Don’t take your eye off the ball

Great article by Franchise Accountant - Peter Knight 

Quote of the week from a new client...

"I guess I took my eye off the ball..!" 

(Err… understatement of the week)

Eighteen months ago they were making profits.

Then things turned.

For the worse.

- Decisions were being made without deep consideration of the longer term impact.

- Debt was taken on to allow for expansion, without sufficient planning.

- The owner of the business started taking more time away from the business, leaving the day to day running to a new manager.

- The results are now obvious.

It's easy with hindsight to see the impact of these decisions. Now we're in a fight for survival.

Action points arising from the meeting I've just had with this client:

- Owner to cease drawing a wage for the next 12 months.

- Owner to cease having personal expenses paid for by the business.

- Drop one highly paid manager.

- Renegotiate with the bank.

- Renegotiate with the landlord.

- Focus on increasing sales.

- Find alternative sources of income.

This has all happened within the last 18 months. That's how fast things can change.

Lesson to be learnt: Don't take your eye off the ball.

#business #sales #planning #bank #change #smallbusiness #smallbusinessowners #franchise #franchisebusiness

Great insight By Michael Murray FCA

Was a deep analysis done on the P&L, variable cost have been steadily creeping up on businesses over the past few years. Most of the proposed solutions seems to be on fixed cost. High Cost of Sales  can be the death of most SME especially if they keep prices steady....

Ivan Kaye comments 

Maybe a solution is 

—— to upskill employees to be great leaders

 …. Have a clear business model and formula that works 

—— hire the thriftiest and best - Reward team for performance of Botton line  - make sure rewards are in line with shareholders - bonuses in line with dividends and growth Kpis 

Analyse why the profits went down 

Sales? 

Margins?

Customer service?

Population Growth in Oz back to prepandemic levels

Australia’s #population is now growing faster than pre-pandemic levels.which should positively impact our #property markets and economy.

• Population growth results increases in property prices .  Recent research from Domain found that when the national population increases 1%, long-term cumulative house prices increase by 8.18%.

• Population growth will benefit property #investors – there will now be more people competing for rental accommodation, which will put upward pressure on rents.

• Population growth will benefit business  – by making it easier for them to find staff.

Thanks Christian Stevens for the heads up! 

Interest rate increases .25% to 3.6%

Interest rate increases .25% to 3.6% .

What will the peak be and when  will it reach its peak ?

The gurus say it will reach 4.2% before it stabilises ….

What do you think? 

If you want a free review of your mortgage and debt with a view to get a better rate or a facility - feel free to connect with me or go to www.bsi finance.com.Au  

 

Property in Feb 2023 - the positives and negatives

The national prices fall about 10 per cent from their peak – the second-largest slump in 43 years – seems to have stalled in Feb! (AFR)

 CoreLogic’s five capital city index has gone sideways.

Why?

1. Feb and March is the seasonally strongest month of the year in terms of capital gains.
2. The NSW government is allowing first-time buyers to elect not to pay any stamp duty and instead opt for an annual land tax, enhancing their upfront purchasing power.
3. The shared equity plan managed by Bendigo Bank (see link below )
4. Chinese buyers seem to have returned and a huge increase in student migration,
5. There are a shortage of properties and rentals have increased significantly 

However there is still a lot of pain on the horizon

Home buyers with big mortgages are on pain 

Why I think there will be a lot of pain  on those that have taken on huge mortgages on their own homes 

Interest rate increases have yet to hit on  one-third of all home loan borrowers are on fixed-rate products. A total of $350 billion worth of mortgage debt (close to 900,000 loans), will shift to variable rate in 2023. 

 These borrowers  will be smashed by a huge increase in their cost of capital, which in most instances will jump from about 2 per cent to 6 per cent - causing pain 

Inflation is on the rise 

We’ve been spending like it is 1999 and quickly burning through the saving  buffers.

People are spending more than they are earning!

Only 40 per cent of borrowers are less than three months ahead on their repayments. A big chunk of our society is very vulnerable indeed.

High risk premiums are lower than they should be .

The opportunity 

What does rate increase  mean for investors ?

An increase in interest rates are cushioned by tax deductions available and an increase in rentals! 

But ….Purchasing Power and serviceability has crashed  33 per cent to date. 

This could be an opportunity of sharing capital growth with those that have deposits with those that have cash flow!!

Property is still a great investment in Australia, and in my view will continue to be 

It will be interesting to see the governments experiment on partnering with those who can’t afford housing . The shared equity housing scheme 

Maybe investors should take note on what the government is doing! Personally I think shared equity is genius and a win win win for all

The shared equity housing scheme 

Great you tube explaining what it is https://youtu.be/83k8hHbCWl4

Plan for 1 million houses in Oz to solve chronic shortage of properties

Government are planning to release 1 million new homes across Australia to deal with housing, social, and economic challenges facing the nation.

------------------------------------------------------- 

Rental properties are scarce and rising and property prices unaffordable and unobtainable for most millennials with no help from their families .

According to the powers that are managing  the $10 billion housing future fund, what is needed is more investment from the private sector in affordable housing, , faster zoning, planning and more land release by state and territory governments, particularly around “well-located” state land near train stations and TAFE campuses. 

Challenges 

- low level of experienced local labour

- inefficient productivity practices across construction and bottlenecks in supply chain 

How do you solve these wicked problems ?

'Greenshots' - the 21st century equivalent to the last century's 'moonshot' success. Share  5 areas the industry  MUST focus on to solve this challenge:

1. design buildings and products for disassembly with sustainable, circular materials;

2. shift from product to materials centric operating model (placing materials at the core of precincts and ventures); 

3. deliver products-as-a-service putting responsibility back onto brands vs customers, governments, and citizens when dealing with all forms of waste (i.e valuable resources); 

4. shrink the manufacturing and service via (micro assembly service centre operating model), across each city and region across Australia; and 

5. sustainable, circular finance backed by trusted layer of transparency around materials usage across your network of products, cities, and precincts. 

Some of the things the government is doing

Treasurer Jim Chalmers and the state treasurers to meet to solve these wicked problems 

Up to $500 million a year will be used to build social and affordable homes, repair and maintain housing in remote Indigenous communities, provide transition housing options for women and children leaving domestic violence, and fund specialist services for veterans experiencing homelessness.

Collins said of the 30,000 homes to be funded under the scheme, 20,000 would be social housing, of which 4000 would go to women and children leaving domestic violence or older women on low incomes at risk of homelessness.

Helping  10,000 essential workers such as police, nurses and cleaners enter the property market by co-investing with them 

#constructionindustry #builtenvironment #homes #cities #greencapital #proptech #circulareconomy 

Inspires from  the SMH article:

Has Australian wealth creation been largely sad a result of property growth

Since 1988 average wealth per Australian has increased from $50k per person to $550k .

It’s interesting to note that property prices have doubled every 10 years .

Has the majority of Australian wealth increase been largely as a result of property price gains .?

If average property has increased from

150k in 1990 to 300k  in 2000 to 600k in 2010 to 1.2m in 2020

• What will it be in 2030?
• What will it be in 2040?
• What will it be in 2050?

Do you plan to purchase a property in next 5 years ? 

Call me for a free chat about property 

Mortgage costs are at their most expensive in 30 years

Skyrocketing home prices and increases in mortgage rates have diminished first homeowners  down payment and buying power.

How much of your income should go to a mortgage payment?

Forbes suggest that you shouldn’t pay more than 25% of your monthly after tax income on mortgage payments.

According to BetaShares modelling -  42.8% of  Income is used to pay mortgages with the national house price now 6.2 times the average after-tax annual household income! 

Mortgage rates in Aus have increased from 2-3pc to 5-6pc 

Mortgage rates in USA are in 7s and in South Africa in the 10s!)

Do you think interest rates will continue to rise? 

What effect will this have on the economy? 

Is it still a good time to buy property? 

Share your thoughts in the comments below. 

How the calculation works

The model utilises median capital city house prices, the average combined after-tax income for a couple, a 10% house deposit and the average discount variable rate

When lenders determine your serviceability , they use a debt-to-income ratio .

How is this calculated?  

They add up all your debt payments and dividing it by your gross monthly income. 

Say your monthly income is $7,000, your car payment is $400, your student loans are $200, your credit card payment is $500 and your current home payment is $1,700. All that together is $2,800. So, your DTI ratio is 40% since $2,800 is 40% of $7,000.

Why you should use a good mortgage broker - such as BSI Finance 

In general, a good DTI to aim for is between 36% and 43%. Some lenders will go higher, but the lower your DTI, the more likely you are to be pre-approved for a mortgage. Different lenders have different DTI requirements, though, so compare multiple mortgage lenders to find one that works for you.

There are a number of ways to lower your DTI

• Find a less expensive house. While your lender might approve you for a loan up to a certain amount, you don’t necessarily have to buy a home for the full amount. The lower the home price, the lower your monthly payments will be. 

Maybe consider renting your dream home and buying a less expensive investment home - to get into the property market? 

• Boost your deposit . The higher your deposit , the lower your monthly payment will be. So, if you can, save up so you can secure that lower payment.

•               Improve your credit score . Get a better credit rating . Look to pay your outstanding debt, like credit cards, car loans or student loans. This could lower your DTI, and  improve your credit score. A higher credit score means you could get a lower interest rate offered by your Lenden

• Get a lower interest rate - you may be leaving money off the table by shopping around for a better bank rate!

Source:

https://www.forbes.com/advisor/mortgages/mortgage-to-income-ratio/