WILL THE REAL AUTHOR PLEASE STAND UP?

I received Steve’s email (Investor Alert) regarding this topic. I also received one from ‘Access-One’ (I subscribe to many property newsletters, some good, some otherwise…).

Both emails are near enough to identical – however they’re ‘written’ by different people.[confused2].

So Steve, what’s the goss? Are you involved with A1, or have you or Access-One used some ‘artistic license’? Didn’t you say that you were writing the article on the plane???? Or, do you simply share content? Fair enough, but the original author (whether yourself or otherwise) should be specified.

The articles appear below:

Access-One EMAIL

By now, you’re probably aware that the Reserve Bank of Australia (RBA) has yesterday announced that it’s chosen to increase its cash target rate by .025% (a quarter of a percent).

Over the next few days, you’ll hear press releases from major lenders saying that they will be increasing their variable home loan rates. In fact we are having problems speaking to our relationship managers from our lending panel because there all in meetings discussing their positions.

As investors and homeowners, our job is not to respond emotionally to this change in climate. Instead, we need to reassess our position, and re-evaluate the effectiveness of our chosen money strategies. e.g. fixing a portion or finding better rates.

So, in summary, here’s what the rate rise means/confirms:

* Although still at historically low levels, we are now in a trend of increasing interest rates (the last six movements, albeit over 48 months, have been up).

* Despite being at low levels, Australian households carry a lot more debt than in the early 1990’s. Interest rates do not need to rise as high as they did in the last recession to have the same effect. In combination with high oil prices, the hip pocket hurt will be real.

* It’s reasonable to expect that it will be harder to sell real estate, particularly property that is priced above the median for the area. This is because most households have to borrow 80%+ of the purchase price, and with higher interest rates, households will now have to borrow less and remain in affordability limits.

* There will be more opportunity for cashed up investors, as the number of properties put up for sale is unlikely to fall, however the number of legitimate buyers may diminish. When supply exceeds demand, price falls and/or buyers are more willing to negotiate.

Yours Sincerely,

Lee Naismith
Loans Manager

STEVE’S EMAIL: (Investor Alert)

By now, you’re probably aware that the Reserve Bank of Australia (RBA) has today announced that it’s chosen to increase its cash target rate by .025% (a quarter of a percent).

Over the next few hours and days, you’ll hear press releases from major lenders saying that they will be increasing their variable home loan rates. Furthermore, but with less fanfare, you should expect credit card companies, personal loans, etc. will all increase their interest rates too.

As investors, our job is not to respond emotionally to this change in investing climate. Instead, we need to reassess our market position, and re-evaluate the effectiveness of our chosen money-making strategies.

For example, I am looking at a large parcel of land that could be subdivided and turned into an estate. However, as a response to the interest rate rise, it would now be more prudent to stick to smaller scale projects that are both less cash intensive and also less risky.

No, the rate rise has not made the project uncommercial. However, change leads to change, and in this case it is reasonable to expect that it will now be that little bit harder to sell property and realise gains.

Also, with finite cash for deposits, it would be better to retain the cash for future deals where the vendor was more ‘negotiable’ than to allocate the money now.

So, in summary, here’s what the rate rise means/confirms:

* Although still at historically low levels, we are now in a trend of increasing interest rates (the last six movements, albeit over 48 months, have been up).

* Despite being at low levels, Australian households carry a lot more debt than in the early 1990’s. Interest rates do not need to rise as high as they did in the last recession to have the same effect. In combination with high oil prices, the hip pocket hurt will be real.

* It’s reasonable to expect that it will be harder to sell real estate, particularly property that is priced above the median for the area. This is because most households have to borrow 80%+ of the purchase price, and with higher interest rates, households will now have to borrow less and remain in affordability limits.

For example, let’s say that a buyer has $80,000 for a deposit and wants to borrow 80% for a home. The repayment based on a $400,000 loan (on a 6% loan over 25 years with weekly payments) was $594.25. It’s now (based on a 6.25%) $608.42. Alternatively, to keep the repayment at $594.25 (at 6.25%), the loan amount would have to be reduced to $390,690.

All in all then, the ability to borrow less will put pressure on property prices to fall. In the example above, a .025% increase in interest rates has led to a $9,310 drop in affordability.

* There will be more opportunity for cashed up investors, as the number of properties put up for sale is unlikely to fall, however the number of legitimate buyers will diminish. When supply exceeds demand, price falls and/or buyers are more willing to negotiate.

* Banks are going to be more edgy about lending. Already the word around town is that mortgage brokers are ‘softly concerned’ about the number of loan defaults happening. I would imagine that it is going to be increasingly difficult for the financially stretched to secure >80% loans.

If you have a minute or two spare, jump online and either post your opinion or else take a look at what other people have to say. The link is: <https://www.propertyinvesting.com/forum/topic/23570.html&gt;.

Well, that’s about it from me. I am typing this out on the plane coming back from Mackay to Melbourne. I hope that you have found it useful. More than anything, I would urge you not to be complacent about your investing. No doubt some will see this raise in interest rates as a disaster. Others see change as opportunity in disguise.

Until next time… remember that success comes from doing things differently.

Regards,

– Steve McKnight

Software for people, not computers.

I give up. You win. Hope that makes you feel better.[chill]

Software for people, not computers.

I’ve come to this a bit late but agree with ez-rent. An FAQ written in plain simple terms would be a good idea. I’ve visited many MB sites, and have yet to a find clear and well-constructed info that explains these terms. ez-rent enquired re the possibility of some scenarios, this is also a good idea. Scenarios are just that, they are not real, but are invaluable learning tools. Well-written scenarios allow people to adapt situations to their own. This is often what people want. Simple, and often misleading ‘bank’ type explanations do not inform, they confuse. I agree that every situation is different, and that is why ez-rent asked for scenarios. I also agree that there is no “single answer”, that’s exactly why scenarios are used. When you read a book you usually end up applying ‘what-ifs’ to your own situation. Tell me that’s not how you read Steve’s first book… Steve often set scenarios and then asked questions! This is how people learn. Do it via scenario, or do it real. When you’re learning, better to scenario it first.

Cheers

Software for people, not computers.

My first post on this site and I’m about to nark a whole lotta folk – but do we not all get a little sick of, and feel just a bit pathetic with this Melb-Syd (or is that Syd-Mel) idiotic argument? I’ve lived in Sydney, Melbourne and Canberra. Here’s my view:

Sydney, worlds best harbour – gorgeous (and I’ve seen many of the worlds best) If you are rich in Sydney it’s ‘nice’. If you’re Jo(anne) average it can be a damn awful place to live.

Melbourne, world’s worst ‘bay’. Pathetic. I’m sure the marine life loves it, I don’t. I detest it’s winter. Not ‘cold’ like Canberra, just cloudy. Great summers. As good as Sydney. Often better. I now live in Melbourne and dislike some things, love others.

Canberra, freezing in Winter, but absolutely wonderful sunny winter days. Beautiful Autumn. Can be kinda ‘inward’ looking and still (although better these days) a little small for me. I was born and grew up there. It’s changed much, but not enough for me.

Sydney is NOT the bees knees, neither is anywhere. The most ‘romantic’ cities in the world still have poverty, heroin (Canberra had stuff that killed many junkies over a short period), are dirty, have bad suburbs, crime etc etc.

The whole argument is just so stupid.[chill]

I read the instructions, it’s still upside down…