed if there is a dispute amongst the owners. Whilst this may sound a little rigid or over-the-top (after all, you wouldn’t be buying with them if you didn’t think you could resolve problems) it’s important to look at the agreement in the cold light of day.
Remember: you are entering a business deal, not a social arrangement. The shared values and common interests that bind you together as friends won’t necessarily translate to a business environment.
When you buy with friends, you may benefit initially by spending less than you would on your own, but you also carry a greater risk of the venture failing due to conflicting expectations about managing change.
There’s little point risking a friendship over money—so for everyone’s sake, agree on the terms of the deal, put it in writing and then get on with business. This way, you’ll not only stand to gain financially, but maintain your friendship as well. 
Mark Armstrong is a director of <a href="https://www.ipropertyplan.com.au/">iProperty Plan</a>, which provides independent analysis and tailored advice to investors and home buyers.
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Mark Armstrong

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