Forum Replies Created
- GameTime wrote:
Firstly he goes onto state that your home is not an asset, because it takes money out of your pocket. The thing is although it’s not an investment property, here in Australia housing prices continue to rise, so the large growth factor I feel is an asset.
Secondly he seems to be very biased towards investing for positive cash flow over growth. I know many investors here on this forum have taken the growth approach and have done very well for themselves, so when he says that investing for growth is a sure recipe for disaster and a complete mistake, it really confuses me because it goes against what many people here talk about.
The real answer to both of these is time. People assume that because a PPOR house is a an increasing capital gains tax free asset .. that they are making money on it. This is true .. but its also a lie. You are holding onto an asset you bought in yesterdays dollars, paying todays premium to keep it, and selling it in tomorrows market. And until you are actually selling or leveraging against it .. its worth nothing to you. And for a single doubling boom .. you have at least a 10 yr wait.
As was once pointed out to me at a coin show, a rare coin went from $400 in 1965 to $35,000 in 1995. I then suggested the bleeding obvious .. that there was a 30 year gap in the middle. So unless you were 15 when you bought this coin … you'd been waiting a long time for a result.
Thats really why Kiyosaki goes on about a prime residence not being an asset. Its a place you pump a lot of money into, hold onto over and above a normal investment timeframe, and then expect it to return rewards for you. However, on that same note .. all those people who hold onto their prime residence and dont sell .. keep the market requiring properties, and in turn .. boost the price for all concerned.
Again .. with the growth path .. its a way to get rich .. yes. But again .. it requires a period of time … (you see where this is going?). I'm sure you never went to the grocer and he says .. carrots? I'll have some next season .. you want to wait? It sounds like a laughable scenario, but this is EXACTLY what people expect from property. Wait, and it will all come good. Sure, but … how long to wait? Positively geared properties .. on this note .. are producing an income and return from day one. There is no wait .. there is no negative debt downside, there is only a return.
I agree with DHCP. At the moment you are running a little short, so persist with your saving plan for the moment. I have the feeling you've got the buying bug. The big mistake, especially after a boom is the scenario to sort of rush in .. grab any block that isnt already hammered down and think its a way to make money. It happens and it burns people's investment strategies badly. The overall property market isnt rushing ahead at the moment so even for the experienced investor its a moment of debt consolidation. Dont have any debt yet? Then its time to learn your market.
Study real estate agent's windows, watch what is selling .. and whats in demand. Dont be afraid to ask questions. Investigate, go to a couple of auctions .. do some open house to see presentation. Learn your market so when you make the move into your first investment its a move you dont have to guess.
There is a wonderful little disclaimer that most developers and investment houses stick on their advertisements. It reads like this.
Past performance is not an indicator of future growth. Consult your investment advisor for more details.
Reason why? The future is gloriously unpredictable. And the best you will ever get to go on .. is the overlying trends. So if you see shops closing down .. for lease signs everywhere .. dirty streets .. long grass, broken fences … rubbish on the front lawn .. its usually a sign that things are bad. HOWEVER, swinging for an upside is also hard. If you are buying in an area thats losing population (go for a 10yr or 5yr movement more than a short 3yr movement .. trends are never a good guide) you are asking for trouble, since there will be more dwellings and less people demanding them.
The magic word here is still TRENDS. I am aware of one suburb that moved up and down for a period of six years based on a certain restaurant that was top notch in the vicinity. The best thing to validate your prospective purchase is look for multiple trends that will be improving the attractiveness of your property. New homebuyers, more developments, better shops, good shopping centres, cleaner streets, and good councils are all things you look for. Oh yes .. dont forget the good restaurants.
I'm a skeptic with off the plans. I get a wonderful showroom, a Da Vinci on the wall showing how wonderful its going to be, and finally a developer who can now afford to escape to Rio De Janiero on my deposit. I know that most builders work on a trust basis with these schemes, but i guess i'm just more of a visible bricks and mortar man. I like to know that the property actually exists, there is a subdivision and land title for it and I can stick a tenant in on transfer of ownership.
Call me hopelessly old fashioned.
I'd be prepared to even pay a premium if its the right sort of property. Brand new .. good size bedrooms .. quality carpets .. low community charges. If its a good deal in a great position with great potential, its a key investment. And 10 yrs down the track the pittance you paid on top to get a good asset proves worthwhile.
Of course, that doesnt prevent me from bargaining down on what i want either
I had the privelege of sitting in on a developer/realtor meeting for a particular off the plan 5 years ago. And the developer not only factored in an asking margin, he factored in a price that was explicitly higher than the current going market price. So the theory was .. if he makes any sales immediately .. its a bonus .. but it allows for him to absorb graduated sales over an extended period. As it was .. within 13 months he had his price and what looked expensive became the standard price. So he made his money.
krisco84 wrote:The units you mentioned in your reply ,
> Were they individual block of units or high rise apartments?
> Did you buy them off the plan / Newly built or was it a few years old?
> our views on New apartments vs established apartments with good tenant occupancy?.
> Given a scenario woud you mind buying an apartment in the CBD for 320k?.The units i purchased were 2br units .. with ample kitchen and living space .. with easy access to both transport and local shopping, single undercover carpark each on title. They were slightly neglected for paint .. but that meant they LOOKED bad. I gotta tell ya .. for a 1k paintjob .. i ended up buying 14k under market. The two are part of a block of 12 (it also lowers community costs) and the block is 1970s
I will make a recommendation however, if you go with apartments .. go 2br plus. People are more likely to stay in a place longer if they have a place they can move, grow or change with. And since u want long term consistent rentals .. you want them to stay.
I will however add the most important word context you will ever come across with investing.
PEOPLE WHO HAVE MONEY CAN AFFORD TO BE FUSSY.
It means that as your sliding scale for investment goes up .. people expect more from what they get. And as the quality of a property gets better .. people wont settle for less.
Oh yeah .. the other thing .. look for value, or value adding potential. Where others dont see it .. you just may.
Now with a CBD property .. here is my question .. supply vs demand .. do you think there are enough apartments for each person who wants to rent in the city? How is demand for your property going to increase? (and with that .. rentals) Will your property look outdated in a couple of years time and be harder to let? And finally, what sort of city property would you possibly get now at 320k?
These are questions you should be asking whether its in the city or in outer Mongolia (no valid Section 32 supplied in Mongolia). Regardless of what u think of it, property is always a market. And you have to check whether your property holds a strong position in that market, or will continue to be sought after .. in years to come.
Krisco, I'm going to be very biased with my investing since i've done it from a similar level. On my first invest I was told i could borrow only about 200k max (i was on a sales commision job). I went around looking (bear in mind my scenario is 2006) for what i could buy for a suitable investment. There were 3 suitable items that were directly available on the market at the time, a cheapy 3br house (230k), a 3 br unit close to shops (210k), and a single townhouse (260k). now doing the calc on these i worked out i could put 60k from my own pocket into the deal. However a FOURTH option came up which was 2 x 2BR units close to transport (at the time listed at 135k a piece). Put in a bid for the units at 131k and it was accepted. Total invest 262k
Fast forward to 2011 and how are these investments doing? The 3br house is now (360k) +130k The 3br unit resold last year at (290k) +80k . A similar townhouse in the same block sold for (350k) +90k ….. and my units?
Well from street observations on the same street with nearly identical units, my units are now worth 270k EACH a pop, which rounds up to a nice (540k) +278k from initial purchase, and the return is now 25k (was 15k), and yes .. i've already dipped into my pot of luscious capital for more investing.
The reason i write these all together is because when given the choice of a whole batch of options, i chose the path of least resistance and it turned out the path of most return. Could it happen to you? Most likely.
Buy property you can handle, buy property thats easy to maintain (less expense) and buy as much property as you can buy for your buck. Time and again thats been proven to be a winning solution.
I will also mention that my investment area was the Greater Dandenong area .. which just experienced a secondary boom over the last 5 years. But its also a market i have extended expertise in, which allowed me to recognise a deal when it was available.
Due Dilligence is working out where how and who you are buying the property for. I've seen all forms of stupid when it comes to investing, and very clever forms of smart as well. You can ride with the standard bunch of questions presented in the investment books, but i'd even go further.
WHY – are you investing? Are you planning to sit on this property and hope and pray that you have made a righteous pick?
DOES – the property meet your specifications for what YOU are looking for? Write them out before you go looking for any property.
GEARING – Are you investing at a level to best take advantage of the property? Two out of every three investors dont, its not a stupid question.
TIMING – how is the property clock turning in this area? is the area valued well, over valued or yet to happen? Will inflation or interest rates affect my purchase?
AFFECT – can I change the idea of what my property is, to anyone who will be wanting it?
finally
ME – is this a deal that works for me in the near future?? will it affect my well being (stress) or bottom line (money)You should be asking each and every one of these questions. These questions extend beyond the position, price and presentation of the property and should be the essence of why you invest.
crj wrote:It strikes me that the issue is not so much the valuer, but irrational herd behaviour driving up prices.Irrational herd behaviour? It happens from time to time …
http://en.wikipedia.org/wiki/Economic_bubble
Anything from tulips to ostriches to Nickel mining to dotcoms.
Some people get in on the ground floor and make money .. others feel left out and drive the price up into oblivion.
But that also goes with irrational reasoning for price movements on these items. Now .. as long as a renter is paying his way and there are people who actually rent at the listed prices, the property values are moving in line with actual demands. Irrational movements would see places being built where no-one wants to live, and this is EXACTLY what happened in the US.
We still have an undersupply of lower to lower middle class housing in parts of this country. Blame poor government planning, lack of proper housing rules for a significant period of time. But I live in a town (Melbourne) where up until 20 years ago .. most people lived in single story full block houses. And there was very little else. Heck, even with the local shopping strips, they are based on early 20th century double storey buildings. With climbing rents on these places, better means of shop (strip) usage need to be thought of and quickly. There will come a time when a business just wont pay 150k rent for the use of a double storey shop in a good position.
Bad policies and bad govenment planning has brought this on, and only better development schemes will cure it. But until then, there is every reason for prices to keep on moving up. And we need councils with forethought or we are in trouble.Bullmarket wrote:Don't forget the long term average median growth rate for property is 9% and the median price therefore doubles every 10 years. So in Sydney in 10 years time the median price could be $1M. Nah let's be realistic in Sydney in 15 years time the median price could be $1M.
Or perhaps in the future at some point in time the median price for homes will be $1M for our children or grandchildren. Is that feasible?
Actually .. property is usually much more of a boring investment than people make it out to be. It usually trends along at a sleepy 4% for all the time its not in a boom. And when the boom hits it may do 30-35% (or more) in a year. So you may have in a standard 15 year cycle .. four years where it goes backwards … eight years of doing nearly nothing .. one year of a trending increase and maybe 2 years of boom. That means that most of the time .. you are sitting there on your property watching the clock tick past. Aint that exciting !!!
The other thing that happens is property in a boom races ahead then spends up to 12 years playing catchup. Which means that rents and inflation also play catchup. So all those people burnt in the last crash, they have been sitting there waiting for their property to return to its glory days THEN they'll sell. And sometimes thats a full generation (20 years). Meanwhile .. rents and inflation and incomes are busy upping themselves all the time. So eventually .. property becomes affordable again. And thats when it booms. Just remember if you are prepared to pay a dollar for a property, there is always someone prepared to pay a dollar more just to get it.
Your kids will be ok. When i started my property investigations, i used the term $100 buck property for a rental that was affordable to just about everyone. The same property would now be a $250 buck property. Your kids will be paying the going rate for property at the time. And if its really too expensive, they'll just be somewhere else.
Bullmarket, the main issue you have seems to be with increased values heading to and over 1M.
There seems to be some crazy idea, (and its not just you) that property CANT possibly be worth a million or more per person. Well, the reality is it can. There is a whole generation that has been brought up on the idea that a million dollars is a lot of money. Well, way back in the 70s when earnings would have been 10k – 40k .. it would have been enormous. Not now.
I'm sure that if you took a million dollar block in Toorak or Vaucluse and stuck it on the market at 200,000 you'd have people lining up around the block to be the first to place a bid on it. The reason that a property is worth a million bucks is that there are enough people prepared to pay that for it. Estate agents dont set that value, Valuers dont reach that value without backup data from previous sales.
By the way, from history .. people being 'fair' and 'reasonable' to each other traditionally results in people being 'poor' and 'hungry' on the basis they are getting their fair share. I would much prefer a generous capitalised system with a decent socialised welfare system, than a 'fair' system.
Governments who make the systems fairer tend to make it worse for just about everybody. In fact .. memories only go back a certain time. It was 'fair' once for rentals in Victoria (1950s). And the result was .. NO INVESTMENT. It doesnt take long for that to happen for people to realise they are digging their own graves.
Since the section 32 is required by Victorian law for the actual purchase of the property, the real estate agent cannot pursue an actual sale of the property without one. If the property has been put on the market, there should be a section 32 Vendors Statement to go with it. However, because the sale of a property is usually spontaneous and the section 32 is not allowed to be out of date, there usually isnt a section 32 available in the first few weeks of sale.
Richard is right. The whole idea of a good mortgage broker is knowing how to best present your case so the mortgage deal actually goes through. However you are dealing in a much more difficult climate than it was 2 years ago. Banks arent throwing money left right and centre anymore, they are only really letting solid deals through .. they are asking for more to make the deal happen and they are putting extra clauses in for their own security. I had a friend of mine who is reasonably well off ask for a 50% LVR loan and they sort of suggested they'd like extra securtiy .. at 50%LVR? thats a bit much.
My recommendation for you is to do two things, build up a savings bank for the moment, for your next venture. If you want to sell your house for the starter funds .. thats ok too. People seem to think that hanging onto a diamond brings food to the table. No .. it leaves you with a big rock. If you need to get your current equity working for you .. so be it .. get it going. There is no time better than now to get your asset portfolio right side up.
If the banks are baulking at your serviceability, you may be needing an investment property instead to get the ball rolling. With 300k plus a small mortgage, you'd be able to buy something returning another 30-40k income. Within a couple of years though (and lets face it you have your 10 year goals to work towards) the incomes of the investment property will have increased, and you'll have extra money you'll need to invest in ANOTHER investment property or scheme.
Summary: Reduce your expenses, eat less takeaway food, budget so you can produce a savings report. Increase your income vs expenses gap so the banks or financial institutions will love you more.
And if all that fails, think outside the box. Magic words :- vendor finance .. solicitors funds .. long settlement terms. Make the deal happen your way. One of my best purchases was done using the 10k off a credit card for the initial deposit.
I will add an extra bit from the article. Having an over-regulated market not only affects the initial purchase .. it devalues the inherant behaviour of the property as an increasing commodity.
In Victoria they passed legislation to stop bushes and trees and fake bidders from being there at auctions. The end result is the auction scene is sterile 70% of the time. There is no incentive for anyone to put their hands up unless they are prepared to make a genuine offer. However there is also no auction market excitement with an unknown value. The buyers have done their book research and have an idea what they are prepared to pay. So the whole idea of them possibly missing out is negated. This really means that unless the market is in an absolute boom, auctions are a total waste now.
We have lots of regulations for property. Abuse of the regulatory process itself leads to corruption and poor behaviour by the legal authorities. I have seen this in many states of the US and i would hate to see that here.
I would much prefer that dumb buyers stop being dumb buyers. Its not too hard.
I have no problems with valuers acting as agents. However i have read the quoted case you have supplied and may i suggest that anyone who is going to get in a hissing fit over a 15,000 valuation difference in the modern market needs to have his head read anyway. The figure represents a 5.4% difference over the 260k quoted for the property. If you are going to be purchasing a property of any sort REGARDLESS of the presence of a valuer (of sound or dubious means) and you havent done any of your own research .. CAVEAT EMPTOR (buyer beware) on that.
The usual increase over and above the actual (valuation) of the property can be anything up to 10%. So, on your given example the banks nor the valuers wouldnt have blinked if there was a 5% discrepancy on pricing. A 10% leeway allows for any price up to 286k for the quoted house.
Valuers have organisations they belong to and do most of their business based on trust. If the bank or financial institution needs to query their figures they must be able to supply factual recent sales that backs up the given valuation.
You seem to be thinking there are a whole bunch of organised cartels designed to fleece you of your hard earned dollar. In reality, you have organisations which base their whole existance on making sure they exude trust and fidelity. Real Estate Agents have their state run bodies which they boast about, and valuers do too. There is a reason that people go to the extra BS to invoke these standards. It makes sure that you as the consumer not only have a leg to stand on, but a reliable set of trading organisations for your investment or home.
There are of course the shonkys in the industry. Without mentioning names, and i think thats best .. there are various people who bring a bad name to the industry. But they are usually brought to bear on their false statements and are dismissed from any organisation that is reputable. And yes, the shonkys employ the corrupt valuer, the corrupt loan broker, and even the corrupt builder or architect to get your money.
In my state (VIC) at least .. a valuer needs a separate licence to operate as a valuer. I'm not 100% familiar with the rules in all states.
Land tax remains an accumulative tax based on how many properties you own and the assessed land value of the whole portfolio. However, it is assessed on a state level and not a federal level, meaning you can own properties in different states and not have the whole value affect your land tax bill too much.
If your land tax assessment reaches a stage where its worthwhile .. they will send you a bill for land tax. Otherwise they just dont waste the paper sending you a 'you owe us nothing' for land tax.
On a rented property, you will pay rates, water service bills (not usage), any community bills. And you should have a house and contents insurance policy for internal damages.
Hello lukelee,
The idea of getting your existing capital moving is a great idea. But classify yourself as a novice investor to start with. As a novice investor you need to get familiar with all possible expenses and costs involved with an investment property. And it really doesnt matter what field you invest in. What you need to be able to do for yourself is justify your reasons for investing in the area to yourself.
Apartments – easy lockup, relatively low mainenance, relatively low cost. DISADVANTAGES depending on the areas concerned you can reach market saturation on apartments over and above a certain amount. Make sure your apartment is likeable within walking distance of communal facilities and transport and you should do ok.
Small Houses? Houses – Best for capital appreciation as they have the additional potential of extra land value. Higher maintenance than apartments and also attract higher council rates. Make sure you have 650+sqm of land .. and try to get a close to square block. Dont go to cul de sac suburbs as they exhibit slow growth, they are cheap to begin with but remain cheap. Unless you plan to develop properties yourself, dont go for properties with plans and permits. The price for that is usually factored in and the permits will expire before a resale takes place.
Commercial property usually provides the best returns at the greatest risk level. It can be several months in between tenants in bad times on commercial properties. As with any property buying in a good and desirable position alleviates this concern.
As we are heading into difficult times, my recommendation would probably be as a novice investor for you to take the path of least friction. Employ a good property manager, do face to face interviews before you go out and employ someone. Monitor whats being done to your properties, keep good records, rental statements, all notices in a dedicated folder or file. Most importantly, and this is the one rule that most people forget : MAKE SURE YOU ARE IN CONTROL OF YOUR PROPERTY. Committees and councils can walk all over people who dont take rights and control of their property. Its a major rule and its the one most forgotten.
All i can say to this is .. friend or no friend .. you should always run a standard Tenancy Agreement. It not only provides a legal entry clause, but also provides a legal exit clause. There is a reason why people write these nice big wads of legalese on paper. Its to make sure you and your tenant have a leg to stand on should there come to disputes.
As it is .. regardless of the existance of a tenancy agreement or not .. the tenant still falls under the terms of the consumer protections available through the Tenancy Acts in place. This means should you wish to evict her you must issue formal notice through REGISTERED mail of the required amount of days (varies as per state). Please note that registered mail part, it means she must either sign or someone must sign for her on recept of the letter. It also provides evidence that you have sent the letter. RETAIN a copy of all correspondance from this point on, if she was to take you to court it might just save your ass.
If the formal period of notice expires with no response from the tenant then you can go to further measures such as requesting a formal eviction. DO NOT UNDERTAKE STUPID MEASURES. This tenant is in breach of an informal agreement but she still has rights.
If its a matter of moving her as quickly as possible, bribe her with up to a months rent (no more) for moving expenses and transit to a new place. Its not what u wanted, but sometimes money solves complex problems quicker.
Finally friends and money are always a bad mix. Be 100% careful when you cross that line.
Actually .. i'm more worried about the flow-on effects from all this loss in QLD. First .. the govt will be forced to pump money into fixing up whats broken, repairing infrastructure and getting things moving again. This is being held up as a once in 100 years flood, but .. what if its not? The mining industries have no transport to get in and out from mines .. invalidating contracts. Thousands of small businesses are dead and underwater.
I wouldnt be so worried about jumping in and grabbing bargains as to how this will affect Australias whole financial plan for the next 3 to 5 years.
Chestnut32 .. Melbourne is a mixed bag of properties and interests. But seriously .. the best way to get on top of the next growth suburbs is to watch for gentrification of the suburb. I've had the privelege of seeing at least eight suburbs upgrade to gentrification and the reasons are always pretty sound.
An Example .. Brighton became too expensive for the baby Brightonites to be able to afford on their first salary without a MAJOR helping from mommy or daddy (they get that too). When its over 1.4 million they look to the next comfy suburb. So they went in all of the 3 directions surrounding Brighton. Elsternwick .. Elwood .. and Bentleigh. Most of them didnt go to Hampton because that was always considered a downgrading from Brighton. See? the reasons are sound .. and it pushed the prices of these suburbs up!
Look for things like old quality homes that smell of 70s or 80s but would be easy to fix up. Grab the local paper and look for what sort of businesses are in the area. Look for improvements in transport and valued shopping centres. New industries .. and of course .. new roadways. These things will move an area ahead and make things more desirable.
As far as growth itself goes .. dont worry about it. Seriously. If you have followed the stuff above .. growth will happen. A fresh area attracts people .. hence growth. A poorly facilitated area depreciates through stagnation.
The other thing to recognise is that property is cyclical. Eventually no matter where a property is .. as long as its in demand the property will move with demand and inflation. And fall back when it gets overpriced.
Examples of stagnation at the moment? (bear in mind we are in tough times too) Try Cranbourne for a suburb that is on the slow growth track to nowhere. Hampton Park .. loser because of the 4pm traffic jam. Also .. Ringwood is falling back .. but Mitcham is being purchased by Doncaster ppl who cant afford there anymore. So there is future pressure on Ringwood from the growth in Mitcham. Also Croydon is pumping along quite nicely. The reason is because its cheap .. affordable and easy drive to three shopping centres wihout traffic hassles.
