Property is on the rise…How about the economy?

There’s been plenty of speculation in the past couple of months around whether the housing slump is done & dusted or is this upswing just a blimp on a continuing negative trajectory.  Whatever you believe, if you’ve been thinking about investing in property now is the time to investigate with a little more vigour & be ready to invest when your ideal opportunity arises.

I speak to many potential home buyers & investors who want to take advantage of this sweet spot where interest rates are at historical lows at the same time as we seem to have reached the bottom of the property correction, ready for our next bull market run in housing.

Are ready to buy, but worried about the other conversation in the economy: Are we heading into a recession? According to some of our most respected economists, it’s not time to panic. The difference today to a decade ago when we were in the GFC is that the drivers of our current economic slowdown are geopolitical rather than being driven by a weakness in our financial markets.

gdp

 As you will see from the graph, GDP like many elements of the economy runs in cycles. My belief (I’m not an economist . . . just your regular punter with a view) is that emotion drives the cycles.  We buy as the market rises wanting to jump onto the bandwagon whilst at the same time pushing it ever upward. Then, as it seems to be topping out we panic & sell, thereby self prophesying the bursting bubble & driving downward trend, sometimes into a spiral.

This of course is only one element of what keeps the markets moving in cycles. There are plenty of levers being pulled & pushed in the background trying to keep the economy steady. 

Fiscal Stimulus is where the government stimulates the economy by building infrastructure like roads, hospitals, schools etc. This generates employment together with using our natural resources & multiple products to build, supporting industries across the country. It also ensures that as our population grows there are schools, transport etc to support the population. 

Monetary Policy (interest rates) is the other. The RBA manages rates up & down to either boost the economy or slow it down to a more manageable level. By reducing the cash rate recently the RBA is encouraging investors to buy property & other assets. Why? Because it’s cheaper to borrow!

cashrate

Michael Blythe, Chief economist at CBA is encouraging: 

“If we were to record a recession in the classic sense – two consecutive quarters of negative economic growth – “it would be one of the strangest I’ve seen”. 

“You don’t typically get recessions with budget surpluses, rising house prices, strong jobs growth and near full employment,” he says.

Shane Oliver, Chief economist at AMP also appears positive about Australia’s economy. What is interesting in the context of investing in property is his comment that “The slowdown in Australia is purely homegrown so far, driven largely by the housing downturn.” Can we in the property market, turn the Australian economy back around?

trump

Sure the combo of Trump’s indignant trade war with China & Johnson torpedoing toward a No Deal Brexit is cause for global concern. But it could result in a benefit for Australia  Blythe also says “Australia looks relatively well placed. If China is suffering then they will be stimulating their domestic economy as hard as they can, providing some protection as well to Australian exports.”

In short, from what I’ve read it seems to be that there are no fundamental problems with our economy. The government is pretty fixated on hitting its budget surplus target. This is expected to be announced any day & I can assure you once it happens you will hear about it over & over again.  Hopefully, once this marker has been reached the government will start on other aspects of building a stronger economy.  

Employment levels are good with the jobless rate of 5.2% (the target is 4.5%), there are lots of major infrastructure projects in the capital cities stimulating the economy but perhaps broadening this to non-major projects in regional Australia is something to consider. One of the major barriers for young families & down-sizers going for the sea/tree change is employment opportunities outside our major cities. Stimulating the economies in regional Australia seems like a win/win to diversify our population, take the pressure off the cities & boost dozens of regional centres looking for an injection of people, jobs & growth.

If you’re feeling that now is the time to invest in property, please give us a call to discuss your financing options. Getting your ducks, or should I say docs, lined-up is an advantage today as many of the lenders have been under-staffed & under-prepared for the pick-up in volume of loan applications since the market started to turn after the Federal election. Consulting with a Mortgage Broker & arranging a pre-approval of your borrowing capacity is a great way to avoid the stress so often associated with the loan approval process.

If you’d like to know what your borrowing power is, call 0478 732 343 or email mary@clearoptionsfinance.com.au at Clear Options Finance to arrange a free consultation & review of what you can do to invest in property.

 

 

 

Why can’t I get a business loan?

One of the main barriers for selling a business is whether the buyer is able to get the finance to purchase the business. Contrary to popular belief, banks want to lend you money & they want you to succeed. Because when you succeed, they succeed. 

So here are my Top 5 Tips on how you should prepare to borrow money from a bank or other lender to buy a business.

Banks & lenders in general, have 2 main criteria when they lend money; can the borrower pay me back & will the borrower pay me back. This month we’re going to focus on the “can”. That is, can you be successful in generating enough revenue to make the regular repayments on the money the bank will lend you? 

It’s very important to a lender to know that you understand the business that you are purchasing & the market in which you will be trading; both your competitors & your customers. 

Tip no. 1: Know your industry . . . thoroughly!

It sounds like a great idea to leave your stressful job & create the next-big-thing tech start-up. Or perhaps you are over living in an expensive capital city & dreaming of a sea/tree change where you can buy a local restaurant & build a fabulous business with friendly locals & happy relaxed holiday makers as customers. 

  • But do you know the industry, thoroughly? If you’re buying a cafe, do you have any idea how to make a great piccolo. How many sandwiches will you actually sell on a Thursday? What is BAS?
  • If the local hairdresser is more your speed & you’ve worked as a hairdresser for 10 years in a trendy inner city suburb, do you know how to do a wash & set for all the grey nomads settling in your town over the summer months? Do you know how to deal with suppliers? Where do I start with modernising the booking system?

Tip no. 2: Research, Research, Research!

If you want to buy a cafe, hairdresser, mechanic, bed & breakfast etc anywhere but particularly in a coastal or regional town you should research the area over at least 6-12 months. 

  • Get a sense of the traffic flow, the seasonal changes with tourists, are the locals loyal, will the peak season carry you through the off season.
  • Visit & stay in the area at least 3-4 times, use the local facilities, eat at the cafe, use the mechanic, stay at the B&B. Get a feel for the people, get a feel for the business. Does it feel successful?
  • Research the local council planning & environment proposals. Is there anything planned that would impact your proposed business either positively or negatively.

Tip no. 3: Know exactly what you are buying

  • Invest in a good lawyer & a good accountant to review all contracts & existing finance arrangements. 
  • Are the current owners retiring, sad to be selling or are they an exhausted young couple who can’t keep up with the hours required to keep their small business buoyant?
  • Is your differentiator that you will bring something special that the previous owners had not considered. 
  • It’s very important that you know what is included & excluded in the sale together with the condition of any machinery or equipment. 
  • Is the equipment leased or owned outright? When does the lease expire? Does it have a balloon clause that you will need to honour?
  • If you’re buying a “bricks & mortar” business, who owns the premises? What are they like? Are they quick to resolve issues or do they fight for every penny?
  • Are you taking on any additional debt or liabilities?

Tip no. 4: Cashflow is king!

Make sure you know the numbers; revenue, profit, cashflow thoroughly. Again, invest in a good accountant. The business may look all shiny & profitable on the outside, but why is it being sold? 

  • Look at the books for the past 5 years. Is the business steady & growing? Is it seasonal? Does it have spikes & troughs; why?
  • The no. 1 rule of any business is cashflow.  You may be very profitable in some months & struggling in others. If you’re booming in the holiday season from December through February, this wont help if you run out of money in November.
  • Are your suppliers reliable? What is your distribution channel? Is it diversified?
  • Make sure you can manage that cashflow. Plan with cash projections, arrange for offset & overdraft facilities but make sure that you can pay your staff & your bills through the seasons without needing to live on bread & water to do so.

Tip no. 5: Write an awesome business case

Buying a business is not something that you should rush into. It should be a well thought out & considered decision. It should be a tad overwhelming with a large dose of excitement at the challenge ahead. 

You should have your a-team. I cannot stress enough, surround yourself with specialists; an accountant, lawyer, finance broker, who can support you along the journey. If you have access to a business advisor &/or mentor, then that’s even better. Make sure that they are not only capable, but that they also have the time & desire to support your business.

Finally & most importantly, your business plan is the bedrock of your loan application. It is the story that will engage the bank in your vision & reassure them that you know what you are doing, you have a plan & you have considered all the road-blocks. This is where an awesome finance broker steps out from the crowd. 

At Clear Options Finance we will take all your research, review your financials & liaise with your accountant to put together a detailed business case to be submitted to the lender. This is the story that will give the lender comfort that you have researched your project thoroughly, that you are capable & you know what you are doing. 

It will demonstrate that you can repay your loan.

To arrange a free 1 hour consultation with Clear Options Finance call 0478 732 343 or email mary@clearoptionsfinance.com.au