Forum Replies Created
Houses tend to depreciate over time, property tends to appreciate. For your PPOR, your ability to make more than the minimum repayments should probably also be an important consideration. I did some quick calculations the other day:
I would suggest you give serious consideration to the price you are prepared to pay for a PPOR. The difference between buying something cheaper and paying it off over 10-15 years and stretching until you can’t afford to make significant additional payments over 30 years is enormous.For example 2 couples, both with a maximum weekly accomodation budget of $320 are buying PPORs. The first couple buys:
$150k over 15 years
$312 p/w repayment
$93,000 total interest paymentsThe second couple buys:
$205k over 30 years
$317 p/w repayment
$289,000 total interest payments
both scenarios assume constant 7.07% IR.After 15 years the first couple have finished paying off their PPOR and start saving or investing their $312p/w.
After 30 years, the second couple has paid off their house, spending a total of $494k.
Meanwhile the first couple have paid off their house for $243k and also invested a further $243k (or at 6% compounding, $395k).Which would you rather be?
I hope this gives you additional food for thought.
Cheers, F.[cowboy2]I think we talk at cross purposes sometimes 1Winner. Speculating is not evil or wrong. Nor is it strictly investing (by my personal definition). Investing relies on, and aims to achieve historically normal rates of return while speculation chases better returns by trying to predict future trends and scenarios. There is risk of loss involved in either, but moreso in what I call speculation. There can be no moral judgement of either group as their gains and losses are personal…
If someone thinks they are investing, but is clearly holding an expensive asset and hoping for capital gains, I may call him or her an ‘investor’… by which I mean speculator.
I hope I’ve cleared up our misunderstaning![blush2]
My personal rule is to only ever speculate with what I can afford to lose, and to invest the rest.On the subject of right/wrong (I don’t believe in evil), I abhor misinformation and propaganda circulated and perpetrated by real estate ‘institutes’, lending organisations, ‘wealth creation’ experts and vested interests in the media and entertainment industry. They don’t have the best interests of home buyers or investors at heart, far less that of Australia as a successful and prosperous country.
Regards, F.[cowboy2]dmichie – I did catch Alan Kohler tonight. It’s a shame we don’t see more of him, as he is one of the few straight-talking commentators in the media. Do you have any idea why Demographia does not seem to include the UK / Europe? I’m also a little confused as to how Brisbane can be so far below Melbourne now that its median price is higher. Anyway, it’s all interesting.
Err… Hrmph.
[[fear] on] Physical. Small internationally recognised pure gold coins (maples and kookaburras). Not normally great for capital gains (and by no means CF+), but nice for peace of mind and a decent hedge against inflation. And they’re pretty, aren’t they my precioussess?![blink]
In turbulent times governments try to control anything that has intrinsic monetary value as opposed to state sponsored fiat notes… Paper gold is traceable, whereas a tin in the backyard is not.[[fear] off]
In reality, a major global meltdown is incredibly ridiculously highly unlikely, but it’s nice to know you’re at least partly insured. And it’s so pretty… shiny… preciousssssss…[biggrin]
But before we get sanctioned for being [offtopic]…
Cheers, F.[cowboy2]Cheers Resi, I’m happy to provide shallowness![biggrin]
what gives me the s..ts is that this country is going back wards. Credit Card debt is now 30 billion dollars – our debt to equity level on the family home is the highest it has been in over 50 years.I agree. That debt to income ratio has roughly doubled in a decade [Link] should worry us all. Much of this has been discretionary spending[blink], but the majority of household debt is secured against residential property, and IMO much of this the result of ill-informed investment decisions. I think ‘following the flock’ has been a primary cause of this problem.
Australians are amonst the worst per head of population in the world for debt, so maybe Foundation I was wrong with 95% are doomed, it could be 98% in reality. we r doing some thing wrong because to me it appears we r going back wards.With saving levels in negative territory, I completely agree. Not only are we failing to save for the tough times, we are borrowing to live in the good times. The period when we switch from being net spenders to net savers is going to be very tough on this country.
If interest rates went to 10% 2morrow this market would crash, but how did we surrive in 1990 – 1994 with 17/19% interest rates, go figure!!At the peak of that interest rate cycle, debt servicing required 7.9% of household income [link]. With current levels of 7.5% income and interest rates at 7ish percent, a hike to 10% interest rates would be drastically more damaging to the household bottom line than the interest rates of the early 90s.
Regards, F.[cowboy2]
<Edit – added for completeness:>
The RBA likes to look at what it calls the debt-servicing ratio – interests rates as a proportion of disposable income.
The debt-servicing ratio hit 9.3% in the September quarter, which the RBA described as a historically high level.Statistics on housing debt show that a decade ago housing debt as a ratio of household disposable income in Australia was low by international levels at 67 per cent, and the increase to 120 per cent in 2002 reflected the ability of households to borrow larger mortgages at a time of low inflation and low interest rates. However by June 2004, the housing debt ratio to disposable household income continued to climb to a more uncomfortable 151 per cent.
Of greater concern to the Reserve Bank, the rise in the housing debt servicing ratio from a level of 4.5 per cent in June 1993 to 5.8 per cent in June 2002 had further escalated to 7.5 per cent by June 2004.
When personal debt servicing is added in, total interest payments as a ratio of household disposable income, the ratio jumps to 9.3 per cent. Once you provide for required principal repayments as an additional demand on the household purse, the debt servicing burden rises to in excess of 11 per cent.
This is not the end of it. If account is also taken to exclude from the equation, households which have paid off their mortgage, the ratio escalates to a more dangerous 20 plus per cent. This is the current position before factoring in the coming interest rate increases.Ok, we’re all doomed~![biggrin] I’d better buy some more gold and get my passport in order so that I can find somewhere sunny to sit out the storm once this s@#t hits the fan![biggrin]
dboddy,
I would strongly advise you to get qualified advice from a solicitor, property valuer (not a REA appraisal) and a financial planner. You need to know what your options are and which has the greatest chance of the best outcome. For example, can you walk away from the Melbourne apt losing only your deposit or will the developer persue you for their losses? If you can manage to organise finance for both IPs what will be the cost to you (financial / lifestyle / stress etc)? How long will it take you to break even on these investments? How long will it take for these investments to bring the returns you initially bought them for? In other words, you need a realistic goal and a plan engineered to get you there.
Good luck with it all, let us know how things pan out.
Regards, F.[cowboy2]Also it is not fair to point fingers at the one that got in the market too late. After all the latecomers do so because of a massive amount of pressure created by books, media and bulletin boards like this one here.Which is exactly the reason why I continue to post what I see as rational views (although some appear to find them annoying and repetetive).
Once they have reached <this> stage I really don’t have any advice to give.[ohno2] Somebody, please help this person!
Regards, F.[cowboy2]Raise the rent to 8% of purchase price, quietly slip the tenant the difference between current rent and inflated rent, then market it as a cashflow positive investment![biggrin]
Cheers, F.[fear]Alternatively, find out how much buyers are prepared to pay for the property, and make sure your asking price matches. If the REA is incapable, try sending one of your friend’s who has the ‘gift of the gab’ along to the next open house to do the detective work.
Yes, interesting that US economists are getting worried about areas that have seen 55% increase in house prices over the same period that Australia on average has seen 100%+ and some individual areas over 300%!
Also of note, 17% of Australian households have more than 1 property compared to only 6.5% of US & Canadian households and 2% of British.(Link)
Now, what was the topic again? Oh yes, building approvals. I think they’ve risen since the original post, though not to previous levels.
Cheers, F.[cowboy2]I used to think that drugs were harmless fun, but now I take them seriously.
F.[chill]Yes, drugs are bad, the article good. Or interesting at least.
1Winner,
I cashed in my own property investments, paid out my PPOR, am paying out the last of my beach shack (as construction is completing) and had some left over for further speculative, though in practice lucrative (and not entirely uninformed), investments in shares, metals, art & collectables… Not exactly a practising anti-capitalist / leftie![blink]My previous comment on this thread referred specifically to the example illustrated by gmh454, in answer to the question:
It reminded me of the old saying can’t polish a T@#$d. As I looked at the freshly painted bowed weatherboard panels I thought they had spent time and money but this is still worth barely more than land value. Made me wonder why ????I don’t back away from calling the recent house price boom speculative. It was and is.
Why do you ridicule this people’s efforts? Is it because you did not have the same determination?See above. And below.
Your say:”The scary thing is that some people still operating on the assumption that $5k and a bit of elbow grease bringing twenty times that in gains is normal.
What is “normal” in your corner of the woods? Should we be like Cuba? Is profits a dirty word?I thought my point was clear. $5k in renovations will not result in $100k profit in normal market conditions. That such examples have occurred recently reflects more the state of the market than the value-adding effect of a cheap reno.
And finally, ‘What is a “real job” for you?’
Phew, big question. I think it’s something to do with an exchange… perhaps of time or knowledge or a service… either for money or some other desired / required commodity. Probably important that there is a perception that all parties to the exchange benefit in some way… As I said it’s a big question. I’ll have to consider my answer more fully. One thing I know tho’ – it sure as hell isn’t buying a run-down old shack, doing a quick and dirty cosmetic job on it and whacking it back on the market for exhorbitantly more than it cost only to have it sit empty and decaying in parallel to my wallet.
Regards, F.[cowboy2]So by my quick calculations, you have roughly 95% LVR and are subsidising your tenant’s rent to the value of approximately $70p/w (if IO) or $115p/w (PI). I think you owe it to your mother to release her guarantee ASAP rather than take on a higher level of debt thereby exposing her to increased risk.
Cheers, F.[cowboy2]as an agent the best deals i come across get offered to our loyal clients and the ones we have a relationship with.as an agent I would like to add that the main reason we put the best deals to our regular clients is because there is so much scepticism from the public about agentsNow sorry guys, but isn’t the vendor paying you to get them the best possible price? The statements above raise doubts for me. Would you refuse an offer on a property you had ‘offered to loyal clients’ / ‘put to regular clients’ if some Joe Nobody walked in off the street with a higher offer?
I’m fairly sure this is not what you mean, but some clarification is clearly required…
Regards, F.[cowboy2]My friend did the ASX course on option was more frightened about option then embrace it…he told me it was TOO confusing!!!!… which clearly illustrates that your friend should stay well away from options, not that he needs a dumbed-down course.
As Salubrious wrote:You can’t charge a fee for medical advice without being a licensed professional so why should financial advice be any different?If JM gets a license, modifies his literature and stays within the rules of the license, I imagine ASIC will leave him alone.
F.[cowboy2]Hear Hear Nat. Well put.
Originally posted by AUSPROP:
gees F – are you suggesting you have zero ideas of how to make money in this market?No, I was just trying to get Resi to add some value to his thread rather than simply taking cheap shots at the ‘doomed 95%’…
My way to make money in this market is simple – both feet out. As long as the properties I’m watching in the areas I desire are falling in ‘value’ by 10% per year, that’s a better than 10% return in lateral-think.[thumbsupanim] Not to mention it’s as safe as houses then some!
And FWIW, I’m not throwing my hands up over the price of oil – my BHP, OSH & ROC more than make up for any pain I feel ‘at the pump’.[biggrin]
I’ll check out your thread on SS when I get a chance. Buggered if I know why I can’t register as a poster there. Perhaps I’m not welcome?Cheers, F.[cowboy2]
Thanks chief.
Just remember who said that 95% of the people on this forum are ‘doomed to fail’ (while clearly placing myself in the 5% of ‘successful people’.
I think you’ll find I’m more than happy to value-add, but only where there is value to add to.
Cheers, F.[cowboy2]“The power of accurate observation is frequently called cynicism but those who have not got it.”
. – George Bernard ShawHi Resiwealth,
I find your last post vaguely arrogant, but good on you for being so in touch with yourself.
I wonder if I may address a few of your points in the hope that you may spare a further few crumbs of wisdom:1. There are many inexperienced people out there that follow the flock of the doom and gloomers.
Are these ‘inexperienced people’ the ones selling out to crystalise profits, selling out at a loss or those on the sidelines watching and waiting as prices fall? Or are they perhaps the ones who can be lead into buying overpriced, depreciating assets from slick salesmen who talk the market up?“No doom and gloom here sir! How ’bout this 60 sqm ‘townhouse’ for $150k? Six months ago it sold for just $55k! You know what that means sir? Yes, this is a solid gold capital gains investment! Sign right here”
2. Any idiot can make money in a boom but only the smart know how to make PROFITS in a gloom market.
Agreed. Apart from your suggestion to build new houses, do you have any other helpful ideas?3. I was disapointed the interest rates did not go up higher, creating more opportunities.
Nice demonstration of empathy. Yes, the higher interest rates go, the more houses will become available as a result of overstretched ‘investors’ selling and repos being auctioned.4. Reading comments and questions on this forum has comfirmed to me that the few truley successful people here would make up a mere 5% while the remaining 95% are doomed to fail.
We possibly have differing definitions of ‘successful’ people. No matter how rich a person becomes (at other’s pain & expense – see 3. above), if he or she is an arrogant prat with no empathy, that’s a curious definition of success.
If you mean that 5% of ‘property investors’ will become ‘independently wealthy’ I agree… 5% would even be overstating it by an order of magnitude. I would suggest very few of them are buying to hold at the moment.5. There are less people in the market today buying and trading, this is where the opportunities are, and I am surprised so few can’t see.
Perhaps they’re too busy noticing how quickly For Sale signs are breeding, right across the country – then staying. Perhaps they’ve noticed that their ‘property investor’ friends don’t want to talk about their properties over dinner? Perhaps they can’t afford to buy because the bank’s latest valuation was lower than the value of their current loans? All symptoms of ‘less people in the market buying and trading’… perhaps they can see after all?6. last night I put a deal together and sold 20 blocks of land in Ipswich. I am working on a simultaneous settlement contract with a $400k onsale profit in the whitsundays.
Good for you. It’s a shame the other 3 Million Australian property investors hadn’t done the same thing this week – imagine how rich we’d all be then.Best wishes, F.[cowboy2]
It sounds to me like your parents are taking you for granted – they expect you to get good grades simply because you have in the past. For them to appreciate what they have, you may well first have to take it away from them temporarily by reducing your performance. Nothing drastic, just fail every subject for a semester. I guarantee they’ll take notice of any good report you bring home after that.
Hope this helps,
F.[cowboy2]Oops.
Hi Dave, welcome to the forum~!
Do you plan to give your daughter the $7000? Is this house to be hers once you have finished paying it off, or are you just making the most of the situation to further your own wealth creation through property investing? If the former is true, I salute you for your generosity. If it is the latter, it’s comparable to taking candy from a baby then stealing some from each and every honest tax paying citizen.
Cheers, F.[cowboy2]
