Forum Replies Created
Hi, I'm still perplexing over the issue of 'over/under supply'.
I'm also rather sceptical of conclusions based on migration.
Here in SA, the population grew about 3500 – now 10000 pa. Between 1997 – 2003, the housing starts actually were higher than population growth therefore technically, we were 'over supply'. However, the story on the street was opposite. There was a distinct feel that there wasn't enough housing. Ergo, under supply. And I thought so in 2005/06. Against expert opinion, such as Bernard Salt, McCornish & yourself, Foundation.
the subjective conclusion was the more correct, as it turned out. Local people also need housing. My own family [4 people] lived in one house in 1994. In 2004, we lived in 3 houses. We also owned 5 IPs. All our friends are in the same position. Many have adult children still living at home.
In the event of a bad recession, many people may resort to what they did before, i'e. live with parents, in friends' sheds etc. but that is not what they want. I look at the forty somethings & many have teenagers. Cast forward 7 years. The teenagers will buy their own homes & their parents approaching fifty will live in their own homes for 30 years.
Have we arrived at the point where we have updated all the old stock? I'll be grateful if someone can do the analysis & tell us.
Have fun,
KYHi, checking the rents is the best thing you can do. My shops are recommended $200/m2 but my rent is only $175/m2. The CPI increases will be applied definitely. I didn't put up rents for 4 years.
You might find someone like that wanting to sell.
My sister bought the shop next door & the rent was double of mine. Her tenant left 4 years on in a 6+6 lease. She's still lucky because this tenant is not bankrupt so he can be made to pay for the cost of retenanting.
My sister made the mistake of not checking with me what my rents were.
so what you can do is check what other shops in the vicinity rent for.
Incidentally, don't be put off by what they look like. What's more impt is whether tenants want them.
Good luck,
KYHi, I went to a school reunion & my friend's son just bought a 1 BR apt in Kensington for $430K. My niece bought a 2BR apt also somewhere near the uni 2 years ago & then rented it out & scooted off to UK to see the world.
These stories for comparison. They're in your age group.
Good luck,
KYHi, Christies Beach has the better potential, both for capital gains & rental cause it has something that Hackam/Huntfield Hgts doesn't. The beach. A house for sale at Gulfview Rd was open last weekend. $285-295K. Might be worthwhile. Hallet Cove ditto. Has gone up a lot though.
Another reason why Christies & Hallet Cove offer better IPs is transport. Used to be long long long way out but now the train has express services, ditto buses express to Colonades, shopping center very near Beach Rd. Easy to rent. I actually WALKED from the train station to the beach. The strip at Christies looks very much like Glenelg used to look. Glenelg has million dollar beachfront properties. My sister has one of them.
Adelaide still has potential but people are spooked by interest rates concerns of course. Rental should still go up mainly because we have been so used to low rental & slow rent increases.
And don't count on prices coming down either. I have houses to sell & I'm not budging on price. Had a contract on one last week. Paid $223K, current contract price $370K [from 1 May 06 to now]
My outlook is this: some suburbs will come down a bit but some will go up. We're still adjusting. We won't all go up 28% like we did in 2007. Anything around $250K hard to find & not likely to be very wrong.
Good luck with your search & anyone takes my opinions, takes his own risk!
KyHi, the price has factored in the land value of at least $90K for the block, may be more or less depending on the house value. Land values in SA went up sharply between 2005-2007, specially throughout 2006 & it increased sharply in the Eastern suburbs in 2007. How likely is it to continue like that?
End of 2006, Seaford had 2 blocks at $75-80K. Hackam has lower land values.
Not very likely to skyrocket. I could be wrong of course.
KYHi, it changed names because the reputation got so bad. Says a lot, doesn't it?
The low 200s is probably based on replacement value. Look at it this way. It costs $160K all told to build a 3BR 2 Bath home. Add land value, transaction costs, GST etc etc. How much would a house cost? Anywhere in SA. I had been on this tune since March 2006 . It'd be interesting to retrace those posts really. There were a couple of gentlemen who said they could build a house for something far less.
So, to stick my neck out – I wouldn't bet on Huntfield Heights to go beyond the $250K mark by much. And this is only an opinion, anyone takes it on at his own risk.
Good luck,
KYHi, I share roughly the same experience with the same bank. The collateral your Dad has put up will be worth far more than the loan that he's been approved, if i know anything about the bank.
I wouldn't waste any emotional energy trying to get MB to be accountable for the situation.
You seem really confident about the numbers. The most important is speed. A money partner would probably mean less profit for your dad but that might be the best as the end result may be the same. He will be less stressed as well.
If you can get going by buying a unit from him initially, why not go for it?
The other point is that for a sale to go through, you probably need the sub-division to be complete. In my case, that really held up any intended sale.
Delays will really blitz the profit margin as the interest costs mount.
Some people might be interested in the project if the numbers are OK. I put up a project that hasn't started for sale & have an offer on it already.
Let us know how your dad gets on with the project & good luck.
KYHi, well done. When I 1st read your post, I thought you were joking. How did you get any vendor to give you those terms? I can't seem to get anyone to agree to settlement subject to sub-division approval.
My 2 projects took 2 years to get off the ground, admittedly i slowed down the process when I saw the way the property market was moving.
The sweating & etc so welcome to the club! Keep us posted on how you go.
KYHi, to add a few cents worth. In 1970[Ok, that's 37 years ago instead of 30], my sister's wage was $60 a fortnight (I think that's what she said). She used to spend 20 cents on a rock melon for lunch & every other fortnight she sent 'home' $60 which in those days, transformed into quite a usable amount in Malaysia.
Then came the Gough Whitlam era & I think the rest is history. In 2002/03, her salary was around $80000 pa, that's about $1500 pw about $3000 per fortnight.
Wages went up 50x in 37 years.
this is a real story. My sister was a nurse.
Now to her daughter who's a true blue Aussie girl. Her salary in 2002 was $27000 pa. Now in 2007, it's gone into 6 figures.
Obviously, we need to discount the wage increase due to promotions.
Still, it does remind us that the buying power of cash shrinks. It's called inflation, isn't it? And what better way to combat inflation than property?
KY
Hi, you might want to investigate 5 year bonds, especially when interest rates go up. We've had a few rate rises so bonds should be around the 8-9% mark. I don't know the exact rate, because I'm geared up in property & have not investigated cash rates.
It's just that in the last couple of weeks, the thought of bonds has randomly popped up & floated off. It's the sub-conscious little voice coming into the radar range.
Anyone with similar vibes or anyone with knowledge or experience with cash markets care to comment? will value any opinions.
Incidentally, I have a lot of faith in the little voice. It's been mostly right.
The drawback with bonds obviously is that your yield is only on the amount of cash you can stash away. One variation that I'd use would be to leverage my IP & PPOR & lock away the funding proceeds in a fixed rate bond paying high interest in a DIY super fund.
Then the next step would be to peg away at my mortgages – paying down as much as I can from my salary. It's mostly an accelerated savings program. I'm thinking it might not be a bad idea to have more cash reserve.
Excuse me talking to myself. Just playing with ideas.
KY
Hi, join the club! You bought a 1st IP & you're nervous? I've bought & sold about 10 now & I still shake inside every time the words interest rate comes up.
Your investment looks very solid. Want to swap with me?
To give you more encouragement, I'll tell you this. If you're at all like most of us, you'll think, "Hey, I can save 8.7% if I pay off this mortgage". Pay attention to the 'mort' in mortgage. Homeowners hate their mortgages, investors love their mortgages. ESPECIALLY when it's in an offset account where you don't have to pay tax on any money you put back in!
Good luck,
KYHi, remember to include admin costs of setting up a trust.
Kum YinHi, having nothing much to do except laugh for now, I decided to comment on your story. Sounds like a chapter in Reno Kings!
I think someone might want to asssume your mortgage or equivalent to that. It sounds like there's some advantage to an investor so don't despair.
I had one like that I just sold for land value. It was livable but only just. i got my brother to take down the downpipe that was leaning drunkenly & helped him to hide it.
It sold at auction & I saw a new downpipe the next time I passed by. I reckon the new owner is pretty happy. It's a good suburb even with the Melbourne train roaring past twice a day.
Oh, & the drainage pipe that a hole? We blocked it up for the open inspection & discovered that without the hole, the bathroom flooded. So everytime someone showered, the driveway had water running down it.
I actually did the calculations: if I spent $100000 in renos, I could actually make it work. I could raise the money but the waiting for approval & getting quotes were beyond me so I sold.
Bronte, I loved living in that house but other people's comments made me ashamed.
Good luck,
Kum YinHi all, my nerve ends are all on fire at the mention of Big 4 banks! They just knocked back my request for additional funds with the result that I'm now releasing one property with special conditions. Those following my thread will see it as the Blair Athol property with the sub-division.
The heck of it all is that with the sale, i don't need the loan. Bugger them. Now I have to look at setting up a trust fund so that it can be more tax effective.
I wish this forum allows me to swear!
Kum YinHi Lisa, well done! I had one in Reynella that was a no brainer from day 1! My sister was horrified that I bought in Reynella [it was sold to me by my manager]
I regret like hell not buying the one in Martin Pl @ Christies but the bank will have a seizure.
I bought one equally good, in Blair Athol, horror of horrors according to all my family but get this, it shows a 200% COCR after sub-division & reno & I'm not even looking at capital gain yet!
I bought it in May 2006. In 2007, one termite eaten house on St Clements St sold for $263000. Now the asking price for houses similar to mine is $80000 more than when I was looking in May 2006. That's 30% in 18 months. Holy moly, shouldn't we all have bought ten!
Have fun,
Kum YinHi, I bought a house in Blair Athol & have approval pending to sub-divide it while retaining the existing house. The old house is a bit tired looking & requires an update.
The house is on 500m2 originally just under 800m2. The new allotment alongside is 295m2.
The project will suit a handyman or someone looking to expand a rental portfolio or a 1st homeowner. The reasons: it's under $250000 & will qualify for the grant. The reno will bring its value up to the present average price. Similar houses are quoted at $320-350000.
I'm not efficient at renos.[don't know a hammer from a nail]
So I'm passing it on to anyone who can efficiently do the alterations. A licensed builder would be great. I reckon the work will cost $30000 but if I do it, it'd likely cost $50000 so I've budgetted $50000. I call it the inefficiency buffer.
It's currently tenanted at 5% yield. It can be used for student accommodation. We had ten parties looking to rent it because we had the lowest asking rent.
Anyone in Adelaide interested can contact me via email. Meantime, I have lined up Rocca's to give a quote on the alterations.
Have a good day,
Kum YinHi, commercial property is valued by the yield. The going rate is around 6.5% for shops in less desirable locations & less for prime locations. You can do the sums yourself.
Outgoings eg. rates, insurance etc is paid by the tenant. GST is not part of the net yield either.
The yield used to be around 10% [about 2-3 years ago before commercial property went ballistic]
If the rent is $16200 and asking price is $330000, the yield is under 5%.
So if you think that the maximum rent is what you mention, then you need to have some really good reasons to pay $330000 for the shop.
Hope this reply helps you evaluate the deal.
KYHi Milly, congrats. on leaving the Centrelink treadmill. Well done! I've a small experience with Centrelink when I 1st came to Australia when I applied for jobs & no one would help me unless I was registered with Centrelink. I had a fair bit of money but they still gave me $240 per fornight which made me feel terrible as I lined up where I felt I didn't belong.
I accepted 2 payments & decided that I didn't want any of that.
I suggested to a friend that he should buy an IP & he said he'd lose his pension benefits if he did that.
I continued buying IPs while working at a high income job & have amassed enough to have tax problems while my friend still works until his pension arrives.
Jasmin, congratulations on having the courage to think about buying IPs. One word of caution: we're currently in a peak market. IPs still work but you need to find one that is correctly geared & income level allows a safe entry for your current position. The 1st one is TOUGH but at least you have this forum to help you.
Good luck,
Kum YinHi, the loan on the PPOR is the part I don't get. At 8% [easy to calculate], you'll be paying $35000 a year to live in that house that's worth only $390000. All non-deductible.
Say you pay rent of $700 pw. At 6%, your house should be worth > $500000 to an investor.
Can you find an investor willing to pay for you to live in the house like it was your own?
FYI, I just did that. My house settled on 21 Dec before Xmas. I still own lots of IPs. I offered 5.4% yield, new house, full deductions.
It's a variation of renting. Your costs will be much much lower because you won't have to pay rates, insurance will be minimised, & you still live in the same house anyway.
Too much advice is very difficult. At the end of the day, you can only look at the options & take what's best for you & remember things can change.
Good luck,
KYHi, since you have finance background, the numbers may mean something to you.
I was on $60K pa with $250000 tied up in PPOR which I leased out when I went to work overseas. I was full of grievance when I realised that my hard saved earnings would be taxed to the max so I figured that if I'd no income, I'd not have to pay tax. I went on to buy 3 more houses, sold all 4 to retain 2 blocks of shops now returning $75000 pa in rent.
I'll be honest & tell you that half of my million was earned income & half of it [now more than half really] is through capital gain. And my fixed income started at $865 per month. Even after 8 years, I was earning only $11000 per year. So it's only in my forties that my income ever went to $60000+
Your mortgage is eating away a chunk of your investment potential. You'll be paying the bank about $16000 pa + rates etc which is non deductible.
Can you envision doing what I just did? Settlement incidentally is today at noon.
I SOLD MYSELF ALONG WITH MY HOUSE.
Sale price = $335000
Loan = $225000 Interest @8% = $18000 pa = $1500 per monthA condition of sale to the investor is a 5 year lease @ $350 pw = $1517 per month paid directly with no agent fees etc
Note what I gain?
a) $100000 less costs of around $20000 = $80000 cash [bank that off set = $6400 in year 1]
b) I don't pay rates, land tax, levies etc = savings of $1500 more the investor pays this & gets a deduction & depreciationBasically, in year 1, I live in my own house & pay $8000 less for the privilege. Then I continue living in it for 4 years, with less savings as I have to pay tax.
Can you find an investor to buy your house @ around 5.5% yield? [I found one the 1st time I tried.] You won't have to pay tax on the capital gain so you can bank the proceeds less your loan. Assuming you net $100000 & keep it in fixed deposit, you'll get an extra $7500 pa
A variation of course is to rent out your house & rent from someone else. The only way it works is to live in a cheaper house than the one you own, much harder to do because of the fees involved.
This post is so long I'm exhausted!
I'll also add the rider that I don't offer financial advice. How you interpret the numbers is entirely at your own risk.
My intention is to share with you what can be done. AND NEVER IMAGINE YOU'RE TOO OLD OR UNABLE.
I only got serious near fifty & I'm retired after 6 years.
Good luck,
Kum Yin
