Forum Replies Created
- Originally posted by mancityfan:
Utilising P&I loans for 30 years simply means that the tenants will eventually pay off ALL your debt on the property.Nope, they won’t. In the scenario I offered puduston above, the tenants would only pay some of the loan off. The ‘investor’ would have to contribute around $297,000 over 30 years, in addition to the $30,000 deposit plus purchase costs. This assumes (for ease of calculation, static interest rates, no rental voids, no rent increase). If these costs were capitalised on an interest-only loan, at the end of 30 years there would still be a $620k debt…
The only way that the tenants will eventually pay off ALL your debt is with a net positive cashflow position, using a P&I loan.
If, on the other hand they buy for the long term, surely any short term negative loss would be well and truly offset over the long term by the end value of the property.Surely? I’d say probably. But then you need to consider the ‘opportunity cost’ of that $30k deposit plus $300k worth of lost savings over 30 years. Compounding at 9% per annum, that’s around $1,800,000 after 30 years. Even at a safe 6% bank interest, it would be pushing a million dollars…
But nothing is as ‘safe as houses’ is it?F.[cowboy2]
Originally posted by Pudestcon:This really means an extra $1200 per year or $23 per week. If you had to take a LOC to cover this short fall then the actual cash from your pocket (to pay the interest only) every week is only $1.62 assuming 7% interest on the LOC.
I reckon if I was in such a situation $1.62 per week out of my pocket is a small price to pay to keep control of an asset increasing in value over time. Similarly, if I was contemplating getting into property through negative gearing then an extra $1.62 out of my pocket each week would not make the deal less attractive.Sorry if I misunderstand, but are you suggesting that a prudent investor would borrow additional money each year to cover the interest payments on a negative-geared investment?
[blink]
Good grief! What is the world coming to?
Could you possibly provide a worked example that outlines the capital gains required on, say, a 3.5% yielding, $300k house with 10% deposit for somebody in the 30% tax bracket? How much house price inflation is required to make such a deal worthwile (including repayment of the capitalised losses) over 10 years? 15? 20?Cheers, F.[cowboy2]
Originally posted by hb:your right Terry
I agree it is ridiculous with the stamp duty issues. Makes you want to abondon property and invest in shares!i have and loving it
harry
So you’re comfortable with this week’s developments in Aus & international sharemarkets then Harry?[blink][biggrin]
I’d be surprised if the movements I foresee between now and, say October (?), don’t make a lot of people want to abandon shares…
F.[cowboy2]Originally posted by Kiwi-Fulla:Good Point here … I saw this on ABC last week nad felt sick when I learned that over 30,000 Australian citizens lost over 1.35 million and cannot claim a cent back!
I have read the total investor losses are expected to be in the range of $200 to $300 million, although Neil Jenman’s website suggests it may be closer to $1,000,000,000.
F.[cowboy2]Originally posted by Pudestcon:With the tax break announced in the 2006 budget I will simple use that cash in place of the reduced tax deduction.
This seems to make sense. Those who are currently negatively geared won’t find their situation much changed. However, those considering purchasing a negatively geared property will find it less attractive, as a $10k annual rent-deficit will now leave most people considerably worse off than before. For example, many taxpayers will have dropped from the 42% tax bracket 2 years ago to the 30% bracket. Where a $10k rent-deficit would have cost them $5800 per annum, it will cost them $7000*.
This makes future negative gearing less attractive than it was in the past, and is likely to further reduce demand for such properties. Agreed?*Rough calculations, and not applicable to all cases.
Cheers, F.[cowboy2]
<edit> Just re-read the original question and realised I’d just repeated less precisely the same sort of example. However, my main point is still – this will have negligible impact on current -ve gearers, but a significant impact on potential future -ve gearers.<edit>
As Terry said, the payments will usually begin at the end of the first payment period (f’night/week/month). However, the payments are calculated on the debt outstanding, and if you are building, the bank will usually only pay the loan out in stages. In this case, you will not be paying for the full debt until completion and final payment – your payments will just increase gradually through the stages. There may be other ways of doing things, but in my experience, this is fairly normal.
Cheers, F.[cowboy2]Oh there’s still time, gmh. If somebody had bought a random house in suburban Sydney for $550k in 2002, sure it might be worth $490k now, but who’s to say it won’t be worth $1.1m in 2009? Assuming no growth this year, it will only need to see 33% gains per annum in 2007,8 & 9. Oh, I see your point. It’s just not going to happen.
I guess there’ll be an awful lot of property investing books, websites and spruiker-seminar materials that will need to be rewritten. The next growth industry?
F.[cowboy2]With regard to brushmarks, use oil-based paint over a carefully prepared base. Craftwood doors will need to be sanded thoroughly after priming as they tend to burr. I’d recommend semi-gloss or shinier for the top-coat – it’ll stay cleaner and last longer. In my experience, higher gloss enamel paints tend not to hold brush-marks, they ‘slump’ out as the paint dries. Obviously, use decent paintbrushes, leave a week (if you can) between coats, give a fine sanding before the top-coat. And finally, lay the doors flat for painting rather than hanging them first, that way any excess paint will end up around the back of the door rather than in vertical runs.
Cheers, F.[cowboy2]
Originally posted by Rikky:The government droped tax benifits of negative gearing for 2 years in the 80s it was the worst thing they done people had nowere to live and the government had to house people it cost them a fortune rents went through the roof so they went back to tax benifits for negativly geared propertys
I’ve heard this story many times before, but the stats just don’t seem to support it. There was a localised rental squeeze in Sydney (which was likely unrelated to the change)… Can you provide any evidence of this claim (statistical fact, not anecdotal)?
F.[cowboy2]
I would suggest faking your own death. Either that or seek professional legal and/or accounting advice As Soon As Possible! This is not a situation that should be handled by anonymous strangers on the internet.
Best wishes, F.[cowboy2]
I have just the thing:
…I feel awkward asking you for money. I feel that you have already given me so much would you above, and your emotional support. Through the years, many of you have helped me out…Just remember to replace the words “2004 Dodge Grand Caravan” with “4 Bedroom McMansion in Dullard St” and Bob’s your uncle… and if he’s not, you’d better be hoping he’s not only loaded but also alzheimic…
Here to help, F.[cowboy2]And to tie the two previous posts (Iran & SBS) together:
IRANIAN OIL BOURSE.
9.5.2006 12:43:22Since 1973 oil has traded in US Dollars, and because the world needs more and more oil, at ever- increasing prices, the global demand for dollars has also increased.
So what would happen if an oil-rich country attempted to trade, and price its oil in Euros instead of dollars?
Iran is threatening just that with it’s the upcoming oil Bourse.
Saddam Hussein tried this in September of 2000, and following the US-led invasion in 2003, the Oil-for-Food Program was terminated, and Iraq’s euro accounts were switched back to dollars.
To understand the motives behind the proposed Iranian Oil Bourse, Greg Mulller spoke with American Information Security Analyst, William Clarke. In his book ‘Petrodollar Warfare’, William Clarke claims the threat to the US Dollar is real.
The opening of the Iranian oil bourse was planned for March but has been delayed to mid this year
– SBS Radio, 9th May“Roll up! Roll up!” calls the United States, “Get your US dollars here! Currently 30 percent off, buy some now while they’re still worth more than the paper they’re printed on!”
“Oh, that sounds lovely,” reply China and Japan in unison.
“No thanks,”spits Iran, “I prefer my oil in Euros!”
The US turns toward Iran, snarls, raises its AK and releases the safety…
Err, metaphorically and hypothetically speaking of course!
F.[cowboy2]
Originally posted by kum yin lau:if you build it in the country. If you can buy a block of land for $20000, you will have to spend $250000 to build a house, because building a road will cost $100000
Rubbish! I just last year finished building one (2-bedroom) house on 600m^2, a stone’s throw (literally) from the beach for less than $140,000, including land.
I’m responding to the info that we built 157000 houses while our population grew by 200000. I think that these figures may bear checking for veracity depending on what categories of building is under consideration.National figures from the ABS, new starts only (residential houses+units). Speak to them if you believe they are in error. I agree, some knock-down and rebuilds occur, but they would have to account for >30% of all construction to balance the population growth/residential building equation.
F.[cowboy2]
<edit> Revised (latest) Figures:
238,000 net population growth year to Sept 05 link
Building Approvals link<edit2> Notice the net SA migration? 9,900 for the year, up from 8300 (year to previous quarter)… yet you continue to build ~12000 houses and units.
Originally posted by Stuart Milne:I believe if the Govt. Cancelled Neg Gearing Benefits, they would send most mum and dad investors to the wall.
What if they removed it for future purchases but left it in place for existing investments? As in, non-retrospective changes?
They would also increase the costs of Private Housing astronomically.How so? I would think the cost of private housing would absolutely have to fall back to levels where FHBs were able to afford a decent house at 3 to 5 times salary multiples…
I guess you mean public housing, but I think that an equilibrium would be reached eventually.
F.[cowboy2]Originally posted by PaulDobson:I’d hate to see the results if the government stopped negative gearing benefits for residential property. The bill for “public housing” would explode.
Why? And would it “explode” by more than an additional 3.5 billion dollars per year?
F.[cowboy2]Originally posted by flatout:IMHO an interest rate rise will invariably cause rents to rise if for no other reason than investors will look to pass it on to their tennants.
Some may try, but many property investors have little or no debt attached to their properties. I think market forces of supply and demand for rental properties are more important than rental returns, otherwise how do we explain the majority of IPs being negatively geared?
Whether or not 0.25% rate rise will cause home buyers to hang off purchasing I would speculate that the rise isn’t significant enough on its own although it may cause buyers to lower their budgets a bit.Well it has to. A .25% interest rate rise reduces affordability (and therefore borrowing capacity) by around $5000 per $100k (a more accurate estimate from any of the mortgage brokers on this forum?), which places similar downward pressure on prices, especially near the upper limits of FHB range.
And finally, I’ve been amused by recent reports estimating rental prices will rise by as much as 40% in Sydney over the next 4 years and 25%+ in Melbourne. This would have a large impact on official measures of inflation and force further interest rate rises.
Cheers, F.[cowboy2]
Philip Harvey – It’s a bit rude to go back and edit your previous posts after I’ve responded. I see I’ll have to quote you in full from now. Slow day at the REA office?[wink2]
Originally posted by Philip Harvey:Japan at the height of its boom was incredibly overvalued in all sectors.
Sure, with hindsight this is obvious… Looking back on this boom period may provide a little perspective also.
The projections are for the Australian population to reach about 23m in 2024.So at our current ‘slumping’ rate of building 157,000 dwellings per year, those 2,900,000 newcomers will have an additional 2,512,000 dwellings to occupy? Wow, and HIA etc, are telling us that the huge undersupply of new building is going to force rents up? Do you believe this ‘demand outstripping’ supply is going to make house prices double, then double again from their current highs over that period?
I think it is fair to say that in the next 20 years the Japanese population will not be 146m……….No, it should be more like 110 million, but relevance?… I think my original post clearly rebutted your original postulation that an increasing population necessarily correlates to increasing real-estate values. The future of Japan was not at issue.
F.[cowboy2]
[medieval]
New to Property Investing, but have been following for a while
[/quote]Originally posted by jneale:There is a large net migration into WA causing the housing shortage and the increases in housing prices. Perhaps a 0.25% increase in interest rates may reduce what people can borrow but they will still need houses. I think some of these realestate announcements are deliberate attemps by agents to manipulate markets to their advantage. With a shortage of houses for sale and people hanging on to houses to get the capital gains of course real estate agents are going to say “sell your house prices will drop”
Wow, that is almost exactly the vibe that was coming from investors in SEQ 18 months ago (and at one point even Tassie [blink])! Amazing!
Two things for you to consider –- The rate (% increase) in house prices over the last X years vs the rate (% increase) in rental returns. This roughly apportions the gains to market forces and hype (eg, 50% vs 45% = a little hype, 75% vs 25% = a lot of hype). A more sophisticated analysis would consider wage inflation, but I think you’ll find it’s fairly irrelevent. The big problem with hype based gains is they tend to compound…
- The rate (% increase) in total dwelling numbers (total, not new starts) over the last X years vs the rate (% increase) in population.
Originally posted by Philip Harvey:5. Prices for property in 10-20 years will be much higher than now based on long term demand increasing.
I think this may be a fallacy of logic. Consider Japan, with around 128 million residents on 378,000 square kilometers vs Australia’s 20 million residents on 7,682,300 square kilometers. Last year their net population growth slowed to a tiny 640,000! They had positive population growth in the range of millions per annum over 14 years of consecutive falling house prices. In contrast, last year our population grew by around 200,000 (and incidentally we built around 157,000 dwellings).
Cheerio, F.[cowboy2]
Originally posted by Dave L:Looking at things a bit closer
“If you are a company, trust or individual carrying on a business, then you will be able to claim the interest as a tax deduction because tax is a necessary part of conducting business and is viewed as a business expense.”Brilliant Star said he saved his tax which implied to me he was running a business of some sort ie not payng PAYG tax.
Therefore he should be able to claim that expense back if he did not have the money.Ah, but taking company/business money and placing in in a PPOR mortgage would require a “formal loan agreement” with interest paid to the business at market rates etc, etc, an administrative nightmare and something the tax office has been taking pretty seriously… and I can’t see how market rates for unsecured cash could be less than a mortgage rate… therefore it would be a pointless exercise.
Cheers, F.[cowboy2]
A serious disclaimer – I am not a financial advisor, therefore the above information should be considered generally wrong in nature.. [biggrin]
