Author Topic: Property in Australia  (Read 28478 times)

Rel

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Re: Property in Australia
« Reply #50 on: October 13, 2015, 06:42:24 AM »
Hi anatidaev,

I have been doing something similar to you - determining what higher interest rate I want to allow for to give myself adequate security of always being able to pay this future mortgage. In the end I've decided that my safety margin will be 7.5% interest rates AND for the loan at this rate to only be paid by either my partner's or my salary. That's a buffer I would be comfortable with because it would allow for one of us to lose a job or for me to go on maternity leave, at the same time as interest rates going back up to the long-term historical average. Alternatively it allows for the situation where we both are working but interest rates go higher than average (mortgage rates went up to around 10% in the not-so-distant 2008, so high rates are definitely something to consider!). If I wasn't allowing the worst case scenario of one partner not working, then I would probably pick an interest rate percentage of at least 10% when deciding a max borrowing amount.

The other thing I've been considering in terms of mortgage amount is calculating at what point it becomes better* cheaper to buy than rent. Typically this is after a certain high-enough deposit is saved the mortgage amount will be low enough that the interest paid on it is less than what would be paid in rent on a similar property. (*noting of course that even after this point you could still be better off investing the deposit and continuing to rent; I'm just looking at it from a non-investment perspective where you don't consider potential growth in house price versus growth in share market investments)

I would highly recommend saving at least a 20% deposit in order to avoid paying Lenders Mortgage Insurance, which is a waste of money. The Barefoot Investor explained it nicely in his newsletter yesterday:
Quote
If you buy a $500,000 home with a 5 per cent deposit, you’ll be forced to pay LMI of $15,722.

It gets worse: because you’re borrowing for the policy, it’ll likely end up costing you $30,000.

It gets worser: if you switch banks to get a better home loan rate, Genworth will collect another $15,722. Remember, this insurance doesn’t protect you -- it protects the lender.

Regarding how much to offer, it depends on the property and suburb and seller.
For the property: how long has it been on the market? If it's already been a month or more, then the sellers will be more likely to accept a bigger discount on their asking price.
For the suburb: you can find a suburb's current average discount amount by looking at suburb profiles on http://www.propertyvalue.com.au . For Perth's more expensive suburbs ($1m+ median prices) the discount is currently about 10% (of how much properties are selling for under their listed prices). Cheaper suburbs ($350-600k medians) are averaging about 5% discounting.
For the seller: ask the real estate agent who's selling the place about the seller's situation. E.g. does the seller need to sell in a hurry? If yes, offer a bigger discount than what you otherwise would have!

My final comment since you're a fellow Perthite (woohoo) is that I wouldn't worry about buying in a hurry. Quite a few suburbs have ended up with prices exactly where they were ten years ago - Australia may have missed experiencing a house price crash so far but we could instead just stagnate for ages until we reach a healthier income vs house price ratio. There seems to be a general consensus in published articles (which I take with a grain of salt because they typically have a vested interest in promoting real estate purchases) that Perth property prices will stagnate another few years yet. My personal view is that they'll probably stagnate at least 5 years, just because our mining boom went for so long and so strongly and until so recently (2011/2012) that we have a long way to recover from that massive surge in our cost of living and house prices, now that the growth drivers have gone.

Anatidae V

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Re: Property in Australia
« Reply #51 on: October 13, 2015, 07:46:03 AM »
Yeah at a 7.5% interest rate my income isn't high enough for much of a loan at all, and DH's probably is but it's not secure. I suspect we'll look around, run the numbers again and stick in the same place for another 6 months before we consider it again. Do you consider the whole mortgage or just the interest part?

At a nearly 20% deposit the LMI is only a couple of grand, so it may be worth the hit for the right property/right time, bur I think we'll only be in a better spot by waiting.

Grogounet

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Re: Property in Australia
« Reply #52 on: October 13, 2015, 09:25:32 PM »
Interesting post that I would follow.
I have personally started investing in RE here in OZ and am know really crunching numbers more than ever.

As a value investor, which we all are on the forum obviously, I have serious concerns when you see the current returns (rent) vs $ invested. And many other factors are pushing to think twice before the next move. And I include in my comment existing housing stock close to CBD: Income vs prices, LT gross yield, annual salary increases, unemployment, volume of new stock in the market (especially Melb and Bris), commodity pricing, current interest rate and dropping, dependence to china, housing debt, etc etc... All these can be a deadly combination.

Australia is actually doing not too bad vs many other countries in the same storm, especially to European standards. It doesn't say that it will in the future.
I'm ready financially to buy more properties but decided to move onto shares for international exposure and diversification.

Interesting on hearing other opinions.

Melody

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Re: Property in Australia
« Reply #53 on: October 18, 2015, 12:33:46 AM »
We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...

Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.

[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]

Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)

^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.

Anatidae V

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Re: Property in Australia
« Reply #54 on: October 18, 2015, 02:49:48 AM »
We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...

Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.

[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]

Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)

^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.
Oh, that information is very helpful.

I have another question - how is the required mortgage payment calculated each period? I know how it's calculated to begin with, interest + principle, but after that, with a variable interest rate, and a offset account or similar, the amount of interest you pay each period changes, yes? So do they have a calculated amount of principal to be paid off each period that is set in stone, and then the variable changes on top of that and means your mortgage payment changes? I think this question is a little confused because I'm a bit confused...

Melody

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Re: Property in Australia
« Reply #55 on: October 18, 2015, 03:59:11 AM »
We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...

Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.

[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]

Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)

^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.
Oh, that information is very helpful.

I have another question - how is the required mortgage payment calculated each period? I know how it's calculated to begin with, interest + principle, but after that, with a variable interest rate, and a offset account or similar, the amount of interest you pay each period changes, yes? So do they have a calculated amount of principal to be paid off each period that is set in stone, and then the variable changes on top of that and means your mortgage payment changes? I think this question is a little confused because I'm a bit confused...
If you have an offset account, same payment each month, but it means that more money is taken off the principle so your loan will end early. If the interest rates go up they increase your payments. If the rates go down they decrease your payments (hence how the reserve bank can use interest rates to control available consumer discretionary spending and therefore the economy... Tho of course, the rba model assumes people spend the extra money, rather than continuing with the higher payments, which isn't always true. If people won't spend lower interest rates won't stimulate the economy much. )

Anatidae V

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Re: Property in Australia
« Reply #56 on: October 18, 2015, 05:06:36 AM »
We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...

Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.

[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]

Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)

^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.
Oh, that information is very helpful.

I have another question - how is the required mortgage payment calculated each period? I know how it's calculated to begin with, interest + principle, but after that, with a variable interest rate, and a offset account or similar, the amount of interest you pay each period changes, yes? So do they have a calculated amount of principal to be paid off each period that is set in stone, and then the variable changes on top of that and means your mortgage payment changes? I think this question is a little confused because I'm a bit confused...
If you have an offset account, same payment each month, but it means that more money is taken off the principle so your loan will end early. If the interest rates go up they increase your payments. If the rates go down they decrease your payments (hence how the reserve bank can use interest rates to control available consumer discretionary spending and therefore the economy... Tho of course, the rba model assumes people spend the extra money, rather than continuing with the higher payments, which isn't always true. If people won't spend lower interest rates won't stimulate the economy much. )
Ok awesome, that makes more sense now you've confirmed how it works.

Melody

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Re: Property in Australia
« Reply #57 on: October 18, 2015, 06:30:53 AM »
If anyone wants to reply to my touchy feely post about some properties I am considering (in a sentence: I'm not sure if I am adult enough to "house") see below:
http://forum.mrmoneymustache.com/real-estate-and-landlording/house-vs-townhouse-%28australia%29/

Grogounet

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Re: Property in Australia
« Reply #58 on: November 25, 2015, 09:30:41 AM »
Interesting post that I would follow.
I have personally started investing in RE here in OZ and am know really crunching numbers more than ever.

As a value investor, which we all are on the forum obviously, I have serious concerns when you see the current returns (rent) vs $ invested. And many other factors are pushing to think twice before the next move. And I include in my comment existing housing stock close to CBD: Income vs prices, LT gross yield, annual salary increases, unemployment, volume of new stock in the market (especially Melb and Bris), commodity pricing, current interest rate and dropping, dependence to china, housing debt, etc etc... All these can be a deadly combination.

Australia is actually doing not too bad vs many other countries in the same storm, especially to European standards. It doesn't say that it will in the future.
I'm ready financially to buy more properties but decided to move onto shares for international exposure and diversification.

Interesting on hearing other opinions.

Am I the only one to believe that buying now seems to be insane considering the returns?

arebelspy

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Re: Property in Australia
« Reply #59 on: November 25, 2015, 09:32:25 AM »

Am I the only one to believe that buying now seems to be insane considering the returns?

No.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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You can also read my forum "Journal."

Grogounet

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Re: Property in Australia
« Reply #60 on: November 25, 2015, 09:44:25 AM »

Am I the only one to believe that buying now seems to be insane considering the returns?

No.

I'm struggling to find formulas around expectancy of returns. At this stage, I only make assumptions with what I see:
People I know entering the market "not to miss"
People having no problem taking 30 years loans 100% variable because "I have an offset account", and historic "low interest rates"
Crazy valuations made (starting with my PPOR) with no real tangible comparison

But that s only my findings, I can't put numbers on it and until I do, I can't seem to find what to do.

Same with shares, was ready to start investing in this asset class, but now considering a lot less of my portfolio in equities. I have almost all already in Super, which seems crazy, really.

andystkilda

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Re: Property in Australia
« Reply #61 on: November 25, 2015, 02:40:06 PM »
I think it all depends on what you buy - i.e. there are good real estate buys in any market, as there are bad.

Our 3 properties currently show between $7-10k cash profit each per annum - not including a couple thousand extra each tax refunds due to depreciation (won't be applicable after we FIRE).
Of course these returns could drop fast if interest rates went through the roof, but the rents would likely not drop more than 10-15% even in a severe situation.

All were purchased in the last 3 years, slightly below market value due to patience and good negotiation, and all are in inner-south Melbourne in an area with some of the lowest vacancy rates in Victoria.

Some tricks that have worked for us:
- be patient and wait until you find that property that the vendor wants to sell, but others have not paid enough attention to
- fully-furnished - this has increased our returns significantly and also differentiates the properties from 95% of the others on the rental market (you're talking less than $5k per apartment at IKEA to fit them out to a decent level)
- self-manage (if you have the ability) - this is not sustainable long-term but if you can manage this it's beneficial
- seek properties in the mid-range of price values, not the low end - having slightly higher-class tenants and higher rents means you can sign them up for 12 months leases, take a large bond, and never hear from them again until they leave
- when advertising for new tenants give yourself as much times as possible - you only need the 1 or 2 parties that will pay what you want and sign a 12-month lease to get the strong returns, even if most others who come through think it's overpriced

urbanista

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Re: Property in Australia
« Reply #62 on: November 25, 2015, 08:12:56 PM »
I think it all depends on what you buy - i.e. there are good real estate buys in any market, as there are bad.

If one is looking for a PPOR (primary place of residence aka family house), Australian market is ridiculous. We are looking to buy a house within 30 minutes commute (train) from Melbourne CBD. Note we are looking for a detached house (not a townhouse, apartment, villa etc). The houses that are selling for $1.2M + $65K stamp duty (+ $4500 per year in rates and building insurance) are renting for ... $600 per week. That's about $2% annual rental yield not even considering any maintenance.
« Last Edit: November 30, 2015, 05:29:43 PM by urbanista »

Rel

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Re: Property in Australia
« Reply #63 on: December 26, 2015, 08:20:55 AM »
It seems like Australian property investment stopped being about yields and started being about speculation of capital gains around the year 2000, going by the attached graph which shows that on average rental properties are loss-making from an income perspective.

The problem with having the investment purely being a speculation on capital gains is that some time or later you're going to get a significant market downturn or stagnation, and who would want to be making an income loss every year while their asset also drops in price (or doesn't grow, which is still a drop after inflation)? Cue an increase in sales as investors decide to get out. If it was expected to be a short downturn I could see investors deciding to hold on to their properties for the next market upswing and cop the yearly losses on the chin, but we've just had the mother of all property booms that lasted much longer (and went stronger) than the usual market upswing and I suspect the downswing will similarly be lengthy...

arebelspy

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Re: Property in Australia
« Reply #64 on: December 26, 2015, 08:31:53 AM »
It seems like Australian property investment stopped being about yields and started being about speculation of capital gains around the year 2000, going by the attached graph which shows that on average rental properties are loss-making from an income perspective.

The problem with having the investment purely being a speculation on capital gains is that some time or later you're going to get a significant market downturn or stagnation, and who would want to be making an income loss every year while their asset also drops in price (or doesn't grow, which is still a drop after inflation)? Cue an increase in sales as investors decide to get out. If it was expected to be a short downturn I could see investors deciding to hold on to their properties for the next market upswing and cop the yearly losses on the chin, but we've just had the mother of all property booms that lasted much longer (and went stronger) than the usual market upswing and I suspect the downswing will similarly be lengthy...

I agree.  I don't see why this time it's different.

Thanks for the graph.  Only goes through 09, I'm curious about what the last 5 years looked like.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

Aussiegirl

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Re: Property in Australia
« Reply #65 on: January 02, 2016, 05:27:11 PM »
It seems like Australian property investment stopped being about yields and started being about speculation of capital gains around the year 2000, going by the attached graph which shows that on average rental properties are loss-making from an income perspective.

The problem with having the investment purely being a speculation on capital gains is that some time or later you're going to get a significant market downturn or stagnation, and who would want to be making an income loss every year while their asset also drops in price (or doesn't grow, which is still a drop after inflation)? Cue an increase in sales as investors decide to get out. If it was expected to be a short downturn I could see investors deciding to hold on to their properties for the next market upswing and cop the yearly losses on the chin, but we've just had the mother of all property booms that lasted much longer (and went stronger) than the usual market upswing and I suspect the downswing will similarly be lengthy...

I've been investing in property from an early age, many years before that graph starts.  Each time I've bought, the rental yield has been roughly the same and stays about the same over the course of the investment.   I use 4% in all of my calculations. And trust me, I do plenty of calculations as property is an investment, a business to me.  Over the years each time I've bought there's been some nutter saying the property market is overvalued and due a crash.  My favourite:  http://www.abc.net.au/news/2010-02-16/economist-keen-to-walk-canberra-kosciuszko/333138 

But steadily we've  built up a nice portfolio, paying decent deposits for each, collecting some cash flow but admittedly not a lot as we've reinvested.  Each year, the rents go up, the property on average gains some (highly varied on an individual year and property basis) and the loan reduces slightly and we save bucket loads of tax.  Over the long term this is a great situation.  However the kicker is the capital gains which have been stellar - if we sold them all now, paid back the loans, paid the capital gains tax we would be well in front of if we had just put the cash into ETF's unleveraged. And it's a far less volatile ride, but does require a bit of work along the wat.

A couple of caveats:

1.  Do I think all property is a good investment?  Absolutely not! I wouldn't buy an apartment at the best if times, but in the not too distant future the Perth apartment scene is going to have some nasty, nasty consequences for investors.  And I wouldn't buy in Sydney at the moment either - won't see good capital growth there until the next cycle - Brisbane is our last investment location.

2.   Do I think you should have just property in your retirement portfolio?  Nope, definitely not.  You can't sell a bedroom if you need cash in a hurry, and even if you sell, it's not a quick process.  We also have equities and superannuation (401k ish, but rules change regularly and you can't do the sneaky roll over method you can in the 401k).

I think well thought out property investments are a good part of a wealth building plan.  But that's just my opinion, albeit based on decades of experience.


my2c+61

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Re: Property in Australia
« Reply #66 on: February 26, 2016, 05:39:20 PM »
Another doom and gloom article to be taken with a grain of salt.

http://www.smh.com.au/business/the-economy/the-charts-that-suggest-the-housing-bubble-is-out-of-control-20160224-gn2b46.html#comments

With these type of articles, they raise some interesting points.

Then you have the deniers who seem to think astronomical growth is a given regardless of the consequences, socially and financially.

Cheap money is money is not helping the situation.

Then you have government interference in the market constantly priming the masses.

How long can it go on.

arebelspy

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Re: Property in Australia
« Reply #67 on: February 27, 2016, 02:05:47 AM »
40% of loans are interest only?

There's gonna be some pain coming.  =/

Couldn't believe how far Australia's household debt as a percent of GDP was above the 75th percentile of the world average.

Very interesting article, thanks for the link.
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Re: Property in Australia
« Reply #68 on: February 27, 2016, 02:16:31 AM »
It's hilarious how after every yearly 'shocking wakeup call' is declared, the next week of media is devoted to article after article gently lulling the public back into blissful denial.
Here's Why Australia Is Different.
Here's Some Other Charts That Aren't So Worrying.
Here's Some New Record Sales Prices, And Look, Auction Clearance Rates Are Rising!

The only thing that I see making this year any different is that housing affordability may become an election issue. The "Aussie Mum and Dad Investors" are greying and I think the interests of the next generation are become more relevant to political discussions.

Step one is the loooong overdue negative gearing limitations proposed by Labor. Thank fucking god that Bob Snorten is finally making use of all the oxygen he's consuming.
« Last Edit: February 27, 2016, 02:23:36 AM by BattlaP »

deborah

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Re: Property in Australia
« Reply #69 on: February 27, 2016, 03:29:56 AM »
It has been proved that it's not "mum and dad" investors by the recent statistics. It's all the top 10%. And that's why it is such a problem for the Libs.



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Re: Property in Australia
« Reply #70 on: February 27, 2016, 04:22:36 AM »
Yeah I think that's pretty obvious to anyone who bothers to look into the subject. However the media portrayal is, pathetically, the most important thing that matters. I think (or hope) that as a narrative, the 'mum and dad' bull is starting to falter for various reasons, chiefly an aging population that actually cares more about their  children owning homes.

Could all just be wishful thinking on my part.

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Re: Property in Australia
« Reply #71 on: February 27, 2016, 04:39:42 AM »
I will be interested to see if I've got myself caught up in buying a house in 12 months at what the market has actually done then. Australia pretty clearly is not in a good position, but we seem to be floating along unaware of it to some degree...

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Re: Property in Australia
« Reply #72 on: February 27, 2016, 09:11:44 PM »
I'm just sitting back, waiting to see what happens...

pancakes

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Re: Property in Australia
« Reply #73 on: February 27, 2016, 10:18:45 PM »
40% of loans are interest only?

I have no actual mortgage experience as I've never owned a home but isn't an interest only loan the best option if you can get it with a 100% offset account? Homeloans typically have low interest rates compared to other lending options and under the current tax system it can be advantageous to keep options open by not paying off the principle directly. Even if you never intend to negatively gear the property or use it as an investment, provided the offset account is utilised properly, why not keep the option open?

I've been putting off buying a home (to live in) for years because prices are difficult to justify and the old "get in at the very bottom and use it as a stepping stone" (i.e. piggyback off capital growth) seems to be becoming a higher and higher risk strategy. The way I look at it now, unless I'm buying a home that I intend to stay in for the foreseeable future, I'm not interested in buying it.

edit: so many spelling and typographical errors, my apologies.
« Last Edit: February 27, 2016, 10:21:34 PM by pancakes »

arebelspy

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Re: Property in Australia
« Reply #74 on: February 28, 2016, 01:04:46 AM »
Interest only often indicates prices are too high because people are unable to afford full payments, they can only afford interest only payments.
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Re: Property in Australia
« Reply #75 on: February 28, 2016, 03:54:39 AM »
40% of loans are interest only?

I have no actual mortgage experience as I've never owned a home but isn't an interest only loan the best option if you can get it with a 100% offset account? Homeloans typically have low interest rates compared to other lending options and under the current tax system it can be advantageous to keep options open by not paying off the principle directly. Even if you never intend to negatively gear the property or use it as an investment, provided the offset account is utilised properly, why not keep the option open?

I've been putting off buying a home (to live in) for years because prices are difficult to justify and the old "get in at the very bottom and use it as a stepping stone" (i.e. piggyback off capital growth) seems to be becoming a higher and higher risk strategy. The way I look at it now, unless I'm buying a home that I intend to stay in for the foreseeable future, I'm not interested in buying it.

edit: so many spelling and typographical errors, my apologies.
My understanding is that interest only is a good idea if it is for an investment property in Australia, because of the way our taxation system works. For PPORs the opposite is the case, especially if you put extra into an offset account.



pancakes

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Re: Property in Australia
« Reply #76 on: February 28, 2016, 05:45:13 AM »
40% of loans are interest only?

I have no actual mortgage experience as I've never owned a home but isn't an interest only loan the best option if you can get it with a 100% offset account? Homeloans typically have low interest rates compared to other lending options and under the current tax system it can be advantageous to keep options open by not paying off the principle directly. Even if you never intend to negatively gear the property or use it as an investment, provided the offset account is utilised properly, why not keep the option open?

I've been putting off buying a home (to live in) for years because prices are difficult to justify and the old "get in at the very bottom and use it as a stepping stone" (i.e. piggyback off capital growth) seems to be becoming a higher and higher risk strategy. The way I look at it now, unless I'm buying a home that I intend to stay in for the foreseeable future, I'm not interested in buying it.

edit: so many spelling and typographical errors, my apologies.
My understanding is that interest only is a good idea if it is for an investment property in Australia, because of the way our taxation system works. For PPORs the opposite is the case, especially if you put extra into an offset account.
There is no difference in term duration or interest paid on a loan when you compare paying off a principle and interest loan vs paying an interest only loan + amount equivalent to the principle payment into an offset account though? If you decide to convert your PPOR into an investment, having set the loan up as interest only with an offset from the start offers tax advantages so why not, even just to keep the option open?

I suppose my I'm arguing that not everyone who takes out an interest only loan is over stretching themselves. It could also be a sign that lots of accountants are giving lots of people tax minimisation advice.

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Re: Property in Australia
« Reply #77 on: February 28, 2016, 04:55:07 PM »
Interesting article this morning on ABC: http://www.abc.net.au/news/2016-02-29/verrender-housing-bubble-is-building/7206678

What does everyone think?

marty998

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Re: Property in Australia
« Reply #78 on: February 28, 2016, 11:41:05 PM »
Bubble will only burst if there is mass unemployment.

Better than outside chance of it happening with the idiots currently in charge. How we ended up in a situation where the government of Australia does not have a tax policy is beyond me.

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Re: Property in Australia
« Reply #79 on: February 29, 2016, 04:12:38 AM »
There was some article the other day about a lady complaining that the bank had lent her millions of dollars and she invested in mining towns and suddenly she had way too much debt and declaring bankruptcy.  From my point of view if you are purchasing several properties and they are all in mining towns (especially in the same town) then you are silly... Mind you the banks are silly for letting them borrow that much without location diversification...

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Re: Property in Australia
« Reply #80 on: February 29, 2016, 01:15:53 PM »
There was some article the other day about a lady complaining that the bank had lent her millions of dollars and she invested in mining towns and suddenly she had way too much debt and declaring bankruptcy.  From my point of view if you are purchasing several properties and they are all in mining towns (especially in the same town) then you are silly... Mind you the banks are silly for letting them borrow that much without location diversification...

Kate Moloney... she's writing a book about it now. Have no idea how she managed to gear up so much so quickly.

Head over to the PropertyChat forum... quite a bit of discussion about her situation.

pancakes

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Re: Property in Australia
« Reply #81 on: February 29, 2016, 04:17:45 PM »
I often wonder what happened to the 'millionaire' from Newman in WA who was on big brother a number of years back.

It very much sounded as though he had bought up highly leveraged properties in mining towns at the start of the boom, calming to be a multimillionaire at 25. I often wonder if he exited the market ahead or not. If he is still holding the properties he'd be in a wold of pain right now.

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Re: Property in Australia
« Reply #82 on: March 04, 2016, 09:20:36 PM »
Just as a quick thought, what's the maximum LVR for an investor loan?

I'm happy to rent my own place of residence for now (flexibility), but I've considered the idea of buying elsewhere and renting it out.

marty998

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Re: Property in Australia
« Reply #83 on: March 17, 2016, 02:42:08 PM »
Banks will give you 105% no LMI if you structure it right, even with no crossing of the loans.

80% against the new property, and 25% against equity in the existing one (the extra 5% to cover stamp duty, legals, fees and B&P inspection).

I've done this for my 2nd and 3rd properties.

If you don't already have one, there are some banks that will do 85% no LMI, 97% is usually the highest (because LMI gets capitalised to the loan). Cost becomes prohibitive at that range.
« Last Edit: March 17, 2016, 02:43:48 PM by marty998 »

Adventures With Poopsie

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Re: Property in Australia
« Reply #84 on: March 17, 2016, 02:56:51 PM »
Marty, I knew you'd bought a second property but I didn't know you were up to your third, I must have missed that. Well done!

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Re: Property in Australia
« Reply #85 on: March 23, 2016, 05:23:50 AM »
Banks will give you 105% no LMI if you structure it right, even with no crossing of the loans.

80% against the new property, and 25% against equity in the existing one (the extra 5% to cover stamp duty, legals, fees and B&P inspection).

I've done this for my 2nd and 3rd properties.

If you don't already have one, there are some banks that will do 85% no LMI, 97% is usually the highest (because LMI gets capitalised to the loan). Cost becomes prohibitive at that range.

Thanks for that. Yeah I wouldn't want to borrow 105%, but maybe around 90%, I noticed LMI was a lot lower at 90% than at 95%. Depends on the decision I make closer to the time. At this stage it'd be either buying a middle-suburbs unit here in Melbourne and living in it, or buying a unit/house in a growing large regional area and renting it out.

green trees

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Re: Property in Australia
« Reply #86 on: March 29, 2016, 05:31:49 PM »
this may not be the right place for this question - but i have really been pondering how in the australian market people make the trade off between being close to where they need to be, and not spending too much on property...
we live in the outer eastern suburbs of melbourne, close to a train line and own a property that is slightly above the median price for the suburb we are in (we built about 5 years ago - energy efficient, and did a heap of things to the house for us as we planned to stay a long time). we ended up choosing a school for our kids that is a 20-25 minute drive from home. we have been thinking about whether to move close to the school (walking/riding distance) which would still be close to a train line to the city. the issue is that the closer we get to the city the more expensive things get. so even downsizing we would be looking at spending basically what our current place would get, plus stamp duty etc etc. we would be able to go to one car, which would save us money, but over 10 years i think we would be 30-40k worse off because go the stamp duty, but we would save quite a bit of travel. (it seems like we would have to travel back in time to buy something less expensive than our place, so our plan is to spend about what we would get if we do it)
decision #2 - we could pay off the loan in 2 years, even with moving, if we diverted all our savings/investing and current non super based investments into the loan, but we would then be starting off from 0, outside super when the loan was done. i have been going backwards and forwards on this decision for months. we would continue to max out the pretax super contribution for the one of us currently working, then would focus our 50-60% saving rate on investing, which would increase once two of us are working again.

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Re: Property in Australia
« Reply #87 on: March 29, 2016, 05:38:06 PM »
^^ that was supposed to be worded in a way inviting comment on the sensibleness/mustachianismness of the two decisions

marty998

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Re: Property in Australia
« Reply #88 on: March 30, 2016, 02:32:33 AM »
green trees. It's a personal decision. You've given 2 alternatives, but survey 100 people here and they'll give you 100 alternatives.

I'm happy with a long commute and a paid off mortgage. Many are not and will happily eat the increased housing costs.

Everyone is different, and not all will follow the maths when it comes to choosing where to live.

marty998

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Re: Property in Australia
« Reply #89 on: March 30, 2016, 02:36:13 AM »
Marty, I knew you'd bought a second property but I didn't know you were up to your third, I must have missed that. Well done!

I'm getting a little shy about it, so haven't said too much about it. Now that the numbers are getting bigger it's a bit of a worry putting too much info out there.

Leaning towards buying 1 more (a PPOR house). Requires a partner and the fortitude to take out a non-deductible PPOR loan which I'm not inclined to do right now.


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Re: Property in Australia
« Reply #90 on: March 30, 2016, 03:07:14 AM »
^^ that was supposed to be worded in a way inviting comment on the sensibleness/mustachianismness of the two decisions

re #1. Agree with Marty998, its a personal decision as to what you trade off. But definitely do the math as accurately as you can i.e. moving costs vs commuting costs vs saving in mortgage interest vs how long you are staying vs how long to payoff any downsides.  It will be different for any scenario….I worked out mine and even though I live in a big clown house (oops…doh...bugger once I read MMM), its not yet worth it in $ terms to move.

Once you know the costs, you can add in personal factors like what you'd rather do. Usually there's a trade-off.

re #2.  Many here favour pay off the house first (see the Aussie investing thread). I favour 50% extra repayment towards your mortgage principle and 50% investing ( both in and/or out of super - again this is another question to decide which is also individual).  But again - do you want 4-5% risk free ( pay off the mortgage) or do you think you can do better investing albeit with some risk?
Journalling at Happy Aussie Downshifter

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Re: Property in Australia
« Reply #91 on: April 01, 2016, 08:28:22 PM »
Interesting question green trees and I definitely agree with Marty and Happy, the decision will be different for everyone.

We are about to move to be closer to Poopsie's children. As they're already established in a school and won't be living with us full time (50/50), then we are forced to live in a particular area so that they have access to the school bus (our jobs don't allow us to do drop off and pick up).

It's a good area and compared to where we currently live in Newcastle, very affordable and we likely will buy a house and pay it off in 6-8 years.

But... it's a 25 minute drive for us to work. We do work at the same place so we commute together, but it's still a distance that adds up over time.

For us, it's better to have the paid off house and the kids on the bus than it is to live closer to work. Everyone will make the decision based on what is important to them. Good luck, I'd love to hear what you ultimately decide to do!

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Re: Property in Australia
« Reply #92 on: April 03, 2016, 06:34:48 PM »
Greentrees, you don't say whether the train line for the school is the same as the one you are on. When I went to school, I rode a bike there, but lots of the kids came by bus or train. I was at a reunion some years ago, and someone mentioned that going to and from school each day with the same kids meant that they talked each journey, and as a result became friends. I certainly noticed that I didn't have that much to do with my friends apart from when we were at school because I rode, and because my parents worked (so no-one came around after school...). As a result, I would be happy for the kids to go by public transport to school if it was easy.



Grogounet

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Re: Property in Australia
« Reply #93 on: April 17, 2016, 05:57:26 AM »
Marty, I knew you'd bought a second property but I didn't know you were up to your third, I must have missed that. Well done!

I'm getting a little shy about it, so haven't said too much about it. Now that the numbers are getting bigger it's a bit of a worry putting too much info out there.

Leaning towards buying 1 more (a PPOR house). Requires a partner and the fortitude to take out a non-deductible PPOR loan which I'm not inclined to do right now.

MArty, is there a chance on earth you tell me (PM) or us which bank or broker you use?

marty998

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Re: Property in Australia
« Reply #94 on: April 17, 2016, 03:35:58 PM »
I don't use a broker, but I get a staff interest rate discount at a major bank.

Interestingly the IR discount would probably be greater if I went through a broker, but the staff benefit includes no wealth package fee (about $400 per year?)

So it's not necessarily comparable if I say which Bank... you won't get exactly the same options.

My loans begin reverting to P&I in 2019 (about $470k) and 2021 (about $580k). There may be an option to extend the 2019 loans for a little bit longer however with Basel IV regulations due to take effect in 2018, chances are the Banks will tighten their lending criteria further and IO options will be heavily restricted.

At the moment I have $250k in offset, and so net property loans of $800k... buying up shares at present as much as I can in the meantime before any repayment decisions need to be made. It would be good to still have the cash of $250k + shares of $250k by 2019 so that I have further options in terms of how I would go about repaying the loans when the time comes.

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Re: Property in Australia
« Reply #95 on: April 18, 2016, 03:54:11 AM »
OK, that make sense as you work in the industry. Wealth package is $395 indeed.

2 comments you made really interested me:
- What are these Basel 4 regulations? Never heard of them? Is that mean that all loans will revert back to P&I?
- Why are you placing your extra in shares instead of offset? I'm doing the exact opposite as I have started to repay the IP loan for two reasons: I have not planned to buy a new one (I believe it is a bit risky with the current level of speculation property) and I want to stop losing $ each year as it s negatively geared

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Re: Property in Australia
« Reply #96 on: April 18, 2016, 04:03:18 AM »
Basel Accords are the regulations made on the global financial industry by the central banks. Basel 4 were the set designed to avoid a future global financial crisis. They kick in over a period of years. Banks are supposed to have more money per loan than they used to have...



Grogounet

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Re: Property in Australia
« Reply #97 on: April 18, 2016, 04:14:59 AM »
Well, I guess it might have the opposite effect if repayments actually are affected.
Not that I will as I hope to have repaid entirely or close to the IP by then but for those who are heavily in debt...

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Re: Property in Australia
« Reply #98 on: May 18, 2016, 06:58:00 PM »
update: we have decided to stay where we are. there were just too many compromises if we moved. to compensate we are going to change to cheaper and more fuel efficient cars.
We have also decided to pay down the loan ASAP, which we should be able to in a maximum of 2 years, and then concentrate again on investing. I think financially it works out slightly worse, but once that loan is gone we have a lot more flexibility in terms of job decisions etc, and will end up in the same place not too much later, and since freedom is the goal that gives us some other freedom in the meantime. 

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Re: Property in Australia
« Reply #99 on: May 25, 2016, 04:15:22 AM »
Good to hear you've made your decision. We are also currently looking at more fuel efficient cars. What are you leaning towards?