Forum Replies Created
The problem here is that you already told us the increased offer is to get a larger loan. Tell Rick this and I would be very interested in hearing his response. I doubt he will tell you that this is legal.
Robert Bou-Hamdan
Mortgage AdviserIt can cost a fortune to run a seminar. They don’t make all fees as profit. I would say it depends on who is running the seminar and the content.
Robert Bou-Hamdan
Mortgage AdviserIt seems a rather long post of mine was removed by some over-zealous moderator. The target must be back on my forehead AGAIN.
Anyway, I hope some of the doom and gloomers took note of the lack of interest rate increase today and the positive comments regarding the short to medium term economic outlook. If properties were to drop a further 45%, I think interest rates would need to increase more often than 2 times in over a year by 0.25% each time.
As for exporter competitiveness, the US cash rate is now 4% and it has been indicated that it would continue increasing. Does it not follow that the decreasing interest rate differential would make Aussie exporters more competitive without a need to increase interest rates further?
Robert Bou-Hamdan
Mortgage AdviserI am extremely content with the ANZ Bank. Their online banking is exceptional and I love it that you do not need to fill in any forms when depositing funds – they just swipe my card and I rarely see a queue. Also, they have a great transactional offset account if you decide to get a home loan.
Your decision should also be based around your financing situation (eg: offsetting etc.)
Robert Bou-Hamdan
Mortgage AdviserOriginally posted by Terryw:Robert
You asked me to explain how a cashbond improves serviceability.
I did this.Sorry Terry, but I don’t believe this was done.
You then insult me and claim I tell my clients “these high-risk, and sometimes illegal, crazy structures.”
I don’t. I merely explained a strategy that one financial planner has been using successfully for years.I apologise if you feel insulted by my comments. Unfortunately, I do not think it is prudent to outline such high-risk structures without qualifying those comments in a forum such as this. People who read it act on information they read here when it is posted by someone they have grown to respect such as yourself.
I suggest you calm down and stop trying to defame me publically.I am very calm. Maybe you read my typing in another light because I don’t use happy faces etc. I have no control over your interpretation. Regarding me trying to ‘defame’ you publicly, this is certainly not my intention. I merely disagree with many of your comments and I am airing my opinions regarding those comments. I believe this is what a ‘discussion’ forum is supposed to involve but it seems that this forum does not believe in people passionately discussing various topics.
There are people other than you (and me) on this forum. Some may find benefit in discussing various ideas. Whether we implement them or not is beside the point.This is my point. I thought we were discussing a topic extensively and in depth. I believe that if anyone implements what you have outlined on more than one occasion regarding different topics, they are heading for problems or greater expense than they should incur. Am I not entitled to my opinion if it is in opposition to yours? A less skilled investor may act on partial information so I believe complete information should always be provided in public forums.
Steve has already scolded me for my comments directed at you and it seems I am heading for the sin bin AGAIN as a result of my passion regarding finance issues. I believe that if I get the sin bin AGAIN, it will be forever and I will actually miss this place. As a result of my reluctance to get the old boot AGAIN, I will refrain from any further discussion relating to comments made by you Terry.
I hope this satisfies you and that you never feel defamed in the public forum again by me.
Robert Bou-Hamdan
Mortgage AdviserIf the Australian economy has demonstrated anything since the early 90s, it is that it is extremely resilient. It does not follow world trends with nearly as much impact. I believe this is as a result of good economic management and consumer confidence, amongst other things.
I have not seen your links to over a dozen Australian articles but would love for you to direct me to them.
Your thinking indicates that house prices will drop more than they have ever dropped before. I can’t see this happening in a world economy of consumers being far more educated and learning more each day we move forward. These consumers are now becoming ‘investors’ as well.
The old days of mum and dad buying one house and paying it off as quick as they can and buying no more are gone. Now mum and dad want a family home and a few more for the kids. Australia is unlike any other country in that demand for the ‘Australian Dream’ is extremely high. As long as prices remain affordable, and I believe they are at their current levels, Australians will continue to buy property.
With their newly gained knowledge of tools and tactics enabling them to buy more, and with the proliferation of intermediaries to assist them, you might find that prices have gone up regarding property but ways of buying them has kept it affordable.
You said you couldn’t follow my logic but you are forgetting about the whack you are taking following the 20% correction I already believe has occurred. Houses are not like shares to be sold at a ‘stop-loss’. Our beliefs differ in that I don’t think HOUSES will decline in value much more. On the other hand, your strategy regarding units, especially in the CBD, I would support.
In answer to your questions, what make you think that the bottom has not been reached (regarding house prices)? I believe the correction was caused by prices running out of control. It was clearly not sustainable so had to slow down. Also, various not property related factors contributed to this decision. I don’t believe more falls will follow after the last rise because I was the opinion that this came as a result of non property related factors to decrease spending even further in other sectors. As for my rosy outlook, I think Australians have started to understand what it means to see a couple of rate rises and have reacted sufficiently to prevent any further ‘major’ rate rises.
Do me a favour and take a look at how the various western economies reacted following the problems after the Asia Crisis and 9/11. Australia was nowhere near as severly impacted. This demonstrates good resiliency and supports my ‘rosy economy’ theory. I am also very happy with the Federal Government’s surplus positions of late.
Robert Bou-Hamdan
Mortgage AdviserVery well said Dan.
Robert Bou-Hamdan
Mortgage AdviserKerri, not many of us like to publicly annouce who has the best of each product. The problem with doing this is that many people reading these forums think they can do it themselves and take the information and go direct. They then come back to a broker when things are in a mess. The greatest value in using a broker is not finding the best product but rather what they do for you when things get messy.
Robert Bou-Hamdan
Mortgage AdviserIf all the keys are still working, you just bent the frame of the laptop. Any service centre should be able to remove the keyboard and bend the frame back.
One of my laptops was in a car accident and experienced a similar thing from the impact. It still works fine.
As long as everything else still works, you should not be worried about it too much.
By the way, if you can never get the drive to open, you can just link to any other computer with a drive and use that.
Robert Bou-Hamdan
Mortgage AdviserRenting is usually always cheaper than buying unless outside a city or regional area assuming an 80% LVR is used.
You said that by selling you crystallise profits. By selling now, you also lose the 20% odd correction that occurred in the last 18 months. You must also pay tax on your bank interest and inflation will also eat into these funds. At 6% per annum in the bank, you will be lucky to return 1% after tax and inflation. To earn more would usually require more risk where you could end up losing your “profits”.
Why don’t you try and source a solution where you keep your current property and get another?
Regarding a 30-45% correction on top of what has already been seen around Australia, I can’t see this ever happening.
Posting the same article over and over again to prove a point does not help you. The article does not support your claims. Try finding an Australian article to support you.
Robert Bou-Hamdan
Mortgage AdviserOriginally posted by Terryw:In another post, Rob the mortgage broker asked me how a cashbond could improve sericeability.
Terry, your lack of attention to detail astounds me. I never asked for you to explain how a cash bond works. I asked how one works to improve serviceability using YOUR example of costing 7% per annum and returning 4%. This is negative.
Now to break down your explanation (using a 50% marginal tax rate for ease of the example) and why it does not improve serviceability…
$90,000 Gross Income
$45,000 Tax$45,000 Net Income
$1,000,000 Property
$500,000 Loan
7.00% Interest Rate
$35,000 Cost first year assuming interest only
$17,500 Tax Deduction$36,250 Net Income after interest expense
A 4% return on $500,000 would be $20,000 in year 1, $16,000 in year 2 on $400,000, $12,000 in year 3 on $300,000, $8,000 in year 4 on $200,000 and $4,000 in year 5 on $100,000. The avergae is $12,000 which I will use for the example.
$12,000 Income from annuity first year
$6,000 Tax$42,250 Net Income after annuity income
However, certain banks are willing to count the whole $110,000 as income for serviceability puposes. So their new income, for serviceability, jumps to $200,000.I doubt any lender will take into account a non-taxable return of capital but will love to be proven wrong on this one.
In any case, the cash flow in year one is less than what it would be if this structure is not used so serviceability, which is done on the day of application, is reduced.
On an income of $200,000 they can now borrow an additional $583,000!!!!Assuming some psychotic lender allowed the return of capital to be used as income, I am interested to know if they will approve a thirty year loan based on an income that will only last a maximum of 5 years. This is highly unlikely.
At the end of 5 years when no more annuity is coming in and your ‘income’ reverts back to $90,000 gross per annum, what will the position be? Where is the return of capital supposed to go while you are receiving it?
I am not an advocate of this method. It is costly, costs about 3% for financial planner to setup the annuity, and there can be a large shortfall in income.Wow, I wonder why you would not advocate it. So when including the 3% to set it up, net income in the first year drops even further which would, in turn, retard serviceability even further and kill cashflow. What does the investor live on if they were facing difficulty servicing much more than $500,000?
These days there are low doc (lie doc) loans and No Doc loans available. Sometimes rates may be slightly higher, but it would still work out cheaper than using a cashbond.It seems you are suggesting people commit fraud to borrow money. I don’t think this is something anyone should do as the result could be bankruptcy!
I am amazed you tell your clients about these high-risk, and sometimes illegal, crazy structures. I will look forward to hearing which lenders accept return on capital (which was borrowed) as income for your every day investor or professional investors.
Robert Bou-Hamdan
Mortgage AdviserWho cares about a “Canary in a coalmine”. There is no need to keep posting the same link over and over in the same thread. We do have the ability to read here and only need to see it once.
Why don’t you ask me how much weight I give to an article written by a North American Investment Firm as evidence of the problems faced by the Australian economy?
Originally posted by dmichie:The record (>7%) CAD is not a bad thing and I suppose the 80c Aussie dollar is just dandy? You really are deluded. The high dollar is a tragedy for Australian exporters, but I guess it means home owners can buy imported goods with “equity mate” loans.
Just because it is at a record high does not mean it is doom and gloom for the economy. It is sustainable and reducible. There is pressure on interest rates and exporters are not competitive for many reasons including the dollar but other figures (eg: low unemployment, low inflation, etc) indicate the economy can work through this without major catastrophe. We came through the Asia crisis and the last world recession relatively strong. Nothing is going to burst.
If you are going to paint a picture, provide the whole canvas instead of a small piece of it.
Why am I doing this? Because young Matt will find himself with negative equity in some crap apartment unless he is extremely careful.I think Matt has been advised enough regarding the dangers of units in CBD areas and will learn himself as he seems educated enough to check things out before jumping in.
I also wish you would stop using American information to prove your arguments regarding Australia. If you want to talk about something that will burst, look at the American economy. Now that is unsustainable!!!
By the way, read your famous article properly…
“The official numbers confirm that Sydney prices are well off their highs, although as yet far from a real bust.”
Please note the comment about ‘FAR FROM A REAL BUST’. I don’t think current economic indicators support any major corrections in the near future and the RBA seems to support this by not increasing rates rapidly.
Prices decreased substantially during 2003 and appear to have steadied. This was a more sustainable correction than the late 80s which led to a rescession. See the graph you mentioned.
By the way, the writer is only making reference to Sydney prices. Australia is bigger than Sydney. Find some more supportive articles and I may listen to you more attentively.
Robert Bou-Hamdan
Mortgage AdviserTerry, I think my perception is fine and believe that you have tried to adjust your information to appear more suitable and expand on your initial post to include scenarios which I allowed as exceptions in my responses. I have included your initial post which I had issue with…
Originally posted by Terryw:I beleive it is a sound practice if done properly.
One idea promoted by the investors club is to buy seven properties, one per year for seven years. In year 8, the first proeprty would be worth approximately double what you paid for it.
This does not state at the start of an investment career. It does not indicate what sort of income would be required to achieve this or where deposits will come from for all the usually more expensive properties that provide strong capital growth. It certainly does not outline that the first property may also be worth what you paid for it or less in 7 years as many investors have experienced in recent times.
You then take some funds out of this by increasing the loan. The funds can be used to live on or to supplement income. Some of the funds can also be used to be the extra interest incurred.This assumes that the property has grown and you take the money out to use for living expenses as income is insufficient to live on. It also suggests paying interest from borrowed funds. It does not address the problem of not being able to borrow any more if you cannot service all loans from your current income which, if you could, you would not need to do this. It also discards the issue of non-deductible expenses accumulating at an exponential pace through capitalising interest.
In year 9, you then access the funds in property 2.
In year 10, property 3, and so on….Makes it sound so simple but, in fact, this is highly unlikely to occur.
at the end of the cycle, you go back to property one, and it has doubled again so you can take out more funds.YOU WISH!!! If this is needed, can you imagine how much non-deductible debt has accumulated. No way would any lender give you more money with your ever increasing level of negative equity and negative serviceability.
Sounds good in theory, and it can work in practice if you are only taking a small amount of any growth. Having at least 7 properties will help in this regard.Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Sounds terrible in theory and I don’t see why the magic number is 7. This crazy investment idea can be done with 1 or 20 properties. Again I must emphasise that anyone who actually sits down and plans to do this (UNLESS FOR RETIREMENT) should have their head read.
Your most recent post is now outlining additional weaknesses in this scheme. Regarding increasing rent, you can’t just wake up one day and increase rent. There are leases and there is market demand. You also mention using the equity again. If there is a problem with the properties turning positive, does it not follow that the capital growth is not occurring as you planned? Where will the equity draw down come from.
I think that when you outline a scheme in a forum like this, you should outline positives and negatives so people can be made aware of the pitfalls. If this was such an easy way of property investing, why are the former advocates no longer teaching this method?
I don’t think anything else needs to be said as their decision to cease teaching this ridiculous method speaks for itself.
As for your question about reverse mortgages, I am not a huge fan but beleve they are a good way for a retiree to access funds. I believe that the whole family should be involved though so the beficiaries may offer an alternative to the retirees seeking to access some funds instead of loss of the property when the borrowers die or move into full time care.
Also, before you try and compare a reverse mortgage to your example of an investment idea, a retiree cannot borrow money to access equity under a standard loan so they cannot enjoy this fantastic investment idea of yours.
Robert Bou-Hamdan
Mortgage Adviserdmichie,
I never said anything about something being a good thing. I have not looked into the allocation of resources sufficently enough to comment.
Regarding our current account deficit, I do not see it as a major problem. Everyone who gears has debts including countries. How do you figure that all debt is bad and that the current account deficit is lining the pockets of real estate speculators?
The economy is doing ok as far as I am concerned. I think Howard and the boys are doing a very good job (excluding some domestic areas). Inflation has been at great levels for a while, unemployment is fairly low, the Aussie dollar is doing well, the free trade agreements should do well for us and many other factors make me feel comfortable with the way the economy is operating. I don’t know why you have a major problem with the economy.
Why is it that you think property investing is not a productive enterprise? It is relatively a very solid investment around the world. By the way, it is not as big as you make it out to be in your doom and gloom ‘bubble burst’ posts.
Australia has many international investors buying property. Luckily, they are restricted to Foreign Investment Review Board approved properties or prices would be almost double what they are now. I think this was a smart initiative by the Government.
I think you are an easily influenced person who picks up on media hype and catch phrases. The Dot Com bubble bursting occurred because those companies were not supported by tangible assets. They were backed by intellectual property and ideas or hot air. A house is a tangible asset.
I also never suggested current house prices are sustainable as I believe they have corrected themselves sufficiently to remain flat for about 18 months before starting to grow at affordable levels yet again. Regarding prices growing at faster levels than income, I don’t believe this is sustainable and don’t think it has occurred since 2003.
I am glad I could make you laugh but you obviously missed the point. I also suggested all other professions. Everything is inter-related and is commonly known as the circular flow of money. Go and look it up and you might realise that money poured into one sector will flow back through another sector and so on and so on.
A few questions…
Why are you in a property investng forum if you are so against property investors?
Are you jealous because you cannot afford to buy any property or do not have the knowledge to find a way?
Robert Bou-Hamdan
Mortgage AdviserTerry, this clearly has the sole purpose of increasing the amount that can be borrowed against the property as outlined in the initial post.
Of course there are legitimate reasons. Unfortunately, this is not one of them.
Robert Bou-Hamdan
Mortgage AdviserI think the market has bottomed out already in areas where there is not an oversupply of units. I think interest rates are steady and would be very surprised to see an increase in the next 3 months.
You will want to be pretty confident that the market will head the way you need it to.
Robert Bou-Hamdan
Mortgage AdviserJohn, some lawyers work in free legal centres and for corporations as compliance officers or in other much lesser paid roles. I think a solution to your over-billing problem might be rectified by a quick letter to the Law Society. Your lawyer is ripping you off at $1,900 (after negotiation) for a half hour phone conversation. They have to follow rules as well.
dmichie, it never ceases to amaze me what I read on these forums. What sort of rubbish is it to say that property invetors make no contribution to the productive capacity of the economy. Have you ever considered the money they spend on things like solicitors, conveyancers, building inspections, depreciation schedules, renovations, property management, real estate salespeople, and the list goes on and on.
Each of the people paid by property investors will then go out and spend money on this, that and the other. The amount of employment directly attributable to demand of property is a huge chunk of Australia’s workforce.
House prices go up and down regularly and have been doing so since the dawn of time. Like shares, they generally trend upwards in areas where population numbers are increasing like Australia.
I think you need to do a little more research before making such comments.
By the way, John Symond does not have a degree and he pays the wages of hundreds of staff plus commissions for another 500 or so brokers. He was the one most people believe was responsible for the decreasing interest rates we all benefited from since the early 90s which fueled the most recent property boom. I think he would be considered very productive.
Have you ever considered that the internet might also be responsible for many other things like accessibility of information enabling investors to buy property outside their own backyard?
Robert Bou-Hamdan
Mortgage AdviserNat, why do you always try and discredit those who oppose you? Of course I know the rules.
Anyway, regarding having two eyes, can you please provide a single example where you have not been negative regarding an interest free home loan product and where you have not told everyone to stay away? I would put forward that you cannot do this because you cannot open your other eye.
Following from the above, can you please also provide an example where advocates of the product have sent those who follow their advice to blindly jump at this product???
I think you will find that the advocates of this product are treading cautiously and taking risks themselves to protect the majority and to learn enough about the offering to make an INFORMED final decision before discarding it rather than a POOR decision with no grounding.
Robert Bou-Hamdan
Mortgage AdviserI don’t think having one eye makes you eligible!
Robert Bou-Hamdan
Mortgage AdviserOf course the seller is willing to do this as they will be getting a good price for a property they want to sell. They will not be prosecuted if the lender finds out.
Why not ask the vendor to vendor finance the deposit to you instead of inflating the price to rort a lender? Take the maximum you can from the lender on the ‘real’ price with an interest only loan and ask the lender to let you pay of the balance to them at a favourable interest rate over a short period.
Many people here can provide alternatives to fraud for low money down deals. Family and friends are always a good source of assistance. It is not like you are asking for a whole lot of money.
If you cannot source a legal solution, walk away and come back another day. Do not commit fraud!
Robert Bou-Hamdan
Mortgage Adviser
