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And just this morning, our local paper has found figures that confirm that some investors are bailing out (often just to save their own homes) as things are just getting too tough.
Apologies if this needs you to register with the CourierMail or buy to read it. I have a subscription, so I just read it. To help though, here are a few salient points from the article:-
– Landlords are fleeing the market as the financial stress of meeting rising mortgage repayments worsens, only putting further pressure on the rental supply crisis. The portion of investor-owned property sales across Queensland ballooned to nearly a third of all homes sold in June — jumping about 8 per cent in just one month to 29.5 per cent — higher than any other state, according to new research by PropTrack.
– Industry experts say property investors are selling because they can no longer afford rising rates, increased management costs and new government regulations.
– The Queensland government implemented new legislation that came into effect on July 1 prohibiting landlords from increasing rent more than once a year. Back in June 2022, it also introduced legislation that would calculate land tax based on an owner’s entire Australian property portfolio, rather than solely on properties held within Queensland. That announcement triggered a strong backlash, prompting the government to abandon the proposed changes in September last year. But MCG Quantity Surveyors managing director Mike Mortlock said the damage had already been done.
– government disincentives and negative sentiment towards property investors were forcing investors to sell up
– Brisbane mortgage broker Glen Barnes of Barnes Finance Solutions said mortgage repayments now “far exceed” rent returns. “Generally speaking, investment property holdings for some owners is now too much coupled with the mortgages on their principal places of residence and other general cost of living pressures,” Mr Barnes said.
How are things where YOU are? With rental vacancy rates around 1%, and this article showing it may well get worse, I shudder to think where we’ll be next year. Along with a fresh RBA, a fresh State Govt wouldn’t hurt – some of their brain-dead antics have helped fuel this disgrace.
The only question now is “WILL the RBA do nothing, or will they continue with their brain-dead antics and lift rates yet again?” You and I know what they should do, but time will tell.
The news today is that the rates remain on hold for another month – or is that 6 weeks (given that the “new look RBA” is talking of having just eight meetings per year instead of eleven as it has been).
Whatever, with one voice on local radio saying that “Those on a mortgage cliff that currently pay $3100 a month on their mortgage will soon be paying $5000 a month, thanks to the Interest Rate increases applying once their Fixed Rate expires.” So, a 60% increase !! I hope they’ve had a good wage increase recently.
I hope the RBA keep up with the recent practice of leaving the cash rate on hold while we wait to get news on inflation figures as the months pass.
Benny
An interesting article arrived in my Inbox today – it came courtesy of an ABC news reporter in this article:-
The report contains an interview with Sebastian Watkins, the co-founder of Lendi who said this – “Lendi merged with Aussie Home Loans in 2021. The combined group now has more than $100 billion in loans. And not all of the customers are going to be able to keep their houses. It’s a substantial shift, you’re talking about some people paying 3 or 4 per cent more on their mortgage … overnight,” Mr Watkins says. (Is that perhaps the “Understatement of the Year”?) His focus was on the mortgage cliff ahead, as folks come off a low Fixed Interest Rate onto current newly-high variable rates. But it was that “3 or 4 percent” that always gets me…..
3 or 4 percent? Of course, he is right, and yet he’s not right too – as (you’ve read it here before) that “3 or 4 percent” is likely to morph into 100% or more once that miniscule 3 or 4 percent is added to their mortgage interest rate.
Mr Watkins also said “I think it’s incredibly concerning – I don’t think we talked about it enough, there’s going to be a severe amount of whiplash.”
For sure, powers that be should be talking about, or at least thinking about it. The RBA in particular.
A quote from a local investor reads thus: “CBA reckon that only about 60% of the recent hiking cycle has been passed through to the market, thanks to the insulation of fixed rates. That means that the RBA can do nothing, and there’ll still be a substantial amount of tightening to come, which is also why they SHOULD do nothing. Inflation is easing, households are feeling the pinch, and there’s still more to come.”
The only question now is “WILL the RBA do nothing, or will they continue with their brain-dead antics and lift rates yet again?” You and I know what they should do, but time will tell.
Hi Justin,
I haven’t used them. Didn’t know of them until today, but I took a look at their website since you asked the question. Here’s what I gleaned from the site
It appears to me that they may only sell new homes, which is always a caution in my book. Not always, but a common “hook” from some marketeers is to “sell” the Tax Benefits of a new property with large “Write-off” dollars available to help to minimise your Tax. What is not mentioned is how buying in a new area can see no or low Capital Growth for several years. Also, be sure you know what other similar developers are offering for similar properties. All part of due diligence, but a slick Sales routine might have you rushed through the process, so always beware of that one.
I noticed they were “giving away a car” which had my antennae tingling…. Why does a property developer offer a free car to one lucky user of their services? Hmmm……. Who pays for that?
Re-iterating though, I don’t know of them – just a general warning to look for certain signs to be sure the firm you choose appears to be one of the good guys. :)
I hear this morning that Philip Lowe’s contract will not be renewed come September, and that a new governor will be announced later this week. I’m not sure if it fills me with confidence just yet, but time will tell. I imagine Mr Lowe will remain around until September anyway, occupying the Governor role for two more months. After that, who knows?
At least by September we should have a fair idea just how things are travelling economy-wise. But that won’t stop the RBA from lifting rates in Aug and Sep if the mood takes them….. Hopefully though, this change might haul them up for a bit and allow them time to contemplate their respective navels.
Here’s hoping…….
:)
Ladies and gentlemen, introducing Judith Curry :-
https://www.youtube.com/watch?v=i4YUnZIKneY
This lady is a climatologist who has some very pertinent views to share. I especially liked the part from about minute 26 where she mentions two useful alternatives to wind and solar. One interesting point she made was this – if fossil fuels have led to wilder weather events, WHY would anyone in their right mind move to an energy source that depends totally on weather (solar and wind)?
Further to that, she mentions both the hugely increased amount of mined materials that are needed to create (what is it in Australia today) 22,000 solar panels PER DAY for the next 7 years, plus the fact that these require vastly greater areas of land for both the placement and the subsequent transmission lines for these solar or wind farms.
All in all, it is the frantic rush with little cogent thought around the whole subject that is leading to doubtful decisions being made in the political arena on the subject of power.
Hi Toby,
An interesting question, and some good thought behind your words.
I feel like when the mainstream media harp on about something this much, there’s usually an agenda, and the opposite of what they’re saying is true.
Hehe, I wondered if your comment was too kind to the mainstream media – my thoughts re many of them is that they have no idea, in which case forget an agenda. :) But then, there are some good commentators, and I think it can be worth considering their views.
I heard just yesterday that Westpac are looking at adjusting their Qualifying Rate (and about time too in my book). Back in the day, 2% was the normal QR, and I believe it made sense to increase it to 3% as the Cash Rate dived to unheard of levels (0.1%? Such a brain-dead move in my book). Why was it EVER deemed to be sensible to go THAT low?
Anyway, back to the QR – for those new to investing, the Qualifying Rate is applied by lenders to your situation as you apply for a loan. They take the Interest Rate of the day and add 3% to it – if your income and other figures still say “Yes” to getting the loan, then you’re good. The problem today is that, after a period with such low rates, and new borrowers taking on new loans, and THEN having their Interest Rates increased by 160%, they strike problems. Even if they have Equity in their houses, a lender will add a further 3% as they consider whether to grant a loan. In my view, with the Cash Rate having screamed upward, surely it is unlikely to go a further 3% higher any time soon. So, why keep it so high? Go Westpac !!
Of course, Toby, there is always “the other side of a story” and lenders still WANT to lend. Hence Westpac’s move – will others follow? Hmm, it’s perhaps likely !! And then, perhaps Labor will NOT renew Phillip Lowe’s gig come September – what will THAT look like? Could it be that Rates may go down again, especially if it appears that we are heading for recession? Perhaps the new Governor won’t be so hellbent on getting Inflation down to 2% overnight. But then, the rest of the world and its situation will play a part in our economy too. Maybe we CAN’T reduce our rates as we still want to attract investment.
As always, things morph as time passes. Just HOW things will morph is yet to be seen. There are WAY more inputs than just one thing that affects the path into the future when it comes to an economy. Consider the thoughts so far that have been espoused in the media. Houses were going to crash during Covid – they dropped (for three months) then off they went again in a boom. Today, even as Cash Rates rise, property (for now) is still increasing in price all over. As are Rents.
Now my question is, when these mortgage cliff victims have to sell their homes, where do they go? They still need somewhere to live. So they rent, propping up the rental market, or buy elsewhere, which changes nothing. So will the overall market really be hit that badly?
My crystal ball is cloudy right now, but I think it is good to consider all sides when making a call. And keep looking for deals that are around that fit with your situation. Best I can think right now is to quote my recollections of Steve’s teachings – i.e.
Look to make the quickest profit in the shortest time, for the least risk and lowest aggravation. AND
Always have an Exit planned before buying in to a property AND
Do deals that make money not lose it (ie.. don’t negative gear) AND
Success comes from doing things differently… (to most others?)
I know he says a heap more, but those few will keep you on the right side of the equation. And by the way, Toby, that was a great question. I’d love to see others’ views re the same.
Benny
Hi Toby,
You’ll be pleased to know that I’ve talked with Steve’s finance man, Chris, and he will be contacting you to discuss your situation.
In short, I gathered from Chris that what you want to do IS possible, just like Steve has said in the book, but that there are “rules and/or limits or ways to go” that Chris will advise of. After that, I figure you’ll be in a much better place of understanding.
And for anyone else having concerns about “Will this work?” do take the time to contact Chris (or someone else like him) so that you can KNOW just how it does (and perhaps doesn’t) work. It might not work for all people in all situations, but it certainly does work for some. Is it for you?
Benny
PS And yes, I recall the phone number changed a few years ago – the new number is now 03 8592 0270. You’ll be able to make contact via that number. Just leave a message if it goes to voicemail.
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This reply was modified 1 year, 5 months ago by
Benny. Reason: Adding the new phone number
Hi Charlie,
Thanks for that info. And Toby, why not follow the book’s invite and check this all out with Steve’s Finance guy? The book had a link that should still work. If you have any issues, come back on here.
Benny
PS I checked out the “Big Picture” topic and found a link that may hold a lot of useful info re Trusts – go here:-
Hope it helps !
Hi Toby,
If you haven’t already, do devour pages 173 to 175 which lay out a lot of extra information re borrowing capacity. One comment from Steve on p173 says this –
“A personal guarantee is given by the director(s) to use personal funds to repay the loan if it goes bad.” So Steve himself says such a guarantee is required. The guarantee though is not a loan per se – it is a promise to “put things right if needed”. If not needed, there is no comeback, is there?
Re the Tax Savings, it seems pretty good to me that, by apportioning Income from the Trust in such a way that the partner with the lowest marginal tax gets the biggest share, you win on Tax Paid, PLUS you have asset protection that doesn’t come with personal ownership. But yes, you pay for it through extra accounting and audit costs. Just like any Insurance really, isn’t it? They don’t come for free.
I’ve heard it said once or twice that “Some folks have a Trust that protects ‘not much’ and I guess that is a question we all must ask when starting out. Are we going to build a large portfolio, or are we going to settle for one investment property? If the former, then Trusts sound compelling. If the latter, then there are other ways to provide a modicum of protection without a Trust. Do you have a goal in mind yourself Toby?
Anyway, that is an interesting question, and you’ve obviously spent some time researching, so I hope some answers on here get to provide you with other views to help your understanding from their points of view.
Regards,
The following cartoon had me splitting my sides – a golden pictorial comment from Brett Lethbridge, a well-known cartoonist.
https://content.api.news/v3/images/bin/000155924091cdcedf53ce7caf5b4ce2
And doesn’t it just “tell it like it is” !!
:)
A further 10% yesterday – when will it stop? Or are we beholden to the rest of the world, and must keep our Rates high to keep those fires burning? I hear more and more:-
– People living in cars (rental shortages and hiked rents forcing folks out of their accommodation)
– Businesses being hit with higher power costs along with mortgage interest, thus having to cut staff (which then affects other households’ incomes)
– Fuel going up which forces all commodity prices up (thanks to delivery costs)
– All of which mean NON-discretionary spending is increasing leading to a cut in discretionary spending (so, less meals out, thus affecting businesses, which affects other households as staff are laid off)…..
– etc, etc, etc
Is a recession imminent? Could be, but that depends who will win as we now seem to have the Fed Govt with their foot on the accelerator while the RBA keeps its foot on the brake of our economy.
As this drama goes on and on, I question (again) WHO decided that a 2% growth is ideal ALL the time? Surely it is reasonable to allow higher and lower growth depending on factors in play at particular times? Wasn’t it China that was growing at 12% per annum a few years back – they seemed to come out of it alright. So again, “Who says 2 – 3% is best?” And why? And when?
What do YOU think?
Meanwhile I feel for all those doing it tough while this ridiculous arm-wrestle between the Govt and the RBA goes on……
Benny
Hi Ando,
We had a team meeting this morning and I brought up your post as one to discuss. From that, Steve’s mortgage broker (Chris Berry) said he’d be happy to discuss things with you. Though it is early days yet, he also mentioned an accountant with whom he has been interacting. Once he knows they are open to new clients, he will likely put you onto them. Steve meanwhile said his accountant is not taking on more clients, so we can’t share their name with you.
Do be in touch with Chris Berry re your situation. Here’s a post that he replied to – his contact details are at the bottom of the post:-
https://www.propertyinvesting.com/topic/5068955-increasing-burrowing-capacity/
Regards,
Benny
All good Jezza. There’s a lot to take in, and you won’t learn it overnight. Allow yourself to grow into the role and keep learning. Come on back with any questions that we can perhaps help with,
Benny
Hi Jezza,
Welcome aboard. Property investing can be an exciting journey, but can also be risky, stressful, and even (for some) dangerous. The best way to guard against all of the negatives is by educating yourself. Here is a good place to start, but I would also suggest the following:-
1. Don’t be in a hurry to buy “any old thing” (but of course your parent’s situation might be a factor in your case – e.g. are THEY needing you to buy quickly to help THEIR situation?)
2. Read around a lot. Steve’s books are a great start, as is his STEPS program (which guides you through the minefield of purchasing by utilising “Due Diligence”).
Other books can be a blessing too, as can seminars, meeting with other investors, and even meeting and talking with RE agents. Be careful of folks whose role is to SELL to you though (e.g. agents) and especially beware of spruikers who are itching to HELP you by selling you a new property, and they can provide legal help and all. These latter will tell you “The tenant and the Taxman can make you rich as you buy one of our new properties, and hey we’ll even fly you there for free”! There is no such thing as a free lunch, as I’m sure you know. ;)
3. That “Big Picture” link (below) has a host of different topics and learnings wrapped up in it. Do take the time to step through all of the various subjects in there, as they will help to grow your knowledge at least enough so you can ask your advisers more pertinent questions.
OK, I’m sure you’d really like to hear some thoughts re your actual situation, so let’s take a look at that now:-
FIRST – “Should I buy or build?” That is quite a question – for me, I found purchasing 2nd hand to be more lucrative than buying new. There are many reasons for this e.g.
– folks selling a second hand house may be more amenable to price negotiation than a developer selling a new one,
– a second hand house may be in need of some renovation that can be tackled over time, thus reflecting in a lower purchase price.
– a second hand house can be bought in an area that suits Mum and Dad more easily than a new house (latter often in new estates away from amenities)
– a second hand house can be viewed then and there, where a new one may be only a drawing on a pad when you purchase it, or a builder may go bankrupt leaving you with a problem.
– a new house has included the developer’s profit in the purchase price, so any equity gain could be 5 to 10 years away.
Read Westnblue’s story in the Big Picture link (it is halfway down the first page of topics in the Big Picture) – how he created a small fortune in a very short time by buying 2nd hand properties, and doing them up. He only bought 2nd hand properties.
SECOND – “If my parents pay enough rent for me to not lose or gain on the rental income, is it still a good investment for the future?” Jezza, if you buy a good investment, it will be a good investment. The property will be a good or a bad buy – the amount your parents pay should not be determining that. e.g. If your parents could afford the rental on a high-class property on the water-front, it could lose tenants if times were to get tough. To me, such a purchase would not be a good investment. I prefer to buy where ANYONE can afford to rent there. In that way, I never found it hard to get good tenants even in hard times.
THIRD – “Does it matter a lot on picking the right house if they are willing to pay enough rent to help me to pay it off?” I think I’d repeat my answer to the second question. In short, yes it does matter. Buy well and you can do well. Buy badly, and it can reach out and bite you.
With times being as they are, I’d be looking for the kind of property that can pretty much support itself. Buy in a good area, in good(-ish) condition, with a projected income that is likely to cover any/all mortgage and other costs. Some areas are cheaper than others (some are cheap for good reason, so beware) while other areas are expensive. Do consider checking out Steve’s product, STEPS, to help you buy well.
In all this, Mum and Dad are likely to factor into any decision you make. Do they have a preference for which city, suburb, area, etc? Do they need to be near shops, hospitals, amenities, transport, etc. What suits them is likely to suit many others once M and D cease to rent it.
Hmm, that’s a fair bit. Go looking for an Accountant who understands property investing (has some property themselves ideally…) as there are several things you need to account for with Mum and Dad renting. e.g. paying a commercial rent can be a biggie…. it may not be an issue for you, but you need to KNOW that !! ;)
Hope that helps somewhat – do check out the “Big Picture” – you’ll be glad you did I’m sure,
Benny
PS For those readers who aren’t able to find “The Big Picture”, here’s the link:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/
Hi g4d,
suggestion has been to pay into our Supers and maximise the 27,500 for the remaining 15yrs as the tax advantage is good.
On reading that, it sounds like a saving !! Steve says often that saving to invest makes sense, but saving on its own won’t lead to wealth. Many are trapped by the sound of “save Tax”, and end up in deals they perhaps should’ve stayed out of.
Investing takes many forms. Some I have heard bought a PPOR they could afford, spent time and money doing it up, then upgraded to the next highest value/level. If your family/spouse can handle a few moves, there is a significant saving because of the CGT exemption on your own home. Over some years and several moves, it is possible to end up with a home worth a lot of money. But then, you’d need to move out of it to utilise the new-found equity, so it isn’t all beer and skittles.
Find a way that you (and yours) can work with and agree to, to create wealth. Some ways are fast, and some less so. The fast ways often have more risk, but risk can often be mitigated by knowledge or experience. Keep on looking and keep asking questions until you find “your way”.
Regards,
Benny
Hi G4d,
Check your Private Messages… ;)
Benny
Hi G4,
Hmm – who’s your accountant?
Our PPOR even after 10yrs where it was located did not really provide that great return and sat around the same price for many years and we only made about $300, so after CGT and fees was not left with that much.
I believe a PPOR is a CGT-free entity, thus there should have been none to pay at all on its sale. Of course, there might have been extenuating circumstances not mentioned (e.g. you bought another PPOR, or you rented your PPOR for more than 6 years…..). If $300 was all the profit, then any CGT would be laughably small anyway…. but hey, there shouldn’t be any…..
Puzzled…..
Benny
Another 0.25% (sorry, that’s 10%) rise in the Cash Rate yesterday.
Or will the RBA learn the error of their ways in time to prevent a crash?
Nope – seems not !!!!!
And now time to update this quote:-
Thus another huge chunk of the populace who will face a near 140% rise in the Interest cost of their mortgage as they endeavour to re-finance, whether onto Variable or another Fixed Rate.
Better make that 150%.
150%? How does anyone handle that? They are wondering why there is a rental crisis in Queensland – after changing State laws to put the tenant into prime position and sticking it to the landlords a year or two back, the RBA is now having a crack. And they are wondering why rents are climbing 10% to 20% – those that haven’t already sold their investment properties that is?
I think I also read that around 50% of landlords are not rolling in dough either – they are just Mums and Dads having a crack at making their futures better. So what will it take for the RBA to see sense and stop this stupidity? Do we have to have half of the businesses close, unemployment to get back into the teens, bankruptcies and suicides rise, or what? (It feels like Covid all over again).
Or do we simply get a new RBA boss in place? Can’t wait……. :(
Mr. “Cash Rate shouldn’t rise before 2024” should go – before September !!!
Benny
Hmmm – so, after leaving a Cash Rate lift alone in April, what’s next from the RBA?
RBA Governor Phil Lowe recently shared a chart showing that even though Australia’s official cash-rate hasn’t risen as much or as fast as in other countries, the interest rates facing mortgage holders have, in fact, risen much more quickly. This is because the majority of mortgage rates in Australia are variable, rather than fixed, as is the case in other jurisdictions.
So, isn’t that even more of a reason to NOT push rates as high? Have the RBA been reading the tea-leaves and seeing how a huge chunk of the population has entered mortgage stress? Or are these people simply cannon fodder, thus expendable in the current climate?
However, one of the things that makes forecasting a little tricky at the moment is that an unusually large share of the market went on to fixed rates during Covid. Government policy made fixed rates exceptionally cheap during 2020, and many borrowers locked in record low rates.
Correct – but now, enter “the mortgage cliff”! There are a huge percentage of mortgagors whose fixed rates are due to expire by the end of this year. Thus another huge chunk of the populace who will face a near 140% rise in the Interest cost of their mortgage as they endeavour to re-finance, whether onto Variable or another Fixed Rate. Of course, like many others, they might also find they CAN’T refinance (with Qualifying Rates having been increased hugely over the last 12 months) so where will that leave them?
Could there be an even more drastic nose-diving of the economy as more and more face stress? Could that drastic development be the catalyst that sees the RBA ease up on the Cash Rate once more?
They did that in 2008 – increased the Cash Rate madly even as the rest of the world were cutting theirs (around the time of the GFC). I personally came out of some 6% Fixed Rates at the time into a 9%+ variable rate (a mere 50% increase back then as I had IO loans). That was a bit scary until later in the year (Sep08) when they realised they had got it wrong, and the Cash Rate plummeted about 300 basis points to 3.25 by Feb 2009. And they were cutting by 100 basis points each time to do it quickly.
Have a look here for the historical Cash Rates – https://www.rba.gov.au/statistics/cash-rate/
The rate today is back to slightly higher than things were in Feb09. Of course back then, the median house values were way lower than today, thus the mortgage amounts were also way lower. A quick trawl shows me the average house mortgage for all of Australia was around $250k in 2008, while today it appears to be nearer $600k. So Interest payments today would be around 140% higher than in 2008. Have wages kept up with that?
What’s the bet then? Is Australia going to be driven into recession? Or will the RBA learn the error of their ways in time to prevent a crash?
Place your bets ladies and gentlemen ! :)
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This reply was modified 1 year, 5 months ago by
