Forum Replies Created
Thanks for the discussion so far.
Be careful not to make this an 'Australian vs US' issue. It's not, and that's the point Buffett is making. No one saw it coming because there was no concept that it could happen.
We tell ourselves the same things in Australia and argue how and why we are different. The simple truth is that it could, but that until some event happens (which does not currently exist), in all likelihood it won't. Instead, the expectations of people will mean that property prices will keep going up.
Let me tell you a story of a situation that proved me awfully wrong. Driving home some years ago, it struck me that the stock market couldn't ever crash again. Why? Because each month there will billions of dollars that had to be placed 'in the market' via superannuation contributions. In other words, there was mandated government supply of new money into financial markets that had to keep flowing in, and so long as more money came in than went out, prices had to increase.
Clearly, I was wrong. But why? It's true that more money keeps coming in, but values dipped suddenly. This was not because of economic factors. It was because of psychological factors.
So the same point could be made for the property market. The economics of a housing shortage, strong Asian demand, etc. all point to a continued strong market. But… if people no longer perceive value, then it doesn't matter a cracker about the economics, prices will drop.
In many ways, that's the state of play with the Aussie market now. Without the psychological drivers in full force, values have stagnated.
I guess what I am saying is that the economics are used to justify the outcome, but because people are random rather than predictable, the future is anything but certain. That said, investors still need to piece all the variables together as best as possible in order to make informed decisions.
More food for thought…
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I have been to Lehigh Acres on my trips to the US, and had a good look around.
I think the name says it all… 'acres' implies land, and lots of it – and so there is in Lehigh.
With the lack of scarcity, land prices are extremely low. No one is building on it either because falling property values mean that it is far cheaper to buy second hand than build new. There are also many foreclosures keeping a lid on prices (both short sales, REOs and mortgage foreclosures). It is doubtful whether there will be any capital growth in Lehigh in 2011.
So, as is often the case in real estate, there is opportunity… but you need to have the time, money and skill to access it. The opportunity is cash flow (rentals), flips, vendor finance etc.
I would NOT buy in Lehigh without going to see it first hand, nor would I buy unless I had my management team there to look over my investment.
To date I have bought (with my business partners) around 60 properties in the Ft Myers area. None of them are in Lehigh though.
– Steve
P.S. Further information on Lehigh at: http://en.wikipedia.org/wiki/Lehigh_Acres,_Florida
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi guys,
The point I am trying to make is that a developer with pre-sales will find the going smoother. That is s/he will be able to get finance and there is relatively little risk provide they know what they're doing.
On the other hand, speculating is going ahead with a development without finance or pre-sales. This is done in better markets because there is extra return.
What I'm saying is that:
a) When the market turns there will be comparatively fewer new developments coming on to the market that have not been presold, because by its nature, fewer are started earlier when times were tougher.
b) Because demand will exceed supply at that time (when the market improves), prices will be set to jump up rather than float up.
c) Once price moves, developers will be happy to take extra risk and so 18 or so months later, more supply hits the market.
So, the question we should be asking is… what was the market like 18 months ago. The answer is… coming into the GFC when finance dried up. Therefore, we do not have a supply glut coming on because it has been difficult to finance developments without presales since late 2008.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi guys,
The point I am trying to make is that a developer with pre-sales will find the going smoother. That is s/he will be able to get finance and there is relatively little risk provide they know what they're doing.
On the other hand, speculating is going ahead with a development without finance or pre-sales. This is done in better markets because there is extra return.
What I'm saying is that:
a) When the market turns there will be comparatively fewer new developments coming on to the market that have not been presold, because by its nature, fewer are started earlier when times were tougher.
b) Because demand will exceed supply at that time (when the market improves), prices will be set to jump up rather than float up.
c) Once price moves, developers will be happy to take extra risk and so 18 or so months later, more supply hits the market.
So, the question we should be asking is… what was the market like 18 months ago. The answer is… coming into the GFC when finance dried up. Therefore, we do not have a supply glut coming on because it has been difficult to finance developments without presales since late 2008.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
Thanks for your post and welcome to the community.
No – the 1% rule assumes that you are leaving a 20% deposit.
Regards,
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I've written 14 emails to 250k members… one a week leading into April when I needed to refocus for the Conference. I will be returning to writing emails again from this week.
I agree that the dedicated forum is dragging its heals in a big way… but I promise it is still a priority.
In regards to mentoring, there was no promise made here… just a promise to write monthly emails to Club members, and I feel I have more than done that with my efforts to date.
Cheers,
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Okay… a couple of thoughts here about equity.
First… how is equity created?
You can create equity by:
1. You repay debt; and / or .
2. Values go upIf you get both then, as you'd expect, your equity will increase faster.
Second… how can you tap into equity?
In Australia, you can tap into your equity without triggering a CGT event. This is seen attractive as you can access (some of) your profit without paying tax on any capital appreciation.
That said, as with any borrowings, there is an up-side and a down-side. The up-side is extra leveraging, the down-side is increased credit risk.
How much equity should you access?
There is no hard and fast rule, except to say you shouldn't finance more than you can comfortably afford to repay.
With that in mind, even if a lender was happy to provide you with a 90%LVR, it may not be in your best interest to access / spend all of it.
In fact, in my opinion, remaining below 80% is more sustainable.
Finally, think carefully about what you use your refinaced equity to buy. If it is lifestyle related (as opposed to investment related) then the interest will not be tax deductible.
All the best,
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
You could seek to get the details of the council… I'm not sure if the rate payer roll is public record or not though.
If not, you can always do a title search. That will tell you the owner and a contact address.
All the best,
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Yep – the FL auctions are now over for 2010, but those 'sold back' to the county are available for over-the-counter purchase. I will be looking at them.
That said, other States have auctions in other months.
In regards to strategic 'hand back' mortgages, we talked about this at the event when covering the due diligence. In particular, the rule about the maximum amount of all outstanding tax liens being less than 40% of the value of the property.
That way, even if the home owner walks away, if there is a mortgage the lender will want to pay out the lienholder rather than losing their mortgage (which is presumably worth much more than the tax lien).
In fact, properties in this category make excellent liens to hold as they will likely go the distance and will only be redeemed once foreclosure is started. This way you get full value for return, are not kicking anyone out of their house, and will be ultimately repaid.
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Yeah… I can remember in the mid 1990's wondering how I could ever afford to buy a $200k house in Melbourne… Alas for those searching for a way to make it work now!
Look, the days of buying a home and working to pay off the mortgage are coming to an end… it's just not possible for your average person to do this as property prices are increasing faster than most people can save. Another model is needed.
In my opinion, this comes from doing reno type projects to build capital (or share trading, property options etc), and then using your profits to fund a bigger deposit on your PPOR so you can have a less humungous mortgage. In my case, I never bought the house but rented and invested in property with my deposit money instead.
Food for thought.
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
There will be others with broader mortgage working knowledge than me, but, I'll have a crack at giving you an answer…
1) Yes, there will be interest on the $100k drawdown (which you might be able to capitalise or else pay for out of the drawdown rather than paying cash). There will also be interest on the loan for the IP.
That is, I'm assuming you will use the drawdown on your PPOR to pay for the deposit on the investment property (IP) and have a separate loan (say 80%LVR) for the balance?
2) The rent will normally be paid to a rental manager (who will have a trust account), and you can direct them to pay it to whatever account you nominate (cheque account, loan account etc)
3) The shortfall can comes from the LOC, or from other means… but it must come from somewhere! Clearly, if there is a shortfall you are buying for growth, so do your sums carefully and test your assumptions thoroughly!
4) I'm not sure about this question as a LOC will usually be in debit (you owe the bank), whereas an offset account is usually in credit (the bank owes you). Perhaps someone with specific mortgage product knowledge could let us know is such a beast (that allows a debit LOC when the loan is drawndown, and a credit 100% offset when the account is in credit) exists…???…
Hope this has helped. Thanks for your post.
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
Are you sure it's my book… can't recall writing one under that title
As a general rule, beneficiaries are usually worded in a generic sense as far as family is concerned (mother, father, cousins, step siblings, sons, daughters, grand children etc), plus you can also nominate specific beneficiaries too (a company, charity etc).
For a more accurate answer you will need to look into the wording of your trust deed.
Cost is usually <$1000 to set up, and less than $750 per annum to maintain (tax return, financials). It will be more if you do a lot of investing or keep poor records.
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
You can definitely bank US checks into an Aus bank account with the majors (NAB etc)… I've done it many times. The banks hit you on fees, clearance times and with an unflattering exchange rate though. I'll keep looking for an answer for a US account, but the issue is having verified ID.
The trick in applying for an ITIN is having the right reason and supporting ID. You can't just set one up… that's why Tommy needed to get a letter from the County Tax Collector to support the application. I'd like to see the looks on their faces when he asks for 300 letters!
Further light reading on the ITIN can be found at:
http://www.irs.gov/pub/irs-pdf/iw7.pdfHappy reading,
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
Thanks for starting this post. We're very open to constructive criticism and we are fully on-board to make the event better.
In particular, I appreciate the comments about being 'oversold'. We set very strict rules around conduct, and that the content of the presentation must empower people to understand the concept. Only then, if people want to go further, can the product etc. be mentioned. If any session was a hard sell then please let us know so we can take corrective action.
In saying that, can you please ensure that your comments remain respectful and helpful. Since this post relates to us, we want to be very sensitive in moderating it to ensure a balanced discussion is maintained, but we cannot allow defamatory or disrespectful comments.
Please keep posting. We're reading and taking on board all that you say.
Thanks,
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
It really is starting to look like a bubble. In the last board minutes, the RBA mentioned that the motivating factor in increasing interest rates was growth in house prices. This will surely add fuel to the fire of further increases in months ahead.
Still, even if we are in a bubble, will it pop (like Steve Keen predicts), or will it deflate?
My vote is for it to deflate as, unlike the US and Spain (which are often quoted as a basis to expect prices to drop here), we did not experience a boom in buildingi n the mid-2000's like they did.
One thing is for certain though… the growth in prices is not sustainable, and these figures are as alarming as they are amazing.
The real danger is if people borrow against this new 'equity'. Keep an eye out for the return of 'equity mate' ads on TV!
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Also suggest you look at:
This is the ATO's very general outline for property investors.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
They are a cost incurred in earning assessable income, so I should think so.
More info can be found at:
http://www.ato.gov.au/individuals/content.asp?doc=/content/00113245.htmIf loan establishment fees can be claimed, then surely break fees could also.
Check with your accountant though.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Highly recommend this guys.
Good quality info, good quality people.
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Welcome to the forum.
A couple more suggestions for you:
http://www.news.com.au is a good Aussie news site
You can also set up a google news feature with hot wordsDepending on where you land there might be good local investor groups you can join. APN in Vic is one.
All the best for the move across.
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi,
I suggest you take a look at:
https://www.propertyinvesting.com/strategies/flips
If you have the revised edition of my book, you can also read an expanded chapter on the topic.
Regards,
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
