Good for your guys, for taking the plunge and investing.

I think what some of the forum people are alluding to with their comments are that one should focus more on the underlying asset, the quality of that asset and how it will likely perform in the future.

Often some investment groups highlight the tax benefits and 'home gearing & debt reduction strategies' as a means to sell their stock.

Always look at who is paying these people – is it the developer of the product or you? (i.e. are they really sales agents and representing the vendor of the property).

Tax benefits are a bonus – the performance of the property will make you the most money over time.

Well done and good luck.

Dear Sati,

 
Whilst the situation is not good you can learn valuable things from this experience that will likely put you in good stead to make better decisions in the future. All good investors have started somewhere and also made mistakes.  

This is obviously very damaging to your cash flow, I assume that selling the IP is not an option for you, i.e. that you do not have $30,000 in capital to repay the bank loan upon the sale.
If this is the case, improving the properties cash-flow may be one of the few options available to you.  

Would you receive a better rental if you rented the property by the room? A lot of people do this to increase their returns. You may find a local agent that will manage this for you, if not you may need to up skill yourself to do this.  

Is the valuation low because of the condition of the property? I.e. if the property is very run down then this could dramatically reduce the valuation, especially in today’s market. What would sprucing the property up entail? What would it cost and would this improve the value to at least to a break even point. I would at least investigate this so you understand all of your options and also to improve your knowledge about the property. 

After thorough evaluation if you found that by spending $10,000 or so, there was a good chance of selling the property to break even (after considering all costs), then maybe a family member might help you out. Obviously, this strategy would involve a lot of research and should not be chosen lightly.  

Maybe people of the forum have some more positive tips for you??

Information was sourced from various places.

Financial Review  – (on-line subscription)
ABS – Information is free
Mortgage & Finance Monthly Brief (subscription)
RBA website – Free
Various finance industry daily e-updates (subscription)
Industry seminars and updates

Can be dry reading however, it keeps your finger on the pulse.

Interest rates and the economy – property prices 

• Interest rates have been left on hold since March 2008. The immediate inflation figures and outlook is the leading indicator for monetary policy or the regulation of interest rates by the RBA.
• The cash rate is currently 7.25%.
• Economic growth (which drives jobs and demand) is expected to fall from 3.25% to 2.75%.
• Unemployment is tipped to rise from 4.25% to 4.5%. (Reflecting the slowdown in growth).
• Whilst the RBA has lifted its inflation forecasts from 3.5% to 4.5% by December 2008, the medium term outlook is then a fall to 3.5% – which supports claims that the cash rate should fall over 2009. This should see home interest rates fall and some life come back into the property market.
• NAB thinks the cash rate will fall from 7.25% to 6% over 2009.
• Economic forecaster, Peter Switzer states that the above forecast should come to pass so as long as the price of oil does not increase too dramatically. An increase in the price of oil may put further upward pressure on inflation (Goldman Sachs forecast that oil may rise to $US200 a barrel).
• Peter Switzer states that if oil ‘goes sky high’ that we can count on a recession and then interest rates would fall big time to avoid a long drawn out one. A recession is defined as two consecutive quarters of negative GDP growth.
• Despite rises in oil and the flow on inflation effects, the RBA has reduced the odds of a rate rise by the end of the year from 100 per cent to 70 per cent. This is mainly due to the slow in the economy and retail spending.
• The RBA supports Westpac’s statement that the worst is over with regards to the ‘Global Credit Crunch’ and rates should ease in 2009.

There are a few predictions are there. 

Interest rates and the economy – property prices

•  Interest rates have been left on hold since March. The immediate inflation outlook is the leading indicator for monetary policy or the regulation of interest rates.
• The cash rate is currently 7.25%.
• Economic growth (which drives jobs and demand) is expected to fall from 3.25% to 2.75%.
• Unemployment is tipped to rise from 4.25% to 4.5%. (Reflecting the slowdown in growth).
• Whilst the RBA has lifted its inflation forecasts by December 2008 from 3.5% to 4.5%, the medium term outlook is then a fall to 3.5% – which supports claims that the cash rate should fall over 2009. This should see home interest rates fall and some life come back into the property market.
• NAB thinks the cash rate will fall from 7.25% to 6% over 2009.
• Economic forecaster, Peter Switzer states that the above forecast should come to pass so as long as the price of oil does not increase too dramatically. An increase in the price of oil may put further upward pressure on inflation (Goldman Sachs forecast that oil may rise to $US200 a barrel).
• Peter Switzer states that if oil 'goes sky high' that we can count on a recession and then interest rates would fall big time to avoid a long drawn out one. A recession is measured by two negative quarters of GDP growth..
• The RBA supports Westpac's statement that the worst is over with regards to the 'Global Credit Crunch' and rates should ease ion 2009.

Can you afford for rates to up? If not maybe consider a 50/50.

Cheers

G'day Kate,

Should your offer be accepted and you need some amo to convince your husband, you could consider doing a CMA (comparable market analysis) of the property. I.e. What are recent sales in the street and within 200m of the subject property like? A CMA can be done using RPdata or Reisdex (as a casual user if you do not subscribe).

If you work out that you are picking up the property substantially cheaper than properties on similiar sized blocks in the street and also work out an approx renovation budget, you could present a business case to your husband  –  to help get him over the line.

If the total costs of purchase + costs of the reno is at least 10% under comparable sales (once the subject property is brought up to their standard) you are doing well and the exercise was worth it.

Hi There,

The Australian average is approx. 20% of gross income spent on loan repayments – or approx 27% of net income, depending on your MTR.

Approximately 8% of folk are at or over 50% of their gross income. So if they earn $60k per annum gross, then their loan repayments are approx. $30,000 p.a. That would make the repayments at about 66% of their net income.

This is considered to be mortgage stress!

You would certainly qualify for a loan, I would just recommend doing a good budget.

Hi Dexter,

We act for investors all over Sydney (and NSW / QLD for that matter).

We are currently negotiating on a property in Campbelltown for a client.

Please feel free to contact me privately if you wish.  

Hi Nathan,

I have a couple of Sydney based solicitors that I have been working with for a few years. They do conveyancing work for me all over NSW.

Although, not in Wollongong, I am sure they can help.

Please feel free to e-mail me for details.