Forum Replies Created
One patriot i tend to think in terms of fundamentals people have not been happy to shell out the amounts of money for houses for a long time but rationalised that they had to for a number of reasons at least at the low end… fear of missing out as prices continued to climb, constant bombardment by media and RE industry about lack fo homes, increasing migration etc, etc… but as i said before the only real way to justify the increasing prices was if you knew you could sell it for crazy price plus 30% in the future… i think people are starting to doubt that they will be have the safety net of continuingly rising house prices and may acutally get caught holding the overpriced asset, to doubt the whole house shortage thing, and at base level they are starting to max out on income available to pay mortgages and daily essentials, and they only have more interest rates and cost of living rises to come…
Among the reasons i was looking to buy was a) because as i said the price seemed as if it was going to go up every month making it harder and harder to get into the market, and b) my rent on my place (it was too big for one person, like family home admittedly) had gone up several times and was about to go up again and so starting to get in the vicincity of mortgage repyaments… if i am going to pay the same for rent as to buy, well I may as well buy…
After a property bust initially more tenants might be selling up homes and looking for rentals perhaps pushing up rents, but then depending on how much prices dropped, if rents were still sky high and houses/mortgages became much more affordable, i imagine it would drive people back into house ownership which would then probably drive rents down somewhat to attract/keep tenants… although people probably wouldn't start buying homes again until they thought the market had hit bottom and also when the banks were prepared to lend (which would probably be influenced by how hard the financial system had been hit by the downturn and whether the banks also thought the market was reaching bottom and didn't have further to drop) really depends on how long and severe the bust was as well as levels of unemployment to pay sky high rents….
but just my thoughts or humble opinions…
yeah obviously some sudden big shifts in certain areas could definitely precipitate a crash in the market ie increases in interest rates, rising unemployment, lack of availaiblity of credit… but for me the other thing is just general confidence (or lack of it) in the the market…. i have bought shares before and learnt the hard way how slowly the price can go up and how quickly they can drop once confidence evaporates… and there is no common sense to it, no lets stop and do some rational thinking once investors get spooked and that slide starts, its pure herd mentality and a flight for the exits…. and unless you are 100% confident that there are some underlying fundamentals to the market AS WELL AS have the resources (eg support of lenders) and time and all to hold on during the down turn your often forced to join the rush to the exit as your asset will be worth less tomorrow and less the day after that…
its the reverse of how it has been over the last few years that although buying into property had just gotten crazy in many ways, the only way to justify it was that if you didn't buy in at crazy price today, it will be crazy price plus 10% in 2 months and crazy price plus 40% in 6 months time… snap decicions, buy now or you'll be locked out forever… on the other hand you could rationalise it because everyone who wanted to make a buck was thinking i'll pay pay crazy price now and i'll sell it for crazy price plus 50% in 2 years etc…. but the rise bit i don't think that is going to happen now in many places…
with some quite large increases in costs of living occurring around the country across a range of essentials, doubts about several countries in the eurozone, the US still in the doldrums, several stories about China tightening lending criteria/raising interst rates to control a potential bubble/inflation over there, several more interest rate rises forecast by the RBA/extra bank initiated ones, seemingly most peoples pay rises still being held down after GFC and now 6-9 months of stories of house prices stagnating if not actually dropping in major markets around Australia, how many people would feel comfortable at the moment in punting on paying top prices any time soon that sound crazy in general and will come close to putting them in debt stress???
There's a housng shortage? well maybe there is or maybe its jsut affordable housing…. 9 months ago i know i was paying quite a bit of my income on rent which made it hard to save up for a deposit for a house that i thought i had better try and get (that was Feb when the thinking was get in now or land prices will go up like 10% a month etc adn you'll never own a place) so i moved out of my rental and in with a mate and pay $130 a week rent so have my deposit saved up already… i think many people will find ways of doing this (stay home, share with friends etc), so its not a simple two option people must pay crazy mortgage or pay crazy rent on your own as its sometimes made out to be….
I was on the point of signing the loan agreement but have now backed out… couple of reasons, i no longer felt comfortable buying into a market of rising interest rates and dropping house prices in Perth… i had orginally been planning to build a 4 bed/2 bath house for just me to live in as for resale they are usually more appealing than a 3/2 (remember crazy hosue price justified by 20% growth when sold to next sucker) i have now decided i will relook at all options and may buy in next year than right now as who wants to be the last one to buy in at the top of the bubble (if we are in one)??? if market is going to be flat for a bit and RE not a great money maker for a while, maybe i will just downsize to 3/2, comfortable enough for me and less of a hit on my single wage each fortnight leaves money to enjoy life… what i will wait for is to see how the market softens some more…. one of those things about why buy today or tomorrow when it could be cheaper next week… i think others will probably start holding off to see if the market will fall, or sellers will offload for less than what they are asking so they don't get caught having to sell for less later…
i expect to see building companies throwing in more freebies, their list prices may or may not drop, but i already see more trying to entice people with cash prizes or throwing in air cons and solar panels and nicer kitchens and all… so the longer the market softens who knows how much more i might get for my money???
these are just some of the thoughts that people who might be a bit savvy about the market might be pondering, i don't think it will be necessarily huge unemployment or other big shocks that could suddenly depress the market, but a bunch of small things working together to reduce confidence and expectations of the market i think could cause some dropping, although probably not 40%….
yeah its just at the moment there are unlikely to be many buyers in the current climate, there are other investors with blocks in the same area and plenty of houses for sale in parts of the south west of western australia…
she can keep up the repayments, alhtough if there are 3-4 more rate rises next year it might get tough… but while paying this off here she can't afford to buy or set up a place in the US, and it looks like she will have to hold onto it for a while until buyers return and still sell at a loss… so just wondering if there was a way to get out of it while she is living overseas…
One thing i would say is that i signed up to a house and land package builder and they suggested a mortgage loan company and a settlement company that they use and there was some slight discount etc… Then when i had some questions about whether i might need to pull out of the loan and sent them to the loan guy i got a call back from the land package rep… So i think in future i would go with an independent mortgage broker that I was sure was on my side and would keep conversations confidential….
The other thing is that although the bank might pay any commission on the loan product rather than the borrower, are there any banks or institutions that pay more or offer other inducements that might incline mortgage brokers towards that companies product because its better for them??? or if they send more business to a certain bank/CU they get some benefit out of it??? Sort of like stock brokers that might suggest shares to you because their company maybe wants to flog them off or they get a better commmission???
How does this work as far as the currency risk? Do you borrow in US$ and take the risk that twice in the last several years the A$ has dropped to around US$0.60 and so what you owe could balloon out, although there is talk of the A$ going up to US$1.10-1.20 which could reduce the loan amount accordingly or do you borrow in A$ with the upside that if the A$ drops against the US$ that your investment will appreciate accordingly???
or am i not understanding this correctly?? It just seems on top of all the usual ups and downs of property investing, plus adding on property management issues from a continent away that there is just another risk factor with the unstable global currency situation?
apart from that, the sort of numbers being talked about sound a lot easier to get into than properties here in Oz… I have a sister living in Norfolk, Virginia at the moment and so i might ask her what she is hearing about property and ivnesting in the US at present….
Mark
There have been a few topics on here about selling properties yoruself together with some online real estate sites that let you advertise for about $400 up front i think and then so much per month that will get your adds onto some of the bigger real estate websites that maybe only real estate agents have access to….
Yeah, my understanding with the offset account is that it works best if instead of 'paying in' extra each week you get your whole wage paid straight into it and so every dollar you have is sitting in there reducing the calculated interest you owe and then you 'pay out' your bills throughout the fortnight…. but just having your money sitting in there the whole fortnight is reducing interest majorly over the life of the loan if its calculated daily…
the next potential tool is (while requiring some financial discipline) to you use credit cards to purchase things like fuel and groceries and all and just pay them off in full every 55 days or when ever the interest free period is on your card which again should leave a couple of hundred extra dollars sitting in your account reducing the interest calculations… just don't let the cards go over the interest free period obviosuly…
As Grimnar says its always worth checking out what other options are out there for your money to work for you, but if you not going to be taking them, just using the money u have wisely can help you out a lot…
yes in the old days you used to be able to afford a house on one salary… and there was usually one car, no mobiles, no pay tv, no gyms, old furniture, no air conditioning (when i was growing up we use to go and sleep outside on the lawn on hot nights and this is the 80s not the 60s), no cafe lifestyle and lots of other things i don't remember having that we do now… so lose all of those things and who knows how much more you could afford on one salary…
during the late 90s i also worked full time and studied a degree at nights and on weekends (which meant it took 5 years instead of 3) so i could earn a full time wage, when probably the norm was for students still to be living at home and enjoying the uni lifestyle at the tavern and other friends were out partying at nights or sitting on the couch watchign tv or playing playstation… now there are usually lots of options for studying online where u don't even need to turn up at uni from like 5.30-8.30 at night after a full day at work…
i wouldn't necessarily quit uni as educating yoruself can be one of the best investments you can make… i am now on a pretty decent wage at 37, not into 6 figures yet but i'm getting there and i manage even paying child support… i don't go splurging every weekend on things… i was renting and it was eating up lots of money making it difficult to get a deposit so i moved in with a friend (after taking a 6 week holiday around Europe) and am now saving up like $1200-1500 a fortnight and so have saved up my $20k deposit in a bit over 5 months or so with a bit of cashed in long service leave etc…. the scheme i'm going through means i will only have to pay $50 a week while it is being built rather than having to pay the loan straight away and rent making it much more affordable… do i prefer to live on my own? Yes. Do a few sacrficies have to be made if you really want something? Yes. Is it unbearable? No and will be forgotten pretty soon anyway… I am hopefully about to build now but might even stay living with mate for 12-18 months and rent it out and get a few tenants in, might give a real kickstart to paying down a bit of debt?? not sure yet…
Moving overseas… why would you choose that route before finding somewhere else in Australia? I live in Perth, yes the market has been in the doldrums slightly a little here after being off the charts for the last 6-8 years…. The state's mining industry will continue to boom if China stays half decent and we do have lots of industries crying out for workers over here… The place i will hopefully get my loan approved to build in the next week or so will be a 4 bed/2 bath for $300k after my deposit… hopefully be able to finance eventually with an interest only loan for about $900-1000 or so a fortnight with a 100% offset account to pay extra into which isn't that much more than i was paying in rent 6 months ago… its right next to the freeway south which any time other than peak hour will alllow me to be in the city in 30 minutes and to shopping centres, golf courses and beach in all considerably less time…. perth isn't melbourne, but we are better than plenty of other places round the world, always happy to get back here after my overseas trips…
so anyway there are some ideas about keeping your education going, find places where job growth should occur or remain strong, build up your salary over the years while hopefully your loan repayments will stay pretty static (won't be in the poor house for 30 years) and find cities that aren't mega size and so out on the fringes doesn't mean out in the sticks with a hour and half commute either way…
I am getting my loan through Keystart (http://www.keystart.com.au) which is a WA Govt initiative that allows people to get into homes that usually couldn't. They expect you to move away from them to another lender after a period…. I think they had lent too much money and so had increased the criteria to qualify for a loan to reduce the amount of applicants, and as I understood it, as such were happy for people to move away to another lender so reducing the amount of loans they had…
So no, don't know the complete details in terms of what they would charge for you to shift lenders, but imagine it would be minimal… I like the fact that you can build and only pay $50 a week while that is occuring and only start full repayments when u get the keys. At that point i would be seeing if possible whether i could shift to a bank (probably ANZ) with accoutns with all the bells and whistles and maybe a better interest rate or even discounted rate…
I have heard a few people on this forum say they get a discount interest rate…
I am hopefully about to get my loan to build my house and land package but after about 6 months plan to switch to probably ANZ as (at least at this moment) the lender offering the loan charges no penalty to switch the loan to someone else…
I have banked with ANZ for over a decade, built one house and paid it off with them etc, etc… The current loan will be over $300k, so if in 6 months time i am still able to switch the loan over to ANZ without penalty, should i be asking for some sort of discounted rate from what they advertise??? or do i have to be doing multiple loans with them to qualify for any discount???
be careful, from experience that sudden drop to one wage plus increased costs of all the things babies require can come as a shock even if your just trying too maintain your lifestyle let alone buying an IP… and although waiting till next year might seem frustrating, you might also want to make sure the baby will arrive healthy and mum is doing ok and not have any problems and then make sure the wife does want to go back that quickly, a bunch of things can impact on that decision as well…
a huge change having a child (if its your first) and and a big step buying an IP might want to be spaced out a bit…
but u know better than us your circumstances…
Hmmm, biggest mistake, we bought a block in 2001 in East Victoria Park, Perth for $110,000, put a nice 4 bed house on it for $110,000 and a year a half later in mid 2003 sold it for $385,000, which was quite a tidy profit… last year i think it was that house was on the market for $800,000, not sure what they got for it…
Had we held it and sold we could have been in a decent position (although in Perth everything else has gone up pretty crazily as well, but could have bought into a $5-600k place and had spare money over to invest….) Had we taken our nice little profit and put it straight into some new property a decent portfolio could have been accumulated… we did get a couple of round the world trips out of it and i then went and bought the wrong type of shares and we had a child and all… at least debt free now….
But just looking to get back into the market and buy my second place now and start from scratch….
So while life hasn't been to bad and i'm hardly complaining about it all, there are a few lessons there, the biggest with 20/20 hindsight that after selling that place and making the decent profit that i didn't buy Fortescue Mining shares (that were mentioned in an email that came to me from a friend's broker with the company that i did eventually buy into that went to nothing)… Fortescue only went up about 3000% or so, but there you go….
I'll have a look at your site, but just quickly are there any tax benefits in this way of investing, or is it all about profit and so you pay tax at the marginal rates on the per weekly amount they pay you, on the inital $25k and maybe just CGT on the final payout if the investment has been held over a year?
If only i had bought FMG when it debuted at 50 cents or close to it, instead i bought this other crappy one-use, retractable syringe company's shares… :o(
I am about to hopefully get finance for a house and land package. Building should take about 6-7 months (Jan-Feb 2011). The good thing is i don't need to start making repayments until i get the key so that's 6-7 months i can save up more money (to add the inevitables like do up backyard and some air con etc) but also to build up savings for a buffer once i do move in. The package is about $330k, but with my deposit of around $20k that should have the loan when i move in (not counting any savings i can put in an offset acount) of around $310k. Properties in the existing part of the suburb where the new estate is have had houses advertised for around $370k up to over $400k… Not sure what they are finally selling for, but I am planning to add a few nice things to the place, so am expecting it not to be at the cheapest end of that range if it went on the market.
If when i walked into the house I could get something like $380k-390k i would strongly consider selling it after the minimum amount of time living in it to not have to pay CGT and go off with my $70-80k profit and buy/build one or two places… But if I did decide to keep it, either to live in or rent it out, it would be nice if after a valuation it showed that the house had equity of $60k-70k and together with a bit of savings i had accumulated it allowed me to think about getting an IP property early/mid next year.
But just not sure how conservative the banks might be in working out a valuation for the house, especially in the area of a new estate etc with other houses in the middle of building, or vacant blocks of land around whose dwellings have not started yet… I suppose i will have to wait and see..
Mark
I know it probably differs in each State, I'm from WA, but if you try and sell your property yourself rather than going through a real estate agent, how significant are the sales costs?
I was renting a place in Perth and paid an initial bond and then some time into my occupancy the rent went up quite a bit and they asked for an increase in bond… I didn't check to see if they could or not, just paid it, but i assume they were acting legit, so it may not be the same everywhere in Australia?
Thanks Heather, yeah there were a few questions i was asking there and i know no one has a crystal ball to answer all of them… For people with different strategies no time might be the right time to buy a house and land package as they use renovate and sell strategies or commercial leasing strategies etc… and if i go for a short term strategy a downturn will have more impact than if i was going to hold for 10 years… Was just wanting to get some thoughts though on people who may have been through these potential down turns before rather than just listening to HIA and REIWA spin about no matter what happens its always a great sign… but yes can be a good time to buy as long as you aren't the last mug to buy before the market starts falling…
Its good about the strength of the mining industry, sounds like i may need one of those mining jobs going begging, as the house and land package, while further out from the city than i had really hoped for, seems to be the most affordable option for me to get back into the market after not owning a house for quite a while… a stepping stone up to more properties and/or a home closer to the city, but have to take the baby steps first…
One thing, i was overseas for 6 weeks and have come back and see some homes around the southern suburbs on REIWA site being advertised and they don't even have a price range, just "Offers"??? not even "Offers above $300k" etc… that to me sounds a little bit desperate and not exactly putting a potential buyer in the right frame of mind, almost like the owner is asking people to do them a favour and say a figure???
Dunno, but maybe rather than the bank adjusting your repyaments as your remaining principal of the loan gets reduced, they just keep your repayments the same and it is the term of the loan that gets reduced. Like people say put in a little extra each month and you reduce the loan by so many years (pay it off ahead of time), rather than the bank keeping the loan term the same and just reducing your require monthly payments as you get ahead…
so to put it more clearly, it might be the loan term rather than the repyaments that reduces unless you somehow specificly ask the bank to recalulate your monthly payments if its not doing it automatically?? As Benno above says maybe the banks are not inclined to vary the repayments during the life of the loan unless you get into some financial dificulty….
I just recently was given an older book called Borrowing to Invest – the Fast Way to wealth – a Guide for Borrowers by Noel Whittaker and Paul Resnick. It was written in 2002 i think so a few things might have changed (when they wrote it stocks were still going up strongly but probably better to buy shares now than 18 months ago) but they went through the pros and cons of borrowing money for both property and shares. It gave some useful food for thought for both.
Noel leant more towards borrowing for shares as over time, with both diviends reinvested and tax credits from fully franked shares and growth etc and all the rest, he worked it out that shares would be a bigger gainer than property, but either option executed properly could provide handsome returns.
His thinking was that you would probably need at least $200k invested in shares to have a properly diversified portfolio, so that is a range of maybe 10 shares across different industry sectors and also a mix of some low and some medium/high risk ones depending on your appetite and investment goals.
Learning about shares is not impossible, but you'd need to invest a little time in it to learn all the lingo etc… you can even take classes at http://www.asx.com.au… they do have their good and bad points compared to property, but if both are held for the long term rather than being sold out during panics, both should provide good returns if chosen well at the start… you can probably also invest the money in managed trusts or whatever who have people who buy and sell shares for you of all different classes and risks etc… so various ways to do things while your starting out…
I guess one of the advantages is (and when i have enough money probably i would like to try it) is that when shares are up often property will be down and vice a versa and so just like in a property portfolio you like to diversify into different suburbs or typs of property rather than having all eggs in one basket, having a larger diversification in your investment strategy of shares and property will hopefully protect you more… if people had had the money and the balls to buy in 6-12 months ago the ASX has bounced bock really well (over 50%)… the smart investors know to buy when everyone else is selling as the entry costs are so much less as all the stock prices are being reset to lower levels and growth can begin again…
Again, maybe buy a book or two and think it through, but future performance unfortuantely can't be forecast from past experience and the massive bull runs we have had on the stock markets…
Mark
