How to Get Rid of Bad Tenants

We’ve all heard the horror stories about bad tenants failing to pay up, damaging the property and generally making a nuisance of themselves.

If your tenant truly is a lost cause that will end up leaving you out of pocket, then naturally you’ll want to evict them as quickly as possible and bring in someone who will help to get your property investment back on track.

However, you don’t have the right to kick them out without following the correct legal framework. Fail to do so and you could find yourself fighting a lengthy and costly battle.

Step 1: Know the law

Tenants have certain rights that are enshrined by law in each state and territory, and the sad truth is that some nightmare tenants know how to play the eviction game and will use the legal framework to draw out the process for as long as possible. It’s vital, therefore, to have a property manager who is familiar with their state or territory’s tenancy laws.

Tenancy laws

 

State/territory Law State authority Further info
QLD Residential Tenancies & Rooming Accommodation Act 2008 Residential Tenancies Authority www.rta.qld.gov.au
NSW Residential Tenancies Act 2010 Fair Trading/Consumer, Trader & Tenancy Tribunal www.fairtrading.nsw.gov.au
ACT Residential Tenancies ACT 1997 Civil and Administrative Tribunal www.acat.act.gov.au
NT Residential Tenancies Act 1999 Consumer Affairs – Department of Justice www.nt.gov.au/justice/consaffairs
SA Residential Tenancies Act 1995 Residential Tenancies Tribunal www.ocba.sa.gov.au/tenancies
TAS Residential Tenancy Act 1997 Consumer Affairs and Fair Trading www.consumer.tas.gov.au
VIC Residential Tenancies Act 1997 Victorian Civil and Administrative Tribunal www.vcat.vic.gov.au
WA Residential Tenancies Act 1987 Department of Consumer and Employment Protection www.commerce.wa.gov.au

 

“The legislation is different from state to state,” notes Queensland based Glenda Rajah, from Guardian Property & Asset Management. “They are all along similar lines, but there are different timeframes involved.”

Each state or territory’s residential tenancy legislation will include the following details:

  • The rules for notifying the tenant that they have breached the rental agreement:
  • The timeframe that a tenant must be given to remedy the breach
  • The rules for issuing a notice of termination of the tenancy if they fail to remedy the breach
  • The grounds upon which a landlord can terminate a tenancy

Step 2: Get the agreement right

There are various terms that you can legally include in your tenancy agreement that, if breached by the tenant, will give you legal recourse to issue a breach notice. These include:

  • The rental amount and how frequently it must be paid
  • The tenants’ duty to inform the landlord or property manager of maintenance issues
  • The tenants’ duty to pay for any damage other than fair ‘wear and tear’
  • The tenants’ names, and the number of tenants that can live in the property
  • The tenants’ rights and responsibilities regarding visitors and their conduct

Including such terms in the tenancy agreement at the start of the tenancy will allow you to refer back to the paperwork when issuing a breach notice.

“With all our properties, the leases come with no smoking inside the premises, so if you walk in [at a routine inspection] and can smell the smell of smoke you can breach them,” says Rajah.

Step 3: Conduct regular inspections

Each state and territory’s tenancy laws stipulate how many routine inspections you or your property manager can carry out each year. In New South Wales, for example, you can carry out a maximum of four routine inspections per year – having given the tenant seven days’ notice of the inspection date.

Here are some of the key warning signs to look out for that your tenant isn’t following the terms of the agreement.

  • More beds or mattresses than the number of people on the lease
  • Damage to the property
  • Unreported maintenance issues
  • Uncleanliness

Rajah adds that some of the common reasons to issue a breach notice include cars being parked on lawns, torn fly screens, holes in walls, tears or stains to carpets and unauthorised pets. She warns, however, that it’s important to know the law when it comes to documenting the evidence of a tenant’s bad behaviour.

“When the property managers do their routine inspections, by law they’re not allowed to take photographs of any personal possessions,” she says. “If a car’s parked on the lawn, you’re not allowed to take a photograph of that car because it’s got an identifying registration number. So everything is very tightly controlled.”

Step 4: Issue a breach notice

If your tenant has breached the terms of the tenancy agreement, then it’s important to issue a breach notice as soon as possible – as this is a vital step in the eviction process. Fail to issue a breach notice, giving the tenant the timeframe to remedy the breach that has been outlined in the state legislation, and you won’t be able to commence eviction proceedings.

The state or territory’s official breach of notice form must be issued and delivered in a manner set out by the relevant legislation. This may include giving the notice to the tenant personally, or posting it to them. In most cases your property manager will be posting the breach notice, and legally must allow enough time for the notice to be delivered before the breach period can start.

In Western Australia, for example, a tenant who fails to pay the rent on time must first be served with an official ‘Breach notice for non-payment of rent’ form. If the tenant doesn’t pay the outstanding rent within 14 days of receiving the form, the landlord can issue a ‘notice of termination’ requiring them to vacate the premises.

A similar process must be followed in each state and territory, and Rajah stresses that following the legal timeframes is vital.

“A form 11, ‘notice to remedy breach’ can be sent out when they’re eight days in arrears, and you must give them nine clear days to remedy that breach – which includes two days’ postage,” she explains of the process in Queensland.

Step 5: Issue a notice of termination

How to issue a notice of termination:

 

State Action by landlord Minimum time allowed for tenant to vacate
Qld Issue a Notice to Leave (Form 12) 7 days rent, 14 days general breaches
NSW Issue Termination Notice 14 days
SA Clause to vacate included in Notice to Remedy Breach of Agreement (Form 2) 8 days
WA Issue a Termination Notice (Form 1C) 7 days
ACT Issue Notice to Vacate 14 days
NT Issue a Termination of the Tenancy and Possession of the Premises, specifying a date for vacation of premises. 14 days
TAS Issue Notice to Vacate, stating grounds and date of effect 14 days
Vic Issue Compliance Order, available from VCAT. If ignored, issue Notice to Vacate 14 days

If you have issued a breach notice and the breach has not been remedied within the legal timeframe then the next step is to issue a notice of termination. This will inform the tenant of the reasons behind the termination, and how long they have to vacate the premises. In Queensland, for example, the tenant must be given no less than seven days to vacate in the case of un-remedied rent arrears, and 14 days in the case of any other un-remedied breach.

“On the notice to remedy breach it lists where they’re paid to and how much rent they must pay to stop the breach. So if they don’t pay that amount by the due date, on the next day we then issue a notice to leave. If they’re paid up by the cut-off date of the notice to leave, all is forgiven,” says Rajah. If not, then it’s time to take the process to the next level.

Step 6: Gaining possession

How to properly gain possession

 

State Action by landlord Response by authorities
Qld Apply to Queensland Civil and Administrative Tribunal for a Warrant of Possession Police oversee the execution of the warrant and hand possession back to the landlord
NSW Apply to the Consumer, Trader and Tenancy Tribunal for a possession order, then a warrant for possession if order ignored Local Court sheriff’s office oversees execution of order
SA Apply for an order of the Residential Tenancies Tribunal for vacant possession (Form 7) Tribunal bailiff enforces vacant possession order
WA Obtain order of possession from the Magistrate’s Court, then property seizure and delivery order if ignored Court-appointed bailiff removes tenant
ACT Apply to the ACT Civil and Administrative Tribunal (ACAT) for a termination and possession order (TPO) Police oversee eviction after serving tenant with an extra two days’ notice
NT Obtain order for the possession of the premises by Commissioner or a court, effective within five days Representative of Commissioner or court takes possession of the premises
TAS Obtain order to vacate from a magistrate, then obtain order for possession if ignored Representative of court takes possession of the premises
Vic Apply to VCAT for an order of possession Police evict after a certain period, usually 7-30 days

 

If you have followed all of the necessary legal steps, but your tenant refuses to vacate the premises by the date specified on the notice of termination, then you can’t simply throw them out. You must go down the relevant legal channels to gain permission to take back control of your property.

In Queensland for example, a landlord can apply to the Queensland Civil and Administrative Tribunal (QCAT) for a termination order and a ‘Warrant of Possession’ – and this application must be made within 14 days of the eviction date stipulated on the notice of termination.

If you fail to apply to QCAT within this 14-day period then, as Rajah puts it, “you have to go back to square one again.”

Once issued, the warrant will authorise a police officer or stated authorised person to enter the premises and make the tenant leave.

“QCAT sends a copy of the warrant to the local police station and they have about 14 days in which the police then go out and serve the warrant on the tenant,” says Rajah, adding that the police can forcibly remove tenants who still refuse to leave.

It’s also worth noting your state or territory’s regulations when it comes to dealing with any property that evicted tenants have left behind. You may well be required to organise the removal and storage of furniture.

“That is all at the tenant’s expense,” explains Rajah. “And that’s again why tenant default insurance is extremely important, because these sorts of things can run into hundreds, if not thousands, of dollars.”

Step 8: Going to court

Few tenancy disputes make it to court, but it’s worth covering your back and preparing for this eventuality all the same. Your tenant may be able to take their dispute to the highest level, for example, or – even if you have managed to evict them – you may choose to chase them up for damage or unpaid rent.

According to Western Australia’s Department of Consumer and Employment Protection, common disputes that find their way to court include:

  • refusal to return bond money
  • overdue rent
  • damage to property
  • maintenance of the premises
  • problems when ending tenancy agreements

It’s important to keep records of both your conduct and your tenant’s conduct in relation to the tenancy agreement. The Department of Consumer and Employment Protection suggests using the following checklist:

  • Can I establish that I had the right to let the premises, or an authority to act if I am not the owner?
  • Do I have a copy of the tenancy agreement?
  • Did I lodge the bond correctly?
  • Have I kept proper records of the rent paid and the date of the last payment?
  • Did I issue receipts for rent paid, and are they in order for quick reference by the Magistrate?
  • If the rent was paid directly into a bank account, do I have the appropriate statements?
  • When the rent fell behind, did I serve a notice on the tenant on the correct day?
  • Did I follow correct procedures when serving a notice to end the tenancy agreement?
  • Have I arranged for witnesses to appear at the hearing (if required)?
  • Have I gone through my evidence thoroughly?

Rajah notes that, in her experience, most disputes that make it to court revolve around non-payment of rent. By the time that the tenant has been evicted, for example, the weeks of unpaid rent may not be covered by their bond and therefore you may wish to file a compensation claim.

She warns, however, that the lengthy process of going to civil court, tracking down the tenants and getting the bailiffs involved makes it “nigh on impossible” to actually recoup the unpaid rent from your ex-tenant.

“The bond will only cover so much, so then we go to court for what we call a compensation claim,” she says, adding that this is another example of why it’s vital to get adequate landlord insurance cover.

10 Steps to Overcoming Procrastination and Fear of Investing

By now you will have heard a lot about how the market has well and truly warmed up and in some cases heated up. You may have read many stories of how many people have succcessfully profited from  property leading up to this point in the market, and you have thought to yourself, “wouldn’t it be great if I could do that, too?”

So, you started looking into ways you could either enter into the property market, or perhaps increase the profits  on your already existing property portfolio, but you just haven’t been able to get traction or momentum, and you are worried about missing out.

You procrastinate about taking action, perhaps there are things you are fearful of that are stopping you from taking the steps towards getting results. If this sounds familiar, you are not alone. Fear and procrastination are big hurdles that block many people from achieving their investment goals.

There are ways to easily overcome these hurdles, and safely help you reach your goals. These methods will assist anyone in getting started in property investment or creating some real momentum within their existing property portfolios:

1. List your fears

It can be hard to get over your fears unless you are actually clear on exactly what your fears are. Make a list of exactly what it is that you think is scaring you or stopping you from moving forward. Be as honest with yourself as possible and be as specific as possible, for example:

  • I am scared
  • I don’t understand the property market enough
  • I am scared of purchasing an investment property and not being able to rent it out

You are only able to overcome your fears if you are clear on exactly what they are.

2. Understand there is a solution to fear

It will help to understand that there is a solution to fear. Fear is usually caused by ‘not knowing’, thus the more you ‘know’ the less scared you become.

So, after you have worked out what it is you are really scared of, research that topic, and write down what information you will need to ‘know’ to help you overcome that fear. If you understand your fears more, you may find they become so much easier to overcome.

So, for example, if you are scared of purchasing an investment property because you are worried about not being able to rent out the property and being stuck with a mortgage, then you need to increase your knowledge about the demand for rental properties in your area of choice.

Call local real estate agents and find out their sentiments of the rental market  in the area. Go to www.yourinvestmentpropertymag.com.au for details about the vacancy rates for the area to help you assess the demand for property there.

If the vacancy rates are at 3%, this will represent a balanced market; however, if the rates are below 3%, this will mean that there is a shortage of supply of property in that market compared with demand, and thus it is likely you will not have much trouble renting out your property. Understanding this beforehand will assist you in overcoming your fear.

3. Understand research does not equal risk

Too many people allow their fears to immobilise them, so much so that they even stop themselves from doing their research.

You should understand that carrying out research and speaking to experts will help you avoid getting yourself into property transactions where you could lose. There are so many avenues of research that cost very little, if not nothing at all, so make the most of this. You can get this from your real estate agents and a lot of free information from council websites.

4. List all the reasons why it is important for you to achieve your goals

When overcoming your fears, you need a reason to do so, otherwise it is all too easy to always be scared and avoid what it is that you are scared of, rather than break through.

Make a list of all the reasons why it is important to you to reach your goals. Not just the goals that you want to reach, but the specific things that will happen if you reach them, or even the consequences if you don’t.

So, for example, it may be important for you to reach your goals so you can retire comfortably knowing you have a property portfolio working for you and you are not reliant on a pension to survive.

Or, perhaps it is important that you are able to create profits from property so you are able to have a debt-free home to live in within a certain period of time.

On the other hand, it may be important to reach your goals because if you don’t, it will mean you will not be able to take the time to travel the world as you hoped to, or you may not be able to afford to take time off work to spend with your kids.

Whatever it is for you, make sure you write this down and you are clear on your reasons for achieving your goals. You must make sure you have more reasons to achieve your goals than you do fears. So keep writing until your reasons outweigh the fears you have listed.

5. Have a plan of action 

Most people will procrastinate when the task at hand seems all too much. Write out a simple plan made up of baby steps that are simple and easy to complete.

It may be as simple as:

  • List my fears
  • List solutions to my fears
  • List my goals and reasons for achieving my goals
  • Call five real estate agents in the local area and discuss the current rental market

Make sure the plan of action is specific, and that each task only has one step in it so that it makes it easier to follow and stick to. You may even want to note how long it will take you to do each task so that it may be simpler than what it seems, eg, listing goals will only take 10 minutes.

6. Set aside regular ‘property profit’ time

Schedule specific time you will use to invest in your property profits future. Make sure that the time period is not too daunting for you to complete.

Choose to do this on lazy nights when your favourite TV shows are not playing or perhaps the nights that you know you will be home. You can start off with as little as one hour a week to get things done.

If, for example, you choose to do your property research at 7pm on a Monday, don’t worry too much if businesses will not be open to take your calls when you are doing your research. Find solutions for this; you can email them and merely await their reply the next day. Do not give yourself an excuse not to commit that time to your property research.

7. Have a system to select your deals

Once you have tackled what you think is holding you back and what it is that you want to achieve, it’s now time for you to take a step towards entering the property market and this is where some people can get stuck again.

To avoid the traps of procrastination and fear, have a system to objectify the property selection process, and eliminate any emotion getting involved. I use what I like to call a funnel system in finding deals, and this helps me to avoid spending hours (if not days) of searching online for a nice “property” and instead I focus on finding the deals which are likely to be most profitable.

Here is the system that I use:

  • Focus on only three areas to start with
  • Choose the best three streets in those areas (according to proximity to convenience)
  • Select the one to two blocks or so surrounding those streets, and specify these as your highlighted area
  • Within your highlighted area, choose the kind of properties for sale that are most appropriate and in demand. You can get this information from council websites

Though the council, find the main demographics of the area and if it’s made up mainly of families, it’s appropriate to assume that larger dwellings such as houses are in most demand. If the population is predominantly singles and couples without children, then apartments may be the way to go.

Use this strategy to simplify the property research and selection process.

8. Get professional assistance and research

The most expensive advice is free advice from someone who has not got the results you want. Often, there could be people close to us with good intentions influencing us by their  opinions or experiences, yet they may not have the results that you want.

Be careful not to take on the fears and opinions of these people. You can choose to work with professionals who have results and experience, and they can help you get the same results for yourself while eliminating the mistakes they have already gone through and replicating the successes they already have.

Be selective of who you work with, and make sure it is someone you feel you can communicate well with, and more importantly have personally experienced creating similar results to those that you want for yourself.

This goes for all the professionals that you will need to work with in your property investment future, ie, solicitors, lenders or finance brokers, accountants etc. You can also do courses on property investment and/or work with property research professionals, to help take you step by step through your  property investment journey, which will also help save you time and reduce procrastination.

9. Enlist a friend who can hold you accountable

It can be a good idea to team up with a friend. You may either work on the same project together or perhaps you will have your own individual projects. But you can hold each other accountable for completing set tasks each week.

If you do work on the same project together, it makes it easier for you to counter check each other’s work, and you can get more done with more manpower. It can be less risky working  with someone else and also a whole lot more fun. Set rewards for each other for when you are able to complete each of your tasks, and celebrate together after each milestone is achieved.

10. Don’t think too much. Just decide and start

Do not get so caught up in getting everything perfect before you start. Just get started. Remember that when it comes to property, you are never locked in or at risk of losing money unless you sign an unconditional contract of sale to purchase, thus, there should be nothing else stopping you from getting everything else done. So just start.

When you are satisfied that you have done everything to set yourself up  for a profitable property deal, and you know exactly how you are going to afford the property and where you will get the money from to do it, this will be the only time that you will lock yourself into any contract. No matter how much you have prepared yourself for investing (particularly if it is your first), to some degree, it  may still feel  like you are taking a leap of faith; so make the decision to get over it, then… just start!

Yza Canja is a successful property investor who started investing when she was 22 and has grown a multi-million dollar profitable property portfolio.She personally coaches others to achieve high profits from their their investments using creative strategies.

Investor magazines’ 2011 unit hotspots are more misses than hits two years on

The Queensland mining towns of Gladstone, Toowoomba and Chinchilla account for three of the five locations that have delivered median unit growth above inflation (around 5% over two years) when measured by both RP Data and Australian Property Monitors (APM) – the two information providers used by Your Investment Property and Australian Property Investor in compiling their Top 100 lists.

In line with Property Observer’s analysis earlier this week of the 21 collective detached housing hotspots which appeared in both magazines 100 ‘best buy’ suburbs of two year’s ago, analysis of collective unit hotspots also reveal that very few have delivered any meaningful growth to date.

The other two are Paddington, the trendy inner Brisbane suburb and Baulkham Hills, about 31 kilometres north west of the Sydney CBD and part of the Greater Western Sydney growth corridor.

Property Observer looked at the movement in medians of both RP Data and Australian Property Monitors (APM) to also see how the two major data providers differed on the same location.

Similar analysis found just four hotspot markets where house prices had delivered inflation-beating returns to investors over the same period.

Averaging out results across both lists, Gladstone is the standout with 27% price growth between 2011 and 2013.

Two points are worth mentioning:

Firstly, that most astute property investors would take a long term view of their investments – indeed some of these non-performers may turn around in the coming years.

However, many investors would expect to see signs of capital growth in so-called hotspots over a two-year period and certainly not the declines recorded in some locations.

Secondly, astute investors would also be aware that investing in a suburb showing strong capital growth does not necessarily mean your investment property will perform in line with the overall suburb.

You could pick a turkey investment among a so-called ‘hotspots’. Equally, you could make an astute selection in a suburb that has not performed well.

It comes down to the exact street location (even sometimes what side of the street your property sits), the type of property you choose, what you pay for it, whether it appeals to tenants, the cost of maintenance and many other factors.

Hotspot guides can be good starting points if you’re looking for a suitable investment, but always take the recommendations with a grain of salt and due your own research and due diligence.

The figures below are sourced from the 2011 and 2013 hot 100 and top 100 editions of Australian Property Investor magazine and Your Investment Property respectively:

RP Data figures

Suburb State Median unit price 2011 Median unit price 2013 % change over two years Hit or miss?

1.

Ainslie

ACT

$680,000

$728,000

7%

HIT

2.

Townsville

Qld

$473,000

$399,000

-15.6%

MISS

3.

Gladstone

Qld

$388,000

$475,000

+22.4%

HIT

4.

Rockhampton

Qld

$389,000

$325,000

-16.4%

MISS

5.

Toowoomba

Qld

$217,000

$345,000

+58.9%

HIT

6.

Chinchilla

Qld

$293,000

$310,000

+5.8%

HIT

7.

Paddington

Qld

$433,000

$492,000

+13.6%

HIT

8.

Dulwich Hill

NSW

$475,000

$485,000

+2.1%

MISS

9.

Baulkham Hills

NSW

$479,000

$520,000

+8.5%

HIT

10

Bathurst

NSW

$212,000

$227,000

+7%

HIT

11.

Port Macquarie

NSW

$290,000

$265,000

-8.6%

MISS

12.

Geraldton

WA

$265,000

$212,000

-20%

MISS

13.

Broadmeadows

Vic

$334,000

$265,000

-20.6%

MISS

14.

Thornbury

Vic

$385,000

$377,000

-2%

MISS

15.

Warrnambool

Vic

$260,000

$242,000

-6.9%

MISS

16.

St Kilda

Vic

$476,000

$440,000

-7.5%

MISS

17.

Brunswick

Vic

$420,000

$416,000

-0.9%

MISS

18.

Balaclava

Vic

$453,000

$466,000

+2.8%

MISS

19.

Port Noarlunga

SA

$219,000

$260,000

+18.7%

HIT

20.

Kensington

SA

$363,000

$404,000

+11.2%

HIT

Source: Australian Property Investor magazine, Your Investment Property magazine, RP Data

APM figures

Suburb State Median unit price 2011 Median unit price 2013 % change over two years Hit or miss?

1.

Ainslie

ACT

$690,000

$715,000

+3.6%

MISS

2.

Townsville

Qld

$443,000

$393,000

-11.2%

MISS

3.

Gladstone

Qld

$319,000

$475,000

+32.8%

HIT

4.

Rockhampton

Qld

$330,000

??

??

??

5.

Toowoomba

Qld

$281,000

$301,000

+7.1%

HIT

6.

Chinchilla

Qld

$295,000

$385,000

+30.5%

HIT

7.

Paddington

Qld

$399,000

$460,000

+15.2%

HIT

8.

Dulwich Hill

NSW

$478,000

$492,000

+2.9%

MISS

9.

Baulkham Hills

NSW

$443,000

$510,000

+15.1%

HIT

10.

Bathurst

NSW

$216,000

$220,000

+1.8%

MISS

11.

Port Macquarie

NSW

$295,000

$265,000

-10.1%

MISS

12.

Geraldton

WA

$290,000

n/a

??

??

13.

Broadmeadows

Vic

$337,000

n/a

??

??

14.

Thornbury

Vic

$383,000

$370,0000

-3.3%

MISS

15.

Warrnambool

Vic

$232,000

$230,000

-0.9%

MISS

16.

St Kilda

Vic

$480,000

$447,000

-6.8%

MISS

17.

Brunswick

Vic

$415,000

$435,000

+4.8%

MISS

18.

Balaclava

Vic

$455,000

$450,000

-1%

MISS

19.

Port Noarlunga

SA

$220,000

n/a

??

??

20.

Kensington

SA

$411,000

n/a

??

??

Source: Australian Property Investor magazine, Your Investment Property magazine, Australian Property Monitors

Source: http://www.propertyobserver.com.au/hotspots/investor-magazine-unit-hotspots-more-misses-than-hits-two-years-on/2013072563554

Australia’s biggest investor myth

On paper, mining towns offer a high return on investment, but investors who purchase in one could end up with an asset that performs a lot differently from big city properties – and not for the reasons they’d think .

Prospective Mount Isa investor Dale Collins was checking a well-defined crack in the walls of an old miner’s cottage when the real estate agent spoke of domination.

They were in the house’s kitchen, a closed off room with dusty brown walls and vinyl flooring, and Collins had just remarked that the setup reminded him of the inside of a 1970s caravan. The agent, draped in a black suit and tie in the outback heat, didn’t take kindly to the comment and decided he’d set Collins in his place.

“He told me it didn’t matter,” says Collins. “He said that the kitchen didn’t need to be pretty because the house would get high rents anyway. He said that once people came into Mount Isa they had to submit to their landlords. There was such a need for rental accommodation they’d rent anything and pay a high price for it.”

While the agent failed to persuade Collins, he touched on a growing theory among Australian investors. This line of thinking proposes that the best way to ensure a stream of high rental income and own a property that will quickly double in value is to invest in a mining town such as Mount Isa.

The theory isn’t backed up simply by hearsay. The facts speak for themselves. Of the 50 best performing markets across the country last year, 10 were in mining towns. Look further back and their case is even stronger. The fastest growing market in Australia over the last 10 years was a mining town – Wandoan in Queensland’s coal rich Darling Downs region – and most of the markets that follow close behind are also mining areas.

Then there are the now legendary towns. Coal community Moranbah has had roughly $650,000 added to its median house price since 2003, while Port Hedland, the gateway to the iron-rich Pilbara region in Western Australia, has done even better. Its median house price has increased by more than $1m. In fact, Port Hedland now has the distinction of having the highest median rent in the country, a cool $2,600 a week, according to RP Data.

Astonishing as these increases have been, mining towns have had no shortage of bad press. “I had heard that you could get some good returns in Mount Isa, but yes, you do get worried that you could be making a mistake by investing there,” says Collins. “One of the things I had to check when I was researching Mount Isa was that the place would do ok even if the resources market went a little crooked. That’s what you hear goes wrong in these places. They close a mine and all the people that would have been your tenants split town.”

The list of things that could seemingly go wrong with a mining town investment is long. Mines close, workers get retrenched, developers build too much rental accommodation – any and all of which could happen at one time.

NSW’s Broken Hill is a perfect example of such fears coming to life. Over the first half of the 20th century, the desert community was not just the third largest settlement in the state but one of Australia’s biggest cities. By the 1970s a lot of the mines that had nurtured the city’s growth began to close and this sent the local employment market into free fall. The population, which at that stage had been 30,000, quickly dwindled to 10,000. Property prices plummeted. What had once been a boisterous real estate market had a hole blown from under it and investors had no escape. In the forty years since, the population has slowly increased to about 17,000 and mining activity continues, but the city has never returned to its prior heights.

For some investors, like Dale Collins, such risks have proved too great. “I was interested in Mount Isa, but to be honest, with my budget I wouldn’t have got the right property for that kind of market. I thought I could sniff out a good deal on an older property and renovate it, but it’s hard and I’ve learnt that you can’t half-chance it. You have to spend a lot of money in a mining town.”

For other investors, like Your Investment Property Investor of the Year 2013 winners Kate and Matt Moloney, such risks are part and parcel of the mining town deal. The young couple continue to invest in big projects in Queensland’s Mackay region – particularly Moranbah – which they believe offers great opportunities.

“There is a severe shortage of all types of rental accommodation in Mackay, so it’s helped us to organise some great deals,” says Kate, who adds that thanks largely to mining town investments, she and Matt have built a portfolio of roughly $8m in just a few years.

Kate is quick to admit, however, that she and her husband plan to start diversifying away from mining towns. It’s a viewpoint that hardly reassures new investors. What else can they conclude when even the best investors have doubts about mining towns?

Property in mining towns

Mining towns are not so risky if you know how to play the game, says Next Hot Spot director Andrew Peterson, but he adds this is part of the problem.

“When we’re talking towns that don’t have anything going for them besides mining activity, they are usually markets that you need to get into while they are going good and then get out of quickly, before they start to decline. Considering how long it takes to find a property, settle on it, develop it – if that’s what you’re planning – and then tenant it, not to mention one day sell it, that’s really hard to do,” he says.

Peterson believes understanding the reality of mining towns is to understand the reality of property investing itself. “There’s a clear difference between investing and speculating,” he says. “A speculator is looking for money to make now. Speculators take risks. Investors are in it for the long haul. If you think about it that way, there really is no way to ‘invest’ in a mining town. You can make money if you’re a professional developer, but, if you’re just a mum and dad investor looking for something to support your retirement, a mining town probably won’t work.”

Another problem with mining towns, according to Peterson, is they are usually far from ideal places to live. People are reluctant to settle in them permanently and the local property market suffers as a result.

“Most property markets in mining towns never fully mature. There might be high salaries in the area and that might grab a lot of investors’ attention, but there’s more to the picture,” claims Peterson.

“Most mining workers are very reluctant to spend their money in the mining town they work in. They’d much rather sit on their money and spend it somewhere else. That actually means that it is not the mining towns that benefit, it’s the areas like Perth or Gladstone where the workers fly back to.”

Peterson believes it’s worth making a distinction between ‘source’ areas and ‘catchment’ areas. The source areas are right next to the mines – the one trick pony towns that only exist because of mining. The catchment areas are the places that already have good infrastructure and offer a good lifestyle component, but have the added benefit of receiving a boost from the resources sector in some way – either being close to a major mining area or being a transport hub for one.

The catchment areas are the places that cashed-up mining workers will want to live in permanently, according to Peterson. They are unlikely to have the same incredible rate of rental and capital growth over the short term, but looking ahead to the next 20 years, they will be the areas that end up with the strongest property markets.

Global resource markets

If Peterson is right and it’s the catchment areas that will benefit the most from the resources boom over the long term – Perth, Toowoomba, Gladstone, Rockhampton, Brisbane – the next, and obvious, question is whether the resources boom is something sane investors would want to hedge their bets on in the first place.

According to leading economist, Shane Oliver from APM, there is still no definitive answer. Owing to the unpredictable nature of the international market and its effect on the demand for resources, Oliver says that there will always be an element of uncertainty in the resources market. However, he sees the key being Asia.

“A truly nightmare scenario you tend to see on blogs written in the US and Europe is that China would stop growing. I don’t see that happening and expect China to continue to see good economic growth, so I think the real worst case scenario would come about if there was no pick up in global growth this year. In reality, I think a lot of the worries about Europe will probably start to recede and I see growth in the US economy picking up a notch. Amongst this, China growth will probably stablise at around 7% this year.”

China’s influence on Australia may seem obvious, but Oliver says the Asian giant’s importance cannot be underestimated. “China is our biggest export market. It accounts for 5% of our exports, and that’s up from about 1% a few years ago,” he says.

The soon to arrive ‘mining peak’

While it is difficult to predict when the resources boom might start to falter, a far easier event to forecast is when Australia’s mining project pipeline will peak. According to the QBE LMI Housing Outlook 2012-2015 report, this is likely to occur by late 2014. In between then, the report forecasts mining-related investment to continue to grow, despite some recent falls in commodity prices.

In fact, the report says that commodity prices should have little impact on mining activity over the next two years. This is largely due to many projects being past the stage to “turn back” – mining companies have pumped so much of their capital into these projects that cancelling or scaling back production in the short-term would be near impossible.

A report by Deloitte Access Economics is not as optimistic. Their January Business Outlook report forecasts late 2013 as being the peak point for mega-mining construction projects, but the report also warns that a little perspective is required. Resource related construction will start to wane, it says, but will still remain huge relative to times past.

BIS Shrapnel senior residential manager Angie Zigomanis agrees. “From a domestic perspective, there is still a lot of mining investment activity in the pipeline. If you’re a mining company and you spend $4bn of a $10bn project, you’re going to finish it. The next couple of years of spending are pretty much locked in,” he says.

Zigomanis says that a lot of the projects currently underway are two, three and four year projects and while they are still being built Australia’s resource-affected states – Queensland, WA and Northern Territory – will benefit strongly.

“The question mark is beyond that period,” he adds. “If there is a slowdown or a fall-off from reducing mining investment, there might also be other parts of the economy picking up some of that fall-off so the property market might only start to be affected by 2015 or after.”

Looking at a more regional level, the January Business Outlook report notes that as resource-related building work peaks and passes, the economies of resource-rich Queensland, WA and Northern Territory will still be well supported by the mining sector. “Despite cost cutting from miners, these states still look set for a solid short term growth outlook,” it says, adding that a lot will depend on the strength of the Australian dollar.

 

Property Tax Planning for 2013: How you can maximise your tax savings

Here’s a scan of a recent article titled “Property Tax Planning for 2013: How you can maximise your tax savings” from Your Investment Property July 2012.

It’s a good read and there are a few things in there you might pick up!

View the Tax Planning 2013 – YIP July 2012 (PDF)