thats not bad….

Cabo Wabo

i’ve a great relationship with my accountants. I send em emails asking lil q’s all the time and they happily reply to all my ramblings.

They’re great.. and fun too.

Cabo Wabo

Interesting numbers. I’ve added ur debt numbers for personal and credit card debt in there at 9% each and it takes the proportion of gross national income to meet interest repayments from your number of 13.6% to 17.5% … and to think, that does not take amortisation into account at all….just the interest owing on the loan… crikey!

Foundation, did u get the figures 78 bill and 780 bill from the ABS as well ….or are those estimates?

Cabo Wabo

It gives me the absolute SH%TS. Really pisses me off.[skull]

I’m in Perth. When i model purchases in excell, i put in 18% of rent as the overall management fee.

Personally i want nothing what-so-ever to do with the tenant side of investing, so its an annoyance/serious grievance i have to put up with.

Cabo Wabo

i’ll ask… does it make a difference?

Cabo Wabo

My accountant reckons he’s done it before for a client and didn’t have to pay SD. Maybe i should pick his brains more about it….

Cabo Wabo

Ok folks, time to report back, done my sniffing around now regarding the bottom end of the Perth market.  Just to recap, 2 weeks ago I stated that for a lil while now  I'd been purchasing the crappiest houses in the worst suburbs of Perth ,as I thought it was the safest place to be when the heat comes out of the market.  (I forgot to mention that I was reno'ing and holding).

The response I got back from my fellow forumites was that the experience of Sydney was in fact quite the opposite, and that the bottom of the market was the most risky, the general reason stated was that the bottom of the market gets swamped with investors during a boom, but then they all sell up when the heat comes off and the bottom end freefalls. 

To re-evaluate my position and get a better understanding of my risk going forward, I emailed some estate agents I know and also chatted to a couple of investing buddies of mine.  Here's what I reckon:

I agree with all that was stated about Sydney – can't argue with it.  And yes, the bottom of Perth is full of investors – can't argue with that either.  But I've come to the conclusion that Perth is indeed a “different kettle of fish” to Sydney for a number of reasons – and those reasons will help buffer & protect the bottom of Perth's market.  

I've always figured that when a market softens, and interest rates go up, the most attractive place to buy will still be at the bottom because it is there that mortgages will be the smallest.  If someone in a middle tier suburb sells their house because they can no longer afford it, then they would have to go buy in the bottom tier, or rent. 

Either way, I've always figured category 1 would consistently be in demand.  What I believe I have been missing is: I've always looked at the Perth market as a “closed” loop.  That is, if the bottom was the cheapest, no-one would bail out of the bottom,.  BUT investors, especially interstate investors are able to bail out and go to more profitable markets.

1)  My confidence in Perth is based on the fact that Perth is driven by the commodities boom.  So long as there is the commodities boom there will be positive migration into WA, good employment prospects, a housing shortage and good rent. 

What drives the commodities boom here in WA? – a booming China.  I'm a firm believer that the demand from China for Australian commodities will be sustained for years to come.  The rest of my argument is based on this premise.  

2)  In Sydney, when the market softened and investors bailed, people also left the state in search of jobs and cheaper houses.  This was a double blow to the bottom sector. Here in WA, if things soften, and it will, there will still be +ve migration into the state by workers associated with the mining sector to help fill the gap left by bailing investors    

3)  When Sydney and Melbourne went up, comparatively other states looked cheaper (considerably) so people went to those cheaper states.  The thing with Perth is, because we lag behind in the cycle, when we have a bull run and prices increase to what we West Australians think is exorbitant, we are simply equalling the affordability, or lack thereof, of the eastern states.  Sure WA has edged in front regarding median house prices, but not but a large margin. 

What I'm saying is an interstate investor who bails on WA, will not do so due to the promise of a much cheaper investment property in another capital city – as they don't exist.  They may be lured away in large numbers due to promises of higher returns, but not by better affordability.

4)  While Perth HAS to slow so that West Australians can adjust to the change in affordability, the commodities boom will maintain steady appreciation.

5)  Interest rates affect the whole country.  As the average mortgage in Perth is similar in size to the average mortgage in the other states, the interest rate hike wouldn't make Perth any less affordable or less attractive than over east.              

6)  If interest rates went so high that many investors sold their bottom tier investment properties, then many middle tier PPOR owners would also be forced due to affordability issues to downsize into a bottom tier PPOR, or look at renting.

Rising interest rates would create increased rental returns as more people sold up and rented.  Many investors would sell their rental properties to those who were down sizing PPOR's.  The rental pool would diminish as rental demand increased.

I'm not saying “come buy in Perth now” as I think we are near the point where we will see a slowing, but what I am saying is that I do not think Perth will experience the hardship now being felt in Sydney etc. Perth will level out, not drop, and if the bottom of the market does drop, it won't be by much.     

If the commodities boom ended tomorrow, then in the short term,  we'd be royally screwed, , but it WON'T, of that I am certain.  It will be around for a long time propping up and maintaining our property prices.

As such, I once again feel relatively safe in my position.  I've half at the bottom and half in the middle so I'm still hedging my risk I guess.  This posting is part of my way of doing my “due diligence” on my “risk” so I welcome all comments and arguments to the contrary please.  Go on, let me have it!

Back on cars, I've been restoring an XJS for years now.  Before I pulled it apart I and chopped it up (literally) I remember the glee of doing 220kms on the long straights between Kalgoorlie and Southern Cross.  Great fun in the middle of the ass end of nowhere!   wwhhhoooooosssssssshhhhhhhhhhhhhh!  [strum]    

Cabo Wabo

Thanks GMH454.

I can definately see where ur passion is. As for me, for the past 9 years i’ve driven 308 HZ Prem. She’s a beaut. A real sharp runner. Very clean, very straight. i’ll never sell her.

i’ll get back to you guys in the near future regarding my thoughts on the effect of the investor spread in bottom of Perth’s market.

I’ve currently got a few email discussions going back and forth with a few agents i’m friends with, so i’ll let you know in due course…

Cabo Wabo

Hmm, thanks guys… gives me something to think about.

What ur saying is be very carefull of the suburbs where prices have been driven primarily by investors.

You believe those suburbs to be careful of are the lower end of the scale as opposed to the middle tier suburbs. U are saying that in sydney there was a larger proportion or investors in the bottom end than in the middle tier.

I’m gonna do some homework on this and find out what the investor spread is across the property range here in perth.

Good feedback… thanks

Cabo Wabo

I agree with Terryw about getting the valuation as high as possible (only if it has been you PPOR up until now.) If it was an IP i’d say get the valuation as low as possible.

By the way, I have a question:

I was under the impression that if you sell a property to ur family trust (and that property was originally in your name only),

…and you are the sole director of the trustee pty that is purchasing the property,

….and you are the principle benificiary of the trust,

….then you would not need to pay stamp duty on transfer as the property was upon sale, still of financial benifit to only one person – that being you

…. and you could avoid SD based on this technicality…???

Thoughts?

Cabo Wabo