Forum Replies Created
Well your certainly entitled to your opinion, but lets just take a look at what your saying and perhaps a little enlightenment along the way – well my opinion at least.
Dan, I'm still a property investor as we speak today, in fact I bought a property 2 months ago and looking at developing 3 units. But the data is there to back up my (Garbage Rant as you put it), outlining how over inflated our properties really are, people, couples with good jobs, nurses, teachers etc. cannot afford to buy a house. Something is wrong.
Well depends on what house they want to buy really – the kind of house my parents bought as their first home back in the 1960's I suspect would be considered unlivable by today's generation, ie needs to have 4 bedrooms, rumpus, home theatre, office, 2 bathrooms etc.. well all that costs a lot more, but if for their first home they aimed for what they could afford, we'd probably find nothing has really changed, except peoples expectations of what a first home should be…Oh and the furnings and plasma tv have to be barnd new and classy, not like the hand me downs I was grateful for in my first home… so you tell me, are our expectations inflated or are the house prices. They actually can afford to buy a house. just like our parents could.
Our prices are much dearer in Australia than what they were in US before the crash. We have further to fall. The only reason we haven't crashed yet is due to the population explosion the country is undertaking, and a quick fix injection of funds, with no long term prospects.
Wow quite a mouthful there.. its true we seem to have the most expensive houses in the world, but thats what demand does, it pushes the price up, everyone wants to live here, so you have to pay to live in paradise. Now our banks haven't done anything near as stupid as what US banks have done with lending and given the demand in Australia, if a default occurs, its pretty much assured of being snapped up by someone looking for a bargain. The stats will back this up, the demand is going to continue folks, the population increase isn't a myth. So house prices are going to continue to be strong.
If the Real Estate Market doesn't crash within 12 months, at best it will just stand still, but forget your 10% yearly increase in property, those days are well and truly over. Renos and developments will still bring you profits, but capital gains?Well again, the stats just aren't backing you up. If you go and look at house prices for every year since 1900 and then average them out, you will find on average house prices increase 10% each year. Of course taking a snapshot of any 3-7 year period will see wild fluctations, but it depends what you're looking to do in the property market. if you're in it for the long haul ie 10-20 years, you will see an average of 10% growth per year over that time, despite whatever crashes may occur. if you're looking to make a quick buck in the next few years – who knows, I personally suspect it will be a little flat, but I'm in it for the long haul so don't really mind.
I remember in the late 90's when I was investing , we all thought hosues were way overpriced and didn't see any chance of growth. Guess what, come 2001 and house prices doubled, in fact some tripled. I don't subscribe to the theory that houses are too expensive. Its what the market is prepared to pay and I don't see pay packets diminshing, so house prices will continue to rise and I fully expect in 10 years time my $400,000 investment property will be worth close to $700,000. I also expect my wage to have doubled in that time, just as it has over the last 10 years.. The world moves on, inflation occurs and we all go thorugh economic cycle after cycle. Demand wins everytime.. and its getting bigger…
John.
Minimise your non tax deductible expenses as much as possible if you are going to build growth. This means minimise your owner occupied home mortgage interest whilst using maximum leverage on your tax deductable expenses such as investment home mortgage interest…
Just my two cents worth.
Rod
Let me put another slant on it. Australia is actually one of the nicest places on the planet to live. We have no war, amenities and public utilities are arguably as good as anywhere else and we enjoy a warm climate and relaxed lifestyle. Folks the rest of the world values this, we just take it for granted. Yes Australia is the least affordable place to buy a house, but thats what happens when you live in paradise.
Richard gives good advice. Always look to reduce your non tax deductable expenses such as interest on your PPOR. Let the government and your taxes do the work for you when investing in property.
cheers
John
In answer to your question Rhys_Roberts… Yes!!
Use equity in their existing home to create the deposit. Remember its all about reducing your non-deductible expenses.. A loan for a deposit from equity in their existing home is tax deductible. Why use your cash savings to fund an investment property when the banks and government can do it for you…I agree with the above posts. My accountant gave me the most valuable advice years ago when I was getting into Investment Property. Do everything you can to reduce your non tax deductible expenses.. simple as that..
Take $60k off your home loan, your interest expense goes from 6% of $120k ($7200 pa) to 6% of $60k ($3600pa). That saves you $3600 per year.
Then use equity in your home to the value of $60k to purchase an investment property, thats $3600 per annum interest you can claim off your tax.Alternatively, you can plough the $60k straight into an investment property and you don't get to claim any deductions on your tax bill and you are still paying the full $7200 per annum off your home loan.
I know this is oversimplified, but its a good way to illustrate the issue.
cheersJohn
This forum comes close to the top in google search when reviewing Custodian Wealth Builders, so I thought it might be the best place to put my experience for others to read.
I attended one of their seminars (paid the $30) and got the free book 7 steps to wealth. The seminar was ok, not big on details but gave me enough information to understand the potential of property investment. Their basic premise is, build a house, don't buy, avoid the big four banks and cross collateralisation and make negative gearing work for you. I also was interested to see John Fiztgerald in the flesh – the shiny suit, the gel hair, the suntan – this guy reeks of salesmanship.
I read John Fitzgerald's book which gave me the detail I was after on how it all works, ie negative gearing, depreciation deductions, whats important to look for in a location etc.. All of it is sound advice and I can't disagree with his ideas.
Some people say house price doulbing every ten years is a myth, but actually, it is a fact that since the early 1900's, on average house prices have gone up 10% each year. Mind you its not linear and John Fitzgerald fails to mention that, but even since 1970, on average house prices have increased 10% each year.. S it might not be in the next 10 years, prices will double, but over the next 20-30 years we should be confident there is going to be growth consistent with the last 100 years.. right??Onto the first meeting with Custodian. I booked a meeting to see their consultant. I can describe that as very smooth. He has employed some smart people. They are happy to spend a LOT of time with you to answer all your questions, explain scenarios and show you how it can be done. I am a reasonably intelligent guy and I really put some tough questions to the rep and read over their material and their logic stacked up. I am happy to say I am still using their logic to purchase my investment properties. So far so good.
Then comes the selling…Once they convince you can actually do this, they invite you out to a day in which you view a piece of land, sign up for a loan and sign the contract with a solicitor present. Woah I said . "All in the one day"… Of course there is the cooling off period if you want to pull out, they said. I asked to review the land and house package they were going to show me so I had time to review and get questions ready and do research on the area, but they denied that request, or rather claimed they didn't know what property was going to be available until Saturday. Strange I thought..
So I went along with it and spent a day with them.
They claim to use their own reliable builders.
They have their own investbank broker who the loan is done through. (ING seems to be their favourite)
They use their chosen solicitors to act on your behalf. (how nice)
They offer a fixed price contract to complete everything to turnkey.
They charge 3% for the first home you build with them. On an avergae $400k home thats $12kSo what happened.
They showed me some land in an area that I know is of some disrepute, ie high crime – not bad in itself but you try and get good returns there..
The house was a package being done by the developer (not their builder as they had indicated) and it was going to be similar to to the other houses in the same estate that the developer was building – not quite what I was after – I want to be the average house in the street with better houses around me.
It was way overpriced for what it was, I knew I could build a superior house for a cheaper price straight away.
When we returned to the office, the invest loan guy was ok and took me through the fees and the loan (boy there were a lot of fees) but the solicitor…
thats when it all went a bit hairy
The fees.
The solicitor wanted to charge an enormous sum of money (read $1800) to review a contract that they had seen dozens of times before. I challenged them on that – the clerk or whoever she was didn't like that at all. I asked for my own solicitor and they all got a bit narky.Then I started to challenge them on a few other things, ie the loan fees, the interest rates (which are a little higher than I can get elsewhere).
In the end I walked away. The costs were going to be over the top and I couldn't see the value in their property.
So what did I learn?Don't just take it for granted they are securing a really good deal for you in terms of location, property and house – they may on some occasions, but they are just getting whatever is available at the time making you believe that its all going to be double the value in ten years time . Well Mr Fitzgerald, that may be true, but how about I pour my money into something that costs the same and is going to get me an even better return over those 10 years and probably be worth a bit more after that because I did some research and got some real value from my own house builder. All that from reading your own book and applying your principles and realising what you were trying to sell me didn't stack up.
Their loans and solicitors are more expensive that what you will get normally.
Their 3% fee is expensive and only useful if you just don't understand the process and don't have any time to build a house yourself.They want you to sign a contract for a property on the day you see it and use the cooling off period for you to do the research – well that may be good for time poor people – but thats not the way I want to work, but they won't be flexible on that and now I know why.
If you feel you have zero time to handle the process of property investment, these guys will do it all for you, BUT, you are more likely to get a better investment by doing the work yourself using his logic and saving yourself the $12k+ fee.
I don't represent any company and have no affiliation with anyone in the investment industry. I'm a private individual who likes to do his homework.
cheers
John.
