Forum Replies Created
Darjovu
I have sold a house or two and I have been in your exact situation when I felt money was tight. I really wished I had hung onto a particular house, and regret selling the others. At the moment you may not get the Capital gain to recoup your 40K change over in a hurry. If you can rent out your PPOR for a few years (I think 5 or 6 years and CGT don’t apply) and move into something cheaper (but still nice) that is what I would do with the experience and benifit of hindsight.JTW
Hi Gross Realisation,
You are right about it from the prospective that I haven’t considered rents etc, Because I haven’t been experienced enough to become a profesional investor. I guess that I put forward my laymans view of average wages to shine a different light on this arguement of “It’s all doom and gloom” -Vs- “We will just buy real estate and it will automatically make us into millionaires”.
I guess the market rent is another way to look at the affordability factor, I don’t really have a formula for you on this(yet), I haven’t been able to get the “11 second” solution to work for me either, but I just signed a contract on a CBD unit today for $175K that pulls $295 per week. After body corp etc it pays for it self, I don’t put in a cent (because of my equity PPOR) and therefore I see it as a no cost investment. The earning rate of the rent tells me it is cheap enough, somewhat like the theory of 4.1 based on an average wage looking at an average house. If was earning $1 million per year, I wouldn’t be living in this house. Really what I am trying to convey is that Real estate value is related to affordability. If it just kept going up as it has in recent years, well future generations would all end up as renters. I have a doom and gloom acquaintance who keeps on trotting out worn out sayings such as “Our kids will never be able to afford real estate”. I tried to explain that at the moment it might be a struggle, but after a dry spell in real estate all the ‘would be If I could Be’ RE investor types will drop out. Then real estate will become too cheap again. True & steady investors will remain (and I assure you that when I see my megre public service wage being able to buy a house for 2 point something times my wage, I will buy up like I’m paying monopoly.) I have seen some other posts on this forum and I can’t believe the B**S** that the doomsayers are carrying on with. Read the one on the “global oil (Bush/Cheney)conspiracy”, Wow that will get you laughing, I hope those doomsayers are selling RE soon.
The reason I think that RE doesn’t usually fall much is that it is a necessity of life (shelter) and most people will sacrifice just about everything else to hang onto thier House. When people can afford it they buy, when they can’t they put it off for a few years. I am convinced that over time RE is the best investment.(slow and steady wins the race).JTW
Hey Batts,
There is a pretty set amount of commission. I have never had an agent vary it for me. The good agents earn thier money. The best way to work out the recommended commission rate for QLD is 2.5% plus $450. This is because the first $18 000 is rated at 5% balance at 2.5%. The best I manage to squeeze out of an agent is free advertising etc. Are you selling up already????JTW
PS What is a Mexican BBQMy reply to:
Dear JTW,1. Interesting post and theory.
2. Can your please further clarify on your hypothesis regarding the 4.1 average earnings limit as the recommended market exit price and its correlation with the banks’present l;ending criteria of 30% income.
3. Are there sufficient statistical data to confirm/disconfirm your hypothesis to date. If os, can you kindly produce these data for our collective joint analysis and review please.
4. Thank you.
regards,
Kenneth KOHI don’t have any stats for you, other than the experience I have had. The 4.1 times my gross earnings was something I just came too as a conclusion after buying and selling 11 houses. I am the first to admit that I haven’t even had a real investment strategy until (still formulating one actually) recently. The main reason I have bought and sold is that I kept getting transfered with my job. The 4.1 times is a rough guide I used to estimate if the house was affordable. After I made a bucket of money on my ever moving PPOR, I thought I might buy a couple of investment houses when it appeared they were relatively cheap. As an example I bought a Jeep G/Cherokee 4WD in 1999 for $55k and at that same time I could buy reasonable house from $85K. (Brisbane suburban 3/4 bedroom brick).
I actually bought two. 1 @ $102K and another @ $125k when my wage was 65k. I bougjht another one later for 179K which was still within my affordability ratio of 4.1 . The theory of 4.1 is simply that houses are relative to your earnings. We have had good and bad times in the real estate market and I just use this as a measuring stick or reference point so that I don’t get sucked into the whirlpool of RE hype. Have a think about your PPOR now, is it roughly 4.1 times your earnings ? if it is more or less than this does this affect your aspirations? I think most people will spend everything they have. If you get promoted at work you don’t take long to find a home for your money in ‘time for a bigger house/ better car/ new boat’ syndrome. I’m sorry my approach isn’t more scientific, but I hope that my approach might be helpful. I found it better than stats. As they say there are “Lies, Damm lies and Statisic” I hope to see some more replies. I really like this post subject.
JTWBatts71,
You probably need to jump on the internet and order a couple of very important Govt documents.1. South East regional plan (state govt, Dept Natural resources)
2. Gold Coast City Councils Strategic development plan.
Both Documents will cost about $250 AUD each. The come with maps and lengthy written explanations. After reading them you will think that the author had english as a second language but you need to perseve and decode the bureaucratic double speak.
I actually found a tricky little deal by pouring over these documents for my area. Some people I know have bagged these plans as restrictive and the end of investment life as we know it.
It depends on your approach, at least all the plans are in the public domain. We can all have an equal chance of using our creative strategies now. Presently there is a bit of a scandal involving the G coast council you may not have been aware of, the CMC is getting involved etc. Not the time to be wearing white shoes if you know what I mean.
I think you will need to go to qld.gov.au on the internet. Our investment cycle appears to be ahead of the US by a couple of years. Things have cooled but there are alawys bargains if you look hard.What type of investment are you after ? houses? Units? Land? Commercial?
JTW
I am going to the Gold Coast over the weekend and I will check it out for you. I believe that a definite cooling effect has been felt over the coast and it wasn’t winter. A bit of bad press recently about Gold Coast units, sharks selling off the plan making false predictions on returns etc. This always seems to be the indicator of the market overheating then rapidly cooling. However I will check it out and let you know how I see it. Feel free to e mail me direct if you want more precise info or if you want something checked out.
JTWFolks,
Here is another way to look at the current state of play. The major factor is that we have had a good run over the last few years. Hopefully you made some capital gain too. The underlying factors that push the market upwards are :
1. Supply and demand
2. affordability
3. confidence
There are other factor that help or hinder the market gaining in value, but not to the extent that they overshadow these 3 factors.To explain, 1. If you live in a growing area the likely hood of above average gains (especially if housing has been in a sustained slump, built up demand). If you live in a dying economic rust belt town, prices will fall.
2. Affordability. If you look at the lending criteria for most banks it is 30% of income. prices go to high, you can’t afford it. prices stay stagnant for 10 years, they become cheap. As an example I bought an average house in Brisbane in 1987 for $60k I was earning about $29K pa at that time (about 2.1 times earnings). 12-18 months later I sold for $125k, wage still the same (4.3 times) the prices kept going for a while to about 5.6 times earnings. The market settled down for about 10 years in QLD. In 1998 I bought a house for $139k only a few KM from my first house. My wage was now about $65k pa which can back to the 2.1 times earnings. Realising this I bought 2 investment houses and held then for 3 years and waited until they reached approx 4.5 times. I sold that house for $297k. It is now worth about $390k Maybe I sold too soon, but I made my profit on that one bought vanother house for $179k and sold for $276k. My theory is that 4.1 times your average earning in an average market is the type of house you would aspire to live in, an can afford (remember 30%wages bank criteria) when it is above or below the 4.1 is in MY judgement a time to buy or sell. I think we have had our run and factor number
3. Confidence has taken some house prices to 7.2 times earnings. When confidence leaves the market, which it obviously is (otherwise we wouldn’t be having this conversation) things slow down, money moves to greener pastures etc.
Currently factor 2 is being partly helped by low interest rates, factor 3 is being sustained by reasonable job prospects for most people.
This is why in MY opinion we have had a long….. boom and a softish landing. Please keep in mind this how I view things, I know that this will get a reaction,I don’t claim to be an expert. This is how I made money in regards capital gain, I am just sharing. Now you can tear my theory apart.
JTW
I was going to do some more research of this tennant thing, I would hate to buy it then have it sit idle for ages.
In reply to Munji, yer I was planning on financing 100% and based my assumption on 7%pa interest only. I already have a line of credit to cover that amount. I am not sure what i need to do to ensure tax compliance. Commercial seems more profitable but the risk of getting it wrong are higher too I expect. I have never invested in commercial property before so I am interested in what I can learn from Pete R about his experience with strip shops.
I am looking into a few other deals that are similiar, when I get numbers I’ll put them up for you guys to crunch.
JTWsorry but that is about as much as I know. He has had it about 3-4 years. paid about $400k for 39spaces varying in size, included some crap looking land(125k?). he nets 30-35k after all expenses. He told me his net was about 60% after everything he can legally and questionably claim.
Unit rent varies from area to area so I don’t know how much this will help. He checked out all different ways of doing things and he went independent. He is pretty switched on so I believe he would have nailed it. Joining a national chain means nothing. Its not like McDonalds or anything. People after Secure, Clean, Safe, Value in that order it seems. I know he keeps pushing the idea down my throat, telling me it is good stuff. I guess I lacked motivation until lately. I will be checking things out. If I glean any gems of info I will get back to you, but that is all I can think of for now.
JTWLuke,
my friend is an independent. He runs the rental through a normal RE property manager. The facility is up at Redcliffe in QLD. Has a very high rental occupancy.If he needs to fill a space he just runs a 1 liner in the local rag. He had them built and that is why I know about the Tilt up construction part. I believe the big factor is location. Not so much High visibilty location, it is more important it is a growing/changing area. surprising thing is that he only had one speed boat in storage even though he was near the water.
JTWI don’t know much about self storage my self but a good friend owns one and reckons it is the best investment he ever made. Apparently they need to be built from concrete tilt up construction for fire and pest risks. I am amazed there is a self storage association and I’ll be checking it out myself.
jtwI had a look at the commercial premises this morning and it seems OK. I want to check the market out a bit more before I commit, you know the story, buy the right thing not the first thing you see.
This place was as the agent described, it is a retail shop with a national pizza chain tennant. In a set of 10 drive up, strate titled, 80 sqm site. a little older (15 – 20 yrs) Hasn’t got wheel chair/ pram access. Don’t know if the council will force them to change or if they are exempt. The lease is up in May06.
I am planning on trying out commercial property for the challenge, learn something new, POSITIVE CASHFLOW. At the moment I have PPOR + vacant land + holiday unit on the Gold coast. Don’t owe money but I’m not getting anything out of it either. Thanks for the tips, particularly Pete R and Micah. I didn’t look like a dummy when I saw the RE agent.
JTW
Thanks for getting back to me so quick.I guess that I have been an accidental property investor up until now. I needed more focus on my deals but didn’t or probably still don’t know how to fully evaluate a deal.Steve’s book hit the spot, as if it was written for me. I feel like a sponge at the moment just sucking in the info.
I’d like a comment on that commercial property, I am going to see the agent tommorrow. I think I must be missing something.It makes money and comes with a real solid tennant, why would you sell it ??????
JTW
