‘I worry about spending the next 4 years losing money paying someone else’s mortgage while renting. At $280 per week that rent would amount to $58,240 of dead money over that time.’

Julie – two words: OPPORTUNITY COST

To overcome that $58k worry work things out on paper.

Consider:

1. Buying your own PPOR, saving the $280pw but exposing yourself to (higher) loan payments and maintenance costs.

2. Paying $280pw rent, buying 2 or 3 higher yielding IPs and using the surplus to invest in growth assets and/or reducing IP debt. Have the tenants pay all your mortgages and get interest deductions from the taxman. Your income will be higher and it will be possible to safely borrow more as a result.

Apart from (possibly) NSW, and notwithstanding FHOG and CGT exemptions, the tax system is heavily biased towards investors and against owner occupiers. However the social security system is skewed the other way!

Thus I would be biased towards 2. and letting your landlord pay the shortfall with his 4% yield ; )

Peter

Assuming that the landlord sees cashflow (rather than capital growth) as their main route to wealth, $100pw is a hard ask and somewhat below where the market is at in most places.

However you might just be able to get something in Sunshine, Moe or Morwell for that.

Around the eastern suburbs of Melbourne, you’re doing well to find a 1br flat for much less than $130pw.

I don’t know the rents for bedsits/studios, in, for example, St Kilda.

As retired people tend to be quiet long-term tenants, so that could work in your father’s favour and you might be able to wangle a lower rent (though much of Steve’s book is about finding ways to do the opposite!).

Good luck!

Peter

Short-medium term demand for housing is driven by the rate of household formation.

I agree that at least in the major cities immigration is a major driver of household formation.

So are the divorce rate, the proportion of people living alone and the birth rate approx 18-25 years ago.

Established households wanting to shift also affects demand, towards some areas or types of houses and away from others.

In any one year most people don’t move house or form new households.

Thus though immigration may add only 0.65% to the number households each year, because 100% are forming new households, the effect on property markets is disproportionate. You could say the same about divorcees or people leaving home to form their own.

This is yet another example where apparently small changes at the margins can have disproportionate effects.

This is not unique to property and I’m sure you can think of other examples where marginality in economics can affect whole systems.

Regards, Peter

The quote does not quite tell me what’s actually happening.

‘Investing less in property’ could mean:

1. They’re selling up (even though there have been no big interest rate rises or massive vacancy increases that need provoke this at the moment)
2. Keeping what they’ve got but buying less frequently, investing more of their money in shares.
3. Continuing buying but buying lower value properties than previously (eg buying in Brisbane (or even country areas) rather than Sydney)

Each of these would affect property markets differently (crash, mild slowing, growth in certain areas only).

Peter

So many points arise:

1. My experience:

I spent 2wks there in Sept 2003 where I picked up a 2br b/t duplex in Bluff Pt (already with tenant). The price and rental would be similar to a house in Rangeway/Spalding. All the PMs and my own reserch revealed that Bluff Pt was a popular area and had low vacancies. And 7 min walk from the beach couldn’t be a bad thing! Feedback from locals on Spalding and Rangeway was damning, though there were some OK pockets there.

Before I went I knew about Rangeway & Spalding. My initial thoughs were Beachlands & Beresford, but Beachlands is mainly older houses and Bereford had many flats/units. Though a little further away from the CBD Bluff Point is mainly houses (mostly owner occ), has cap growth potential and the right property came up at the right price.

2. Rangeway.

I haven’t seen Karloo or Utakarra but I went on a walking tour through Rangeway. I walked along Rifle Range Rd, then to the shops and behind there.

Rifle Range Rd was asbestos houses. Brought back childhood memories for me. Maybe they’d offend some garden-watering city dweller types. Yes the places could have done with some work, but not quite a war zone.

There were some nice looking streets behind the shops (eg Tuart St). The brick/tile houses reminded me of parts of Safety Bay, though the gardents weren’t as consistently good. Not bad, though I didn’t go there at night to listen for any yelling or screaming as I had already bought elsewhere.

Rangeway Shops – unattractive, but I have seen worse. The security screens were most offputting. Can’t remember how much graffiti and vandalism was there, but I reckon the Bluff Point Shops (which everyone says is a nice area) aren’t that much better and need work (apart from the lack of security screens).

Russ – which parts of Rangeway did you look at?

Now if you really want to find some real grotholes, try touring the asbestos hovels of Kalgoorlie Boulder!

3. Merits of various towns.

Kay is right that a small amount of research would unearth the problem areas of Geraldton. But before dismissing all of Geraldton as a ‘bad investment’. I’d go one step further and isolate the problem a bit more rather than giving the whole city a miss. There are some good areas of Geraldton that I think will make excellent investments. Other people seem to think so and there’s hundreds of millions of dollars being poured into the town. Failing to ascertain the extent of could mean missing out on opportunities because of what happens in a few suburbs.

3. Buying sight unseen. I like her books, but I think Margaret Lomas is dead wrong on this.

Maybe some women are susceptible to being driven by emotional things (eg colours of the bathroom tiles) but I have sufficient faith in myself not to be swayed by trivia.

Russ is 100% right that the quality of neighbouring properties is important. If you subscribe to the ‘worst house best street’ theory, a Rangeway-style house in Bluff Point, Tarcoola or Beachlands might have been be a better buy.

An informed spotter can help, but there are always things that you think of later. Eg:

a. Just saying that there’s a corner shop there is no good if it closed down last week or is only open 2 days a week. b. Similarly a post in the ground saying ‘bus stop’ is not much use if there’s only two buses a day.
c. How many old cars are there in frontyards?
d. Are streetlights broken?
e. If living in the area would you let your kids walk barefoot to the local deli (risk of glass on pavement)?
f. What do local shopkeepers think of area?
g. Length of grass in lawns (to spot rental properties)
h. How much mesh and bars over shop windows?
i. Are street signs bent?
j. Empty shops in area?
k. Are curtins actually sheets in windows?
l. Timber over smashed windows in houses?
m. Sit outside shops and watch type of people entering
n. Is playground equip in parks vandalised?
o. Stray dogs?
p. Range of magazines in local deli
q. Houses look cared for?

Basically you need to get down and dirty, talk to the locals, walk the streets at night, get the timetables, inspect the shops, etc. Do far more than an agent (or even a spotter) would do.

Also by visiting you can see the potential for a property much more than from photos. Eg, is the space at the side big enough to fit a car through? If so it could form a driveway for a second house at the rear.

Regards, Peter

I would ask where the positive cashflow is coming from – mostly rent or tax deductions.

Very few properties in metro areas would be positive after tax.

Those that are would be either new units (where there are big depreciation allowances) or short-term accomodation. The yield might be 3-4% and tax/depreciation benefits might give you another 5% (if you’re on the top rate).

The capital growth of these properties would not necessarily be as good as -ve geared houses in good suburbs.

Even some regional areas with neutral or positive properties might do better (especially if your income is average or less and you want to own several properties).

Peter

The average quality of cheaper houses in some of these places leaves a bit to be desired.

I’ve thought that some of the larger towns in that list need more villa type units to provide an alternative to the common asbestos/timber places.

Though I’d think these would rent quickly and land is cheap, the main problem is building costs (assume $100k per unit) being out of kilter with average incomes and average rents so overall return might not be that great.

Re looking slightly higher, I’ve tended to favour well-located brick places built within the last 20 years priced near $100k.

Regards, Peter

Why not get to work with sticker paper and a colour printer to produce an Aussie stick-on kit for your existing set?

You’d also need to change the title deeds and a couple of the Chance and Community Chest Cards. Eg ‘Advance to Pall Mall’ would have to be ‘Advance to Oakleigh’ to match the properties.

‘Super Tax’ is amazingly prescient, but should be 15%, not 10%.

For Melburnians, the board is not dissimilar to the City Loop. Thus the stations, clockwise from Go should be Flinders St, Spencer St, Melb Central and Parliament.

The power and water utilities are fine, but there should also be phone companies and ISPs. One of the Chance cards should be a Citylink toll. There should also be extra cards for cap gains tax, fraudulently claimind deductions and interest rate hikes. A Negatively gearing card could mean that instead of picking up $200 as you pass go, you pay $200 for the next three turns or go to jail (your choice). And just for fun, a Henry George Card (pay 10% of value of your land holdings) would be fun.

But to balance this off there needs to be some mechanism of capital appreciation. Maybe a card doubling the list prices of properties for next 3 turns.

General Repairs to properties is good, but ‘Pay Each Player $15’ should be for the purpose of Tenancy Tribunal Attenance rather than the beauty contest.

The idea of buying 2-3 blocks before building doesn’t make sense. But making the ‘blocks’ strata titles and requiring posession of all titles to control the body corporate does to allow building does. Hotels should probably be apartment blocks.

Peter

Well they can certainly pay $1997 to go to their seminars! Bringing your partner is encouraged.

Break Free Events has just sent out a 16-page advertising spiel on their ‘Secrets of Growing Rich Super Conference’.

She is big on cashflow (not equity) is not into wraps and says you can buy properties 30-50% below valuation (must be lots of stupid vendors out there!). The brochure also claims tax savings and legal protection (presumably through trusts), tricks with SM super, and promises much more.

Peter