Our panel of experts explain whether to refinance a property to pay off a credit card, the latest on the Melbourne property market, and what to do when you are stuck with a dud investment property

Prioritising debt
Q: About two years ago I bought my first investment property in a regional town in Victoria. The rental return almost covers expenses but the capital has been slow and this has slowed my continued investing.
A year ago my wife and I were both out of work for a while and had to resort to using our credit card. Only I have managed to find a job and we have been trying to pay off the credit card promptly. My bank asked me if I would like to refinance my property to pay off the credit card. I talked to my accountant who said it wouldn’t create much hassle with tax.
Since my wife and I want to purchase our PPOR within the next 12 months, while continuing to invest, I’m concerned whether refinancing to reduce our credit card debt could adversely affect our investment earnings, finances and future?
A: I don’t know how big a credit card debt you are talking about but replacing a high interest rate with a much smaller one available on your home makes a lot of sense on a number of levels. Being charged less interest means greater savings and improved cash flow. This in turn will improve your borrowing capacity with the banks when it comes time to increase your borrowings.
Now would also be a good time to have a closer look at your spending patterns and cash flow management. Working on a budget can be time well spent. It will also help you forecast when you are ready to purchase your own home.
When this time comes, it would be wise to engage with a good mortgage broker, one who understands property and is also a property investor. This is important as you need to get your finance structured correctly if you want to maximise your potential for building a successful property portfolio. Successful property investing means having sound strategies in place for both property and finance. Good luck.
– Sam Saggers
Making up my mind on Melbourne
Q: I’ve just read a report that says that it’s basically a waste of time to invest in Melbourne, or anywhere in Victoria, at the moment. Then I see adverts for these seminars saying it is a perfect time to get into the market. Surely they both can’t be right? 
I’d tend to believe the report over any kind of marketing material, but a part of me would prefer to believe the hype. I live in Melbourne, have money to invest and would prefer to do it here. So let’s hear it. Melbourne over 2013: buy or no buy?
A: I’m a big believer that general commentary helps no one because the Melbourne (and greater Victoria) residential market is made up of hundreds of submarkets. How can a general view of the market help you determine what is or isn’t a great place to invest? 
Melbourne is a large metropolis with a big population base and a wide and varied job market. Different parts of the city have different community needs. Granted, Melbourne has had a great capital growth run over the last five years, but opportunities exist in every market – you just need to know where to find them.
I think it all comes down to outlook and what you are looking for. If you’re investing with a long term view, now is a fantastic time to be buying the city’s blue chip real estate. You can secure it on terms much more favourable than when sentiment in Melbourne is high and frenzied buying competition exists. Equally, if you’re after income (yield), regional Victoria is offering some wonderful opportunities.
I’ve now experienced numerous property cycles over more than 14 years as a property investor and I find it interesting that in times where most of the risk has been removed but “perceived” risk is highest most investors approach with caution and sit on the sidelines. When risk is at its highest but “perceived” risk is lowest – during the boom times – investors are more than happy to jump on board and buy. 
It’s worth remembering that roughly 70% of the market is owner occupied and, with interest rates being so low, the increased affordability is bringing first homebuyers back into the market. If you want to invest in Melbourne in 2013 with an outperform result, I would focus on the following: established property –not brand new; suburbs that have average income greater than the city average; streets close to lifestyle drivers – café’s, parks, train stations, restaurants; property that has scarcity value (such as period homes or boutique apartments), is investment grade (where the yield is 4% or better) and has owner occupier appeal (appeals to the majority of the market); ignore the hype from seminars and check the facts yourself.
– Bryce Holdaway
In real, real trouble
Q: I’m struggling under the weight of my current negative-geared investment property, and  admittedly, the fault is mine. I bought in the wrong area. It would be great if I could say I’d just sell the thing and call it a failed exercise, but I’m pretty sure any sales price I’d get wouldn’t even be able to cover my debt. In other words, I’m stuck with it.
I’ve decided the best option would be to find a way to increase the rent. I’ve heard the suggestion of building a granny flat but that would be way past my budget. Are there any other ways to dramatically increase the yield,  without investing too much money? 
I’ve probably got about $3,000 to play with. The property is a 3-bed house in Geelong, bought for $300,000 (value more like $240,000) and built around 1995. I’m not very handy and don’t want to disrupt the tenants too much.
A: When you boil it all down to the most fundamental level, the money in property doesn’t come from land or the bricks and mortar, but rather from the pockets of those that the property serves. There are thus two ways to improve your returns:
1. Improve quality of life 
2. Increase the number of people your property can serve
Are you able to modify the use of the rooms to increase the number of people you could serve? For example, if the dwelling has two living areas, you could sacrifice one of them to become a bedroom? Four-bedroom houses, even with a smaller living area, would generally rent for more than a three-bedroom home. This is an easy, zero cost change that would increase the rent. 
What about quality of life improvements? Perhaps you could ask the existing tenant if there is any appliance they might get joy from, say, air-conditioning. You could get a small wall mounted reverse cycle air-conditioning unit installed for about $1,500. Add a margin of about 20% ($300) and the total becomes $1,800.
If we then divide $1,800 by 104 weeks (two year payback period) we get an approx rental increase of $17.50/week. If the tenant agrees to this marginal increase for the convenience of air conditioning, you could then have the tenant sign a new lease for two years! You’ll have increased the rent, secured the cash flow and increased the value of the property at the same time. 
By the same logic, you could do this for pay TV, internet, lawn mowing and gardening services, or even provide a furnished house for the executive. Just pick which items the market wants most and which suit your budget.  
Here’s an even further option. You could remove the current tenant and let out each room individually. If the house currently rents for $250 per week, and if you let out each room for $150 per week, you’ll increase the total rental income by $200 per week. Of course, shared accommodation often results in an increase in maintenance requirements, tenant issues, and often the need to provide a fully operational furnished home.
Remember, it’s all about getting the greatest possible return, in the shortest possible time, for the least amount of effort.
– Brendan Kelly
The Experts | Your Investment Property