I have given up buying a house

[tech/a]

It is not mortgages these people avoid, it is non-deductable debt.

Ahhhhh.

I'll add to that the ability to effectively control and use other peoples money----leverage,with no or minimal cost to the investor.
To recognise opportunity and continue to duplicate it for the period of that opportunity.
The knowledge of when to hold'em and when to fold'em.
IE when to be highly geared in one asset class (Maximum exposure) and when not to be.(Minimum exposure)
The constant shift of recognition,application and finally consolidation--realisation.

 

[Mofra]

Ahhhhh.

I'll add to that the ability to effectively control and use other peoples money----leverage,with no or minimal cost to the investor.
To recognise opportunity and continue to duplicate it for the period of that opportunity.
The knowledge of when to hold'em and when to fold'em.
IE when to be highly geared in one asset class (Maximum exposure) and when not to be.(Minimum exposure)
The constant shift of recognition,application and finally consolidation--realisation.

Unfortunately I'm not always privvy to that level of personal information about a client - general balance sheets are enough to get most deals over the line. One could assume the list posted above for many people is applied to more than merely their property investments.

 

[Realist]

Hmm You presume I own only 5 houses.
I've already stated I'm also a developer.

Bullmarket challenged me once---so wanna bet!

So other people challenge you as well, interesting.

I was merely baiting you, because I took offence at you lording over everyone about how many properties you've bought. The fact is being old and living in Adelaide it aint hard to buy properties, even at my youngish age I could buy outright in Adelaide - but why would I bother? I'd rather buy shares.

If a 50 year old can't buy a house outright I'd be extremely worried.

No, I wont bet. Thanks for the offer though. At your age everyone should be able to afford a house, I'm guessing you are no different.

Seeing as though you have purchased soooo many houses..

Please tell us whether you believe someone should buy a property in the lower North Shore of Sydney right now?

If not, when should they buy. If so, what should they buy?

 

[robots]

Hello,

"Yes, houses are overpriced and by and large there will be little return on your investment in some cases - and in most cases the appreciation is pointless, as most home owners do not use their equity effectively."Mofra

what relevance does equity have when looking for new opportunities when investing

you go to the bank and tell them you have X equity, they say great we will loan you Y at 7% and secure everything against this asset

so you buy more assets with the new funds and get a return of around 4% and what ever capital growth comes along

so who picks up the short fall in loan payments?

I believe it comes down to cashflow, spare cash, high income, disposable cash whatever

its a great time to be buying good quality property

thankyou
robots

 

[Realist]

its a great time to be buying good quality property

A great company (house) is not a good investment if you pay too mcuh for it.

If you can buy a great house at a discount then yes now is a great time to buy, good luck finding a discount now though.

 

[Ageo]

If we are talking about buying a home then obviously most people will be buying in a metropolitan area and with that the prices are likely to be higher etc...


But dont rule out properties for passive income.


I know of about 10 properties atm that are positive geared (residential) and the net Cash on Cash return is not less than 15% (not including capital growth) on each of those.

15%+p/a for passive income is not too bad considering you can buy properties that only require a total outlay of around $15000. Real Estate investing has both its advantages/disadvantages as does shares etc..


But this is about buying a home to live in and even thow i bought a house recently to move into (that has more point to it thow) i would rather rent for the time being to free up cashflow and borrowing capacity so i can leverage my investing capabilities even further.

 

[Smurf1976]

A question for those who argue that property is a good investment and disagree with those saying not to buy.

If you were offered the opportunity to buy any investment at a reduced price but had to wait some time to be able to do so, then what do you do? Do you pay top $ now to buy an asset that is at best income neutral or do you wait and buy the same asset or one very similar at a lower price? For me it's a no brainer - pay less for the asset and do something else with the money in the meantime. Even cash in the bank is a better option than buying something which then drops in value whilst producing minimal income.

Can anyone explain to me how I would have benefited from paying, say, $580K for a house in Sydney two years ago that is now worth $500K? Interest on the mortgage to buy it would have exceeded rental returns and then there's maintenance, rates etc. Loss, loss and more loss. WHY does it not make sense to wait and buy at a lower price? IMO buying cheaper makes a lot of sense.

And does this apply to shares? If not, why not? Surely it makes more sense to buy XYZ stock at $50 than $58, especially if dividends are minimal. Whether or not the price subsequently goes to $100 or even $1000 is missing the point. Why pay $58 to own it two years ago when you could buy it for $50 now? It just doesn't make sense if your aim is to make a profit.

The way I see it, the bears are talking about timing the market. That is, wait for sensible valuations and then buy. Do something else with your money in the meantime. Few if any are saying don't buy at all. They're just saying don't buy right now.

Bulls on the other hand seem to be arguing that valuation doesn't matter. Rather familiar words to anyone who has seen a bubble before.

At some future date buying the Nasdaq index in early 2000 may well prove to have been a good investment. But I would argue that if you wanted to buy this index then buying it at close to 1000 in 2002-03 was a much better investment than buying it at 5000 in the year 2000.

 

[Realist]

Surely it makes more sense to buy XYZ stock at $50 than $58.

Not to a trader.

Good post though Smurf - I agree totally!!

Can anyone explain to me how I would have benefited from paying, say, $580K for a house in Sydney two years ago that is now worth $500K?

Exactly - thank christ I did not buy 3 years ago, I was very very tempted.

$580K down to $500K is a loss of maybe $140K when you take out stamp duty and first home owner grants, agent fees, mortagge interest, insurance, expenses, etc. etc.

Yeeouch.

 

[Smurf1976]

I know of about 10 properties atm that are positive geared (residential) and the net Cash on Cash return is not less than 15% (not including capital growth) on each of those.

A genuine 15% yield on the property? Or a 3% yield with 5x leverage? It makes a BIG difference to the risk of the investment.

 

[Realist]

A genuine 15% yield on the property?

Someone must be paying an exhorbetent rent?

If the property is worth $400,000 - the tenants must be paying $1150 a week in rent.

Would it not be cheaper to live at the Ritz Carlton instead?

 

[doctorj]

Wow! I'm glad I finally popped in to see such a hotly debated thread!

I think the most interesting thing to come out of this is the reason this thread might be so popular at the moment. Around Australia the price of housing is such a hot-topic - prices are relatively still quite high, but have pulled back from their peaks. Yet in places like WA and to a lesser extent Qld, they're still climbing without looking like slowing. Availability of rentals is at record lows around the country and occurances of agents "auctioning" off rentals to the highest bidder are increasing. To me, its all the same issue - evidence suggests that around Australia, housing prices have (and still are) pushing the upper limits of affordability.

Having just joined the thread, I read it and wanted to make the following points.

Stop_the_clock: You _can't_ gear super. You can't secure debt against it. Except under certain circumstances a superfund can't take on debt. Section 67 of the Superannuation Industry (Supervision) Act makes that very clear. If you were to set up a SMSF, claim the co contributions and invest into a geared fund, as Trustee you would be in breach of the act. It will be detected in the compulsary audit you're required to commission and it may result in APRA taking action against you. Superannuation is a very serious business and I can't stress how important it is you understand SIS and other applicable pieces of legislation before trying your hand.

knobby: While it is true, for two funds with equal investment performance and internal control quality, you will be worse off with the one with higher fees. Sometimes higher fees do equal higher investment returns or lower risk (in terms of the Superfund doing something wrong and you're investment underperform as a result or even total loss).

Some other points which I can't remember who to attribute them to:

* Renting is a valid financial decision if you're bearish or neutral on property and the interest payments of the home exceed the cost to rent it.
* Paying off a primary home loan beyond your required repayments can be valid if you're interest rate is higher than your expected rate on return on investments. Some times I think people jump too quickly into paying off a mortgage without considering that it can be amongst the cheapest form of debt which has the potential to make geared investing more lucrative.

Buying the first home is always a difficult step, but even more so given the prices they are selling for these days. As Julia so aptly pointed out, sometimes there are valid reasons for purchasing a home beyond simple financial considerations. Most important of all, to my mind atleast, you can always find a way to get more money down the track, but you can never ever get more time. As cliche as it is, you're only young once!

 

[lewstherin]

My previous post was more in reference to buying a home - i.e. less of an investment reason, more wanting my own space to alter, abide and raise a family in as I see fit, without pesky estate agents involved.

I've always been on a mortgage (and agree with a previous poster that its some of the cheapest debt around), and having moved to Perth recently am finding renting doesn't agree with my lifestyle. Thus far, I've been able to successfully buy my homes ahead of booms and sell at a good premium.
So naturally I wanted to do the same in Perth, but have never seen a frenzy like this before. I absolutely believe that Perth's housing will hit a slow-down at some point, but when and at what settling price level is the catch. So yes, I'm sitting on the Perth sidelines at the moment, but there are pressing personal reasons to get a home of my own sooner rather than later.

In the meanwhile, I mentioned Adelaide primarily because I think SA might be the next "boom" state what with all the defense spending heading Adelaide's way and BHP's Olympic Dam expansion. I think there's potential for SA to make up some ground on WA/Qld as a resources state.
If I'm going to buy a primary residence, I still want to try get in at the lowest premium and with the highest upside given current market conditions. I feel Adelaide can offer this better than most other Aus cities.

Regarding investment properties, I agree with some ppl in that for me its just another place my cash could go.
The downsides of poor liquidity, maintenance, tenants and high entry/exit pricing can be offset if the market is on a decent upswing. That said, I think Aus property generally is still overvalued, with way too many small players muddying valuations by buying up property to flip or for passive income. Perth is a clear illustration of this I think, and I'm hoping to see a few of these bit players burn when the correction arrives. Long term though I doubt any home buyer today will lose significantly over a 10 year period.

 

[quinny]

Just to throw in my two cents worth.

Stop_the_clock, if you think super is the way to go then good luck to you! Personally I hate super. I wish my money was not forced into it! I could've used the money I have in super a lot better than it just sitting there. Even if the returns are good, it makes no difference to me because I can't access the funds.
It may the case that one day I will be very thankful for it but ever since I've had it I have not wanted it! I do not trust that the money will be there when I need it. My father in law's dad was forced to put money into super and then the funds were locked away and could never be accessed and eventually all went to taxes and fees.

See this thread for similar complaints:
http://groups.google.com.au/group/a...+horror+stories&rnum=1&hl=en#07f5561c1220afef

As for the renting vs buying I agree that it is up to the individual. I have lived most of my life in rentals and there is nothing wrong with that. I think the major upset about living in a rental is when the owner decides to sell and the new owners do not want to rent the place to you anymore. But maybe that is just me because I like to have a place to come back to and not have to move all the time.

I live in Perth and bought a house to live in about 2 years ago and I thought prices were ridiculously expensive then! They have just kept going up to even more amazing levels. I am wondering who all these people are that can afford these places. I would love for house prices to go down.

 

[krisbarry]

Stop_the_clock: You _can't_ gear super.

You are wrong, you can gear super and I am doing it right now...

Colonial First State offers a geared superannuation fund

here is the link for proof...this is the super fund I am in!

http://www.colonialfirststate.com.au/Prospects/FS1631.pdf

 

[dennisll]

I bought my house in 2004, which is arguably worse than buying a house now as prices have come down a bit since the rate rises. I was buying shares before I bought the house, and I was still buying shares after I bought the house. Except for a couple of months when I was busy sorting out the purchase, it made no difference to my share buying at all.

Took out a Principal and Interest loan for the house. Before I bought, I was renting at approximately $1k/month. Now, just 2 years after I bought, the interest component of my repayment is less than $1k -- lower than what I was paying in rent. Granted I pay maintenance/rates on my place so my real cost would probably still be greater, however I do have an asset that is allowing me to build equity and that the banks will happily take as collateral if I want to borrow more money for further investment.

I have seen all the studies and data supporting the argument of not buying a house and instead putting the money into super or shares. However, given a chance to do it all over again I would still buy my house. Here are my reasons:
1. The amount of knowledge one gains by simply going through the process of buying a house is amazing. There is so much to do -- researching an area, learning about loans, negotiating, inspecting, etc
2. You don't have to buy the median price, and you don't have to pay the asking price. People will say, "houses are 20% overvalued!" But if you can buy a house at 20% below the bank/council valuation, is it then considered a good buy? This is the key, I think. Yes, buying an overvalued house is similar to paying too much for a good company, but just because the market is overvalued doesn't mean you can't go out there and fish out the well-priced properties. Not all sellers will happily sit and wait a long time until a buyer will pay for what the bank valued his property at.
3. Leverage. You can borrow 100% of your house's value. Sometimes even 105% or 110%.
4. Forced savings. Most people, when they have a mortgage, adjust the budgets correspondingly to ensure that they do not miss any payments. This results in a disciplined savings plan without them even knowing it. Slowly but surely, equity is being built up in a solid asset.

I'm sure there are other reasons as well but these are the only ones I can think of at the moment (it is quite late). I absolutely agree with the old saying that the best time to buy a house is now.

 

[krisbarry]

My brother rolled over his super $40,000 in Colonial First State, Australian Geared share fund and within 16 months his account balance had swelled to $68,000. A great return!

You have the option to place it in Australian shares, then you also have the option to gear it or not. Of course if you gear it the gains or losses are magnified!

Here is the difference.....

* I was in Hesta(Industry super fund)over the past year & my return was 23%

* while my brothers return in Colonial First State was a 65% return.

can you spot the difference?

 

[dennisll]

Hi Stop the Clock,

It sounds to me like you have made up your mind about putting your money in Super. If that's the case, there's really not much point debating the issue then. I wish you luck and hope that the fantastic returns continue for you.

It might be worth noting that the people who deserted the stock market in 2002 in favor of property after seeing the fantastic returns in that sector are the ones that are now stuck with homes with stagnant/declining values. Will the same thing happen with shares/super? Who knows? All I know is that past performance does not guarantee future returns

Cheers,

Dennis

 

[krisbarry]

Its hard to say, I guess we have to look at all aspects:

Positives

More people than ever before now own a super fund, and own shares within Australian companies.

Australian companies are and have been recording massive profits

I see this only increasing.

The government is making sure members add to their own super, with incentives

Generation X and Y seem to be very happy to contribute to their super funds, and see this as their main assest. Not like the babyboomers who seem to think a house is a better asset than super.

Massive growth in China and India are expected to increase the demand for Australian resources, hence the long-term growth may continue

Negatives

Higher interest rates, means less chance to gain greater returns

Increasing babyboomers moving into retirement will drain many super funds as they struggle to cope with the decline of members and the mass members exiting at the same time.

 

[krisbarry]

Hi Stop the Clock,

It sounds to me like you have made up your mind about putting your money in Super.

Yes I have made up my mind...funny enough I have just used the BPay option and deposited a voluntary $270 in my super fund this morning.

better to put $270 into super, than into bricks and mortar in this current market.

 

[nizar]

* while my brothers return in Colonial First State was a 65% return.

Nice one

I used to hold units in that fund too last year; of course my returns was much higher than that as moved in and out; taking advantage of no entry fees... Nice divvy they pay as well