tech/a
No Ordinary Duck
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Certainly agree in this case example.
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Certainly agree in this case example.
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That's very true. Historically, property was the place to be.
But stagnant wage growth, huge debt burdens, near zero cash rate and narrowing AUDUSD yield spread is not inspiring confidence.
If property can continue at the rate it has historically, then it's a great investment. It's just such an unknown now that one can't really be that comfortable having all their eggs in that one basket.
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hate to be paying rent at retirement, anybody do it?
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I have experienced first hand the difficulty of investing in the property market the past few years.
Because the past 2 years in a lot of areas (Looking at city averages which look okay is misleading compared to the types/locations of properties investors tend to buy) rents have been flat or even falling, vacancy rates have been a little too high and investor mortgage interest only rates have risen yet against this backdrop the prices have been rising.
Its like if you owned a stock that was already on a high p.e ratio and the earnings were flat or falling for a few years and yet the stock price kept rising because idiots keep bidding up the p.e. ratio to crazy levels. You start getting an itchy trigger finger and begin to wonder if you should sell the asset. Its very different to when you own a stock with strongly rising earnings and the share price is getting a bit ahead of itself. In the rising earnings and dividends scenario you tend to feel more comfortable to hold your position.
For example in a smaller city around 2 years ago I bought a CBD apartment on a gross rental yield in the mid 4% range. In two years I have not been able to put the rent up and have endured a total of 10 weeks of vacancy over a two year period. Also my interest rate (investor interest only loan) has been creeping up. Meanwhile the price has risen 40-50% and the gross rental yield on current market value is in the low 3% range. If rents stay stagnant for another year or two and prices again rise I might just cash out, especially so given the property is negatively geared.
It must be said that most property buyers are idiots with zero concept of valuation or market history or economic history, etc.
Honestly the main reason I invested in property was due to the borrowing capacity. Its difficult to find another asset where banks lend so heavily against it and at such low interest rates. If you want to borrow via margin loans to buy shares you can borrow much less (percentage wise), have to pay a higher rate and are subject to a margin call. Using options, CFDs or warrants for leverage are all present their own challenges and are not so great either.
Honestly if I could borrow against shares the same way I could against property, I would never even contemplate owning property. The ability to borrow a lot with a modest interest rate is what makes it worthwhile.
Because the past 2 years in a lot of areas (Looking at city averages which look okay is misleading compared to the types/locations of properties investors tend to buy) rents have been flat or even falling, vacancy rates have been a little too high and investor mortgage interest only rates have risen yet against this backdrop the prices have been rising.
Its like if you owned a stock that was already on a high p.e ratio and the earnings were flat or falling for a few years and yet the stock price kept rising because idiots keep bidding up the p.e. ratio to crazy levels. You start getting an itchy trigger finger and begin to wonder if you should sell the asset. Its very different to when you own a stock with strongly rising earnings and the share price is getting a bit ahead of itself. In the rising earnings and dividends scenario you tend to feel more comfortable to hold your position.
For example in a smaller city around 2 years ago I bought a CBD apartment on a gross rental yield in the mid 4% range. In two years I have not been able to put the rent up and have endured a total of 10 weeks of vacancy over a two year period. Also my interest rate (investor interest only loan) has been creeping up. Meanwhile the price has risen 40-50% and the gross rental yield on current market value is in the low 3% range. If rents stay stagnant for another year or two and prices again rise I might just cash out, especially so given the property is negatively geared.
It must be said that most property buyers are idiots with zero concept of valuation or market history or economic history, etc.
Honestly the main reason I invested in property was due to the borrowing capacity. Its difficult to find another asset where banks lend so heavily against it and at such low interest rates. If you want to borrow via margin loans to buy shares you can borrow much less (percentage wise), have to pay a higher rate and are subject to a margin call. Using options, CFDs or warrants for leverage are all present their own challenges and are not so great either.
Honestly if I could borrow against shares the same way I could against property, I would never even contemplate owning property. The ability to borrow a lot with a modest interest rate is what makes it worthwhile.
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tech/a
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Why did you buy an apartment in the CBD within the last 2 yrs?
Why buy an apartment at all.
Property 101
Buy with land ---- always.
You have every qualification to be one of your property buying idiots!
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Tech/a sometimes when you don't sufficient have capital its a trade off between location and land size. Obviously if you can afford land (e.g. house with a big backyard) in a prime location that is better than buying an apartment or townhouse in a prime location. However if your budget is limited do you buy an apartment in a prime location or a house with a backyard further out in the suburbs? Its not necessarily an easy call to make. I wanted to buy a house in or near the CBD but my budget would not allow it so I bought a CBD apartment.
I am not an idiot I know that buildings depreciate and its the land value that increases over time.
You have to look at land value as opposed to land size/content. A $500,000 apartment that is in an old building might for example have $200,000 of building value and $300,000 of land value. Meanwhile one of those newly built land and home packages on the city fringe for $500,000 might have $350,000 of building value (nice new home) and a $150,000 of land value (land on the fringes is not worth that much). So who is investing more money in land, the inner city apartment buyer or the guy buying the house and land package on the city fringe?
As to why I bought a property 2 years ago I picked a small city whose economy was picking up and yet whose house prices had not boomed yet.
I am not an idiot I know that buildings depreciate and its the land value that increases over time.
You have to look at land value as opposed to land size/content. A $500,000 apartment that is in an old building might for example have $200,000 of building value and $300,000 of land value. Meanwhile one of those newly built land and home packages on the city fringe for $500,000 might have $350,000 of building value (nice new home) and a $150,000 of land value (land on the fringes is not worth that much). So who is investing more money in land, the inner city apartment buyer or the guy buying the house and land package on the city fringe?
As to why I bought a property 2 years ago I picked a small city whose economy was picking up and yet whose house prices had not boomed yet.
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This isn't about paying rent at retirement as such, it's about creating a plan to provide for retirement.
If it so happens that the better option is paying rent over owning, then that gets modeled and worked into the plan.
tech/a
No Ordinary Duck
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Making a poor decision based on available capital is still a pour decision.
You should not have made that purchase in the first place
The wanking Duck sold all his property under loan 2 yrs ago.
Keeping only freehold property.
You should not have made that purchase in the first place
The wanking Duck sold all his property under loan 2 yrs ago.
Keeping only freehold property.
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Tech/a when you are a young guy on a modest wage with limited capital often the only way you can borrow a lot of money cost effectively is through buying property. You are in a different life situation to somebody like me. I was/am just making the most of the situation. The scenario I outlined was not optimal but it seemed to be the best choice at the time.
tech/a
No Ordinary Duck
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Both of us ( all of us ) were born broke and naked.
I too was once 20.
But chose a different path.
I too was once 20.
But chose a different path.
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Two sides to every story I guess.
Both a mate and a former work colleague bought investment properties to rent out, both taking into account the potential appreciation in land value (one at Northfield and on at Gawler - tech/a will understand the locations).
Both of them have been to court twice each to either get rent owing or to have the tenants evicted.
On both occasions for both of them they have had to do major repairs as well as dumping scrap cars etc.
End result for both of them - never again, one property has been sold and the other will be going on the market soon as there is about three months left on the rental contract.
Inner city apartment or outer suburb land value, all seem to have issues.
Both a mate and a former work colleague bought investment properties to rent out, both taking into account the potential appreciation in land value (one at Northfield and on at Gawler - tech/a will understand the locations).
Both of them have been to court twice each to either get rent owing or to have the tenants evicted.
On both occasions for both of them they have had to do major repairs as well as dumping scrap cars etc.
End result for both of them - never again, one property has been sold and the other will be going on the market soon as there is about three months left on the rental contract.
Inner city apartment or outer suburb land value, all seem to have issues.
One more example "Dividend Recycling". I did similar during that bull market (Techtrader days) and paid our PPOR off:
http://www.retireondividends.com/support-files/peter-thornhill-dividend_recycling.pdf
Edit: no CGT issues with renting rooms out
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...the Aussie version of Heston's establishment. I'll skip dessert...
Few pages back now but the super fund i am with has a direct investment option. See below pdf with details: https://secure.superfacts.com/web/IWfiles/attachments/Form/MST_MercerDirect_MemberGuide.pdf
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Sir Burr that interest rate from interactive Brokers is low but it still does not address the other problems of margin call risk and lower LVRs (compared to property) that go along with margin loans.
Glad you whispered that, wouldn't want the ato to hear.
https://www.ato.gov.au/General/Property/Your-home/Renting-out-part-or-all-of-your-home/
tech/a
No Ordinary Duck
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If you make money on anything you'll need to pay tax.
A consideration sure!
Just as a long term holding in stock where tax is on 100 % of it
If it's a room or 2 it's proportional.
The stuff that keeps accountants employed.
You shouldn't limit your effort to become financially secure
For fear of tax
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True, overnight 50% so way less than a home loan. Also if you bust margin, they randomly sell at the end of day.
Being informed of the tax consequences of a decision is not being fearful of tax.
No use having your accountant tell you aftwards that your return will not be what you expected. By then you are are already committed to an inferior opportunity.
