I have $500,000.00 in my real estate
Accross 3 properties, one of them being primary residence.
I foresee that there will be possibly no growth or even decline in the market for the next 3-4 years.
Should I liquidate all my portfolio and do something else?
Or just retain it?
I wouldn't a word of advice unless it was the GrimShow telling me to!
I think they rolled out that story a few years ago…or was that 4Corners (?) of all the high rises at night with only a few lights on.
That 60 Minutes segment was irresponsible scaremongering. I mean, they used an example of a 70 year old up to their eyeballs in interest only debt and made out like it was outrageous it was now converting to interest and principal after the IO term had finished. That's what happens. SMH
If it's one thing I've learnt, it's that you can't expect 'ordinary Aussies' to show personal responsibility. It's always someone else's fault according to the media.
I've discovered this to be true of all people's of the Earth. In fact, I would go as to further say that the Average Australian (not the cherry-picked media stories) had more personal responsibility than some people of other nations that I've visited.
A bit like the scaremongering on the way up. I remember all the stories about buy now or forever be priced out of the market.
I can't imagine a crash, it's simple numbers- both major parties believe in a 'Big' Australia (50 mil people by 2050), where are these extra 24 odd million people going to live?
@rodripa: That's exactly it, something like 2k people move to melbourne every week, and they all need somewhere to sleep.
@rodripa:
Pure supply and demand based on habitation hasn't pushed the prices to the heights we are now experiencing, treating housing as a speculative investment has. If housing no longer looks like a good investment, people like the OP will pull their money out of it reducing the demand and therefore prices.
Those extra people will still live in houses, just more of them will be able to afford their own as opposed to paying rent.
Have a look at the US housing crisis, population played no significant role.
@tryagain: US housing crisis
Apples and Oranges- US housing crisis was caused by super loose lending by banks and such, giving money to people who in no way, shape or form could afford the repayments after the 'honeymoon' 0% or close to zero interest period expired.
Australia is far more strict in lending practices (though not as strict as it should've been, according to RC), so we're largely immune to such volatility.
As for speculative, I suspect house prices will bottom out, or maybe go down a little, but definitely not crash. Whilst you're right that investors do treat property in a speculative manner, it is generally a far safer bet than a lot of other options, a great example of this is GE. GE (no longer in the Dow 300) used to trade at close to $40US a share, now they are barely trading at $14.
Seeing that a certain Orange haired dude has decided to go on a financial war with China, the EU and Canada I wouldn't bother investing overly in the stock market, even blue-chip stocks like BHP are susceptible to any change in the world power dynamic.
At the moment, people want to come to Australia- heck some come on boats and sometimes die at sea, or worse, end up in legal limbo in a far-off island.
1 million for a dump in Sydney or Melbourne and we have strict lending standards?
@rodripa: My comparison to the US was purely to point out supply and demand for purchasing housing isn't explicitly tied to it as a need for habitation, a crash can happen irrespective of people needing somewhere to live.
It's true the same issues that caused the US crash aren't as prevalent here but that doesn't mean there can't be another trigger to cause it, like it not being seen as a great investment due too a consensus in thought that historical gains are unlikely to be repeated and changes to tax conscessions.
As to what might or might not happen, it's all guess work, but if Labour get into gov and bring in their neg gearing / capital gains changes that will wind back the tax benefits that I think are in a large part responsible for the highs we are experiencing, I think it might get interesting………. and I'll get out the popcorn.
With Sydney down 6.03 percent in the last 12 months and Melbourne down 3.91 percent since the start of the year I’d say it’s already getting interesting.
You can't run away from debt like you do in the US
In the US, you could abandon your property and therefore loan, due to the crash, then buy cheaper next door
@Baghern: Only 11 of the 50 states had non recourse loans and the 2 states with the highest delinquencies, Florida and Nevada, were recourse…like Australia. Furthermore, Ireland had had some of the harshest bankruptcy laws in the world which could lead to prison time.
tightbott, you forgot your sarcasm disclosure
What's your yearly holding cost?
40k a year
That does not sound right. Even if you had 0 equity, even at 4.5% interest, the interest cost is $22,500. I can't see the rest of the expenses being $20k plus you need to factor in the rental income as well.
For comparison, I've got three properties with a total mortgage of $800k. My holding cost last year was $2500 after taking into account all expenses and rental income. At that amount, it costs me almost nothing to simply hold the property and means I have no stress or pressure to sell and can ride out any ups and downs for now.
Ok so
my two investment properties are almost identical
Loan $330k
-Interest only Repayment of $1380
-Land Tax $90
-Insurance $40
-Rates $90
-Agent cost $84.50
=Total $1687.54
+Rental income $1690
Total $2.46/month (Not including the maintenance cost)
So both won't cost me that much to hold on to
Now the primary residence
Costs me $3300 per month which I don't feel so comfortable with.
@nurbsenvi: so, the question really should be - is it worth having a primary residence or is it better to rent. Rent in Point Cook is about $1600 a month plus insurance, usage costs etc - so about 2000 a month. You'll be better off by $1300 a month if you were to sell your primary residence and move into a rental. Is that worth the hassle of increasing rent and risk of landlord asking you to leave. The cost will also go down as you pay off the principal. If primary residence, you should try to pay off principal as soon as possible as it is bad debt - ie, not tax deductible debt.
Yup that's a very good summary of my dilemma
$3300 is Principal and Interest so I have been paying it off
What triggered me is that the idea that I can actually move in to one of those investment property
and realize the $250k capital gain from primary residence and shop around during downturn!
Problem is downturn needs to be quiet significant for me to benefit in anyway
Like -20%
I really don't see that happening despite the media shitstorm.
@nurbsenvi:
My personal view is that property won't go down that much for a few reasons.
1) In Melbourne, demand still outstrips Supply.
2) Due to the strict lending standards in Australia, the holding cost for most investment properties is very low - so incentive for someone to sell during the downturn.
For situation to change, interest rates need to get to the 10% level before people start offloading property. Can't see the RBA increasing to that level anytime soon.
@nurbsenvi:
Keep in mind that moving into your investment property, the holding costs of that property will go up as that interest will stop being tax deductible.
Also, cashing it now for a purchase later, what are you going to do with the cash in the meantime?
@MrHyde:
Not too concerned about negative gearing and Tax deductions as I have enough deductions elsewhere.
As for the cash I was gonna either pick up cheap fallout properties after the Australian GFC or finally diversifiy my investment by buying Index funds S&P 500 Gold Oil
Hello?
MrHyde and myself have stayed up to help you. Did you fall asleep?
Hello?
What else can you do with the dosh?
3% bank deposit. Or shares which are fairly high at mo and still risky.
The cost of selling and rebuying later, is it worth it? Is rent return not enough.
And my final argument is that predictions are about 50% wrong.
In other words, retain unless you have a better plan.
Thank you for making the effort to stay awake and provide constructive input.
I think OP wants to avoid a fall in capital. At half a mill, even a modest 10%fall in prices is 50k. I suppose that’s no small fry for OP, it’s not the yield that concerns.
I agree predictions are 50% wrong, but that’s the same as one saying it’s 50% right. Put another way, ur argument isn’t arguing anything lol.
Put another way, ur argument isn’t arguing anything lol
This is exactly what he meant
There is another relevant point here regarding house price decline predictions.
After real estate rose so high in the 2000 era across Oz. Further growth was not likely for a long time.
However if you get a chart of Oz house price growth over the last 100 years. The longterm average was again reached around 2013 I believe.
Since then housing is likely well below longterm growth average pricing.
'If' this growth rate is in fact a reliable guide. I suspect it is.
If i'm understanding correctly he has 500K in equity; a 10% fall would only be 50K if there was no debt. a 10% price drop would cost 250K if the actual values are 2.5 mil.
oh yes, i have assumed equity to be his property price values.
If he is levered, which is likley, a 10% drop is likely to be substaintly more.
Borrow against it and get something better than a BMW x1.
A top of the line A class AMG with original AMG floormats and AMG paint stripe is the best possible investment one could make right now. I liquidated me super to get 5 of those babies. I now just need to wait for it to go up in price. I've got some money invested into cripple coin as well (can't wait to get that ferrari).
BMW investment is best investment.
Bus, Metro, and Walk is the best investment.
Ahh the big question. We sold all of our properties a few years back..admittedly, in hindsight we jumped too soon but the areas we had them haven't realised too much growth in the meantime. So look at it on a worse case scenario, if you keep all the property, the price WILL decline, how much is anyone's guess at this point. If you can afford to hold them during this period of decline then they will come up again some years down the track. If you can't afford to hold them then the banks might come knocking on the door for a margin call. If you sold them up you will have cash in the bank for when the decline happens and you can pick up more property then, or pay off your PPOR and wait it out without staying awake at night. But if the decline doesn't happen (unlikely IMO)you dont want to be the type who gets upset about having missed out on a bit more growth.
In the end you have to make those decisions yourself as no one can tell you when, if or how much the pullback will be, you have to make you best judgement call on that. But do some googling on the world financial situation and see what you come up with. :)
Good point. If they will decline, you should sell. But also include purchase costs like stamp duty.
My suggestion is sell except primary residence, put in short term deposits ( 4 month ) wait for the share market crash ( maybe 2-3 years ), invest 1 year after market has bottomed out, hold till you have tripled your portfolio.
Example based on ASX200
31 May 2006 ( quite away from Crash ) put 400K in term deposit, ASX:5000
2008 - 2009 crash, ASX 3500-4000
2010 - 2012 hovering, say buy at 4500
ASX maxing out at 6300.
Ahhh [profanity] crap example ASX index is woeful.
Dow Jones
2008 Crash, with bottom at 8000
buy at 9000
now at 23000-25000
your money is now 1Mio.
The asx200 index has certainly underperformed the Dow Jones in recent times but for an accurate comparison you have to look at the accumulation index which includes dividends.
@ potm
I guess this is due to devaluation of the euro, dollar & pound, after printing massive bailout currency around 10 years ago. Thus share values adjusted internationally. Aussie dollar is still up against US, UK and Europe compared to before bank bailouts. That's how I see it anyway.
A bit like the sharemarket you only win or lose if you sell. In the past 20 years (the extent of my memory) I have seen the property market fall and rise about 3 times in a cycle. I've ridden the wave and always come out a winner. If you can afford to hold on for the long haul and are young enough not to be dead by the next boom you'll be face palming yourself in 10-20 years that you sold in 2018 .
Don't forget to factor in capital gains tax on the sale of your investments if applicable.
10-20 years
??!!!
HODL ?, where have I heard that before…
Bitcoin
sorry was sarcasm, I lost heaps on bitcoin HODL'ing LOL
You FOMO'd in at the top didn't you? :)
I had a fair few (bought at ~100-200AUD), sold all at about 1200 AUD before MtGox happened. Could have been a few hundred k richer if by today's rates. Hindsight is always a bitch. Don't sweat it mate.
Lol no mined and used as chips to trade on bittrex. Was up 14k then BC tanked hard in Dec, trying to get out of the $#!tcoins i was in then consolidated into BCH and then kept sinking ever since lol.
Yeah not worried, was a wild ride and a good learning experience.
Looking out housing, its slow mo in comparison lol i sold my house in Jan actually. So won there
That doesn't seem like a lot across three properties, don't let the equity burn a hole in your pocket.
Leave it be.
The time to sell was earlier this year.
The market is doomed. You need to sell now at any cost. This time next year you will only have $250000 in your real estate.
There, your fears are realised.
Real estate is a long game, not for overnight profits.
Username checks out.
Are you getting euphemistic mixed up with optimistic?
I read the user name as euthanistic and thought it was a play on euthanasia…
Thought he was going real dark with the humour!
Real estate is a long game, not for overnight profits.
What? The long-term return rate for property is 0%. In many countries a fully-paid off property is actually seen as a liability, and not an asset. It shouldn't surprise anyone either - land by itself isn't productive. Human ingenuity is what creates value, and that's what drives returns on investments. A constructed house deprecating every year doesn't do that…
if you have already invested in the market, selling when prices are dropping is great advice.
Actually we don’t have enough info for decent advice. How long has OP held the property, how much are they worth, what is OP long term investment strategy etc.
A great deal of people make a great deal of money by holding on to property for long periods of time.
E.g. a $40k farm on the (then) edge of Perth selling for $40m 25 years later. Accounting for inflation & holding costs that is not a zero return.
A lot of land on earth is not in a place that will experienced increased demand: e.g. a small village that is smaller & less desirable today than in 1900. Inner city property, or land at the edge of cities though will experience huge booms.
Those two may cancel each other out long term, but that isn't to say those with properties that will experience increasing demand should sell out because the eventual return will be zero!
Probably not the best idea to have all your investments in property, doubly so is they are all in the same location and catering to the same market. Diversity is the best way to reduce risk. Having all your eggs in one basket only works if you dedicate yourself to understanding it, given you are asking Ozbargains advise I'm going to assume you aren't enough of a property expert to outsmart the market.
Eneloops.
N go bust like DickSmith 😂
Dick Smith went bust because he sold all his eneloops. If only he'd held onto them until the eneloop boom of 2018, he'd have been sitting pretty!
And now he has the gall to attack ALDI just because they have eneloops he wishes he could buy
It wasn't DS guys, it was Woolies.
I foresee that there will be possibly no growth or even decline in the market for the next 3-4 years.
3-4 years of no growth or decline in the context of what has happened in the last 10 years, or what will happen in the next 10 years is what you should be thinking about. The great thing about the property market is that there is a long term positive compound average growth rate. Properties will intrinsically gain value over the long term. Debt is cheap now, probably will be relatively cheap for a while longer. As long as you can afford your repayments (factoring in the possibility for a 1.00% rate rise in the next 5 years), you'd be mad to sell.
Of course this advice assumes that you're a individual investor with no requirement to deliver a certain % annual return on your investment.
even for unit ?
I have seen unit in CBD 420k in 2004 and now sold for $390k …. 14 years for a loss
Which CBD?
Brisbane
BNE CBD is small enough … don't think it splits into NESW
I have seen 2-2-1 from tower like River City sold for 450k now.
Not sure who's going to buy those units in suburbs area.
have you read those studies that over hundreds of years real estate doesn't really appreciate.. it just tracks inflation..
if that is true and it mean reverts, than AU house prices are in for some pain
e.g.: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1107535
but there is lots of research on it
Apartments are invariably a bad investment. The intrinsic value in real estate is the land, and with an apartment you don't get that. They will always be building additional apartments, but the cannot "build" any more land.
and the maintenance costs will only can go…. UP UP and UP
If you take a super-long view, possibly. But in more populated city centres, 1. You just can't keep building apartments (zoning and lack of land), and 2. There will always be a class of young and rich up and coming professionals who'll want to live there.
but the cannot "build" any more land.
China can.
The thing I enjoy about property discussions that if you ask 10 people you will get 15 opinions. ;) Sorry no skin in the game. Good luck.
What was your original strategy to begin with?
If you're in it for the long term selling and then getting back in can incur a large loss through taxes, other costs and loss of compounding effect.
Your costs added with negative growth is going to damage your long term financial security.
Look what happen to all the crypto guys who said hold on at all the warning signs presented themselves.
Don't be a chump and ride it down with everyone else!
Because houses aren’t real, just like crypto currency?
tulip is real
Tulips are perishable…
Yeah ok, not the best analogy but the sentiment is the same. All the people saying hold on are property owners who don't want to acknowledge the facts or realise a loss.
Smart money actually makes decisions and avoids the pain. Sure, in the looonnng run he'll get back on top but why not just avoid the drop?
If you are holding an investment property it can earn an income while you wait for prices to return - unless you have made a poor investment choice and can’t find a tenant.
If it is your home, do your best to keep paying the mortgage and ride it out.
Taking the hit by selling now will cost you a lot more to get back into the market later.
@Euphemistic:
IP earning 3% rental yield that is losing 3% pa value plus mortgage payments going up vs 3% in HISA. Yeah nah. Selling now will likely realise a profit and will mean you have more cash to buy after the correction.
Agree with the PPOR.
Hold onto it. The cost of liquidating is too high and not worth the investment gain elsewhere, Ride out the cycle, property WILL keep booming dispute what others say (int he long run). Evidence? London, Tokyo, NY….
Look at the debt, I don't think OP invest in the city like London, Tokyo, NY. Probably OP invest in other areas which is less job or less crowded.
property WILL keep booming dispute what others say (int he long run). Evidence? London, Tokyo, NY….
Oh lord.
In 10 years time people are going to look at the Australian housing market and say "WTF were they thinking".
"Sydney is a global city! The prices aren't extraordinary!"
It's mass delusion. Sydney is nothing on the international market. Yet Australians think we're up there with London, Paris, Tokyo. We're not even close.
Lol this sentiment has been there since time in memorium. It's literally simple supply and demand…. as long as our population grows, so will house prices.
Yeah that's what they said about Ireland and Dublin
As I have said elsewhere, supply and demand as a form of habitation hasn't pushed the prices up to the current levels, using housing as a speculative investment has, all it would take is people no longer viewing it as a good investment and prices drop along with the demand for it as an investment.
This sentement would probably be really bought home with a change of government and their proposed changes.
@tryagain: Depends where the properties are. Syd/Mel maybe.. but not elsewhere in AUS.. even SYD and MEL will recover though
Perth
As people have pointed out already, it really depends on what you intend to do if you "cash out" on the 500K, and whether you can afford the holding costs. Bear in mind, you would subsequently have to rent if you sold your PPOR.
If your idea is to cash out while the market might drop in the next few years, then buy back in when it bottoms, most people arent that good at timing. Your exit costs(selling costs) and entry costs (stamp duty, buying costs), may negate the savings you anticipate.
If you are cashing out because you can immediately see an opportunity elsewhere and intend to make greater returns, then go for it. If you have no plans for the money once it is cashed out, then to be honest, whats the point of cashing it out? Property has always been considered a long term investment, the exponential capital growth in recent years are attributed to greater macro forces, these forces are now subsiding, but it doesnt mean there wont be growth. Property will only ever trend upwards in the long run, because of land scarcity and population growth.
Again, consider holding costs, and then consider opportunity costs. If it makes sense sell, if not, hold.
Don’t ask for advice, plenty of people who have personal interest and no interest in property. But you won’t know who’s who.
Just ask yourself, what do you think property will do? And act based on your own opinions.
For every spruiker letting you know it’s a good long term investment, I can find someone who knows it’s a bad investment, even in the long term in many instances, and vice versa.
It’s all in your judgement, additionally, no one knows your situation.
70 Bitcoins
find a successful investor and ask to catch up over coffee or lunch…look for people who have the results that you want, you will be amazed at just how savvy successful investors are
Sell, sell, sell.
According to 60 minutes story a few nights ago the Australian real estate market is going to implode in the next 12 months.
If 60 minutes says so then it must be true.