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Furthermore, a property that you plan to buy, reno and then rent for positive cashflow would be a combination of two profits – generic cashflow and capital growth (initially manufactured via the reno, where more perceived value is added than its cost, and thereafter generic growth from general market appreciation). Therefore, we currently need to take generic growth off the table in most scenarios as a realistic profit option, but that still leaves us with: positive cashflow – generic and manufactured, and manufactured capital growth strategies. If so, then it doesn’t really matter if prices are falling so long as your assets remain cash-flowing, in which case your investing is sustainable and you won’t be a forced seller in a down market. A down-trending market produces some extra heartache, and risk, when manufacturing your property profits since your gain is predicated on perceived value, and if values are falling, then your profit margin might be shrinking during the time it takes to finish the project.

Melbourne’s final results are also trending upward through March, although this week’s preliminary result is several percentage points lower than last week, due mainly to an increase in auction volume. That’s better than moving backwards, but it brings the annual growth rate of credit to a meagre 4.2 percent, the lowest growth rate on record. Because housing demand depends primarily on the availability of cheap credit, the rate of credit growth is the most important leading indicator of home price movements. While the rate of price decline seems to be slowing in Sydney and Melbourne, it’s important to keep in mind that prices are still falling, and according to credit growth data, will likely still be falling six months from now.

New rules, introduced just over a year ago (and therefore perhaps not ingrained in many people’s minds), mean that investors can no longer claim travel expenses relating to inspecting, maintaining or collecting rent for a residential rental property as deductions, unless they are carrying on a rental property business or are an excluded entity. Note that under the new rules, where you are not using the property to derive rental income but are using it for other income-producing purposes (for example, you are using it in a business) travel will continue to remain deductible. The new law is broad in scope and denies deductions for not only travel to the property for the purposes of inspecting, maintaining or collecting rent for example, but also travel undertaken that’s related to the property but not to the actual property itself. The good news is that the new law does not apply where travel expenses are incurred to visit a tax agent for the purposes of preparing and lodging an income tax return that happens to include rental income and deductions.

Fair wear and tear means that, for example if the hot water system wasn’t working when you signed the contract (the day of sale) or breaks down after you sign the contract, but before you settle, then it is the purchaser’s problem/expense. The Vendor agrees to ensure that the Property is in a clean and tidy condition at settlement and otherwise in the same condition as at the day of sale and all chattels (including rubbish) will be removed prior to settlement unless otherwise agreed. That is, the vendor is obliged to deliver the property in the same condition, there is an opportunity for a pre-settlement inspection and issues can arise when the vendor doesn’t leave the property in reasonable condition. For that reason, I would add the following sentence to the above recommended special condition: “If the Vendor is in breach of this special condition then the Purchaser may withhold at settlement the reasonable cost of any required repair or works.