FREQUENTLY ASKED QUESTIONS
Who is LPWA P/L?
LPWA P/L is a company that trades as Logic Property Wealth Australia. We are a family business, headed by Simon Meehan who has been involved in the property investment industry since 1997.
LPWA P/L exists to be a profitable organisation, to educate and to facilitate ordinary Australians property portfolios, ensuring their financial freedom.
We work with ordinary Australians who without our help will never be able to achieve financial security. We exist to be an authority in the property investment business.
We develop, and secure land based real estate and structure clients correctly in all areas of finance to ensure duplication of assets and long-term success for financial independence and retirement.
What accreditation does LPWA P/L have?
Under ASIC regulations, all our sales staff hold Sales Agents representative’s certificates. Simon Meehan as our main presenter holds a full REIV Real Estate License 073198L.
We are not financial planners. We are not accountants. We are not finance brokers.
We are not lawyers. Hence, we cannot give you specific advice in regards to these areas of expertise.
We can give you generic examples and talk about what our clients have already done. This is a great way for you to investigate what you can set up and do for yourself.
We do have independent financial planners, accountants, finance brokers and lawyers who work independently under our umbrella. We have property management agents located all over the country that care for our client’s assets and find appropriate tenants. We recommend these companies because we trust them and know that they are highly qualified creditable organisations that understand what we are trying to achieve for our clients.
How many companies are involved with “LPWA”?
We are a “one-stop-shop”. We have many companies involved with the group that are independently owned, including property development, property marketing, property finance, property management, property conveyancing / legal etc. All these businesses have been specifically selected by LPWA as we believe they are the best to service our clients.
Is Logic Property Wealth Australia a full disclosure company?
We pride ourselves on the fact of full disclosure. Most of the information is contained in this ‘LPWA’ document but we encourage clients to write to us with any other issues or information they may need.
How many clients have you serviced?
Over the years, we have serviced over 1800 clients and presented to well over 15,000 in public presentations. These contacts have not all been through LPWA as pre-2008 we traded under another name.
What is your referral rate like?
Over the years around 80% of our business has come from existing clients or referrals from existing clients. Again, this is not all from LPWA as pre-2008 we traded as Custodian Wealth Builders Victoria.
Goal planning meetings are something we recommend each client do every 12-18 months with their LPWA consultant. It means taking an hour from your schedule and sitting down with your consultant where we can plan your goals and review them every 12-18 months. This mentoring is critical for you to achieve your maximum results and help get you to your result a lot quicker.
References from other LPWA clients?
Your consultant can give you an extensive list of clients who have agreed to act as referees for the business and personal.
What is your process and first step?
Usually the first step is to attend a meeting with a LPWA representative. They will take some details from you and arrange a free assessment of your borrowing capacity from our Australian finance broker. They can call, Skype or contact you via email. This is vital as until this is clear to you, we are unable to know what you can do. At the meeting you will discuss what it is you actually want to achieve and your timeframe to achieve this within. This is the most important thing you will do and is usually the hardest thing to choose and make a decision on.
If you are interested to investigate LPWA further after this appointment and follow up with the finance broker, we will show you some examples of properties that are available for you to purchase. With these properties we will give you cash flow examples of exactly what your costs to hold the property will be. If you are comfortable with this you can request to sign an expression of interest form which secures the property off the market whilst contracts are being drawn up.
For most clients they will want to come and inspect available properties. This can be organized with our sales representatives.
Contracts are signed subject to finance approval. The lawyer representing you will explain over the phone and/or via email or Skype what needs to happen and what is the procedure to settlement of the property. At LPWA we prefer to have contracts sent to the lawyer representing you prior to you signing. The lawyer will explain all the protective mechanisms we at LPWA have put into place for your protection. The lawyer will fully explain what your commitment is to the contract and what the land vendor and builders commitment is to you. The lawyer will explain when deposits need to be paid and will help in this transaction. The financier will also have all bank accounts and transfers set up for each client to ensure settlement can occur.
Why invest in Australian property?
Australian property has been an outstanding long-term investment and is predicted to continue to be a strong secure investment option. Australia continues to have the largest percentage population growth in the world. This along with our natural birth rate ensures strong demand for our residential property for many years to come.
Property is and will always be the strongest asset class. The banks recognize this and hence why they are prepared to lend and give so much leverage for property compared to any other asset class.
What about a purchase in a SMSF?
Purchasing property inside a SMSF has become a very popular thing over the last 5-6 years.
LPWA P/L has helped dozens of clients purchase within a SMSF structure. Very few people can purchase a new house and land product in a SMSF structure as to do this the purchase must be a one contract and very few builders will fund the construction stages. Today the demand for off the plan property is so strong that builders insist clients fund the construction. LPWA P/L have access to one contract stock because of our length of time in the business and close relationships with land vendors and builders.
We have independent lawyers, financial planners, accountants and finance brokers that can put the required structures in place that completely meet all ASIC requirements.
The benefits of purchasing a property inside a SMSF set up are extensive and very much worth investigating.
What growth could we expect in 10 years time?
History tells us that generally property doubles in value every 7-10 years and has done so for many decades. All we are aiming for is the average growth that this country has shown for over 100 years. If we just aim for this type of growth with affordable property, then rents will be assured and our goals will be met without serious risk.
Why should I not do it myself? Why should I use LPWA?
The short answer is that you can do it yourself. Most of our clients choose not to do this because they are professionals in their league and do what they do well. In turn they let us do what we do well. There is very little chance you could do things at the same costs after taking all things into consideration including your time spent on the job. There are many other reasons but the main one is for peace of mind knowing that we know what we are doing and do it very well. We at LPWA have had many years experience in the Australian Investment property industry and can secure the right property in the correct structure for all clients. We ensure that clients are protected legally and the product is built correctly to Australian building standards.
We are a private organization that understands the requirements of our clients. We understand the Australian market and Australian culture. We have been living in this country for over 200 years.
It’s important to get all 6 areas right: The six focuses are:
1. Land Content- above 30% of investment.
2. Location- Schools, Shops, Family area, Secure safe area, Transport, Jobs and recreation.
3. Finance- 20% deposit with interest only loan
4. Timing- ensure the area has room for growth.
5. Cash flow- ensure holding costs are minimal and properties are in lower quartile
6. Tax Deductions- ensure property meets Australian tax regulations.
Without getting all this right you may not see sufficient growth in time to meet your financial goals. LPWA takes the hassle out of arranging building, tenants etc. for you.
Each individual will have a different capacity of what they can do. Whether you are buying for living purposes or strictly for investment the banks will need to know you have capacity to service the loan. They will take into account future projected rental income but they will also look at you income at present to ensure you have capacity to meet the loan repayments. They also need to see that you have a deposit available that can be used for the purchase of the property. The financier will explain exactly what will be required to purchase the property.
Why should I go for a P&I or I/O loan?
All interest associated with the investment property is tax deductable. An interest only facility traditionally gives us a lower interest rate as no Principal part is attached to the repayment. The Principal part being repaid is NOT tax deductable and hence why most investors will go for an I/O loan.
Recently banks were told by the governing body (APRA) to lower their percentage of investment debt against owner occupier debt to around 35%. APRA have since come out and put a holt to this request. What did happen was that many banks introduced very low owner occupier rates and higher I/O rates. This happened for the first time in my 35 years of borrowing and created an unusual circumstance. From that accountants acquired software that could comfortably divide the P&I from I/O and these low interest loans became popular with investors as well. Remember if you pay off Principal you can’t reborrow that amount and then claim again the interest component unless it is being used for another deposit and costs of a secondary investment.
How long will it take me to see the results from my investment?
This depends on market conditions. In a growth market you can see results even before the house is completed and we’ve had examples of that. In a slow market, it can take two, three or more years before you see enough growth to enable you to see equity gain and duplicate. This depends of course on your loan value ratio and other particular circumstances. We like clients to focus on property that will at least allow them to duplicate within a 3-4-year maximum period. Obviously, this cannot be guaranteed but looking at the property cycle and the basics of demand for property, it will give you a good chance of obtaining this goal.
How long does it take for me to have enough equity to purchase another property?
This depends on your finance structure, loan value ratio, the state of the market at the time and other particular circumstances. You should work this through with your consultant, however ideally to be duplicating every two- three years.
How do I know when I’m ready to duplicate?
This is something you need to work at. It will mean not only monitoring the growth of your property, which you can do through LPWA, but also revising and reviewing your borrowing capacity and working to reduce any principle that you have on debt which is locked in on non growth assets or even your principle place of residence.
What sort of return should we expect per annum?
Returns will fluctuate from year to year, but the average over a ten-year period is higher than 7%, and depending on the area it could be as high as 9%-10% or more. We have seen some years where property values have jumped by more than 30%. We have also seen times when the market has been slow and little growth has occurred over 5-6 years. If you are serious about Australian property you should invest with the idea of never selling.
How do I know I am paying the right price?
We use comparable sales that owner-occupiers have paid in the area to ensure you are paying market price. It is not difficult to obtain land sales evidence. We also know fairly accurately what it costs to construct and the difference in price of a fully completed package.
Do you require a deposit for holding my LPWA property?
Yes! In most cases you are required to sign an expression of interest with a $1000 fully refundable amount. This expression of interest allows you time to then have all your documentation done in front of the solicitor acting for you. This gives both you and the solicitor time to go over the contract and ensure everything is in place and understood. In some cases, the land vendor will require a 10% deposit to be paid when signing documentation before they will counter sign the contract. You will need this contract counter signed before any finance company will approve your loan. What this means is that your LPWA Property Finance person will have had to do quite a bit of work for you on your behalf before you purchase a property. In most cases they will have already set up a line of credit against an asset of yours to ensure you have the necessary funds available to pay the necessary deposit and required monies for settlement of land. The lawyer will also explain to you exactly what amount is required at land settlement.
How long after the presentation/ meeting can I inspect properties?
After an initial contact you will need to have at least two appointments with a LPWA Consultant and have a calculation of your borrowing capacity. Based on your suitability at that stage and your willingness, we can both decide whether it is right to investigate properties at an appropriate time.
How many properties should I purchase?
Whatever is appropriate for you to meet your goals, however if you are a 1st time investor we suggest you go slowly to ensure you understand the buying procedure first hand. This can differ pending your personal circumstances and necessity. Once you understand how safe and secure your investment is you should be confident to purchase and maximise your capabilities. This gives you the maximum benefit of compound growth within your structure.
Can my own solicitor here do all my legal work?
If you are buying in the State where you live, the answer is yes.
If it’s a solicitor registered in a State other than where you purchase and isn’t currently registered in the state where you are purchasing, they will need to organize a solicitor, or we can recommend a panel of solicitors who have acted on behalf of other clients. Some solicitors which we are able to recommend to you are registered in multiple states.
I’m self-employed, is this viable for me?
Yes. We have and have had hundreds of clients who are self-employed and who are building a strong portfolio. In some cases, it is actually a benefit.
How much cash do I need behind me?
If you’ve got equity in your own home, you do not need any cash and we suggest you put any cash you have into paying off your own home. This is because the money you pay on your own home mortgage is not deductable and that debt affects your ability to borrow. If you don’t have your own home, you will need around 15% of the purchase price to cover deposit, costs and incidentals.
Can you purchase if you don’t own your own property?
Yes. For some people they see it better to never own their own home. Some people prefer to focus on building wealth before they commit to purchasing their own home where the debt is non-deductable.
Do we invest mainly to duplicate?
Duplication is the process that allows you to achieve compound growth. Without compound growth, it is impossible for you to achieve serious wealth. Investing is different from picking a place to live in or a place that is chosen for personal purposes like education. Invest with your brain. Buy to live with using your heart. Always keep both of these separate.
What is average land content in the properties?
Approximately 40 – 45% however we ensure that all LPWA properties have a minimum of 30% land value.
When do I sell my houses?
We suggest that you don’t sell once you’ve built a critical mass of property that is compounding. You literally just have to sit and forget while your net worth increases by a compounded amount. Ask your consultant for more info re this matter as it is vital for you to understand in the future for you to have access to your wealth. The only reason you should ever sell is if you have to or for another reason that is of benefit to you.
Is the structure one I can leave for my children?
What are my risks?
The main risk is cash flow. Cash flow is affected by two things: one is interest rates, which can be combated by locking in your rate. The other is your tenants rent where risk can be reduced using careful planning and insurance options. The rental risk is minimized by location criteria and by keeping prices of property in the lower quartile. This ensures rents are always affordable.
What happens if interest rates go up?
We prefer that you investigate locking in your loans as interest rates can affect your cash flow if they rise. This is a personal decision you make however we do know from experience rents increase when rates go up.
If interest rates rise does my rent go up?
Generally that’s been the experience, however this can take 6-9 months to filter through. Rising interest rates will mean higher inflation and higher inflation will mean the economy is moving and the experience has been that rents increase and property values also increase.
Where does LPWA make its money and how much do they make?
LPWA makes a sales marketing fee anywhere between 1-6% of the purchase price.
This can differ depending on the type of property. Our profit is included in the price of the property which is always sold at “fair market value”. We charge clients a LPWA Aftercare fee of $2,200 for every property to manage the process of purchase. Please see “LPWA Aftercare Fee” document for all included in this one-off fee.
What is “Fair Market Value?”
The best way to find the Market Value of a property is to compare recent sales in the area that have sold to people who have chosen to live in the area themselves. (Owner Occupiers).
What are the ongoing costs associated with being a client of LPWA?
There are no ongoing fees or charges associated with Logic Property Wealth Australia.
What amount do I actually borrow?
That depends on you but it will be between 80%-110% of the purchase price of the investment property.
Will LPWA Property Finance brokers get me the best rate?
It will be very close but not necessarily the best rate as the best rate may compromise your ability to duplicate or require greater security than is necessary. We believe it is better in some circumstances to pay slightly above the best rate but still measure it against the variable rate and have a structure to duplicate to ensure you meet all requirements to give you the absolute best chance of meeting your long term finance goals. Please remember interest on investment properties are fully taxed deductible.
What gauge does LPWA Property Finance brokers use to calculate borrowing capacity?
This varies from lender to lender as they each have stipulations on income and cost allowances for dependants and other items that you may have under finance. All Australian banks insist that investors must have strong deposit funds plus costs to purchase. This percentage is off the contract price. Banks usually add on 2-2.5% on top of the standard variable rate at the time when calculating how much you can borrow. They will usually only use 30% of your gross income as the amount that can be used for all mortgage repayments.
What is LVR?
LVR is Loan Value Ratio and it’s the amount the bank will loan you compared to the value of the property. Some people also see LVR as a percentage of your value of asset vs the debt over that asset or your combined LVR being all your value as a % against your total debt.
What is DSR?
DSR is Debt Service Ratio and it’s the percentage of the income you generate that a bank will let you allocate to your debt. (The Serviceability)
What is serviceability?
This is simply your cash flow that you generate to service your loan.
Whose names are the titles in and who keeps the deeds?
The titles are in your name or another entity’s name that you may choose if need be. The deeds are kept by your bank who is the mortgagee.
What is the best structure to buy an investment property in?
This will depend on where your income comes from but generally in your own name or wherever else you generate income. If you have a complicated structure for generating income, it may be worth referring to your accountant. If you require a good Property Accountant, then L.P.W.A. can recommend such people that we use ourselves.
Can I top up my equity when I want?
Yes you can, depending on whether you have taken a fixed loan, interest only loan or principle and interest.
Is an equity loan or a redraw facility better?
It is advisable to always obtain a separate equity loan when raising a deposit for an investment property purchase. Redraw facilities should only be used on your own home for personal expenditure and not for investment. At tax time it makes life much easier for your accountant to decipher what is personal and what is for investment if you get a separate equity loan each time.
Can you please explain interest during construction?
Interest during construction is simply based on the fact that you have settled the land and therefore you will be paying interest on your land whilst your house is being constructed. Further, you will be paying progress claims throughout the construction period, which will also attract interest on the outstanding loan as it is drawn down. L.P.W.A. finance brokers will calculate the amount of interest on the land and construction finance and provide to you the estimate of total outlays that you will need for your acquisition. Interest through construction is deductable. In most cases the interest through construction will be included in the deposit amount of 30% plus costs. It is worth noting that although we pay money on borrowed amounts through construction, we are saving significant amounts on stamp duty as we are buying “off the plan” and hence only paying stamp duty on the land component and not the total property value.
This is not the case with apartments as we must pay interest on the total purchase price.
When is stamp duty calculated and when do I pay it?
Stamp duty is calculated on the purchase price of your block of land or completed product and it is payable at settlement.
Who builds my house?
We have a panel of registered builders. We use builders who are used to building volume construction, who have solid financial history and who can perform in the timely manner. We also use builders who give LPWA a priority in their building program. Being a registered builder means standard 7 year structured guarantee on the building.
Is the land registered?
We try to market registered land; however, from time to time there may be some unregistered land. Clients often contract on a property and have to wait until the council register the title of the land before settlement can occur.
What if the builder goes broke or can’t finish the house?
If the builder fails to comply with its contractual obligation under the building contract, clients have one main form of recourse. Like all consumers, clients have recourse to the Statutory Insurance Fund, established by the Building Services Authority. This is why it is important we use reliable registered builders.
It is also important to note that with house and land product the construction process means clients pay at different stages of development. They receive an invoice from the builder for each stage. This means you are only making payment to the builder after the work has been completed for each stage
Who is the contract to build with?
The contract is with the builder.
Can I alter the fittings etc of the house?
The short answer is that you can; however, we discourage it because it will cost money in variations. Out of the thousands of houses we have been involved with construction for our clients, very few have had any alterations. The houses are designed with a particular specification in mind for immediate tenancy therefore all finishes specified are been done so with tenants in mind.
Can I see a house in my area that has been built by the builder for LPWA?
The simple answer to this is yes, depending on where you are and where you are purchasing. Most builders used in the LPWA program also have display homes that can be visited.
To what extent do you monitor my building phases?
LPWA works closely with your builder during the construction process and collates weekly updates on the progress of the property. LPWA will monitor the progress and query the builder if there are any noticeable delays or issues apparent.
LPWA also sends in an independent building surveyor to do a defects report before final payment is made. This is included as part of your LPWA Aftercare fee. This document is sent to you and also immediately on forward to the builder and property management agent. The builder signs off on this document and has 10 days to complete all defects. Your property management agent also checks that all these minor defects are completed before taking the keys and allowing entry to tenants.
To what extent do we get involved in the building?
When LPWA contacts a builder on your behalf they also instruct the builder to complete the property within the LPWA specifications. Each builder has a standard range (for example colour, tiles, carpeting etc), which are nominated on your behalf so there is no need for you to have to make these decisions. LPWA will monitor the property management company & authorise if necessary building claims on your behalf. We continually liaise with the builder and financier, coordinate building inspections, complete a defect and handover inspection and ensure delivery of the keys to your nominated property manager.
What is ‘turnkey’ and what does it mean to my finished house?
This essentially means that when your house is completed, it’s ready for a tenant to move into. All the tenant needs to bring in is his or her own furniture.
Where are your estates?
Our estates are currently in Melbourne & Brisbane, however LPWA also has access to properties all over Australia and will give relevant information on designated areas when required.
How do you pick what estates you have for sale?
We naturally research estates that meet all of our criteria. We monitor Australian real estate figures, Australian bureau of Statistic figures and are continually looking where government infrastructure spends are happening and projected to happen. We monitor growth rates of different areas around Australia and can see where areas have significant potential for growth.
Why would I buy in Queensland, Perth or Melbourne rather than my own state or area that I personally know?
Quite simply LPWA considers there is the potential for further price growth in these States because of the migration and when you compare the average home repayment to the average wage, there is still room for growth. We base our opinion on years of property cycle facts. We look for properties with enough room for growth, so as clients can duplicate from their purchase within a 3-4 year period.
How do I get information on the market?
The Real Estate Institute of Australia (REIA) provides a good breakdown of market information and their relevant associate offices in each state can provide more specific information to the general performance of the capital cities. Ask your LPWA consultant for any relevant info. We are continually monitoring the markets and are happy to provide you with this information.
Where do you get your information from, i.e. how do you know where the best places for growth are?
We have years of experience in the property industry. Statistically we can work out affordability of an area by looking at mortgage payments V household incomes. This calculation is used specifically by banks when working out borrowing capacity.
What are bank valuations and why are they not disclosed to us?
Please see the ‘LPWA The Logic of Property Valuations’ document for full explanation.
Is my property valued at settlement or another time?
The property is valued to allow you to settle and then should be valued every 12 months, and if the market is running hot then every six months. Most banks will not like to revalue until at least 6 months after completion. The initial valuation called for by the lending institution is supposed to be an “at completion” valuation. In truth it is just an assessment for the banks security purposes so as they have someone else (the valuer) to sue if you default on the loan and they sell the property and don’t get the amount they loaned you.
Interest is tax deductible on the building – can you clarify this?
Interest on both the land and house is tax deductible once the house is complete and in a condition that it can be made available for rent. In addition to the interest, depreciation can also be claimed on the house itself in accordance with the depreciation schedule.
What is a section 15:15 and what does it mean to my tax/salary?
This is simply a form that the Tax Department allows you to lodge which enables you to get your deductions back from your employer. As an example, if you current tax rate is 32% and you put in a Form 1515 because you own a residential investment property, depending on the deductions the Tax Department will write to your employer authorizing the employer to take less tax out of your pay and therefore increase your wage.
What about land tax?
Land tax varies from State to State. You can check rates on-line at your relevant Office of State Revenue. Each state Govt has a different threshold hence owning properties in different states may be worthwhile.
Who manages the property?
We use agents who specialize in rental management to manage all our properties. Our main property management company is Guardian Property and Asset Management. Guardian are a National company with many offices all over Australia in Perth, Melbourne, Sydney and Brisbane.
What insurances do I need?
Whilst the property is in the construction process the builder takes out necessary insurance with the Building Services Authority (BSA). This also covers Public Liability. Before final Payment and handover you will need to arrange Building Insurance with Public Liability over the property, however, we will contact you before this is due and provide you with a quotation and assist you to get this in place if required. Landlord protection insurance is definitely something that we advise you to take out. This covers you against the tenant not paying rent, breaking the lease or damaging the property. All insurances are a tax deduction. LPWA will help in assuring all these things are done for you.
Property is about tax saving isn’t it?
No. It’s about growth or income and LPWA clients are focused on growth. You cannot save yourself to any wealth and without growth you cannot build wealth. Tax has never and never will be a reason to buy property. With that in mind, we need to use our Australian tax to help hold as much property as possible at an affordable amount.
Isn’t it better to be positively geared compared to negatively geared?
Not necessarily for wealth building. Positively geared property can mean lower growth. For wealth building, the focus needs to be on growth. It doesn’t mean all properties that are wealth building properties are negatively geared. When you focus on growth you will have much higher land content, it might mean a lower income to start with. We generally find that most properties that are negatively geared move to become positively geared within five years. All properties will eventually become positive over time but remember we require growth to build wealth.
Some financial advisors are saying the property market has peaked and to stay away from it?
This is irrelevant as building wealth is about getting compound growth and to get compound growth you need to stay within one market sector for at least a full cycle. Remember the adage, “It’s never a bad time to make a good investment”. In truth most financial advisors know very little about property because they have never built wealth using property as the vehicle. They prefer to advise you to buy shares and diversify your investing. The exact opposite to what we are doing and saying for your investing.
What about high-rise units?
New high-rise units are probably the worst investment you can make from a growth perspective in property. They have very little land content. A new high rise unit will have around 90% of the cost designated to the building hence the large amount of depreciation but only 10% land component appreciating.
What is compound growth?
Simply growth on growth. Compound growth is the secret to Wealth building.
What is lazy equity?
This is simply equity that you have that may not being used to its optimum.
What is an historical cycle?
It’s simply the cycle of the markets. Property Markets in Australia for 150 years have cycled every 7-10 years on average.
Why do the banks allow so much leverage with property?
Well over 90% of the worlds millionaires have created their wealth in property because of the better leverage available than any other asset class. The banks allow a lot more leverage against property because it is the safest investment. It is a finite commodity with continual demand. (There not making any more land!)
Why does LPWA stick to the Capital Cities?
We at LPWA know that there is always strong demand in the “bigger” cities. That’s why we stick to areas with the largest population. History proves that these cities out- perform regional markets in general. We always need our properties rented, hence in a large population area there will be more employment. Regional towns normally have one main form of employment. If that employment is affected for whatever reason then tenancy could be a problem. The capital cities have also shown stronger and more reliable capital growth over time.
Why does LPWA stick to properties around the medium home price and below?
The main reason is that these properties will always have demand for tenants. Affordability is a key to ensuring cash flow. With above 40% land content, a new home that will give great depreciation for Tax benefits, reliable rental income because its affordable for all who rent and quality amenities in the area means the average Australian will be comfortable renting your investment.
What does 40% land content mean?
It simply means that 40% of your total $ investment must be the value of the land. The value of a property is made up with only two components.
1. The land value
2. The Improvements