So I have an investment house returning me $750 a week.
The house is worth $900k
I also have my own house where I have a mortgage
Would you:
Very few people have lost money in property.
All advice given will be accepted happily.
So do you have a mortgage on your investment house ?
Put extra towards paying off mortgage. Unless you're earning more than your interest rate on mortgage you shouldn't keep investing.
Pay down debts first. Simple.
You whole purpose of investment properties is to make money on the capital gains and reduce your tax bill so paying them down isn't really worth it.
Buy another investment property and hope property prices keep increasing and if you need money and have the available equity you can always take equity out of one of the properties.
Paying sooner, reduces interest paid.
@strikerzebra - You'd never come out better the other end doing that compared to the amount of interest you'd save by just paying down the property faster for the first half of the mortgage amount, then at that point using equity to borrow if you really want.
If OP has his finances setup correctly and he is getting a $750 return,on his investment, he should be selling the secrets, not asking for advice.
Sometimes people have more money than sense.
more dollars than sense.
more dollars than cents.
Having said that $750/week gross is certainly not unrealistic in current Sydney market!
David Gonski (ANZ) - "But the fact is anybody who believes that prices will always go up is a fool"
Glenn Stevens (RBA) - "The first is that in forming expectations about future price gains and deciding their financing structure, people should not assume that prices always rise. They don't, sometimes they fall"
Put the extra money towards reducing your existing debt.
Exactly. And if you must buy another property, wait until they drop by 30% when the bubble pops. Something will happen to trigger it, we just don't know what or when.
Unemployment is up to 6.6% now. And with this Tory govt, it'll keep rising. More layoffs equal more mortgage defaults. Leading to the bottom falling out in house prices.
And if you must buy another property, wait until they drop by 30% when the bubble pops
Said every naysayer since 1998… back when the Sydney median house price was $200k. Keep waiting for that bubble.
There is a bubble. Just waiting for it to pop.
Here's a stat for you, at the height of the gfc we saw Australia's highest ever default rate —> 0.2% of all property loans. Highest ever.
At the end of the day we will never agree and those looking to buy will hope for the so far elusive bubble and those with property(ies) will hope otherwise. There will never be a time when everyone agrees. So lets just move on.
There's no bubble. There's just too much demand, too much population growth in urban centers and too much money sitting around that could be liquidated and put into lucrative property if there was to be an adjustment.
On top of that if there was to be an adjustment, it would be a decrease in outer suburbia but an increase of inner CBD land.
We are already in a period of negative growth in rural areas, and one could argue that the readjustment of prices are already happening there.
http://www.landcommodities.com/wp-content/uploads/2012/10/Pa…
Just like any other commodity, property prices are dictated by a supply and demand structure with future in mind. Hence why they are so expensive now and will only go up further due to population growth leveraging demand, and our countries inability to properly plan for growth. There's less and less available to more and more people.
http://www.thinkingcap.com.au/sites/default/files/imagecache…
Until this country gets serious about meeting the housing demands of the greater population then there won't even be a readjustment, there's just too many people being added to the housing waiting pool every year.
@PBG: Outside of Sydney and Melbourne (due to Chinese buyers, heck they even have Mandarin auctioneers) there will be a bubble pop.
Unemployment will probably cause it. The FTAs aren't going to help much. Bad deals.
Default rates just tell you what is happening and happened in the past.
Here's my stat: look at Karratha and Pilbara area. Mining boom ended. Once Australia hits 8% unemployment and taxes go up (and who knows, maybe they'll also have the balls to end negative gearing) then watch.
@c0balt: Too much demand drives up the prices. Once they end the landholding cartel and release supply it'll have a huge impact on prices, especially outside of Sydney and Melbourne.
Lmao keep waiting for that bubble to pop, prices always go up, never down
prices always go up, never down
Only if your investment is risk-free, which property is not.
Lmao keep waiting for that bubble to pop, prices always go up, never down
???
Is that why hundreds of Aussies bought up whole apartment complexes and rows of houses in the US post-GFC?
Because, my friend, prices not only fell, the bottom fell out of that market. You could buy half a dozen properties for the price of one average Sydney property.
Wakey-wakey!
prices always go up, never down
Sydney prices experiences 2 declines since 2007.
March 2007 median price was 480K, by December 2007 median price was 540K, the increase was 12.5% over 9 months.
then by March 2009 Median price dropped to 448K. The price drop is approximately 17% over 15 month period.
Then it increased again and by December 2010 median price was 620K. The increase was around 38% over 21 months.
by December 2011 median price dropped to 533K, The price drop is approximately 14% over 12 month.
reference ABS.
So in my opinion the next drop will be 15-20% over 12-15 month period (so called soft landing) and prices will come back to where it was before (the June 2013 levels).
Banks are already preparing for what is yet to come. for example NAB has restricted lending to inner city apartments
http://www.smh.com.au/business/as-competition-runs-hot-nab-c…
Sydney prices are somewhat strong as it is driven by various factors including high overseas and local investor demand, skilled migration intake etc.
In Adelaide the prices prices still are at 2010 levels(virtually no growth).
June 2010 Median price in Adelaide was 410K, It dropped to 381K by March 2012. then reached top of 417.5K in June 2014. Now(in September quarter) the median price dropped to 2010 level which is 410K.
reference:
https://www.sa.gov.au/topics/housing-property-and-land/buyin…
In Adelaide now we see properties listed for more than 2 months without any sale and then they reduce the prices by 8-10% to attract would be buyers. And we see only 2-3 people come to inspections(I know this because we are looking to buy our first home).
To be fair, those areas in the USA were very down trodden and poor pre 2008. That's not to take away from the investors - a lot of their work has resulted in these areas rebounding to pre GFC levels and good on them. The in demand areas of global cities such as NYC, Seattle and more that are urban hubs didn't really take a significant hit in 2008. In addition those areas have a higher median wage to affordability than Sydney or Melbourne, which should have put them at more of a risk than less going by some peoples thinking.
Expecting a crash in a metro hub such as Melbourne or Sydney or their inner suburbs isn't wrong, but it's more wrong than saying it won't happen. Even those who are generally risk adverse (such as myself) can see the signs are still very positive for property in the right areas. Borrowing and fixing now for inner Melbourne or Sydney is, in my opinion, a sure bet for future equity with low risk (provided you can service your loan, even during a period of extended unemployment).
Everything is pointing to a readjustment further out, but an increase within a decent distance to the CBD areas.
Yes, most of Detroit and large parts of Nevada were liquidated in mortgagee sales — thousands of homes were abandoned.
It wasn't as dire in California, but many pockets there were very cheap. My brother-in-law should have been in the market, but the timing was wrong for him.
Shame, they could have made a small fortune in just five years.
Property falling by 30% seems to far fetched and good to be true (for would be investors ie) . Sure I'm waiting too and may wait forever, it's like a 'u wish' thing. Sorry to say this without pointing fingers, but for every mortgage default of a reasonable property, there are always rich investors (foreign) who are able to jump in and keep the market steady. They have the means to invest without limit in this country so I doubt prices will ever fall to that extent. Our foreign investment laws are not strict enough and there are many loopholes. As for Tory government, you don't know it will be reelected the next term.
Economy in 1998 was better shape than now, under economic situation as the dollar dip down furthe you will see Glenn Steven and his mates sell off their properties and exchange to $US, just watch them and follow
As some others have suggested, I'd go for
- Leave everything the way it is?
If you have the means to really hammer your owner-occupied mortgage, do that. The savings you'll make in interest are guaranteed. Even in a favourable tightening market (unlikely for much longer), you'll outstrip any potential capital gains in the short-medium term.
The reserve bank and our major banks are already predicting a significant fall in property prices within two years.;
The banks and the federal government have already secretly passed legislation that allows our banks to convert your savings to shares to help themselves.
My suggestion would be sell the investment properly, pay your home off, purchase a new investment property
sell the investment properly, pay your home off, purchase a new investment property
Transaction costs will be a killer
secretly passed legislation
Lol. Are you serious???
Yes I am. I was put through parliament very recently. The government was presented with two alternatives.
Our "too big to fail" banks are not too big to fail. That is the issue. They are lending money to people that shouldnt necessarily receive it, and taking risks that they shouldn't.
1. split the big 4 up into many smaller parts so that if one part fails, the whole system doesn't come crashing down.
2. Pass legislation that the banks can take any deposits that it needs to sustain itself and simply issue shares at a value that they deem.
You can guess which version our current Federal Government chose, right.
But did they pass the bill secretly?
It's not lending to people that is the problem, it's lending to business and poor investment options by the bank that is the real issue for them. The failure rate on residential mortgages is absolutely miniscule.
@PBG: The definition of secret is "not known or seen or not meant to be known or seen by others".
Do you see all the legislation that our current government passes? Of course not. This bill is extremely important, and yet our governments have chosen to say nothing about it. Its great for the banks, just not the people that sacrifice to save and do better for themselves.
yet our governments have chosen to say nothing about it
I think you are confusing the government with the media. The government is required to (and does) report all legislative measures through the appropriate channels. No exceptions. What the media picks up and runs with is totally subjective - there was probably a better story about The Bachelor on the same day.
This bill is extremely important
All legislation is extremely important. Otherwise it wouldn't make it to a bill. It's just that this one seems to have hit you closer to home than others and that's why you have taken it to heart. If you are that worried about this legislation then do something about it - you have more options than holding your money in a bank account.
Why obsess over property. There are other investments which are stable, offer equivalent mid to long term gains, have a lower price of entry, are far more liquid, lower transactional costings and help to diversify your current portfolio. Obviously shares being the prime candidate.
I guess because if things go wrong, shares are completely worthless, where as you can live in bricks & mortar or still sell it for something if need be.
I guess because if things go wrong, shares are completely worthless.
Only if you are a complete fool and have no understanding of what investment is all about. Investment is not speculation, it is about holding a diversified portfolio and being rewarded for systematic risk.
you can live in bricks & mortar or still sell it for something if need be.
You can also sell your share portfolio for "something" if need be as well.
you cant live in bricks and mortar if you don't own it cos the bank took it off you because you couldn't service the loan. OP already has property. I'm not saying sell property to buy stock, I'm suggesting diversify into alternative investments on top of property. Even treat your primary residence as an exposure to real estate investment (Capital growth) despite its poor tax advantages.
If you buy decent stock and diversify across industries and locations (national/international) you aren't going to end up with a worthless portfolio. The hypothetical situation where major financial institutions, resource companies and service providers (e.g CBA, BHP, Telstra etc) all become 'worthless' together would likely mean your house would have dropped to around 10% of its current value. or the apocalypse has occurred.
Very few people have lost money in property.
This is wrong. This is a fallacy in investment known as anchoring and perhaps also what is called prospect theory. If you genuinely believe this to be true, you really should read up on those investment fallacies.
"Losing" money doesn't mean being worse off than where you started, it means being rewarded less than what you should be for the amount of risk you are undertaking. If you are undertaking X units of systematic risk, you should be rewarded with an expected return of Y% per annum, for example. If you are returning less than Y% per annum, even though you might have made a long-run profit, you could have made a higher profit with the same amount of risk.
So yes, lots of people have lost money in property because they have invested in property when they should have invested in other assets.
Now, second point, there's a bias towards property because with shares or any other investment class where the market is being repriced on a continual basis, people are more likely to sell their winners too soon and hold onto their losers too long.
Perhaps the greatest issue is the overpricing of property in Australia due to wannabe investors throwing all of their money into property, leveraging it with crazy amounts like 90% LVR and not understanding the key concept to investment is diversification. Property should be one of many assets you hold, not the only asset you hold.
If you already have an investment residential property, perhaps it is time to look for other assets where you can diversify your holdings, diversification is the only way you will be able to increase your returns without taking on more risk. Examples of what you might want to look into are ETFs, where you can access market returns (e.g. ASX200) without having expensive transaction costs to build your portfolio. You might want to look into commercial property as well as other asset classes such as fixed interest (depends on yield curve, whether rates are expected to go up or down) and then hold your investments.
This is the key, don't be a wannabe stock trader. Most traders return below benchmark returns. There have been numerous studies on this showing that mutual funds engaging in active management, on average, perform worse than benchmark indices. You can have a look yourself.
I also have my own house where I have a mortgage
You should pay off that mortgage ASAP. You are paying interest for no gain. No negative gearing, no bumping up of ROE whilst ROA is the same. Bump up leverage on your investment and pay down your mortgage on your residence ASAP.
Would you: Borrow more money on the investment house and use that money to fund another investment house for approx. $800k? Leave everything the way it is? Borrow against the investment house and buy a cheaper house a bit out of Sydney for $450k?
I would personally look to borrow against the investment property and then use that leverage to invest in alternative assets.
The best thing about having property is that you get access to cheap leverage and that your debts are not marked to market, this means you are not subject to margin calls, so borrow wisely and then invest the borrowings into other assets.
Do not purchase another investment property, or even if you do, at least purchase one that's in another city or something, look to Brisbane or Melbourne or somewhere. If a job crisis struck Sydney and property prices fell, you're in big, big trouble if all your capital is in property and it's all leveraged to the brim.
Invest wisely, remember diversification is key.
I might be just another guy on the internet, but I'm university qualified in Finance and Statistics, so I've spent years learning about what I've just told you.
OP have you paid off the investment property? or just renting it while paying it off?
just out of curiously can I ask how old you are, seems like you are not doing all that bad since you have a property to live in plus an investment property.
we are much more worst now than 2008
Answer is no one knows. There are professionals who make money from interpreting economic data and they don't know half the time, hardly think a forum that get their financial knowledge from news.com have a chance.
Just understand that every opinion in this thread is just as speculative as the OP and his 4% gross rental yield.
Who dares wins.
If your equity is in your investment house and not in the house you live in, you're doing it all wrong.
When you say returning you $750 is that your rent or is that how much you are pocketing after expenses.