Forum Replies Created
… and of course the power of leveraging works even more effectively in a falling market, which is why I have often suggested that continually ‘withdrawing equity’ in a rising market is a recipe for disaster. If you plan to ride out the inevitable fall, you’ll want to be at your lowest LVR level at the peak, not your highest!
Anyway, I think there’s some confusion here between inflation & gearing/ leveraging. Leveraging adds risk and potential return regardless of consumer price inflation. The reason CPI is good for PIs is that wages (and therefore rents) tend to rise roughly in parallel with CPI, eroding the relative cost of a mortgage and placing upward pressure on HPI.
Cheers, F.[cowboy2]
Originally posted by Monopoly:[Did you know you don’t own your front nature strip, you can’t plant anything on it and councils demand you mow it or they will do it for you and bill you accordingly??!!
Insider tip – in Victoria at least, there is no legislation which can be enforced to make a property owner mow adjacent nature strip. I’m not too sure about other states.
Cheers, F.[cowboy2]Originally posted by easymoney:Don’t worry I know about the American dollar and why and how it moves.
Good stuff. Here is an article you may be interested in.
One day I will pay to convert it back to Aus$ when the timing is right or buy stuff in America real cheap then pay to ship it all back over here.
It would be much cheaper to buy a Porch in the States and ship it back than to buy one here.Is that a Porch or a Porsche?
If the US dollar collapses against international currencies the only goods that will be cheap in the US are US made goods. This may include porches, but definitely not Porsches.
The only way this will not happen is if Japan, China, Korea etc. continue to invest in US dollars, and with better yields available elsewhere the US will have to continue to raise interest rates.
I certainly would not be looking to US dollar based assets at this time.
Cheers, F.[cowboy2]Originally posted by guzzi:Well if the rates rise, investers sell then rents might increase about time i say.
w
I’ve heard this a few times but can’t say I agree with it. With more houses for sale, prices will become more affordable and tenants will be more inclined to buy. The only way rents are going to rise significantly is if wage inflation continues, which is highly unlikely IMO.
Cheers, F.[cowboy2]Out of curiosity only (as I have no interest whatsoever in investing in the US), have you considered the value of the US dollar? Do you understand why and how it moved this week relative to other currencies, what the likely future direction is and what implications similar events may have on US investments?
All part of your ‘due diligence’ I assume, but just thought I’d check.Cheers, F.[cowboy]
Hi Cam
I’m fairly concerned with some assumptions you have made in your ‘due diligence’ (!)
$89,000 List price
$60,000 Offer (1)
$20,000 Renovation (2)
$140 pw (?) Rent Similar to others in the area.
$130,000 – 160,000 value after renovation (3)1) You are assuming that 33% off is a fair offer and likely to be accepted. If this is so, it is likely that the other similar properties you describe would also be in the same inflated price condition.
2) On an average 10-14sq house you should be able to make the renovations you mention for under $20k providing you put in most of the labour. If you are going to get tradies to do some or all of the work, get some quotes before you go ahead with the purchase (expect $7-10k for a full paintjob alone depending how remote the property).
3) If similar houses in this area are advertised at $130-160k but vendors are willing to accept 33% off, why would your house be valued at 50% more than similar properties after renovations bring it into line with what they offer?
On the other hand, if you can rent it for $140,000[blink], I say go for it!
Cheers, F.[cowboy]
I would suggest this is not a good way to “join financial independence” in 6 years.
Cheers, F.[cowboy2]
Originally posted by unannounced:I dont really see the big issue with HECS debt.
I do. This is a burden imposed on the younger generations by the legislation of a generation of baby boomer (or slightly older) politicians with the support of a generation of baby boomers all of whom had access to a free+ education. Bear in mind those same younger generations will also have to foot massively increased tax burdens (yes, as in they will be paying more tax!) as the BB generation age otherwise starvation amongst pensioners will become commonplace…
For the increase in income you get from doing a degree should more than compensate for the what you have to pay back.Yes, you should, but by and large you don’t and won’t! The education system has been diluted in the quest to become a ‘clever country’ to such an extent that any half-wit can attend university – much to the detriment of the actual potential intellectuals. This results in an increase in the number of people seeking employment who have degrees, and a lower value in the degree itself.
For a specific example, three of my parent’s children have attended university. They are now all working – one earns over $90k pa, one $60k pa and the other $38k pa. Guess which ones dropped out in 2nd year? They have both paid off their debts, while the other still has over $20k to go. Still, he has a piece of paper!
I don’t mean to suggest that nobody should go to university. By all means if you are studying and learning something useful (science/ economics/ business/ engineering/ programming/ law/ medicine etc), you should do well. If you are going just because your teachers said to and doing some mickey mouse course – reconsider.
Cheers, F.[cowboy2]Originally posted by ian_from_brisbane:
4 of the people who are currently in 5-person households (or 3 of the people who are currently in 4-person households etc) when everyone in the future decides they want to live by themselves.I can only assume you are being serious?[blink]
From the Australian Bureau of Statistics:
Lone-person households are projected to increase from 1.8 million in 2001 to between 2.8 million and 3.7 million in 2026, to comprise just over a quarter (28%) to a third (34%) of all households in 2026, compared with a quarter (25%) in 2001.F.[cap]
Originally posted by woodsman:The recession did though.
Yup, and I believe the only reason we haven’t been in recession (yet) this millenium is because the RBA have provided consumers with easy credit, and they have responded by propping up the economy with record levels of household debt. Unfortunately this can’t go on forever. The longer this false economy prospers, the bigger the debt and the worse the consequences. I’d rather a little recession…
Here’s somebody who has the ability to better explain himself…Cheers, F.[cap]
Originally posted by ian_from_brisbane:Prices cannot appreciate above inflation indefinitely.Of course they can! If you are talking about a ‘house’ being a 3 br detached dwelling on 600sqm when everybody else in 50 years time is stuck in a high rise apartment, that property will look like a mansion and of course it will apreciate way beyond inflation…
You should review this post in light of Monopoly’s post regarding baby boomers, the house price affordability index and the population growth discussion in the Myth Buster series. Then answer the following questions:
– When 4 million baby boomers die over 15 years, who will be demanding their houses?
– If wage inflation matches general inflation, who will be able to afford the millions of “3 br detached dwelling(s) on 600sqm” when they have “apreciated way beyond inflation…”Remember, these average houses you speak of remained around 4-5 times average income for many decades until the baby boomers started buying…
Cheers, F.[cap]
Hi Derek,
I wonder whether the RBA will try to act to protect the situation described in the article:“The other side of the current account deficit is that we’ve got a capital account surplus. The rest of the world thinks this is a great country to invest in and is willingly pouring 6per cent of GDP in as foreign savings.”With IRs rising in the US & UK (perhaps?), Australia may have to follow suit or be seen as a less desirable investment destination.
IMO the RBA should have acted before now in order to:
– Suppress the housing bubble
– Lower household spending & debt
– Reduce CA deficit
– Control inflation
– Increase foreign investment in Aus
Unfortunately the first 4 items have been left untethered for too long and the RBA now feels they must act at a time when growth in employment, GDP, company profits and house prices may have peaked… [blink]Cheers, F.[cap]
Ok ‘Wood’sman,
We’ve got to balance the 4 million odd babies born between 1946 + 1961 (I think) – First one to 2 million wins!
Ready… Steady…[blink]F.[cap]
…which really wouldn’t be the selfish thing to do! Providing you don’t migrate to another country and didn’t solely buy imports, every dollar you spend will help provide jobs for the younger generations, who can then use that same money to go out and buy houses and shares for a discounted price due to the oversupply caused by you and the other BBs cashing up for retirement…
It’s all swings and roundabouts in a free market.
Cheers, F.[cap]I guess Brad means because the 5 & 10 year fixed loans have not been adjusted to account for the expected rate rise? Then again, perhaps they (the banks) know something that the commentators & media don’t!
Thanks for a very interesting post Kerwyn. I agree that things are looking grim out in the real world. I’m not sure at all that the RBA needs no ‘raise the rates’. Whether it does will depend on when/if the true economic picture becomes clear – and when/if people stop taking on debt an unsustainable levels.
Cheers, F.[cap]Originally posted by oscar:Would you sell your own home if it went down by 10-15%??
Not sell my own home, but I most surely would leave a hire purchase scheme if I could walk away without penalty and buy a bigger, better house down the street for less money!
Cheers, F[cap]Hi Peejay – do you see any chance that we might end up with interest rates even lower than they are now?
Cheers, F.[cap]jcls
I have no experience in this area, however I would advise that you look into rules for boarding houses as I believe there were some significant and potentially costly laws introduced post the Childers tragedy in QLD. I guess check with the local council.
Cheers, F.[cap]Hi Jo,
Nope, I’m a baby boomer’s baby!
Thanks for the post. It seems to have some fairly sound reasoning, but it’s going to take a bit of thinking to get the most out of it, particularly in regards to investments. The impact of large withdrawals of support from shares & property is pretty clear, but all that money will flow back into circulation…[eh] who will benefit most? Hmmm, so much to consider!
Thanks again,
F.[cap]I agree with JP Morgan’s prediction. The RBA must raise rates, and soon. However I think this will be a temporary measure as even a 0.50% increase will decimate consumer confidence, spending and house prices. The effect on inflation, employment and GDP will not be immediately apparent and the reserve will be slow to react (again!) Once the economic situation becomes clear, they will be forced to ‘lower rates’ again rapidly and sharply. Unfortunately I expect by this stage it will be too late to avoid a rather severe slowdown in growth…
So there’s my doom and gloom for the night!
Cheers, F.[cap]
