Forum Replies Created
The article seems to be implying that a self administered super fund investing in some properties by rolling over funds from another fund amounts to unauthorised access (if I am reading this correctly), which is rubbish. The adminstrator of the fund (normally yourself) can choose to invest in many things including property but not things like holidays or childrens education. But also remember that the fund must be able to purchase a property outright as no banks will give a mortgage to a super fund over property.
Your own super fund investing in an IP is in fact quite a reasonable thing to do imo, much better than shares or managed funds!
This topic has changed a bit but I feel it is important to let you know that as a builder previously, I know that builders do make different margins. These are anything from loosing money on a job to making 30-40%. This often depends on the size of the builder and the bigger builders dont take on small jobs or jobs with too many unknowns and risks, therefore they hardly ever come up short and in fact most realise about 30%. The small builders who dont have enough work and must cut prices to get jobs end up cutting out any provision for risk etc and some end up making very little or loosing money.
The main point that I wanted to point out is that all the large project home builders like Clarendon, Metricon, Coral, Tamawood, etc have increased their prices by much more than the CPI (some due to shortage of labour) and this is one of the main causes of housing affordability (especially for 1st home buyers) dropping to an all time low. One example is a builder which I got a price of $85000 for a 240 M2 house 18 months ago and their price is now $111000 for the same house. That is a 30% increase in 18 months or 20% pa rise in price. I think these builders are making a killing and nobody seems to care except the poor first time buyers.
pieces
I thought that predict and project both mean the same thing – that is to forecast? I also dont know how you can insist that by using data to predict one gets “locked into one mindset”? I totally disagree and would argue that this data and the predictions are only a small part of the information and decision making process and predictions do not in fact drive us in one direction only but rather help us to better understand a certain aspect of the picture.rickyw
Of course you don’t need a degree to invest in property. There are too many examples of people with very little formal education that have made huge money. These people have educated themselves over time by trial and error and just getting in and experiencing. This certainly does work, probably better than any economics degree.I have an economics degree and agree with what was said earlier, that economists get it wrong a lot. I too have got it wrong a few times in the last few years especially about the property bubble. But what I can say in favour of formal education is that it is a thorough and intensive means of acquiring knowledge. What one learns in a three year course in economics can take others 20-30 years to learn through experience. Sure a lot of what one learns is not that useful but I have found that my fundamental understanding of economic cycles and trends is very useful in analysing the property cycle. Many people however refuse to accept what these forms of data analysis do for us (predict) and prefer to try second guess the market. They are more than welcome to do so, but for me I prefer to put my faith in data and analysis.
markpatrick
Your statement “there must be times when you take a chance on certain aspects of a purchase” is exactly the type of statement I would expect from one of those people that are not prepared to do all the steps in a system and don’t want to pay anything for knowledge and as such “want it all” without doing the hard work.Elves
I also agree with what you said about “and we are no different” above. Asset protection is a very important part of the puzzle that all property investors consider and to have a go at HK for doing exactly what many here are doing (even if only by diverting into a spouses name) seems like hypocrisy to me!Henry Kaye will probably still be worth more millions than all of us put together after this whole debacle is over. He is no idiot and he saw an opportunity in the market and took it. He used investor’s greed gland to the maximum and he cannot be blamed for that. Investors that got greedy only have themselves to blame because greed has a funny way of making us blind to simple logic and due diligence gets often overlooked. I don’t know how many times I have heard the statement “I can get you that property direct from the developer at a discount”. Who is stupid enough to just believe these statements without checking that they are actually true?
Leigh
Just a small point which is quite significant in the whole argument.Your example “somewhere that has increased in 40% over 12 months and then decreases by 20% surely couldn’t be classed as a bust because the net effect is still a 20% increase.”
This is in fact incorrect. The correct statement should read ”somewhere that has increased in 40% over 12 months and then decreases by 20% surely couldn’t be classed as a bust because the net effect is still a 12% increase.” NB not a 20% increase.
Sorry to be so anal but this is an import piece of maths and one that too many are getting wrong.
I agree with your other points about the long-term view as opposed to the speculative view.
Westan
yeah sure we may not have seen corrections in the range that I am tipping between now and 1989 (too small a sample anyway – imo), but we also have not seen the type of frenzied buying and the much bigger resultant boom that has happened in the last 8 years. The market will always return to equilibrium and at the moment it is very much out of equilibrium. As I said before, even if the correction was as dramatic as 30% this would still not get the market back to equilibrium, so that should really make the “nothing can dent the property market” camp think a little!btw – my opinion of a bust is when prices drop by more than 10%. If one buys well, one can easily handle a drop of 10% especially if it is over a few years. But when drops of 15-20% occur this is likely to start affecting the yield as rents start to decline accordingly even though the rent to selling price relationship is not one that tracks in a constant and linear fashion.
What qualifies as a bust? Does 10% qualify or does it need to approach 20% before it is termed a bust?
Others input would be appreciated.
Westan
The stats you have shown may apply to the whole of Melbourne and for particular timeframes. Please understand that nature of statistics is that with the correct subset of data one can probably show any effect or justify any argument one likes. I like stats but feel thaw without a good volume of data over a prolonged time, one doesn’t get a proper idea of the trends. The fact that stats can also be manipulated are also a worry. These stats that you are seeing do not show the real effect of inflation, interest rates etc over these periods of time. These other factors had a very direct affect on the value and affordability of property at the time.Let me explain. If one were to have bought a home at the median price in Melb. in 1989 for $167K and one bought a property which for whatever reason was more affected by the downturn through to 1995 one may have actually seen a decrease in value to say $120K which is a 28% decline. This could have been quite common at that time. Furthermore, if interest rates during this period rose to say 18% and inflation was running at say 5% (not sure these are realistic) then this would influence the value of property as well, but that is another topic.
The point I am making is that sure the whole market in Melbourne may not drop 30% but there will be a significant number of properties that do. This really means be very careful about what properties you own or buy at this time. If you feel that your IP’s are not likely to be as affected (due to scarcity etc) then you may only see a 5% decline or even prices just stagnate for some years. However if you feel that you are in a low demand area with high supply (maybe far from the CBD) it may be time to sell up now and avoid the potential 30% drop in that area or that particular property.
It is however not easy for most people to look at their own properties and make this kind of subjective value assessment.My advice right now is that if buying, unless the property has some amazing attributes such as being on absolute waterfront etc, then do not buy at the asking price. Pay well below the asking price (say 20-30% less) and you will be able to ride through the worst-case scenario downturn. Remember to factor in 2% increase in interest rates to be on the safe side as well.
I know for a fact that the ATO take special interest in transactions which are not at arms length like paying a family member for services. This can attract attention but if it can be justified, well explained and backed up by evidence and be reiterated by tenants then it would probably be allowed.
The question is do you want to attract the attention of the ATO and have an audit done?
Apparently they are getting back together again and looking for a place in Brisbane (southside near where I live).
I couldnt help myself![:p]
Tim
Byron Bay has exploded in terms of prices and this makes any form of IP generally very CF -ve (which is not a good thing). Along with this it would seem that prices may have hit their peak and a decent CG in this town may be very hard to achieve in the next 5 years unless you can pick up a property at well below market value somehow!MortgageHunter
What rental niche are these units filling and what is the price?rcenrig
No I was not meaning 25% less than similar properties in another location but rather in that location. In other words, unless you can get this property well below the market value, I would forget it. Dont compare what you can buy in Brisbane with this deal because this property is not in Brisbane. This is the same old mistake that people from Syd. and Melb. make when buying in Bris.rcenrig
The price you pay needs to be about 25% less than the average for the same sort of property for you to be buying with a fair degree of safety, imo. If not, I think you need to be willing to consider if you can subsidise for quite some time and wait for the peak of the next boom (7-8 years) before you will realise a good CG. I believe that these coastal towns will go into a holding pattern for the next 3-5 years in terms of price and maybe even drop a bit in the next 2-3 year as interest rates take their toll. Do consider your exposure to risk if you need to get out of this investment before the 10 year timeframe (e.g 5 years) and the market has not recovered yet. I am in property for the long run but always want to know that I can get out at any time without making a loss!Hi CarLover
I agree with westan that it is a worldwide phenomenon and that Aussies have a love affair with the beach. Many city slickers do sell up their $800K semi in Syd. or Melb. and buy a coastal property for $500K and think they have biught a bargain. At this point I would depart from westans proposal that the trend will continue. I think that coastal properties will always be in demand but find that the price increases that have occurred during the last few years of boom are unrealistic and cannot continue. Many retirees and close to retirees have bought in coastal areas without doing due diligence and have overpaid in a big way. They almost always buy because they fall in love with the place and make irrational decisions. They think that these $500K properties are a bargain because they are used to paying $800K but in fact these coastal properties are probably not worth $300K. Here is where the problem comes in. If these retirees end up not moving to these properties in a short timeframe (< 2 years) then they will be heavily subsidising these properties (even if it is through opportunity cost) and as such eating away at their retirement savings. This will be further exacerbated by the rise of interest rates.So I think that the prices in coastal areas will also fall back into line with returns of about 3-4%. I consider a return of 5-6% to be a yield that is fairly sustainable in the long term but know that most retirees would probably settle for less because their buying decisions are more based on emotion than on business principles.
I think that any property that over the long term (which is my strategy – buy and hold) has a good potential to be rented out(low vacancy) and a reasonable return which is largely dependent on what you pay for it, is a good property to consider. I personally find it extremely difficult to believe that some small rural towns will not be heavily affected at some point by unemployment and therefore higher vacancy rates. I think that regional coastal towns like NSW central and north coast towns are less influenced by employment as they have a higher level of retirees and holidaymakers. A uni in a town also helps (like Lismore) even if it is seasonal.
In summary, if the properties are in an area which has the potential to be largely affected by the economy or industry and has the potential to be a ghost town in the future, I would avoid. I would also avoid overpriced areas (most major cities at this point in time). If the property has an existing long-term tenant and is in a rural town (should be +CF) then it is very likely to be one I would look at espcially if the town is on the coast and is a major regional centre.
sunshine, please explain further what you meant by “apartments I have seen there cheap were almost ‘unsellable'” – please give some reasons.
Thanks
