personally, I have no interest in living in my property. It is soley for investment purposes. There fore yield is what it about.
Capital growth ….not a big issue as i dont plan to sell it anytime soome.
The aussie dolar ….once again not a huge issue unless it goes to 1.30 and beyond.Buy and hold strategy. 10 years.
In 10 years I may never even see the house.
I expect no capital growth for at least the first 3 years. Perhaps 5 years.
That's ok. The cash flow is excellent.
I read somewhere the 50 year average is US$0.80 per aussie dollar.
Do I expect the last superpower's economy to bounce back???
Sure. Why not??
Agree with RickH. It may become a huge issue if it goes beyond US$1.30 and looks like staying there.
On the other hand, Australia has gotten into bed with China. If the Chinese economy tanks then you can expect investors to abandon the Australian dollar and look to safer currencies.Some gloom and doom pundits are claiming the Chinese economy will tank. "It's simply too hot"
Lots of variables to consider……….Enjoy reading everyones input.
Im a very proud aussie but also love the US and what it has to offer life style wise. Given that i would love to live over there long term someday.. would it be a good idea to buy property now? i can buy 3 homes over there with my 1 here? would life be easier?
I think the best thing to do is to just calculate it all out and try and see if it is worth it, investing in the USA or investing in Australia. Taking into account a wide range of things such as forecasting the AUD/USD conversion in the future, capital gains, interest rates etc etc, and by using a spreadsheet to be able to change variables and see the worst case scenario and see what the best option is, it is probably the best way to figure out what is best for you.
Looking at it from my current situation, capital of around 50,000 AUD to invest, current AUD = 1.07 USD as stated above. Assume to invest everything for a property in the USA, have 53,500 USD so minus fees and such obtain a property for 45,000 USD. Net rental yields (taking into account vacancy and all necessary fees and taxes) of 9% which is seemingly likely as long as you invest in a good area and have a good property manager. Assume 10% capital growth over the next 5 years. And assume the dollar goes to AUD = 1.20 USD (I personally think it would peak at 1.15 and go back down but just as a worse case).
Total value at the end – Property value = 45,000 x 1.1 = USD 49,500. Rent received = 45,000 x 5 x 9% = USD 20,250. Total value = 49,500 + 20,250 = USD 69,750. Converting to AUD 69750/1.2 = 58,125 AUD.
Similarly investing in a property in rural Australia (where yields are typically the best), say 150,000 AUD property value with 7% net rental yield (after all necessary fees and vacancy, taxes etc) Interest rate of 7%. Loan of 110,000 AUD including fees and purchasing costs. Capital gain of 10% over 5 years (quite high in my opinion but anyway).
Total value at the end – Property value = 150,000 x 1.1 = 165,000 AUD. Rent received and Interest cancel each other out in this instance (I do realise that increase in property value would increase rent, however it is a simple example and I did not do this in the US example either). Currently still a loan of 110,000 AUD. Total value = 165,000 – 110,000 = 45,000 AUD.
As you can see in the above example US is ahead by about $13,000 after 5 years, obviously I have made a lot of assumptions, but I find if you make a spreadsheet with these assumptions as variables, you can do your research and become more accurate with your assumptions and then you can accurately model the different situations. Then the only true variables you would have left (capital appreciation and AUD/USD forecast) you can play around with and test out a whole bunch of scenarios and find out which direction is most likely best for you.
In the above post I made a mistake and calculated interest on the property value of the property when in fact it should only be on $110,000, not $150,000. Anyway in the end rent received would be $52,500 and interest would be $38,500 so that makes $14,000 extra, and also I think I made a mistake in the sums where I got $45,000 and it is supposed to be $55,000. Guess I was just in a rush and made some clumsy mistakes.
In the end the Australian example actually works out better off by $11,000 after 5 years time, but as I said, there are a lot of variables so it is important to just do your research.
Maxpowerchappy wrote:Hi Guys
I am currently looking to invest roughly 20K AUD on something that will look after itself. As a realist I understand that this kind of outlay is not going to see a huge return but I am very interested to hear some opinions.
Need help guys
Thanks,
Max
Hey Max – go to your profile and add in some contact details ( email) or you can email me at [email protected]
Its true that AUD sky-rocketed very quickly against USD because of various reasons like Uncle Sam is printing lots of money and US unemployment numbers are still high etc etc.
HOWEVER, US is not going to loose its power so easily. Many will surprise about this fact that declining in industrial productivity had started in USA in 1970. In other words, it took around 40 years to come on this current recession. Even this time, real estate market brought it to the knees, otherwise US could postpone it for another 10-20 years.
USA has been leading the world as economic power-house for more than century, and certainly any world power does not go so easily. If everything go wrong, (which is almost impossible), US will still take another 20-30 years to reach a stage where it will not be a worthwhile place to invest. But this duration is more than enough to make profits many times with high-return and capital growth.
World’s 3rd largest population with extremely high consumer economy (except last 3 years) will not let the property prices down to $0.CHINA – This country is much less desirable place for investment because of extremely high inflation and lots of over building. China has lots of NEWLY BUILT GHOST CITIES where nobody lives. China is so reliant on US consumer economy when US was in recession in 2007, China offered $500 billion help to them so that they keep buying Chinese goods. US consumerism is still alive, but just paused for some time. Indeed, China could maintain their high GDP growth in recession because they kept building/spending on cities which provided jobs to millions. Now they have built, but no demand because inflation is so high average Chinese can’t afford to buy.
AUSTRALIA – Unfortunately, we are too much dependent on mining revenue which comes from China. When they were “over-building”, the main supplier of raw-material was Australia. That construction gave benefits to both countries. When China goes down, Australia will face its maximum impact. Therefore, USD/AUD will be back very quickly to its previous rates. Some experts believe that this process has already started with signs of Australian real estate market has contracted recently.
IN SHORT, now investing in US makes real sense with high dollar, not only because it buys more, but also because with high USD later the rental return will be higher than now. It may be up and down for sometime, US giant economy will recover in near future.
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