Forum Replies Created
Foundation, I agree with you that credit will be harder to come by in a bust. However, credit doesn’t completely dry up. Properties still change hands. Those with strong balance sheets, cashflows and high salaries will still be able to get loans. Also vendor financing will be much more common in a bad market, which bypasses the banks altogether.
As I said, people go bankrupt investing in property when they buy at the top of the market. At the same time, if you were conservative with your numbers, even buying at the top of the market doesn’t drive you to bankruptcy. Plenty of people hurt during the early 90’s but only a few actually went bust.
Buying during a bust is much safer than buying at the top of the market.
AlexOriginally posted by foundation:But surely ‘locking in’ values near the top of the market won’t be much use if the value of current holdings falls, will it? Lenders will still want to see balance sheets where total loans outstanding < total current market value. Unless their LOCs are sufficient to buy outright (no loan), these ‘experienced investors’* would be LESS able to borrow money than people with less or no outstanding debt.I’ve heard tales from the early 90s where people in negative equity were knocked back on small loans to repair their cars or purchase washing machines… let alone multiple properties.
In addition, were things to turn sour (increased loans in arrears, valuations below loan values etc), the banks and lenders mortgage insurers would be very quick to tighten their lending criteria. Loans for multiple property holdings where the borrowers had no realistic plan in place to repay capital would be seen as high-risk, rather than ‘safe as houses’.
There are always ways around this. Vendor financing, say.
On the contrary, have you ever done a refinancing on one loan out of many? The bank will revalue the property you are refinancing, but they never check the value of the exisitng properties: they assume that LVR is ok and look more a the income / interest payment side of things. I know that banks have never had to value any other properties of mine apart from the one I’m buying / refinancing.
Cars and washing machines don’t generate income. Experienced investors would be able to buy properties at less than 10% below ‘market’, creating much higher yields. Would you rather lend money to a person to buy a car, or lend money to the same person to buy a property?
You’re not thinking like a bank: banks DON’T want you to repay capital. They can get capital cheaply from deposits or borrowing in the money market. Of course credit will be tighter, but there will be ways of borrowing. Volumes fell during the last bust, of course, but there WERE still settlements. Meaning people got their money from SOMEWHERE.
I’m not saying everyone will be able to take advantage of the bust. I just expect to be one of them. Partly because even in a recession I’ll still have a high-paying job (if not, I’ll run to Tokyo or London or Hong Kong and work THERE). In the early 90’s, for example, a lot of friends who had just graduated went to Hong Kong to work because HK had a good economy then. If Australia goes bust again, there’ll be somewhere that is still booming and I’ll go there.
As long as one believes that a bust is followed by a boom (as I do), then just buy as much as you can during the bust and sit back. Even buying ONE property in the bust will result in greatly increased equity as the new boom takes old, creating equity you can then tap to buy into the rest of the boom.
Or to put it another way, buying just one property in the bust is better than NOT buying in the bust!
AlexWhat will I do when the bubble bursts? BUY! Experienced investors would be prepared for the bursting of the bubble anyway with LOCs locked in near the top of the market and cash reserves.
In a bust (probably due to a recession) sellers get desperate and are flexible on terms.
People go bankrupt in property when they buy at the top of the boom on terms favourable to the seller (usually stupidly high prices). They do NOT go bankrupt when they buy on their own terms (cheap vendor financing, high yields because prices go down and rents, if population remains the same, don’t go down) during a bust.
AlexSandy, backing up a bit, is it a good idea for you to be buying a property without a deposit? Rent to buy usually involves higher than normal rent. If you don’t have a deposit, does that mean you’re spending beyond your means? If that’s the case, can you afford the rent to buy payments?
AlexGuilty. I’m a CA, qualified 2001.
Majority of CAs would start the CA program right after uni, average 3 – 4 years. So average age would be 25? I qualified early (just b4 I turned 24) but most of my group were 25. Nothing wrong with 25 yo grads as a lot of people switch careers to accountancy. A lot of firms like non-accountancy backgrounds if you have industry experience.
Depends on what you want to do. As others have said, the accting firms require you do CA. In Oz it’s not as big a deal (though arguably big firm experience counts for more, especially if you plan to work in a big corporate). Overseas, the CA is more highly regarded. In the UK, employers equate CA with CIMA (UK accounting qualification) but consider CPA a lesser qualification. If you want to specialise in personal tax, super, etc. (as opposed to corporate and auditing) CPA is just as good.
Personally, I qualified with a Big 4 firm in 2001 and quit immediately. Ran to London, contracted as a financial accountant and ended up making triple what the Sydney firm paid me before I left. Then went to Tokyo and found a job with a US investment bank. 2 years of that, now back in London working for a UK bank. I have to honestly say the CA is just a piece of paper (you learn more in 6 months on the job compared to the exam) but it’s a VERY VERY useful and highly regarded piece of paper.
AlexIt’d be like forming an owner’s committee, right? Get the owners together, then lobby the police, council etc to clean up the street, and say you’re willing to put some money into repairing the homes, etc.
Basically, it is much more politically involved. If you can get some reporters to make some news about it, etc to influence the council…..
Having a broker is great, especially if you’re in the UK: they can operate in the bank’s time zone.
I bought Australian property while I was working in Japan. I got the loan through ANZ (via my mortgage broker) and I had to have my signature witnessed by the Australian consulate in Tokyo. They charged me A$20 per signature, but I suppose that’s a lot cheaper than flying back.
AlexPersonal opinion here, but tall developments tend to have higher costs (body corp). Also, there are more things that need fixing, especially lifts.
I don´t think you should think of it as ´I´ve been waiting for 4 years so I have to move now´. The cycle is moving down so if anything you have plenty of time do your research, etc.
What would be your reasons to buy that highrise off the plan as opposed to, say, buying an established unit or townhouse? Why do you think the highrise will perform better? I´d ask myself those questions.
AlexHi, resiwealth. Are duplexes on strata title or separate torrens title?
Regards
AlexAgree with G7. Incidentally, why do you think the place is worth $430k on the current market? The seller has put it on the market and it isn’t selling at $400k, so it certainly ISN’T worth $430k. If rent of $280pw is correct, at $430k that’s a 3.3% yield. That would have been peak price and it’s certainly a lot quieter now.
Besides, I don’t think banks allow you take over mortgages without a re-assessment. That said, you CAN get your own finance and buy the place, but I’d do more research.
Biggest question: what’s the place really worth and what are you basing your assessment on?
Bexi, I think you’re jumping the gun a bit. From your post you don’t seem to have an idea about what you actually want. Do you want income? Capital growth? Both? What is your tax situation like and how will the property impact it? If you buy in the US how do you manage it?
Before you buy a place, I’d suggest going to your local library and reading every property book they have. That’ll give you an idea as to what’s out there. Get more information, make some plans, look at lots of properties and THEN buy. Otherwise you run the risk of just buying whatever, making a mistake and being turned off property forever.
AlexI don’t think Oz is overvalued to the same extent as Japan was. At the peak they said that the land around the Imperial Palace in Tokyo could buy the whole of Manhattan or something!
After 15 years of stagnation, though, even Tokyo isn’t that expensive. You can get a decent enough 2LDK (2 bedroom unit) for maybe 30m yen, which is only about $400k aussie. New 2 bedders on the North Shore in Sydney are selling for $500k at least.
I think Sydney has become more expensive than Tokyo, and my pay in Tokyo is much higher than the equivalent job in Sydney! (20% tax, you can’t beat it!)
AlexPersonally, I have one permanent file for a property with purchase info, depreciation reports, contracts, etc
Then I put the ongoing tax stuff (agents statements, council rates, body corp) in each year’s tax file.
Then just put together a little spreadsheet for the tax year.
Anything that’s not directly related to tax (agents ads, etc) goes to the back of the tax file.
Also have a checklist with all the documents you SHOULD have in your tax file to tick off at the end of the tax year.
Simon, but even if an offset account is used, extra payments are still considered paying off the principal of the loan, right?
If in the future say $100k is redrawn to buy a PPOR, the ‘purpose’ test says that the interest isn’t tax deductible because it’s for a PPOR.
In other words, paying off the loan on an investment property and then buying PPOR in the future isn’t a good idea as you lose the tax deductibility.
alexAlso, Sid, you may want to go back a step and put down your objectives with property investment. Are you looking to build your retirement fund? If so when do you want to retire, etc? How much can you afford, what is your tax situation and what happens if your circumstances change? (Change job, kids, etc).
Property investment is only a tool: what is a good investment depends on your objectives and your circumstances. You need to define your circumstances and objectives first.
1) Read all the property books you can get your hands on (especially ones that talk about how to deal with agents)
2) Decide on a few suburbs you might be interested in and research them thoroughly (historical price reports, demographics, talk to people who live there)
3) Look at lots and lots of properties, both rentals and sales.
Dmichie, just on your comment. What if the Chinese grow strong enough economically to start buying Australian property en masse? I’m thinking something like the late 70’s and 80’s with the Japanese buying up everything in sight.
Back then the Japanese were just flush with cash so they bought hotels, apartments, whatever in Australia and the rest of the world at ridiculous prices.
AlexSounds good to me. I’m planning to hold the property buying for the next 2-3 years while I go to London to save as many pounds as possible. A lower AUD will increase the AUD value of everything I save, and then I can come back to Oz and pick up distressed properties.
The boom times will come again. I’ll just pick up properties at the market lows and then watch the market do my work for me in the next boom.
For those who are worried about a downturn in the Australian economy, working overseas (US, UK, Asia) might be a good strategy!
AlexAlso wanted to add: to the usual ‘package’ that investors go through:
Talk to accountants, lawyers, mortgage broker, insurance broker.
If you’re interested in the student market (given you want to rent out the rooms individually) ask around at uni as to who does this. Get the agents they used and talk to them.
In short, start gathering info.
Happy hunting!
AlexHi, c_pagie84. Don’t know anything about the Melbourne market, but I’d suggest running searches on http://www.realestate.com.au and http://www.domain.com.au. Start getting out there and looking at properties. There’s nothing like ‘on the ground’ info.
Alex
