- I’m one of the believers in house prices doubling every 7 to 10 years.
Sure, but you know what else has been doubling at the same time? Consumer prices on everything! Your nominal doubling is supported by inflation and by wage increases.
Taking Melbourne as an example, REIV house prices and ABS inflation stats.
From 1971 through 2004, the average real (inflation adjusted) increase in median house price has been just under 1.9% per annum. If prices completely correct to historic trend through house price falls or a continuation of the current stagnation, that will be reduced to around 1.0 to 1.1%. Not a great return on investment. Still, if nominal gains are your game you will be quite satisfied with such a return.
So, what does the future hold?
Could it be:a)House prices to double every 7 years (supported by inflation & wage increases). Of course we’d be looking at an inflation figure around 9% and an interest rate of say, 12-14% (?).
b)House prices to rise in line with inflation? If inflation stays constant within the RBA’s target, let’s say 3.5%, your house price will double every 16 years. The real gain will be about 0% (inflation adjusted).
c)House prices to stagnate until inflation brings them back into line with historic trends against wages & rents (say -30%) then continue in line with inflation. This would leave investors with a real capital loss of 30%. If prices rose 1.1% above inflation, they will reach the same (inflation adjusted) value in just under 25 years.
d)House prices to fall back to trend then further as burnt Mum & Dad investors decide real estate is not as safe as houses.
Cheerio, F.[cowboy2]
Pretty intersting looking at the recent ” blowout ” in the ratio , to a level that is double the ratio at other times.
Obviously a lot of that has to do with increased affordability with the low interest rates.
It will be interesting to see what happens if rates go back to more “normal” historical levels.
While the government ( and all the other relevant bodies ) seems to be doing a reasonable job of keeping rates low , I will be suprised if at some stage there aren’t higher rates , even if it doesn’t happen for a while.Certainly adds fuel to the case of no significant overall increase in Sydney Prices in the near future.
See Change
Thanks foundation for the numbers.
I asked my accountant about how often it takes for wages to double.
This morning I received an email back that it’s around 12 years.
Now before someone jumps down my throat he is only covering the Campbelltown area.
And other areas will have different results.Your friend Colin,
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For all your CLEANING and GARDENING work.
“Ideas are the currency of the future,” Name: Kevin Roberts
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For all your CLEANING and GARDENING work.Just giving this some more thought, the house we bought in Coorparoo for $156K about seven years ago was valued at $520K last year. (We put about $30K into it over a couple of years and it is spic now.) I know that I can probably take off $50K off the latest valuation (perhaps more) in today’s market but I have a lot of faith in the seven to ten years calculation. Of course, it all depends on the area you buy. I couldn’t afford to buy that same house again now.
We have only bought in our own stamping ground and know it very well (but can’t afford it anymore).
Just a thought, Wylie.
Hi Wylie,
“(but can’t afford it anymore).”
Even after the amount of capital growth you have had!!!!!!
So I assume that you have used that equity increase for another investment?
Instead of using the equity to purchase another property or six.
Than again perhaps after the gain you decided to use a reverse mortgage and use the equity to retire.
(Personally I don’t like reverse mortgages).“I couldn’t afford to buy that same house again now.”
This is why Peace-Sunshine needs to get in now.
Things don’t get any better, prices always trend up.
Your friend Colin.
It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. Charles DarwinEmail [email protected].
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For all your CLEANING and GARDENING work.Hi Colin,
While we have had fantastic capital growth on this property, to buy a similar house would be at least $450K. Whilst negative gearing doesn’t deter us, our children are growing and getting more expensive to feed and clothe (two teenagers – they eat a LOT and one younger) and I don’t want to stretch our budget so tightly we have to live on baked beans.
Our plan was to build a house at the back of this IP and use our “free” land to give us instant profit. We got pre-lodgement approval, but have not taken it further as yet and for the moment, have put it in the too hard basket. Also, the house we had drawn up would have cost $200K and with the boom and building prices blowing out, would now cost $300K (ballpark) so we have not pursued it at this stage. The back yard will not be going anywhere so we can pick up on this plan at a later stage.
I read some of these posts and think the energy and enthusiasm is fantastic. We are now mid 40s and have reached a stage where we live comfortably and we aren’t hungry for the thrill or the chase. In fact, we have burnt out a bit I think and are in lazy mode.
We will no doubt get back some motivation and get on with our plans to build but in the meantime we are enjoying doing (almost) nothing.
Cheers, Wylie
Hello Wylie,
Sounds like you have a half completed project.
My thoughts on this, borrow, build, rent, then have it valued and with draw the equity from this property into a line of credit.You will have extra cash flow from the rent (second income stream).
Plus equity that you can use for other investments.
Or to supplement your income to help with the larger future expenses in life (Kids N Kars) etc.Yes building costs are high.
But after the property is re-valued you will get most of it back to use again in the equity.
Considering that you have already payed for the land the rental income will pay most if not all the loan repayments for the building.Don’t forget to have a quantity surveyor go over the property to help you claim all deductions for your tax.
With the legal deductions plus rental income there may not be much left to pay.Considering the growth you mentioned in your area.
What could the value of this property be in 5, 10 or 20 years?
Or on the other hand how much more will it cost to build in 5, 10 or 20 years.If you think that doing this is out of your budget ability.
Make sure, have a chat with a good accountant that has experience with property development.
Not all do, most don’t, many only invest via their superannuation and cross their fingers scary stuff.
So ask your accountant how many IPs he has first, nothing like the blind leading the blind.You could always sell the land and use the money to reduce the mortgage on your PPOR.
Or use the money to invest else where, perhaps where the price of the investment properties are at a more comfortable price for you.There are other options like a joint venture with another investor.
I am happily married with 4 young children.
So I understand where you are coming from.
I would like to help them get a good financial start in life.
So there is no way I can sit still and hope something good happens like my parents did, they are still working after 65.
I make it happen yesterday.
Just my thoughts Colin.“Don’t set your goals too low. If you don’t need much, you won’t become much.” Jim Rohn
“When Andrew Carnegie died, they discovered a sheet of paper upon which he had written one of the major goals of his life: to spend the first half of his life accumulating money and to spend the last half of his life giving it all away. And he did!” Jim Rohn
“If you go to work on your goals, your goals will go to work on you. If you go to work on your plan, your plan will go to work on you. Whatever good things we build end up building us.” Jim Rohn
“We all need lots of powerful long-range goals to help us past the short-term obstacles.” Jim Rohn
“The major reason for setting a goal is for what it makes of you to accomplish it. What it makes of you will always be the far greater value than what you get.” Jim Rohn
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For all your CLEANING and GARDENING work.Originally posted by Wylie:Just giving this some more thought, the house we bought in Coorparoo for $156K about seven years ago was valued at $520K last year.
[snip]I have a lot of faith in the seven to ten years calculation.Rrright… but what you are failing to accept is that at $520k this house is over-valued. What is the PE ratio / rental yield at $520k? Can you see why this house is very, very, very, extremely unlikely to be worth $1.04 million in 2015?
Cheers, F.[cowboy2]Thanks Colin, Your reply is well thought out and pretty much I think we’re on the same wavelength. We have two of these properties in the same street, both 36 perches. We plan to do the same to both, but as I said, we are in go slow mode at the moment.
Foundation, we don’t think this property was overvalued at $520K a year ago. House immediately behind (smaller house, same block size, unrenovated) sold $520K and right next door (unrenovated, same block size) sold $520K within a month of so of the bank valuation. I know valuers contact RE agents and check recent sales, hence the valuation coming in at $520K.
We do know that we wouldn’t get that now, but that doesn’t worry us a bit.
This house is long term, always was and unless disaster strikes, we’ll hold it for the long term.
We’ve watched houses doubling about every seven to ten years for the past 30 years. We know it peaks and levels (and sometimes drops). But for a long term hold, we are only interested in a valuation for the purposes of borrowing capacity.
We don’t care what these houses will be worth in 2015 because by then we’ll be living off the rent with no debt (and hopefully have built or moved a house onto each block).
We will no doubt probably have bought something else by then, depending on how the building pans out and what the cash flow is like.
Cheers, Wylie
Phew… I give up.
Originally posted by foundation:Phew… I give up.
Have a beer foundation.[chill]
I don’t think foundation is saying that the property is overvalued in terms of it’s value in realation to the property market at the current stage.
He is saying ( I think ) that the whole property market is overvalued at the moment in relation to various underlying fundamentals and the whole market may be in for a down turn.
See Change
Thanks Colin, Your reply is well thought out and pretty much I think we’re on the same wavelength. We have two of these properties in the same street, both 36 perches. We plan to do the same to both, but as I said, we are in go slow mode at the moment.
Wylie your boundless opportunities never cease to amaze me.
When I checked back today you have twice the opportunities you had yesterday.
And just like a solid rock you are still sitting there.I am sure that you have a perfectly good and reasonable excuse for no action.
Perhaps your kids will understand.Today and as I was growing up I watched helplessly as my parents did nothing!
They have had many opportunities and today they could still do so much.
Yet they are still working beyond 65 and bitching about it.I think I was about 10 when I understood what my Grandfather was going on about.
Was he hard on my parents, no he was hard on me.
He wanted me to learn by example theirs.Most of my working life I have worked over 80 hrs a week and often over 100 hrs.
Today I consider myself a very small success.
I will not waste any resources I have especially the most valuable one time.All the accumulated works of my resources are my legacy to my kids.
They will have to work very hard for everything they have so they know its value and appreciate it.
Hopefully I can teach this reason to them so that they help me to pass it to their children.I am sure that with good guidance, support and a good financial head start in life they will be successful.
You will have to forgive me for my attitude.
But waste is a shame.
Time is your greatest resource, shake it or loose it.
Please reconsider Colin.“Children should be allowed to fail and benefit from their experience rather than to be shown “our” way of success.” Mr. Billi Lim
“The difference between a stumbling block and a stepping stone is how you use them.” — Unknown
“You must have control of the authorship of your own destiny. The pen that writes your life story must be held in your own hand.” Irene C. Kassorla
It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. Charles DarwinEmail [email protected].
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For all your CLEANING and GARDENING work.I am sure that you have a perfectly good and reasonable excuse for no action.
Perhaps your kids will understand.Why thank you Colin. Thank you for making me sick to the stomach.
Regardless, F.[cowboy2]Hi Colin, your comments – Wylie your boundless opportunities never cease to amaze me.
When I checked back today you have twice the opportunities you had yesterday.
And just like a solid rock you are still sitting there. I am sure that you have a perfectly good and reasonable excuse for no action.
Perhaps your kids will understand. End of quote.I don’t apologise for not telling all my business on this forum. My kids certainly will understand.
When I was 15 my parents bought their first IP. Since then, I have renovated at least 28 times. (We certainly don’t have 28 houses between us, but some long term houses have been done up more than once and others have been sold.) We have cleaned up after tenants, painted houses inside and out, with my parents, with my husband and with my kids. My parents are self funded retirees and we renovate their properties and ours. We all pitch in and help. My kids are fantastic. They will be very wealthy boys one day, but there is not a snotty bone in their bodies. They are very gounded. My parents, myself and my husband have been very careful not to let them get grand ideas.
We busted our guts (my parents, my brother, my husband and myself and my three kids) at the end of last year to renovate a house my parents wanted to sell, after holding it 18 years or so. I couldn’t have been more proud of my family for the way they pitched in for weeks on end.
We are happily married, have a great life (with the usual dramas that three children bring). Perhaps you will understand that after all the renovating we have done, I’m enjoying doing nothing. Of course, when the next house needs doing, we’ll swing into action again.
If I have misread your post I’m sorry, but to each his own. I have just had the all clear after waiting a week to know if I had breast cancer. I could get a job tomorrow and we would have a better cash flow and probably could buy another house.
I choose instead to be home in the afternoon when my kids get home from school. We worked hard before I had kids and I can now stay home. I think I am lucky. Others would think they’d go mad at home. Again, choice.
Hope the above helps you to understand why we are doing nothing at the moment.
Life awaits!!
Regards Wylie
Wylie please accept my apologies.
I have over stepped the mark.
Sorry I grouped you into the majority who sit on the fence and look at the action on one side and their personal opportunities on the other and wait wait wait.Yes I should be doing more work myself, stitches come out tomorrow.
Your friend Colin.
‘The price of success must be paid in full, in advance’ Richard Denny
“Luck is the time when preparation and opportunity meet.”
Roy D. Chapin Jr.Email [email protected].
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For all your CLEANING and GARDENING work.Hi Colin,
Apology accepted, and very much appreciated. I was rather shocked by your previous post but I do understand that these posts give only a tiny glimpse of what people are really about.
I’m think I’m probably just as quick to jump to conclusions and judge people from a couple of sentences. That’s why I probably ramble on, to give a bit more background. (Hope it does not get too boring for anyone.)
Thanks again, Wylie
Colin said:
“Most of my working life I have worked over 80 hrs a week and often over 100 hrs.
Today I consider myself a very small success.
I will not waste any resources I have especially the most valuable one time.”Colin- I kind of consider working for 100 hours a week to be an … umm… waste of time. Whatever happened to a work/life balance? I imagine one would have to love their worklife very much to work 100 hours a week- either that, or they must not enjoy spending much time at home?
Not all children will follow in their parents’ footsteps- the workaholic parent might have bone lazy kids (who just wanted their parent home to play with them), or the 3rd generation welfare beneficiary might get bored of the poverty cycle and work his or her guts out. Unfortunately, whilst role-modelling generally works- we can;t create Stepford children.
Is it desirable to teach kids to work 100 hours a week? your thoughts, please
As for me, 35 hours a week will do me.kay henry
Hi Wylie,
I didn’t intend to shock.Being home mostly sitting on my bum is getting on my nerves.
The stiches come out tomorrow and I will slowly get back to full workload over the next few weeks.I grew up on a farm and kept getting in trouble from my father for trying to farm it.
I eventually gave up and went to my mums boss and asked for a job age 12, I got it, 40 hours plus a week after school and weekends sun rise to sun set.
Nobody has even tried to work my parents 50 acre farm since, I don’t like waste.Also on the farm there is a rental property that my little family moved into while our present house was being built.
The tenants before us had trashed the house badly.The arrangement I made with my parents to help them out was to renovate the property and landscape it.
We also added sheltered parking for another 2 cars or extra storage space.
You should have seen how many bats were living in the roof.My little family moved out almost 5 years ago and the house has been empty ever since, found out just a few weeks ago.
Perhaps my parents are expecting a tenant to walk in and say hello, they don’t advertise and will not pay for it to be managed.Recently I found them a tenant and got my head snapped off for it.
This lady also has a horse and was prepared to pay for it to stay on the farm too.My wife and I spent almost $20,000 renovating at a time when cash for us was rather short due to our house being built and our family growing.
That’s about what they should get for rent in 18 months, we only stayed 6 months give or take a week.After a bit of a think I guess I am feeling a bit stressed that I need to financially support them.
Plus with our youngest daughter sick in hospital and my wife needing to leave work last year to look after her.
Plus many relatives telling me that I am as lazy as my useless father (computers do more than play games).And with myself out of the picture in my business for a while I have noticed some abilities with one of my staff.
I had been grooming him to take over for a few weeks since March.
But even before I stepped aside the realization was made that I had him in the wrong position.He can manage the business better than I.
A good businessperson should always surround them selves with more successful people.
But at present I don’t feel like I am necessary in the business.Some times at a cross road in life there is a lot of stress.
Please accept my apologies for incorporating my feelings into the knowledge I presented to the forum.Yes Wylie we are all more than we seem.
I just forgot this for a short time.
Thankyou for reminding me and bringing me down off the high horse.
Your friend Colin.“The happiness of a man in this life does not consist in the absence but in the mastery of his passions.” — Alfred Lord Tennyson
“We can let circumstances rule us, or we can take charge and rule our lives from within.” — Earl Nightingale
“Personal development is your springboard to personal excellence. Ongoing, continuous, non-stop personal development literally assures you that there is no limit to what you can accomplish.” — Brian TracyEmail [email protected].
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For all your CLEANING and GARDENING work.[bulb]
I’m new to the forum but I am very interested in where ‘Foundation’ is coming from! Are you playing devils advocate or are you suggesting there are better ways to invest your money at the moment then IP’s? I have two IP’s and a small parcel of shares and I doubt the level of excellent performance from either sector will be repeated in the next few years. What are your thoughts? Sarcasm welcome!!
newmo.are you suggesting there are better ways to invest your money at the moment then IP’s?If by ‘IP’ you mean a standard residential property yielding 2-7%, then yes. If you mean a ‘cashflow positive’ house in a country town, then absolutely yes.
I have two IP’s and a small parcel of shares and I doubt the level of excellent performance from either sector will be repeated in the next few years.I agree… somewhat. Regarding shares, I think further correction in most sectors is likely this year despite the current upward trend. This will be a buy opportunity, not an exit sign.
Cheers, F.[cowboy2]
As for me, 35 hours a week will do me.
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