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I have given up buying a house

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Smurf1976 said:
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.
Click to expand...

Smurf, can you please define the risk?

I mean if i outlay $15,000 of my own cash to return net say $2700 p/a to me is a worthy investment (obviously other factors have to be included like occupancy times, vacancies etc..) Even thow the loan my be $80,000 or so it still makes sense to have a 3% return on a 5x leverage.

Its like how i trade. I would rather make 1% on 90x leverage than 100% on 1x leverage. Simply because losses i can cut short and winners i can let run (and its much easier to acheive 1% than 100% so my win/loss ratio is higher). The only issue i would have with my properties is vancancies (and there are ways to minimise this issue). But then again there is wrapping (vendor finance) to solve those issues. Many strategies you can utilize like the share market.


Adrian
 
Good to hear another member has been getting excellent returns, I reckon all this crap about staying with industry super funds is just that *CRAP*

Far better returns elsewhere.

I told Hesta where to shove their industry super fund....up their _____

Moved to greener pastures and haven't looked back :2twocents
 
Macquarie launched their annual Real Estate Market outlook yesterday - a very interesting read:

http://www.macquarie.com.au/remo

For Sydneysiders, they think we're approaching the bottom now however are in for a longer than usual stabilisation phase (rates dependent) due to a less severe downturn being experienced than in crashes the past - prob next 3 years of flat-moderate growth ahead of next upswing.
 
After reading this outlook, I would have to say the housing market looks pretty gloomy for the next few years at least
 
Hmm read this...

It is correct IMHO. Negative gearing becomes less viable now tax brackets have changed.

Property at the moment is a bad investment (in Sydney anyway)

The super changes and the tax cuts will combine to make negative gearing less attractive for investors of all sizes and incomes, and ages.

Some analysts see negative gearing of investment as no longer a retirement strategy (providing the budget's Post-60 super changes are not altered as a result of the industry discussions the government is now having).

Super - salary sacrifice in (save 40% or 45% plus 1.5% Medicare levy) , lose 15 per cent contributions and 15 per cent a year on earnings - tax free out after 60.

Negative Gearing - pay stamp duty on way in (deductible), possible land tax while in (deductible), negative gear interest (difficult in low interest rate environment but possible) and pay capital gains tax (45% on half the gain) on way out.

Also, initial investment will require some post-tax dollars as will any capital repayment. Interest payments are also post-tax until end of financial year.

No comparison: as a retirement strategy for those planning to get out at 60 - negative gearing is pretty much dead I would think - unless the Feds changes the post-60 tax free status of super: unlikely for a while anyway.

In fact some analysts and planners are wondering whether a combination of salary sacrifice and renting property to maximise your super payments and keep them as close to the maximum of $50,000 a year, might be one option, while others are suggesting that a combination of maximum contributions, owning your own home and then selling it and putting as much as you can in the last three years (at least $650,000) into your super.

Not many are saying that negative gearing is a worthwhile investment opportunity for your future or for sheltering taxable income.

It's the tax-free at 60 which kills off the attraction of many other forms of saving for your retirement.
Click to expand...
 
Hi Realist

yep, tax free super at 60 sounds really nice to me :)

my original plan was to take out my super when I turn 55 in a few years but I'll now have to do some serious number crunching to see if it will still be worthwhile taking out my super at 55 (and paying tax) or leave it in the rollover fund until 60........anything can happen re rule changes between now and when I turn 60 but I suspect I will still be much better off waiting until I turn 60 to take my super.

cheers

bullmarket :)
 
I am with Realist on this one, in fact I am about to sell my house in inner city Melbourne and invest in an income producing asset in NZ. Will rent and save a lot of money which will be put into equities which long term perform better than real estate. When the bear market comes in equities I intend to leverage into it, not yet though. For now I will be debt free and very flexible.

Property has had a golden run but long term interest rates are going up, it seems obvious to me anyway. I can't see the great returns of the past 10 years continuing. Flat or down from here I think.

Owning a home can be great for many because it is forced saving and leveraged investment which amplifies returns in the good times. But I don't mind being an active investor, some don't, each to his own, and it is also a lifestyle choice, nice to own your own patch.

As an aside the tax system is skewed to property at the moment which distorts our economy, too many resources in unproductive assets. We need to invest more in R&D and education, long term that is going to be our only edge. We are resource rich but poor in value adding.
 
Realist said:
Hmm read this...

It is correct IMHO. Negative gearing becomes less viable now tax brackets have changed.

Property at the moment is a bad investment (in Sydney anyway)
Click to expand...


When was negative gearing good anyway? unless you have a surplus of cash coming from somewhere investing in negative gearing properties are useless. why? well they are usually capital growth properties but answer this. According to your income how many properties can you afford to own if they are costing you each time (also take into consideration if they are vacant at times)?

The reason i like positive cashflow properties is simply because i can buy multiples each year as its giving me cash. And then if you wanted to use *some* of the surplus to pay for some negative gearing capital growth properties so you have a balance in your portfolio. That way your income is free'd up and you can be more flexible as to how you go about your finances etc...

makes more sense to me, have someone else fund your debt.


my :2twocents
 
Ageo,

what happens to that positive gearing situation if interest rates go up by a couple of percent - still positively geared? What if the underlying asset also depreciates simultaneously?
 
cuttlefish said:
Ageo,

what happens to that positive gearing situation if interest rates go up by a couple of percent - still positively geared? What if the underlying asset also depreciates simultaneously?
Click to expand...


Well cuttle i would never go into any investment unless i allowed for such things. I allow for at least a 2 percent increase which still would give me a postive cashflow return. And if wors came to worse i would wrap (vendor finance) the property to someone which ensures a higher return.

As for a depreciating asset since my main goal isnt capital growth it wont affect me. Cashflow is my business and capital growth is always a bonus for me.

I tend to prefer sharemarket for capital growth as its much more viable IMO.
 
I am really glad to have started this thread, seems as if there are many sides to this debate.

Some are headstrong property investors, others own some property, others own none.

Some invest in shares, some in super, some in management investment etc.

I guess it really doesn't matter which way you build your wealth, all wealth building techniques will go through periods of massive growth, flat periods and downwards trends too.

Alls I am saying is the home ownership for me is totally out of the question, both from a financial perspective and from a market trend perspective. So without giving up all together, I shall be taking a different route to home ownership. That will buy me a brand new home at the age of 65, and none of my money will ever go to bank interest.

This is my key to wealth building, and I see nothing wrong with the way I am going to achieve home ownership.
 
All i have to say is that the WHOLE real estate market is not overpriced. Sure if you want to buy in the city it will be expensive but even if i worked in sydney i would rather commute than buy a house down there.

the housing market has been flat for some time now and will pick up again in 2-3 years. IMO now is a good time to look for land/house in areas that have potential. im not recomending anyone purchase houses in overinflated areas i am arguing that value can still be found.

areas that are increasing in population and have other positive macroeconomic influences are good areas to buy. someone stated areas around bhp olympic dam that will see growth. this is an influence that infrastructure, population growth, resources boom can all have on an area.

if you had the chance to purchase a house in an area that would boom like WA would you?? or would you still sit on the sidelines saying that market is overpriced. it comes down to geographical area and macroeconomic influences. it is very simple.

one cannot state that the whole market is overpriced. certain regions maybe but not everywhere. if we are arguing about purchasing house in sydney i agree.

areas of potential
* hervey bay (new infrastructure, high growth)
* bundaberg (high growth)
* mid north coast (high growth)
many areas will benefit due to new infrastructure in hervey bay

i have shares and will be buying land soon. i would like to spread my money across a number of asset classes. im NOT buying a house in sydney or melbourne, i will be looking at demographics of the area first to decide.
 
cathers_420 said:
even if i worked in sydney i would rather commute than buy a house down there.
Click to expand...

So what your saying is that you would be happy to pay $150 a week in fuel or ride the bus/train/ferry for 2-3 hours a day.

Thats a long working day or an expensive ride to and from work everyday.

I live 6km from the CBD of Adelaide and love it. If I ride the bus it takes me 15 minutes or if I drive I spend $25 a week in fuel, bargain!
 
'expensive' is a relative term - what is expensive for someone could be cheap to someone else.
 
bullmarket said:
'expensive' is a relative term - what is expensive for someone could be cheap to someone else.
Click to expand...

The point I was trying to make is that people get lulled into a false sense of security buying cheaper properties on the outer fringes of the city, then realise their a very little bus/train/tram/ferry services and are forced to commute by car.

And whamo....fuel prices rocket up and what do you have, nothing but a pile of ****. Interest rates go up due to inflation, then the outer suburb homes lose value the first, and the poor old commuter is stuck paying $100 to $150 a week in fuel.

get my drift....

wasted money down the drain IMO...

I would rather spend $25 a week in fuel and deposit the savings, than to give it all to the fuel companies and the banks in interest :banghead:
 
You can, and you can have property too


– Investment property, even in different state if you wish.
 
Ageo said:
Smurf, can you please define the risk?

I mean if i outlay $15,000 of my own cash to return net say $2700 p/a to me is a worthy investment (obviously other factors have to be included like occupancy times, vacancies etc..) Even thow the loan my be $80,000 or so it still makes sense to have a 3% return on a 5x leverage.

Its like how i trade. I would rather make 1% on 90x leverage than 100% on 1x leverage. Simply because losses i can cut short and winners i can let run (and its much easier to acheive 1% than 100% so my win/loss ratio is higher). The only issue i would have with my properties is vancancies (and there are ways to minimise this issue). But then again there is wrapping (vendor finance) to solve those issues. Many strategies you can utilize like the share market.


Adrian
Click to expand...
The problem is what happens when something changes?

It's like driving past a speed camera that you know to be set at 103 km/h. If you consciously drive at 102.9 km/h then very little needs to go wrong for you to get a speeding fine. Travel at 95 km/h and there is a lot more margin for error.

With investing, it relates to volatility of returns when something changes. If those changes are in your favour then you make a big profit. If those changes are not in your favour then profit quickly becomes a rather large loss.

Some examples. You have an 80K property with 15K equity returning 2.7K per annum net. Assuming that you're paying around 7% interest on the loan your rent per week is around $140. If you have just one month void then there goes 20% of your annual return. If the hot water service needs replacing then there goes a third of your annual net return. If the capital value falls by just 4% then you have a loss (income minus capital value change) for the year. If it falls 10 % then, after selling costs, your investment is basically worthless. If interest rates rise 1% then that would take out 24% of your annual return.

The bottom line is that high leverage massively exposes you to fluctuations. If the leverage is sensible then that's not a huge problem. 5x isn't that bad in that sense, I use similar leverage in some of my trading. But there are plenty of stories of amateur property investors using leverage that makes 5x or even 10x look incredibly low - asking for trouble IMO. :2twocents
 
Smurf1976 said:
The problem is what happens when something changes?

It's like driving past a speed camera that you know to be set at 103 km/h. If you consciously drive at 102.9 km/h then very little needs to go wrong for you to get a speeding fine. Travel at 95 km/h and there is a lot more margin for error.

With investing, it relates to volatility of returns when something changes. If those changes are in your favour then you make a big profit. If those changes are not in your favour then profit quickly becomes a rather large loss.

Some examples. You have an 80K property with 15K equity returning 2.7K per annum net. Assuming that you're paying around 7% interest on the loan your rent per week is around $140. If you have just one month void then there goes 20% of your annual return. If the hot water service needs replacing then there goes a third of your annual net return. If the capital value falls by just 4% then you have a loss (income minus capital value change) for the year. If it falls 10 % then, after selling costs, your investment is basically worthless. If interest rates rise 1% then that would take out 24% of your annual return.

The bottom line is that high leverage massively exposes you to fluctuations. If the leverage is sensible then that's not a huge problem. 5x isn't that bad in that sense, I use similar leverage in some of my trading. But there are plenty of stories of amateur property investors using leverage that makes 5x or even 10x look incredibly low - asking for trouble IMO. :2twocents
Click to expand...


Yep!

And lets not forget the proverbial Black Swan lurks about, ever present... as does one Mr Seamus Murphy and his infamous law.

:2twocents
 
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