Forum Replies Created
Hi all
I can only assume that the federal Labour government in their infinite wisdom believe that other buyers will step in to fill the void as the first home buyers inevitably slow their buying after the FHOG boost is halved, and then halted.
This was always a short term measure to put a floor under the sub-500K properties, and I'm going to assume that the Fed government has done more research than I am able to about when the other buyers will return to the market. I certainly know some investors who are starting to look around seriously again after a good 18 months out of the market.
Originally, when I thought the boost was going to stop all at once on the first of July, I thought that was going to be Christmas time for me, but it seems they're smarter than I give them credit for.
I have written a three hundred word diatribe on all the reasons why the market may drop by 20% in another stream, but I'm not going to repeat that here.
The one thing I WILL say here though, is to not let fear stop you from doing anything!
Good luck.
Andrew
Hi again
I'm happy to retract my "pay down the loan" idea and agree with Terry on the offset account. It's always the better option to ensure your access to the money in future.
I've gotta stop posting after midnight – my brain turns into a pumpkin!
Andrew
Hi guys
The simple answer is yes. Yes they could fall a lot further.
I saw Harry Dent speak recently. He's an american economist who's world renowned, predicted the bull market of the 2000s, and the subsequent storm we're still in at the moment. Anyway, he predicted that Australian Real Estate would fall around 40% from now down to around the levels it was in 2000. He said that the only way this could be alleviated is if immigration stayed at the same levels we have at the moment. In that unlikely scenario he says we may only drop by 20%.
He backed it up by a number of persuasive arguments, including the fact that Australia has 17 locations in the top 50 most expensive real estate markets in the world (when measured as a multiple of mean earnings). Given that we've got significantly less than one percent of the world's population, this is disturbing stuff.
Other arguments for impending real estate doom… Real estate does not always go up by 8% per annum as people would have you believe. Harry believes that the real cost of real estate has only increased in the last 9 years, hence the anticipated fall to 2000 levels. The other issue with rising prices is whenever you see those graphs that show real estate going up year after year "forever", they only ever go back to around 1940. Before that, there was this thing called the depression, and banks didn't really lend for real estate like they have in the last ten years. Credit is again getting harder to get, and without easy money, there is nothing to drive prices. Back in those days, yields increase and prices didn't. Over 20% yields were common post WW2.
Common sense also tells you that if prices went up 8-10% every year, and wages only go up 3-5%, that this is an unsustainable situation. Then there is the matter of supply and demand that property spruikers continue to talk about. Apparently Australia has a shortage of 144 000 homes or something amazing like that. However, the country has around 4.5 million empty bedrooms – I've got three of them!
If things get worse, unemployment rises, Gen Y moves back in with Mummy and Daddy, or with friends, and the housing shortage is over.You may gather from my diatribe that I am in fact predicting the impending doom of our real estate markets. To be honest, I still haven't made up my mind. I am simply presenting "the dark side" here (Darth Vader breathing optional), as far too many people in my opinion are ignoring the above mentioned points, or just aren't aware of them.
In any case, it makes little difference to me, as my whole business is based on selling houses using vendor finance, so whether or not prices go up or down, I'm still making money.
Good luck with whatever you decide.
Andrew
Hi guys
This is a fascinating post from my point of view for a number of reasons. Firstly, as someone who does this stuff all the time, it's great for me to see exactly what goes through a buyer's head before signing on the dotted line. Secondly, I'm a little alarmed that some people are giving advice on a forum devoted to creative techniques when it doesn't look like they've ever seen one themselves.
I'll try and make some sense of it all for you though Mal and Jean…
1. Tell me what state you're in, and I should be able to find you a lawyer who knows this stuff. Unless you're in SA or NT.
2. Risk of Bankruptcy. This is a risk. If the vendor goes bankrupt, then legally you have very little recourse. While this has never happened to me, it has happened to a friend of mine. We often buy houses this way ourselves, and one of my friend's sellers went bust. My friend called up the bank and discussed the situation with them, and basically asked for time to get his refinancing organised. Depending on a myriad of factors such as how much equity is in the house, if the bankrupt party owes the bank with the title to your home anything(or if they went bankrupt for a totally different reason) and if you're making all your payments, will effect how the bank behaves. Banks are not in the business of real estate, they are in the finance game, and repossessing houses when the payments are being made just because they can is not in their best interests. My friend asked for 6 months to get his refinance organised, and that was 3 years ago and has heard nothing since.
3. Equitable title and possessionary title. Australia has this thing called "Equitable Law", which basically means that if a contract looks unfair, then a judge can overturn it. It is in this sense that you have title. You have a signed contract which shows any court in the country that you have an interest in this property, and this would be taken into account if anything bad happened. However, if the person selling this house to you is in business doing this stuff, chances are it's all above board. There is far too much money to be made in this business being legitimate to risk screwing someone over. Because of your (and everyone's) level of caution and suspicion, people who do this sort of stuff as a business have to be absolutely above reproach when it comes to honesty and ethics. If anyone gets the slightest sniff that they can't trust me, I'm out of business overnight, because what we do is so unusual to so many people.
Possessionary title basically just means you're in the house, and getting people out who don't want to move is a pain in the butt even IF the legal owner is in the right.
4. Someone made the suggestion of another vendor finance deal…. why would another one be better? I've seen several properties sold with a smaller deposit, but your large deposit will help you refinance sooner anyway. Someone else mentioned rent to buys as well. Either way is ok, but if the vendor is more familiar with this way, then stick to it. Then at least one of you will know what's going on!
5. Caveats. While you can lodge a caveat without permission from the legal owner, these caveats expire quickly – I think in three months. In order to have a caveat that lasts, you need written permission from the legal owner.
In the end, whether you decide to purchase a property via this method is all about the risk. Is the risk that this guy gets the house repossessed (when you're making the payments) larger than the risk of houses going up in price significantly in the next two years or however long you think it will be for you to get "traditional" finance. Also remember, unless you pay too much for the house, you can often get traditional finance faster this way than if you wait it out to do things the normal way. That is to say the fact that you're making regular payments already on the house puts you in good stead and shows you can afford it. Also, you have the chance to improve the value of the property (depending on the house) and therefore increase your equity and make obtaining traditional finance even simpler.
Sorry if I've written the Magna Carter here! If there's anything else, let me know.
Hope this helps.
Andrew
Hello hello
I must admit I see far too many people scared of "wasting money" on mortgage insurance. I've seen people absolutely refuse to pay out $3000 in mortgage insurance and therefore save for another three years to get over that magic 20% deposit line. Chances are very good that in three years time, prices are going to go up more than the $3000 they "saved" by not paying LMI.
I also believe that thinking that LMI is a bad thing is not the best "wealth psychology" way of looking at it. I look at it this way. I am able to make the choice myself as to whether or not I want to be highly geared, and I happily pay for that privelege when I deem it appropriate.
Whether you decide to jump in highly leveraged and pay LMI really depends on where you think the market is going. If you're still hunting around Inner West Sydney (and I would be), there are pretty strong arguments to say that things will make a move to return to the extrapolated line of best fit for the moving average in the near future.
However, the imminent reduction of the FHOG, and increasing interest rates must have some deleterious effect. What the net effect will be, however, is really anyone's guess.
If you're happy with risk, and can afford the repayments, then leverage yourself to the hilt, and go for it! However, I would strongly advise against the strategy where you borrow extra funds to pay off a shortfall you really can't afford in the hope that you can refinance again at a higher level in a couple of years.
God, I just read that sentence, and it doesn't make any sense to me – and I wrote it!!
Ask me for clarification if you need it!
Andrew
way prices are goingHi Steve
That's not a bad track… although next time you ask a question you should start a new topic!
The problem with buying a rural property is capital growth. The idea is you buy your first place, wait until it increase in value, then refinance to unlock the equity and use that a deposit on the next place. I hope that makes sense for you??
However, it's impossible to tell you how much you should spend on your first place without knowing your income details and whether you'd need a full doc loan or low doc loan.
Start a new post, give some more details, and I'm sure you'll get some answers
Hi everyone… forgive this rambling – I realise it's not logically structured at all!
The first house I ever bought was advertised as "Offers above 128K". Who offers above the 128K in a balanced or soft market??We offered 120K and got it for 122K.
This little situation of yours is interesting though. I believe it's always a great idea to approach the vendor directly. Have you ever played chinese whispers? That's with one phrase guys. How many more areas for miscommunication are there in a property deal? There is nothing unethical about it from either perspective, unless the vendor tries to get out of paying the agent's commission, and it was the agent's advertising that lead you to the property in the first place. If it's not an exclusive listing, and you knew this was on the market because you knew the vendor, then why use an agent in the first place?
My Father and Grandfather always avoided speaking directly to the vendor, as they liked the agent to be the one to deal with the emotional seller. They didn't want to be around the person they were making the offer to, in case things got awkward (or worse!) I'm a little more thick skinned than that though.
Before you place all your trust in the agent, do a bit of research and find out just how difficult it is to become a real estate salesperson in your state these days. I asked one of my mates the other day who is an agent in his early thirties, and he told me the training was one week long and cost him around $700. Unless the agent has a great deal of experience, don't treat him as the expert – chances are he just isn't. How much negotiating training do you think they get in that week?
What could have happened here is that your vendor put down their asking range, got and offer, and THEN found out their payout figure. If he made the mistake of fixing his interest rate for 5 years late last year, he could have a $20 000 pre payment penalty that he didn't realise until after he set that price, which would explain that issue.
One thing to remember with the agent is that if it doesn't sell, he doesn't get paid. He will lean on whoever he thinks is most negotiable. You, as the first time investor, may appear to him to be that person.
In the end, it really comes down to two things. Firstly, whether or not you think you can get something better for the money if you have to offer another 5 grand. Don't throw away a good deal in the name of being stubborn just to seem strong. And two, do you really want to be the buyer who "screws over" the seller, who you've already said that you know?? Now, I know that you're not doign anything wrong by sticking to your price, and that all it is is an offer – but will said vendor see it that way if he eventually has to fold because it's the best offer on the table? Real Estate is still about people Stephen. Well, people and real estate agents! <br /
:-)” title=”>:-)” class=”bbcode_smiley” />Andrew
Hi all….
I live and invest in Ipswich myself, and will certainly consider some buy and holds out here should anything become available that I like.
The council website has plans on it about where all the old mines are, and that can be quite helpful. There have been some horror stories about houses just plain breaking in half, so if you're going to lose sleep over it then it's not for you.
Facts are that Ipswich IS one of QLDs fastest growing areas, but if you want capital growth out here you've got to look at the suburbs close to the city (cough cough) of Ipswich itself. Any of the newish developments have hectares of vacant land all around them in every direction. You buy something out there because someone sells you on the idea of all the deductions you can claim on your new place, then you find yourself a year later having to sell for some unforseen reason. Meanwhile, the developers are putting in another street of new houses every day and selling them for the price you paid for yours – or even less because of the excess stock. You find yourself upside down on your mortgage because you can only get $300 000 now and your debt is $350 000 and you have to call in a vendor finance expert such as myself to get you out of the mess!!
I know this sounds extreme, but if you buy the wrong property in a new development anywhere, it happens more regularly than the locals out here bathe!
If you're buying in Ipswich, buy a solid established house in the 4305 or 4304 postcodes – at least ten years old and probably more like 50!. Do not cheap out on your pest and building inspections. Check out the old mine plans on the council website. Consider getting soil stability tests. Think really hard before buying a brick house. Old houses can lose one stump and just bend a bit and they're fine – brick houses just crack in half and fall over!
Also, think hard about your timing. At the moment the inflated FHOG is keeping prices up out here. When the FHOG deflates and interest rates increase, do you think that could have an effect on prices??
Work hard and expect success!!
Andrew
I live and do some investing in Ipswich QLD, where ALL the houses are falling down! But hey, people have to live somewhere!
What I normally find is that a house with 12 stumps that is 60 years old has problems with three stumps. The stumping guys ALWAYS tell me I need to replace all the stumps when only a quarter of them are a problem. About 20 grand for a typical three bedroom post war home out here, but everything's cheaper in Ipswich.
The last one I bought with stumping issues I got a twenty grand discount on thinking I'd deal with it some day, but I never did. The vendor was aware there were issues, but not the extent of them. I just got a verbal quote from the most expensive stumping guy in town, used it as a bargaining tool, and then never got around to fixing it! The house hasn't fallen over yet!
Hi There
I, and a lot of other property investors, are of the belief that scarcity of land is what drives property values up.
I live in Ipswich and I MAY invest out as far as Toowoomba if I get a good enough deal, but not any further out than that. There is A LOT of free space on the map out in Dalby.
IF you are looking for capital growth, then the closer you can get to Brisbane the better. Obviously there are still some places you want to avoid, but not as much as I'd avoid Dalby. If you are limited by the amount you can spend on a property in order to get started, then maybe you could start in Toowoomba or Ipswich at the moment?
What you DON'T want to do is wait 5 years until you can afford a $400 000 townhouse in Indooroopilly only to find out that now you can't buy anything because they've all gone up another $200 000!
Good luck!
Hey Honam
Firstly, welcome to the world of property investing!!
Ok, let's go through this step by step….
60K equity – right! Ok, good start so far!
However, it must be noted here that if in fact your current PPR would be valued at 300K is this market by a conservative bank, that you effectively have an 80% LVR (If I say anything that doesn't make sense, tell me!).
Depending on what sort of loan you have, the max LVR and the mood of the bank valuer on the day of valuation, you may not be able to pull much out of that property at all.Aside from that, you are going to have some complex tax-deductability issues here, which I will try and address from my personal experience, but I am not an accountant so you can't sue me!
If you have 150K and you want to buy a property worth 500K, then you are going to have to borrow another 350K (+legals, transfer duty, etc). While you MAY be able to borrow some of that against your current property at 80% LVR already, why would you, when you'll only be at 70% LVR for the new house?
The simple strategy here is to change your IP payments to interest only, and pump as much money into your new PPR as possible. So you've basically got that right – again speak to an accountant AND a good mortgage broker before you do all this.
Now, if property investing is going to be something that you see yourself doing a bit more of, then you have another more complex strategy that is your best bet (in the long term). Ok, big breath…..here it is!
Basically, you set up asset protection structures (trusts and stuff), and then you sell your current PPR into the trust. You borrow as much as you possibly can for that "purchase" by the trust. You then use as much equity as you possibly can for the new PPR so that your non-tax deductable debt is minimised.
Option B is only something you'd look into if you were planning on being a serious property investor. If you just plan on having two or three properties for your whole life, then by all means go with option A. Option B raises a whole lot of questions about tax deductability, extra expenses for tax returns, and basically having to run your whole property investing thing like a business.
If you go for option B, find a GREAT accountant. If you're paying less than $500 per hour, they're just not going to know what they're doing with this stuff. You could try Chan and Naylor, The Intelligence Group and maybe even Active Financial Answers.
Have fun!
Andrew
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