Forum Replies Created
Ash88,
If you arent prepped yet for dealing with bank loans.. go the other way.
Build yourself an asset and income base. So regardless of your job situation .. you can approach them with your rental income and debt free assets.
If your goal is to be a long term property investor owning lots of property .. you are going to need to be able to borrow money.
Dont be scared of borrowing. If you are going to deal with sharks .. learn what to wear in the water.
Get the experience and the education you need now. So you can work out how to make the best decisions.Read Steve's books on property. Read other books on property. Get the ideas .. get the advice. So you can make your own best decisions.
From other people's mistakes and correct decisions taken.
ChristinaM wrote:I read this thread, because I am in a very similar situation.
My property is in the market for 4-5 weeks and has only one offer, an offer that's 10% lower than our break-even number.It's easy to say "cut the loss short and move on" while you're not in that situation…
For us, we're going through so much paid making a decision on wether or not we should take the offer and recoganise the loss.
And yet sometimes you have to to realise and sell. Either you cant make the payments .. the property is becoming a liability or is headed to becoming an expense … the property boosts your land tax scenario enough that it makes the rest of the portfolio unviable.
The answer to the question lies in the wait period. At this stage for the property to turn around into an upwards movement again will take betweeen 4 to 8 years. At most of that period its going to sit flat .. not going much anywhere. Its a period where you may find it easier to take the money elsewhere. Ride it out and you'll be ahead. As long as your judgement call for the purchase was sound in the first place .. you should be able to realise something like profiit at the end of this period.
We reached the stage about 3 years ago where every nut who could pick up a hammer thought he could make his fortune in doing up a property. Thats been curtailed .. but for the right reasons.
In a hot market .. people will pick ANYTHING. Good .. bad or ugly. In a market that is being reassessed .. the properties that were good to start with will prevail. Whether its position .. opportunity .. location .. they'll stand out from the pack. Because they had the right qualities to start with.
All I can say to the idea of being 62 and asking is it too late?
Colonel Sanders cashed his first retirement cheque of $105 and started visiting local stores in the area .. selling them a new sort of home grown chicken recipe. A Fried Chicken recipe. Kentucky Fried Chicken was born. He was 65.
There is never any too late unless you dont do whats possible.
I wouldnt hesitate to say the 40k should go into the home loan. Two things that pumping into the home loan allows. First .. when the home loan loses its 'break' period and there are no penalties … it allows you to refinance your existing loan at a lower rate. And you end up with a bundle of 40k extra equity in the property that you can either draw against .. retrieve when you sell .. or use to refinance several existing loans and mash them all together.
The car loan exists as an ongoing liability on a depreciating item. There is no sense in trying to feel better by paying it off sooner. You make more by chucking it into your asset base and building assets by reducing the amount owning on your loan. Being rich means having an extensive asset base .. reduced or offset liabilities and loans that pay themselves off. So think how 40k better spent leads to that.
The other factor is that if anything goes wrong .. you have an amount in your property you can draw against. A backstop.
Two mistakes you are graduating to and both are fixable.
You are moving WITH the crowd and not against it. You've found it hard to sell .. and so has everyone else .. because .. there arent the buyers out there now. You've moved with everyone else. Thats a recipie for trouble.
So you follow it through with sticking the property on the market. At the same time as everyone else (see above) who didnt manage to put their property on the market. And guess what? In a market glut .. your property price may not be matching market.
Its going to be a series of tough times coming up. Not getting people in at $380? Put the property up on the market. Allow the tenant to make offers on the property for rent. GET SOMEONE IN TO PAY YOUR BILLS. Thats what you need.
Rethink your 380. You dont need to make your place the cheapest on the block. You need to get someone in. And once they are in and happy THEN you can raise rents on them gradually. But you need to make your investment work. And doing extra shifts for a house you cant sell .. its a burden around your neck. And thats not what property is about.
Forget your sales efforts .. if there arent any buyers you are pissing ad money into the bin. And getting the agent to lower the property price on you. So you'll end up frustrated .. selling your property short .. and hating your real estate agent in the same breath. Which is not a good recipe for continued property investment.In the property clock .. we are hitting the DOWN cycle. Its ok .. it doesnt last forever. But it means for a brief period .. people will have no money to flash around. Thats going to affect house prices and rental prices (rents not so much). But it does mean you want to secure tenancies on 12 month leases NOW while there is still some money floating around.
Here is some comforting stats that were in the paper in the last few days
For the majority of conforming loans in this country .. the loans in arrears rate remains a paltry 1.8% and steady.
That means in round figures .. for every 50 conforming loans … only 1 remains in arrears. Thats a healthy ratio.
For the subprime loans and non conforming loans .. the loans in arrears rate stands at 12.3%
Again . rounding up .. that means for every 8 subprime loans … 1 is in arrears .. Thats NOT a healthy ratio.
Luckily for us .. the exposure of the subprime market remains pitifully small at around the 10% of all loans provided.
But .. with those figures you can understand why the mortgage belt in the US collapsed. They had an exposure to subprime loans approaching 80%.
dellas .. the good news is there is no correct answer where will be the BEST invest.
property remains a social transaction. So there are things you must look out for .. and keep in the know with.
One big development thats on the go is the development of the secondary deep port facility in Hastings. Thats a big drawcard and the land and units around there are still VERY affordable. The usual good criteria apply .. buy with good transport .. buy with location in mind .. buy with value in the deal.
One development NOT happening at the moment is the proposed Marina in Frankston. Due to economic climate .. lack of ability to borrow (insert excuse here). But Frankston is a great social place during the daytime. It has issues at night. But it also suffers badly from a tyranny of distance compounded by a connection system with a tollway. So it has limits on movement because of the limits placed on social activity.
Another thing to do is to follow the money trail to work out why one area IS in demand and another not so sought after. The availablity of top class shopping centres has made the areas near them increase in value dramatically. The first home buyer is still out there and looking for value. And he/she is being pushed further and further out. The money trail means that middle class buyers / upper crust buyers have a little more price flexibility and movement than other channels.
These are all things to consider and factor in. If you want to invest in an area .. pick four or five suburbs. And then study not only the particular suburb .. but the area around it. No suburb stands alone.
The misconception is that property always will go up. I'm already seeing a few areas that are heading down. It takes time and social pressues but you gotta see when the area is going well and has potential … or is going bad and .. becoming undesirable.
Research is your key. Talk to real estate agents .. who HAVE to know their area. Get a feel for whats going on. And then you can make the best calculated judgements.
Welcome to the age of the internet !
Anyone who spends time between dealing with banks for the exchange of funds deserves to exist in the 20th century.
A while back when i was living overseas .. i needed money badly. I asked for a transfer of $US 200 dollars. The bank at the Australian end docked $20 .. the bank at the foreign end docked $20 .. and THEN they exchanged it at the lowest possible rate.
I was not happy.
Bank of America are heavy chargers when it comes to transfers of cash. I suggest if you are going to transfer money there are better outlets to do it through.
Best of luck with your new US property.
emptyvessel wrote:Can someone define the term "over-leveraging" for me? I hear it alot, but nobody ever seems to quantify it. And if it is quantified by a number, does that number change based on other conditions or is it a cosmological constant (or fudge factor0?You expose yourself to more debt than you can possibly handle on the premise that the markets will move in your favour and the fact you are using OPM (in this case banks) to leverage yourself. Over-Leveraging is the pushing into an area that either leaves you EXTREMELY vulnerable to market moves … or has you in a position where any market maneuver outside your expectations leave you unable to service the loan.
In an upwardly moving market when its boomtime .. thats how to make a motza (a heck of a lot) off a little by gearing it to the maximum. However .. its a true gamble because most of the transaction is done highly leveraged. So the gamble is more that you hope for maximum gains .. and dont really know what to do when you are forced to maximum losses.
The best thing that an agent can do for an investor who is trying to add value to a property is mis-advertise a vendor's property or not cover its true potential in the advertisement. Sure its not working in the vendor's best interests, but as an investor .. is that MY problem???
I've had agents write about how the house 'needs love' and its an ideal 'fixer upper'. And they fail to put the fact its on a nice chunky 640m2 right in the middle of everything !!! Miscategorised Investment properties .. stuck in the 'houses' section where no investor will see it …. if its been on the market a while .. negotiation to a lower price .. is your best friend.
The other thing to remember is that if you see it on an internet site .. unless its incredibly mis-categorised .. someone else will have seen it as well. Dont be afraid to jump in and ask the right questions. Because the wrong answers can save your pocketbook from substantial and unneccesary loss.
You arent the first person to stumble across these delightful Moree properties. I was aware of them when they first tumbled onto the market several months ago.
Do your homework on them. And then you'll realise that the risks vs returns scenario is a lot more risks than returns.
The excuse used by the landlord is he evacuated the property for serious upgrading. Now as a landlord the only time I would be doing that is for a total renewal. Otherwise its to be done gradually because you remain reliant on the income.
The property may be a gem. But from having contacted the agent on them .. be wary. All is not as it seems.
This is the market falling properly without any fiscal backup.
Realisticly this is what it should have done in the first place. But most countries spent to prop up their credit worthiness. Now most countries just dont have the money flows to backup again.
This produces an 'honest' crash. And thats actually a good thing.
It means there will be a period without money flowing ANYWHERE. No spending. Businesses will go bust .. jobs will go, and the whole economy will stagnate. Its due .. and its been due for a while.
Property will flatten out with few buyers. Drops of up to 30% would not be out of the question. But the bounceback with recovery .. will succeed the initial drop. Interest rates will drop .. as demand for goods and services dries up.
How bad? This crash is not going to be the 1987-1990 crash. Its going to be longer and deeper.
I dont see it being any longer than about four or five years. But there is really no precedent .. not even the 1929 – 1935 Depression.
Lets put a little bit of realism on this whole interest rate scenario.
The inflation rate well and truly exceeds anything put out by the reserve bank in recent years. I dont know why they bother even to stick it out there in the wind. Maybe people are impressed by flagrantly dishonest numbers representing an economies true level of growth and performance.
The end result of all this is people sink their money into solid long term assets (housing) and borrow to the hilt to support their habit. The costs spiral around them as REAL inflation takes hold and their leftover cash grows ever smaller. It literally means that the Reserve Bank .. by adjusting figures to suit a sold market climate, is in effect impoverishing their population by allowing real inflation to eat into their monetary worth.
We had a large cash injection in this country too .. a 'stimulus' to get things going. Its been spent. And money doesnt come off trees. We havent adjusted our economy to reflect a large move such as its been. Its a recipie for disaster. Inflation WILL take hold .. and money will change. I'd be expecting anything from mega inflation 18%+ … all the way to HEAVY inflation .. could be up to 33%. For anyone who fixed their interest rates .. they'll be set. Reduce your debt exposure NOW and lock down for a period of higher inflation. You'll do well .. and be sitting pretty out the other side.
EvoCities is an ongoing campaign to breathe life into cities which are suffering due to current loss of industry and population. So there has been huge incentives created to move these cities forward with the whole EvoCities concept.
It means that the cities concerned have problems to start with. They have good returns at the moment explicitly because of this. However advertising has never been a consistent marker for success in property investing. The important thing to look at is the overall trend. If the EvoCities plan is working .. it will be a gradual thing and not an overnight show pony. So .. you can either throw your money at it now when it remains unproven and there is NO trendline showing movement .. or wait for the movement to happen and then follow along. From a propery investor's perspective .. I always find it easier to witness the trend movement upwards before I start investing.
If it starts working .. you'll see new businesses .. new industries .. and more employment ads in the local paper. In fact .. the local paper will be your lifeline to finding out how things are trending in the towns. You need to invest on knowledge .. not hope .. because hope is purest speculation. In the sharemarket .. and also in real estate.
On the same note .. the Evocities are ones with a solid population base to start with. There is a movement of money towards them and this is not ALWAYS an answer to the communities real issues.
bumskins wrote:There is no way the CGT exemption for PPOR should be removed however. When you sellup you would be taking a big step backwards, and may not even be able to afford to buy the same or like property if the market has moved alot.Oh no .. the CGT exemption is an assumed RIGHT by now for most Australians. If you mucked around with that your party in power would be voted out without exception. Its the type of deal that moves governments. People want their home CGT free. Its their 'right'. Doesnt mean it wont happen. Just means that people think they DESERVE it.
bumskins wrote:I personally think we should get rid of Stamp duty also & use land taxes on all property to make up for the revenue hit.Obviously a man who has never worked within any economy of scale. When you tax with stamp duty you tax on MOVEMENT of property. So .. anyone moves or purchases .. you cream a little off the top. THAT WORKS. When you tax with land tax .. you tax on OWNERSHIP of property. The end result is .. less people want to own property of larger scale, because its more expensive. It renders developments useless and incentives to own quality property negligible. Congratulations bumskins ! With your wisdom you have stopped people from owning property ! So who pays for it????????? YOU DO.
bumskins wrote:The government needs to look at making housing more affordable and less expensive to move around.The government has no responsibility towards providing affordable housing. Yes, they should be doing it, but they dont. Ask anyone who has been competing for public housing. The government spends your money like its chickenfeed and has no qualms in overspending because its never their money. Since thats always been the case since year 0 why are you suddenly expecting the government to develop a conscience to feed your need for affordable housing ???? WONT HAPPEN.
bumskins wrote:NG Property investor's want you to believe that removing negative gearing will be a zero-sum change with rents increasing to make up for the shortfall in refunded tax revenue. If thats the case, then why are they so worried about its abolishment? and even if it is the case I don't know whats so bad about the situation. The Government shouldn't be in the business of providing subsidised rents to the many.The government ISNT in the business of providing subsidised rents. The property OWNER provides the subsidised rents thanks to government incentives. Its not only a zero-sum game with removal .. it provides a situation where housing becomes a scarce commodity. And with any scarce commodity .. people use hard cash to get in. YES, it pushes up rents. But doesnt everything???
bumskins wrote:The idea that rents will definitely increase to provide a better yield are flawed, because there are in fact 2 things that will create a better yield higher rents or a lower property value.So lets take the market out of a market driven system !!! YAY !! And everyone will be allocated their fair share and people will be happy. Please excuse my sarcasm .. i hear a unicorn farting.
bumskins wrote:I say cut property free and let it stand on its own 2 feet without the tax incentives.Free from what? Its link to a market driven system? In return for what .. government controlled initiatives?
NOW you should see where the problem lies.
I'm always laughing at anyone who spooks investors with the sheer stupidness of negative gearing abolishment.
Ok .. so now you've gone and abandoned any incentive for people who with their hardearned invest in property so you can rent it out cheaply and have spare cash.
So now you are left with a situation where the market is no longer supported by investors who would usually be subsidising your accomodation.
As a result of there being less rental accomodation available … your rents will now go up as there is substantially more demand .. and now less properties available.
And the only person who you can turn to for housing assistance … is the GOVERNMENT.
Good luck with that.
The outcome? Rental properties become a scarce commodity. Rents skyrocket to the point where the government steps in and places rental controls to stop rents getting too expensive. Finding a rental property is a matter of who you know .. not whats advertised. If you are lucky .. someone dies .. and you get to hear about it from a friend, so you move in and pay rent under their name. Landlords who actually own property have no incentive to look after or maintain property outside of being threatened with lawsuits, so they do as little as possible as few times a year.
Think this is fantasy? No .. its called New York. Its already a nightmare with this situation. And it was totally unnecessary. You have it happening here and you will remenisce about how bloody good it all was.
dellas, the first important thing is any property you get .. put it in your name. I know the situation may be perfect now, but I was warned off doing it the first time i got property, and the 'perfect relationship' lasted another 9 months. So first part, stick any property in your name. If you start doing larger scale investments .. head to a holding company .. but for a small folio .. just run it under your name. Its all around the tax situation, but thats another question.
Smartest thing you can do if you intend to marry and live happy 2 yrs down the track .. would be to purchase your first IP now. If you have an investment that you arent living in and its paying its own way .. when you turn around two years down the track and are ready for your big move .. you will either have equity on sale which makes for a good deposit .. or both income from the property AND equity .. which means the banks will lend you more based on your existing income PLUS your properties income. So regardles of which way you go, it'll put you in a better deal 2 years down the track.
Investing in a house for PPOR is sketchy for two very good reasons at the moment and i'll explain why. If you are riding a down market (which we are at the moment) then any value you have in the property can be lost as the market falls. So not only can you be paying the full price while living in the property .. you can lose your initial investment because the value drops. The second factor is a sharp upspike in interest rates (again not only possible but likely) at which point the near neutral or affordable gearing you had on the place becomes a sharp debt with the possibility of not being able to make payments.
Investing in an IP for starters has two welcome and immediate benefits. You have someone paying your mortgage WITH you and for you. You have reduced exposure to the loan thanks to this. This means that as long as you budget well for the loan .. two years down the track you should have already started to make money on the property. With the extra you can always add to reducing the existing loan.
With a 40k job and paying rent you should be able to borrow a little over 200k from the banks. With your existing savings you should be able to purchase something about the 300-350 mark (depending on your mortgage broker) including what you need to pay for stamp duty and transfers.
Answer is quite simple and logical.
Your PPOR is the one which will (at the moment) be CGT exempt. So any money you pour into your PPOR reduces your ongoing interest liabilities, saves you money and time on your mortgage, and because its CGT free .. adds to your pocketbook wealth.
Your IP is geared so that your major achievement is what you DONT pay on your investment over time. Other people's money is making money for you .. and all you do is pay the interest and reap the rewards. However .. a gradual reduction on this (minimal though) is a good idea as it reduces your exposure to higher interest rate environments once the interest only period is finished.
So both properties have their merits. If you have flexibility .. split 60/40 between the PPOR and the IP. The PPOR is like saving .. the IP is reducing your liabilities in the longer term. And both situations have their long term advantages.
Hawko,
It all really depends on your current job situation. With a half million inheritance and NO income schedule .. i'd suggest making the next step to be an income producing property. It would leave you with a situation where you can quote to a potential lender a fully owned (or near fully owned) asset, and a residual income that you can use for your next property purchase.
The next question is really proportionate to your age. If you are a young FHOG who thinks he'll be earning well for the next 5-8 years, go strong into something that is a decent property to live in (if you feel thats where u want to be). On the other hand .. with a decent job .. you get extended leverage on what you can possibly get. So your half million can probably get you an ongoing steady passive income of about 40k – 50k from a 900k + investment if you purchase right. With a passive income at that level, anything you actually earn from a job is a bonus. Five or six years down the track your whole loan/ equity scenario will have changed and you can approach the banks for your next step (whatever that may be).
Historically, owning your home is a money dunk. It means you DONT have someone paying off your property you are paying the full amount to keep your loan suppliers happy, you pay usually till the loan is down to acceptable levels (anything up to 15 years) and you've provided wear and tear in the meantime for the house. Not usually a good invest strategy. But hey you get the full benefits of PPOR (now) so your money invested is CGT free. Even so .. its not a winning strategy in the long term. Its a long term money invest .. HOPING for the potential of capital gains to offset your maximum money spent.
Rural areas are for people who have either a built up knowledge of the area, or are just seeking income vs capital returns. Historically the returns have been good and the capital growth poor. I dont think with trends the way they are that situation will change in the near future barring any major events to change that. But take a look for yourself, dont just go on anyone (including me) for your opinion.
In the long term any of your decisions need to be made not on what other people will tell you but your own best judgement. Like a swimming pool .. dip your toes in the water before you jump in. Get familiar with your market and expectations before you find yourself holding a dud because you didnt do your homework.The correct answer is to assess your reasons and your expected motivations for any driving force in price.
St Kilda is now a very established suburb .. with strong prices .. strong facilities … great demand and prices to reflect that. As I keep saying .. the majority of property price movements and increases are SOCIAL movements too. So the question comes back .. what is keeping people excited about being in and/or around the St Kilda area? That is your most important gage for trying to work out whether St Kilda is a good investment. As it is .. your chances of receiving a good percentile rate on your investment there are slim. Its a high demand area, hence the return you will recieve CANNOT compete with the continual property price changes.
It doesnt mean that St Kilda WONT move ahead. With continued demand .. expect it to move ahead.
Geelong has a lot of factors going for it .. and a significant number of factors working against it. Its major industries up until recently were the car industries and the university. However .. just due to its cheap pricing and its access to the Avalon Airport put it in a prime position to do better and more interesting things now. Geelong bayside prices have moved up significantly .. but in the backblocks and the old housing commission areas .. there are still bargains to be had. And the most comforting thing is .. you can still get a decent return closer to 5% across most property categories. Thats attractive to someone who wants to invest .. since the margin between borrowed money and gross returns looks more reasonable. All that being said .. geelong's major problem at the moment is what most areas of melbourne are really suffering from at the moment. A re-assignement of industry. That is a problem that unless its dealt with properly …. geelong could suffer major setbacks as the students stay away .. the car industry keeps tumbling .. and its popularity wanes.
Summary : its got potential … and real drawbacks. Invest wisely .. invest close to transportation and pay proper prices. you'll do ok. On the other side, you can still pick up a decent full-size block with 3br BV for well under 300k. Thats got to be attractive.
Do your homework on the area you choose, choose your reasons with the pocketbook and NOT emotion. If you are investing you use your head and not your 'dreams'. And you'll do well.
