Forum Replies Created
- Originally posted by woodsman:
It might not effect the more seasoned or astutue investors, but it may have a real effect on the highly leveraged borrowers and generally has a psychological effect (if not financial )on Mr & Mrs Jo Average.
I don’t think that there are a lot of seasoned or astute investors out there at the moment. Most have probably sold a large proportion (if not all) of their holdings in the past 2 years and gloated over their hefty profit$. The vast majority of recent property investors have been the “mum and dad” types who are probably clueless about the interest-rate threshold their portfolios can sustain before it becomes a financial burden. You know, the “buy-and-hold”, “time in the market” and “real estate is a passive investment” types. People can get too used to record low interest rates..
By the time they realise it has burnt a massive hole in their pockets panic will have set in and that’s when the real damage will begin. Of course, they may have the option of fixing the rate if they haven’t already done so but that only buys you time (5 years at most) and it does not come for free. You may be risking a little bit more for the chance that the situation may improve at the end of the term.
The easiest way to weather the interest rate storm is to be cashed up so that you can temporarily reduce the gearing and ride it out. With so many hocked to the eyeballs this is not a likely option. It’s not hard to calculate the risks when investing in property and the interest rate is only one element in the equation. I am alarmed by the number of people who still believe that real estate is a one way bet.
Originally posted by Ibuycashflow:Olly Newland may offer some good advice but he has already proven he can be wrong.
Would Newland not argue that he has learnt from his past mistakes? Surely that can only add more credence to his advice.
I’m not sure what all the hype is about at the moment. It’s all speculation until interest rates actually go up. The headlines are getting a little irritating of late. One day it’s certain the next day it’s maybe. Just watch the Aussie dollar go up and down like a yo-yo with all the interest rate pundits trying to second-guess the timing of the RBA’s next move. We all know that Ian Macfarlane has stated that rates are more likely to go up than down but he has been particularly coy about when it will happen and the magnitude of the increase.
In my opinion, if a small rate rise of 0.5% is going to rattle the economy then we know we’re in over our heads in terms of our debt level. If that’s the case then better sooner than later… before the situation is allowed to get any worst.
As a final point, just ask yourself this: does the threat of an interest rate rise worry you? Answering yes to that question should prompt you to think about why you’re in the property investment game at all.
Originally posted by Derek:ABS projections (and I don’t have them at my finger tips) point to a decreasing number of people per household – which in part (+ other factors) goes to show why more places (I was going to say houses) for people to live are required.
How about the statistic about the number of young adults still living at home because they can’t afford to buy a place of their own? That would somewhat negate the above. It’s not uncommon to find kids living at home until their late 20s and early 30s. You then also hear about the ones who have come home to roost, living rent free so that they can save up a deposit.
It’s not always easy to draw hard and fast conclusions from just demographics.
Originally posted by yack:I am not really sure about property having a return greater than inflation. … So I know they will exceed the rate of inflation.
Yack, aren’t these two statements sort of conflicting? Or have I misread you completely?
Has anyone actually bothered to read the research paper that was posted?
The gist of the whole thing can be found in the summary (as posted by foundation amongst all the quotes):
There were significant housing price booms from 1971 to 1974, from 1979 to 1981, from 1987 to 1989, and from 1996 through to 2003. After each of the first three booms, real prices tended to fall.
However, in the long run real price rises outstripped falls. Consequently, real house prices rose by about 180 per cent between 1970 and 2003. Allowing for hous ing improvements, real prices rose by more like about 100 per cent over this period. However, both estimates give an exaggerated view of real price increases if, as we expect, there is a real house price downturn post 2003.It’s not actually refuting the fact that property prices have doubled every x years. It just says that if you factor in inflation and a whole bunch of other reasons, the real rise in house prices is a lot less rosier than we would think.
Foundation, by titling this topic with the words “Myth Buster”, you’ve seem to upset a few people on this board. Perhaps if you used the original title of the research paper it would have attracted less flames.
Hi Foundation,
I find that some property investors get very defensive when their strategies or beliefs are questioned. These people don’t often like being challenged because it can be difficult for them to backup their own claims or refute an opposing argument. Some also don’t like to think that the thousands of dollars they’ve spent on wealth seminars and books may have some caveats or flaws in the methodology.
If you read some of the research floating around it basically says that property prices do rise consistently in the long run. And it may well be doubling in face value during certain periods. However, it does stress that in terms of REAL growth i.e. factoring in inflation, housing improvements, building costs and tax legislation changes etc, the amount of growth may not be as rosey as we would all like to believe.
For example, my income has virtually doubled over the past decade but I don’t really feel like I have twice the spending power as I did when I first started out. Firstly, I pay more tax now and most of my essential living expenses have also gone up (food, transport, childcare etc). Technology has also surged ahead. That $3000 television set I bought 10 years ago was bleeding edge in home entertainment at the time. I can now go out and buy an equivalent sized but much more advanced unit for $500 but I need to spend around $10K for the latest flat panel display with a cinema quality sound system.
Basically, my income may have doubled but my cost of living and my expectations have also doubled. Just like rising property prices when viewed in real terms, I don’t think that my level of contentment has doubled in the same fashion. It’s a bit delusive but it sounds nice when I boast to people about how my income has increased two fold in the last decade.
Thanks for posting the research paper. It helps to put things into perspective without all the hype.
Hi want2brich,
I think you may have missed the point of crj’s post. Regardless of what is involved in a directional transfer you’re still going to be out of pocket with stamp duty, capital gains tax and legal fees. This is going to eat into your $25K gross profit.
You have to work out what your net gain will be and whether it is worth your while. You could always ask for more money based on your calculations e.g. nothing less than a 10% net profit. Maybe this buyer knows something about the property that you don’t? Perhaps there is treasure buried somewhere..
Originally posted by Michael Whyte:Spanky,
I think you’re on to something here. I for one, was originally going to post a word of caution about investing at the peak of the market, but I don’t think that’s what you’re talking about…
Cheers,
Michael.Well, if you go back to Spanky’s original post, I think he was advocating just that:
Originally posted by Spanky:What is the problem with buying property now, (at the top of the cycle) if history shows (and history generally repeats itself if you look at the price fluctuations of almost any asset or commodity) that in 10 years’ time, (remembering property is a LONG-TERM ASSET) that property is going to be worth considerably more than it is today – especially if it is managed well??
Who cares if prices are high now? Barring radical changes to Investment Property laws from the Government, prices will go even higher in the long-term
I think that’s why some of us had to jump in and slap him around the head a little.
MasterREL, a lot of property investors don’t like to think about real life events like interest rate rises and bad tenants. It ruins the optimism that they hold for that “perfect” IP that runs like clockwork. You know, just like in a game of monopoly! I roll the dice, collect titles for each street that I land on, build lots of little green plastic houses, all as I pass GO to collect my $200. You can’t lose when you’re using play money or as some investors may tell you, “other people’s money”.
Here’s a slightly more realistic view of the current market, again from the SMH:
Stay grounded: prices haven’t hit the floor
http://www.smh.com.au/news/Opinion/Stay-grounded-prices-havent-hit-the-floor/2005/01/19/1106110809219.htmlThe author believes that there won’t be any “meaningful” increase in prices until the end of the decade.
I wouldn’t get too excited just yet. This is more or less a repeat of yesterday’s article:
Property rebound as home loans rise
http://www.smh.com.au/news/National/Property-rebound-as-home-loans-rise/2005/01/17/1105810817186.htmlHome loan approvals aren’t exactly the best measure of house price movements. The stats quoted in these articles do not provide an insight into why approvals have gone up. They could be due to people refinancing or, as stated in the original post, due to investors settling on off-the-plan units they bought at the height of the boom.
The bullish headlines are there to catch your attention but I suspect some media outlets have a vested interest in propping up the sagging property market.
It is way too soon to draw any conclusions from the ABS figures. Besides, if there is going to be a second wind for the housing boom it will force the hand of the Reserve Bank to raise interest rates again:
House bounce fuels rate fear
http://finance.news.com.au/common/story_page/0,4057,11972868%255E462,00.htmlHere’s a link to the Capital Gains Tax estimator from the Your Mortgage magazine website:
http://www.yourmortgage.com.au/calculators/capital_gains_tax/
Hi pgrim,
Unfortunately you will not escape Australian tax rates if there is a double tax agreement between the country you’re investing in and Australia e.g. New Zealand.
The tax you’ve paid in NZ will count as a credit towards the tax you will have to pay in Oz. Of course, some people will suggest a plethora of schemes to get around the system but at the end of the day, if you get audited, you will pay the penalty.
One of the problems with calculating cashflow is the interest rate element. A lot of property investors are highly geared which means that slight increases in rates will significantly impact their cashflow. Paying off an “interest-only” loan will serve to reinforce the situation. Rent and general outgoings are relatively predictable and somewhat constant. Fixing the interest rate is an option but you may end up paying more if rates remain low. It is all about risk when it comes to gearing. The more you borrow the higher the risk.
The other issue with depreciation is that when it comes to paying Capital Gains Tax, all the losses you’ve been claiming as depreciation over the years is factored into the final CGT amount. So what the tax-man giveth with one hand he taketh with the other.
Ideally you should not include depreciation in your cashflow calculations. The reason you’ve been having trouble finding a property that makes a positive cashflow is that rental yields are way too low right now. Either rents have to go up or prices have to come down.
