Forum Replies Created
I think you are absolutely correct.
I mean in general I would expect rents to be lower than repayments, but in the long run not by as much as they are.
What this means to me is rents will either have to increase or house prices will have to fall. As more people realise it is much cheaper to rent and use the extra money on other investments or lifestyle there will be fewer buyers, thus lower demand and sellers will have to stop selling or drop prices.
Of course with lots more people deciding to stay renting slowly but surely there will be an increase in rent prices as more people try to rent.
Check out south of Perth for example. In Mandurah I can rent a huge place next to the ocean fro $300/week but to buy it I’d be forking out up to twice that. That can’t be sustained for long. people will stop buying and rent and price will move together again.
Of course it could just be there is a premium in owning property in certain locations. East Melbourne property costs a bucket, but I’m renting there much cheaper than if I bought. I’d love to own a place in East Melbourne (I’d like the security and freedom) but I can’t afford it so I rent and buy in cheaper places.
What do you think? A premium for owning certain locations that isn’t reflected in the rent?
Ah, I’m told the sky is grey and appears blue. Well there you go, a definition that fits the facts. Logic is preserved.
As much or as little can go on behind the scenes and giving money away for free is still lost money. Of course it is possible there is some legislation that allows them to make money only if they give it away as a loan, but why not use the money themselves to buy property through another company by loaning it to themselves and reap double rewards? I think no. I think the interest free nature would involve only a technical definition of “interest free” and the money would need to be returning more than was going out or the business would fail. And it did.
[biggrin] Following the flock?
Yeah, the flock I’m following is called rational economics and it exists in the real world where money has value.
The simple logic of the loan doesn’t make sense. Simple logic is that they hand over $$$ and that’s all you pay back over 20 years. As stated that will inevitably lead to a net loss. That’s mathematics, the same type that allows me to count from 1 to 10, the same type used to describe everything in the universe. I will comment on things I don’t understand because of all the things I do understand. If you told me the sky was green and failed to provide a definition of green that would effectively equal blue I would not understand but still comment that you have made a judgement (or communication) error.
IFHL are a perpetual energy device.
Management breakdown? I don’t doubt it, but I would have thought giving money away for free would put a bit of strain on any business model regardless the management.
Assuming they weren’t giving money away for free (ie the borrower in some form or another repayed more than they borrowed) I agree there could have been substantially improved dissemination of specifics to the public as basic logic says if you hand out $100,000 and get back $100,000 after 20 years, you’ve lost money (due to inflation). And no the 5% “conduit” deposit (which is refunded at the end) would not be enough to generate sufficient returns to counteract this. If the 5% deposit could be used to generate money, why not the other 95%? I don’t understand.
I can’t believe anyone gave IFHL even a passing thought!
Honestly if anyone was ever selling snake-oil Derivex were. Upon hearing the term “interest free home loan” I looked them up. I was hoping to find out how they intended to make money. When I read their babble and jargon rubbish my spidey senses tingled and I switched off.
If it were possible to given money away for free and still make a profit those Trillion Dollar companies would be doing it, not some upstart bunch with a dodgy web-site and an amazing inability to state where their profit comes from.
Simple fact: If money is worth 5.25% / annum you can’t lend it for less than that AND make a profit. If you could either we’d end up with hyper-inflation or the money rate would be raised until it was equivalent to 5.25%.
Anyone saying otherwise is selling a con.
I don’t call anyone stupid for trying to find out what the deal is, but I don’t think it was hard to realise the deal would fail. If it would work, wouldn’t a big player buy them out? Virgin would love to such a product; they could really challenge the banks.
Chalk up another con that failed to sail.[baaa]
I was going to invest heavily in:
Emu farms (Emu farms? What were you thinking Marge?)
Olive groves (mmm olives)
Australian Films (they always do well)
Borrow against my IP to pay out my PPOR then pre-pay my interest by the end of June for a fat refund (and then move off-shore to avoid the ATO)
Buy off the plan using a bank bond then on-sell at a massive profit before settlement in two years, thus making an almost infinite return on cash invested!
Start a “home based business” that really works. All I need is ten down-lines each with ten down-lines and I’ll be a millionaire (with no friends)
Sell generic viagra on the net.
Cure myself of cancer through the power of thought alone. (note: I don’t actually have cancer)
Attend a wealth creation seminar for the tiny sum of $5,000 (tiny sum because I’m sure to make a million).
Um…That’s about it.
[biggrin]Hi,
Gee do I detect a hint of distaste for professional property developers?Anyway. I believe,as with all things, the best way to approach something like this is to research and lay out a plan.
There are, believe it or not, DIY books about building and project managing a property development. They clearly outline everythign that needs doing, who does it, how long it takes and what sort of materials are used. I would (and am going to) start by reading these, by talking to a quantity surveyor + builders to get pricing “ballpark figures”. I would then sketch out what I want and how much I want to pay and what sort of profit. Then I’d work the in between steps to figure out all the various work details. Then, I would make a call as to whether to hire on a dev company or manage it myself and work out how much time / money all that would take. Once I’ve done all that I’d pretty well know if I was going ahead and how I would do it.
If you do things step by step, broken down into the smallest steps, you can do just about anything. There are a number of things in this world that are exchangable:
Time, money and experience. If you have all the time in the world you don’t need experience or money (you could grow the wood, quary the stone, make the bricks, dig the holes etc…) If you have enough money you don’t need the other two and if you have enough experience, likewise.You just need to work out what commodity you have the most of and what you would like to use most sparingly and find the mix of the three that achieves your goal.
Hi,
From my research a good starting place is to take 5% of the property value. This gives a rough $ value to adjust based on surrounding conditions.This is assuming a house with 3 + bedrooms in a large city.
eg: 3br house in Melb suburbs = $300,000 price. x5% = $300/week.That is pretty rough working and you may need to adjust up or down from there. For example, if it has nice fixtures like good A/C and heating and nice carpet / wood you might leave it at that. If it is a small apartment near lots of workplaces / universities you might be able to add a bit. If it’s a bit out of the city you may need to drop it a bit.
You’ll still need to consult rental prices of other similar property but if you are looking for a general indication 5% seems pretty close to the final price.
A personal comment regarding the drops (and rises) reported in house prices:
To say Sydney house prices have dropped up to 40% implies that all houses are created as exact duplicates of each other. Comparing prices of houses is pretty much always an apples / oranges thing. In general you can get an idea of the order of magnitude a house price should lie in (ie hundreds of thousands or millions) but because someone lists their house at $1.2million one day and then the next they drop the price to $800 thousand in no way means “house prices have dropped” It means the original listed price was way inflated. What would have been reported if the same house was listed at $400k then after much buyer interest was finally listed and sold at $800k? Does that mean house prices have doubled? No it means that house was massively undervalued.
So you can take from this line of reasoning that presently there are a fair number of over-valued properties on the market and they will be taken down in price. At the same time there are many fair value properties and some under valued properties. What is important is not WHEN to buy but WHAT to buy. The answer is pretty much always the same: do your homework, set your goals, understand your possible outcomes and use that to list criteria by which you value a property. Then go out and find a list of properties that match your criteria and make offers.
Now is always the best time to buy. There will be times (like say 5 years ago) where the market was more forgiving of mistakes and most properties went up in value, but when the going gets tough, the smart make money.
[biggrin]
The real issue of course being that if you can buy the property at $250k when it is valued at $300k means the valuation is wrong and it is actually $250k. After all if you paid that much the bank has to assume that if they sell it they can only get that much as well.
The market sets the true value, not the banks or valuers.
Last things I would do:
1. Update car, take a holiday. (that’ll come later with investment income)But yeah, any personal debt, then I’d buy a PPOR with cash = put all my current rent money into investments = pay down investment mortages, I don’t need a 100% offset because my partener works for a bank and so all fee’s for draw down, revaluation, refinance and so on are waived [biggrin]
Never Sell?
I agree so far as I would prefer to own more assets if/when possible. However, if you never sell you miss out on being able to afford more assets.
If you have bought negative geared property and never sell then you’d have to wait until you’d payed down enough of the loan that it has become positive before you could service more debt. I prefer to think of buying “never sell” property and “allow growth and sell” property. Take the profits when you can apply those profits to their best.
Hi,
To keep it simple (assume sufficient growth in equity each year):
year loan interest pay
1 $100k $7k $93k
2 $200k $14k $86k
3 $300k $21k $79k
…After each year you are still liable for the previous years loans. Each year therefore your money availble for living is decreased by the previous years interest.
When do you pay out the loan and recover your “income”? Eventually you’ll be borrowing purely to pay interest.
End of story?
Oh, and stop feeling guilty about making money. That’s a Foolish Thing ™. If you do feel guilty use your money to start a business and employ people to be productive.
I never have and never will feel guilty about making money. I will only feel guilty about actions I take or action I fail to take. I don’t know about you but I’ve had to work pretty hard to get as far as I have (honest labour thank you very much) and I’ve got a long way and a lot of honest labour yet before I’m done.
Funny thing about taxing “the rich” is that it means you end up taxing “the poor”. To top it, the real rich just move their money away so you can’t tax it.
For example, as a contractor I started a company out of the Cayman Islands, opened a bank account there and got payed through that co into that account. Normally this wouldn’t help, but I just got an American Express card connected to that account and paid everything through that. Thus my income for Australian taxation was zero, thus zero Australian tax.
(note: I didn’t really do the above, but I did think about it)
Measures designed to tax the rich tend to end up preventing people from escaping poverty because the extra effort required to be rich is not worth the returns. It also means businesses and rich people leave the country to cheaper places to operate. It doesn’t happen overnight, but it does happen.
Poor people can afford housing. Heck, I can afford housing and I started from nothing. “Poor” people should quit whining about being “poor” and find out how the rich got rich, then do it.
You haven’t heard the least of the deal
I think I got in at the beginning of the end for project builders. That is after the initial rate hikes Devine (who I’m going through) brought out a stack of offers to keep marketshare. They’ve just done their financial year take and realise they can’t keep pouring money into home development so have shifted their focus.In the $183k I get:
1st year insurance
1st year back to base security (plus the house is wired for it)
$2000 worth of landscaping
stainless steel: dishwasher, gas stove, range hood.
Wood laminate flooring to the hall and meals.
Additional insulation.
Ducted heating
Coloured driveway cement.
Chrome finish door handles
Carpet
TV antenna, clothes line, letter box, light fittings, fly screens.
Lease guarentee: If in two weeks after hand over they don’t get a tenent (at a reasonable price) they will pay rent until they do.
20 week construction guarentee: if the house isn’t built and handed over in 20 weeks they pay $300/week penalty.The block of land comes with an additional $1600 landscaping + fencing + front yard watering system.
On top of all taht I got $6000 cash back (put it back into the loan for essentially $6k of the price).
So far it’s all been roses.
I just did a quick search of apartments in Brisbane between $300k and $400k and found many 2 bedroom apartments, even 1 on Mary street, asking less than $360k and some offering ensuite, gym, pool and so on. I would say M on Mary is over priced. Why pay $60k more for an apartment with 1 less bedroom and you have to wait 2 years to rent it out or live in it?
1 bedroom apartments are hard to sell (relatively) because they have a limited market. For this reason you get low capital growth.
If you were to look me in the eye and ask “Surrey would you recommend buying this unit?” I would respond “No. I wouldn’t even have looked at it based on my criteria for an investment.”
The reason being that at $360k you can get house + land or a 2 bedroom apartment / townhouse. Anything with land is good. Apartments with 2 bedrooms have greater appeal as both investors and first home buyers will have a look. Also, settling in 2 years means you don’t know what’s going to happen to the market over such a long time and it’s land that apreciates, not the chattels so you’d be hoping the development looks really good. The developer will also tend to whack a premium on the OTP unit and sell it with 2 years to completion and it will go up in value (that’s what they say anyway). Look around the same area. Can you find a similar apartment already constructed selling for the same or less?
That’s my advice. For that money you can get much better investments, particularly if you are looking to keep it for 10 years (buy a house with a stack of land as the apartment will look worse for wear after 10 years).
There is a thread I started on this sort of thing in the developing made easy forum.
But I am settling on a new house:
Land: $87,500 (810sq metre)
House complete ready for tenent: $183,500
Total: $271,000
House size: 214 sq metre = $855/sq metre (approx)It means you don’t need a great wad of free cash sitting doing nothing for the 2-3 months until settlement. It also gives you those extra months to save more money for deposit or reno.
The initial deposit on exchanging contracts is just there to commit you to the deal. The LVR is worked on settlement value. That is if the bank will lend 95% = $106,875 you just have to bring the 5% to the party. That 5% can be made up of initial deposit + cash or all initial deposit or deposit + other debt (like draw down on existing equity). The bank just wants to make sure they are only lending against 95% of the security value and the vendor only cares that they get the money agreed on.
