We have also just done what James has done i.e. LOC + Offset account however we also changed our mortgage from P & I to interest only with a view to creating more cashflow.

Cheers
Devo

Hey Dave

IMHO I believe that this question is actually a moot point should you have done your ‘due diligence’ as part of analysing the property (as far as it fitting into your stratgeies are concerned) will include a worst case scenario. If you can live with the worst case scenario and your sleeping patterns aren’t going to be disrupted, then anything that follows is actually more cream.

At the risk of stating the obvious, another point that I think is paramount is to actually become very familiar with what drives the market forces eg economics, urban trends, pop. growth rates, migration patterns, town planning etc. I sincerely believe this is a key factor in making up your OWN mind. And I don’t mean, becoming familiar with the concepts. I mean go and actually acquire some knowledge in these areas. It’s very easy to be persuaded by market commentators as we naturally assume they must know something right, cause how could they have got their job in the media where they can presumably be discredited quite quickly and easy??? Wrong! The reality is, when it comes to the economy they have as much of an idea as you and I and that is a fact. One thing you learn when studying economics is that if you can explain why you think something is the way it is (or going to be) with supporting theories etc, its right – it’s only your opinion but it gets a tick. There maybe someone who comes in behind you and says no, no, no. This is how it works and they explain how and it makes sense as well and guess what. They get a tick too!! So you could have two completely different interpretations but they are both right! Wouldn’t you feel better if you were in more control of what YOU think than what you are ‘massaged’ to think? Given that, it could be argued that it all depends on what channel you watch and who your favourite market commentator is that may determine who your acquire your position on how you think the economy is going. (Not trying to be condescending here just trying to put it into some sort context).

I personally know of one very popular market observer who is on the tellie quite a bit and was exposed not too long ago for flogging a product in one of his shows that he had actually been paid to mention. I have no doubt that he sincerely liked the product he was paid to endorse because afterwards I checked it out it was quite good. Not applicable to me, but still quite a good product none the less. The product is offered by only a select group of financial institutions so his endorsement was more for who to go with rather than the flogging of the product itself.

Another example:
Last year on the ‘Sunday’ program, there was a story on Stock Brokers. They conducted a concise survey on the advice the shareholders had been given in the last 12 months. Out of 88 stokebrokeers (I think) quizzed, only 2% of them advised shareholders to sell their shares. It was all buy, buy, buy!!! (above figures are as correct as my memory can recall at the moment. Regardless, it was staggering to say the least). The Sunday’s spin on it was they felt it was more than a coimcidence that only 2% advised the clients to sell. It stunk of collusion.[V]

My point is, I believe as do many others, it is possible that certain media figures in the market observation business are approached by other key players to paint a certain angle or skew a finding on something within the RE market with a view to ensuring a certain outcome has been manipulated. Not all the time, but it mst certainly does happen.[!]

When you have a bit of basic knowledge in the areas that drive RE, you start to analyse a bit more, ask more questions and conduct your ‘due diligence’ in a totally new light therefore eliminating your concerns about timing. If you’ve done your homework, you’ll have a pretty good feel for timing. It won’t always be right but most times you’ll get it close.

Yack made a very good point. He believed house prices would go down 3 years ago, but have they? It didn’t mean Yack was wrong because when dealing with sectors that are encompassed by the economy, it’s easy to forget that it is actually people and their emotions that have the final say. All indicators may have pointed to house prices slumping which Yack may have been right in observing, but who new what impact GST was going to have on people’s emotions not to mention other market forces as well??

Yack
Just curious, why did you think house prices were going to go down in 2000? [] ( I didn’t have an opinion back then so I’m interested to know what your thoughs were)

Sorry for rambling on Dave. Hope I have helped in some little way.[]

Cheers
Devo

I agree 100% Bernard. The adverse affect on the economy coupled with the domino affect that would precede it leaving in its wake many victims from varying situations, would be economical and social suicide. Robert Kiyosaki touches on this in his second book and outlines the events that happened in the States I think, where a similar strategy was adopted. Needless to say, it didn’t work out to well for many across the board. Even those who beleived they were far enough removed from real estate to be affected.

Agent 007

You need to find out what version of Internet Explorer you are running…..You need to have at least IE 5.5 or later which will register all the necessary objects , then reinstall thew application again and it should all be sweet…..The easiest way to obtain the latest IE 5.5 or 6.0 is to buy a PC magazine and it will be on one of the cd’s provided…..

Cheers
Steve

Bill

You’ve definitely touched on something here. Any basic movement in the market that has been stimluated by market changed (due to consumer confidence or lack of, fiscal or monetary policy etc) is ALWAYS proceeded by a lag before the desired affect takes place. Your theory and subsequent practise of, I don’t doubt at all. Data collection is the only difficulty. Some of the key indicators you have proposed are a definite start.

Great observation, literally!!

Cheers
Steve

Sorry for the late reply Wolve. Been giving it a miss lately.

Yes I have been to one of Peter F’s 3 day course and have to say it was well worth it. He has a very sensible approach to investing and untilises many different strategies to ensure diversity is maintained. We paid a few 5k for both myself and my partner to go and I believe it was worth because at the very worst, the education he imparted will at least prevent us from making costly errors when doing only basic property deals. At best, we apply what he taught and do very well. No tricks, no gimicks.

His seminar was about educating which was quite relief! When you fork out the $$$ you’re always hopeful that you not going to be taken. This was definitely not the case. $$$$ well spent I believe.

Cheers
Steve

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Steve,

Yep Peter Flanagan was his name.

Have you been to any good seminars that you would recommend?

Wolve

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Aafreen

It spounds like a wrap would be ideal for your situation! One of the pivotal points in ensuring a wrap works is to find a property that, once the sums are crunched and the repayments are etsablished, that the repayments equate to roughly what you would be paying in rent anyway. You make a valid point re: renting now & saving for 12mths vs getting in now and enjoying hopefully some tax free captial gain.

As for IR, our current economic climate is still firing away as good as its ever been. Unemployment is down which should have meant IR would only move one way but now with the $AUD going so well, rates will remain on hold for little longer yet. I’m no economist and I have only studied economics briefly at uni so this is purely my opinion but one observation that can be made about the economy is that there is always a time lag when economic policy is implemented. There has to be, there’s 9.34mil of us working so it takes a little time to pick up the beat[] So what I mean by the above is whenever a montery policy e.g. change of interest rates by RBA etc or fiscal policy change e.g. increase/decrease in taxes or gov. spending etc, there is always a time lag that preceeds the desired affect on the economic climate – and that lag can range in time to varyaing degrees depending on the affects the policy is trying to achieve and the time it takes for the market to react and reflect that policy change. My point here is at the moment, things still look ok and many commentators have suggested that it will remain that way for a little longer yet (BTW commentators don’t really know either but have spent a bit of time observing but I bet they can’t tell you when a war is going to be or a size 8 earth quake through China etc). If things do change, you have the added bonus of the time lag before the full effect takes affect. However, there is no point in knowing there is lag if you are not astute enough to use it to your advantage. By that I mean, you need to read the papers, listen to those boring statements on the economy and subsequent policy changes so you can implement exit or entry strategies if deemed appropriate.

The down side is if IR start to move while being in your own place, as you stated below, repayments rising while prices drop is a real possibility. You may be forking out more and your house value stagnates!

However on the other side of the coin, this could be used to your advantage. A year worth of savings, interest rates rise, house prices correct and you could walk into a house that you could’ve only dreamt of owning 12months prior. I think there is little doubt that there are home owners out there that crunched there no.s to the last dollar so they could get in but will find they have over extended themselves. Also, should you decide to wait, another consideration is the ongoings of owning a house would be suspended for that time thus adding to your kitty for a bigger deposit.

I don’t think I’m alone here when I say “please bubble, hurry up and burst!” I think there might be a few of us circling at the moment.[]

I hope this has been a help. []

Cheers
Steve

There’s a few points

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We spoke to a mortage broker and a bank and both said we can not qualify for a home loan. First because we do not have a deposit (we had 35K last year then blew it all away on a world tour last feb[]). Second because hubby is self employed and im a stay at home mum (2 kids).Then they said if we come up with 10% deposit, we won’t have any problems.

now, hubby thinks the only way to buy our home (or IP) is to wait for 12 months and try to save.
i disagree with him, i have read (little) about wrap, lease option 2nd mortgae ect, and tried to tell him there are other ways but he says “there are no such things, why would the vendor wanna do that etc, etc.” My problem is, i have not fully grasp the idea of these alternative financing thus i am unable to explain to him fully. and he is not willing to read! other thing is, i have not worked out ( in numbers) whether it will be better to wait and save or better to get wrapped ? i know we pay higher IR in wrap, but wont renting while trying to save cost us more ?
what about the timing ? if we wait for another year, what will be the prices then? our earnings don’t increase as fast as house prices. what about property price crash ? how does that happen ? is it better we wait for IR increase maybe prices will go down but that means our repayments are higher coz the cost of borrowing is more ? i think i need a financial adviser.

Forgive my ignorance, i don’t expect to be spoon fed. as a matter of fact, i am trying to learn and educate myself as much as i can. even with full resistance from hubby, I am halfway thru steve’s book, have read lots of the posts in this site, went to some free wealth creation seminar, almost signed up for a “15K mentoring program”, drove 6-8 hours away from Melbourne(with 2 kids) to get a feel of the area and check out listings of different real estate agents. But after all these, i still couldn’t put the pieces of the real estate puzzle together….i still have a lot to learn and i would appreciate any help.

*looks like this post suits more in the soap box

thanks,
aafreen

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Hi Marvin!

Congrats on deciding to get out of the rat race through property. I must state up that we have yet to buy our first IP as my other halfd changed jobs recently and would you believe that we cannot get any finance sorted until her probationary period is finalised. Nevermind the fact that she was at a bank previously for 4years and is now with the QLD Police. I guess we’re just to risky for them at the mo. Anyway, we’ll get started in the next month or two I suppose I can be patient for a little longer.

One thing I did want to comment on with your below post was your concern about when interest rates hit 17% in the early nineties. One of the main reasons for this was the deregulation of the banking industry. This created easy passage for foreign banks to enter the domestic market. The banking sector was flooded with foreign lenders who couldn’t throw enough money at business fast enough. There were a lot of people/businesses overextended driven by the undertone of an economy humming along. However this could not last as the government needed to get some of this money back to try and level off a very volitile economy. RBA did this by utilising monetary policy i.e. manipulating interest rates. Long story short, too many foreign banks offered too much money under the new deregulated banking industry (hence Paul Keating’s statement: the recession we had to have) denoting that one of the attributes of a deregulated markets is that by design, it sorts out who should be in the market and who should be eaten up and spat out. Interest rates rose dramatically as money need to be recouped. The banking industry is no longer as volitile as those who should not be in the banking sector are no longer there, therefore rate rises of up to 10% seem to be reasonable. In my opinion, I doubt interest rates will get much higher as the circumstances are vastly different to the early 90’s. Do your risk management and allow for 10% interest as a worse case sceniario in your calculations. That way you’ll still be able to sleep at night. The above is only my opinion.

Good luck!

Cheers
Steve

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Now my question.

How can we protect our +ve gearing properties from a rising interest rate? I saw on page 145 (o-130) that the interest rate once reached 17%. That’s incredible. Then I went back to Steve’s first example on his +ve gearing purchase and calculated how the IR (Interest Rate) would affect it. And with a 2.5% rise, it would neutralize the +ve gearing.

That’s a bit close for comfort considering how erratic the IR on Pg 145 is. I looks like its going down, but I’m assuming that its going to go up soon due to Aus’s big spending/boom recently, inflations, election and the goverment is going to have to increase it.

Correct me if some of my assumtions are downright wrong, I am very new. Going from Chef to properties isn’t exactly a walk in the meadows.

Hope someone can clear me up on this. Thanks. And very nice to meet you all.

Its great to have found a forum like this where I can learn so much, and hopefully in the future contribute to.

~Marvin

“Here I am!!! Now what’s your other 2 wishes?”[]

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