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Discussion Starter · #1 ·
Immigration is one aspect. However, when you have moved. People need more targets and I have seen with my experience, everyone struggles to attain proper advice on Property.

Having been here for almost 3 years now, attaining enough knowledge on Australian Property Markets and being a successful investor, I feel I can give good suggestions so that one can start well and gain good money.

Hence, starting this thread where I will continue to add data and articles.
 

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Immigration is one aspect. However, when you have moved. People need more targets and I have seen with my experience, everyone struggles to attain proper advice on Property.

Having been here for almost 3 years now, attaining enough knowledge on Australian Property Markets and being a successful investor, I feel I can give good suggestions so that one can start well and gain good money.

Hence, starting this thread where I will continue to add data and articles.
Hi Ashish,

This is really an interesting topic, I look forward to your suggestions.

I plan to move to Australia soon and would love to get Property investment knoweldge.
 

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Immigration is one aspect. However, when you have moved. People need more targets and I have seen with my experience, everyone struggles to attain proper advice on Property.

Having been here for almost 3 years now, attaining enough knowledge on Australian Property Markets and being a successful investor, I feel I can give good suggestions so that one can start well and gain good money.

Hence, starting this thread where I will continue to add data and articles.


Good work! Looks like we have something interesting to look up to..:)
 

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Immigration is one aspect. However, when you have moved. People need more targets and I have seen with my experience, everyone struggles to attain proper advice on Property.

Having been here for almost 3 years now, attaining enough knowledge on Australian Property Markets and being a successful investor, I feel I can give good suggestions so that one can start well and gain good money.

Hence, starting this thread where I will continue to add data and articles.


BTW, good to see you have successfully managed to include your mother in your application. Those times! :)
 

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Discussion Starter · #7 ·
Hello guys

I was waiting for a perfect post but it seems the day will never come.

Being successfully own a couple of properties, helped friends and acquaintances buy multiple properties and having completed a couple of certification courses, I can confidently say that i can give friendly suggestions solely based on my experience.

The disclaimer is important considering real estate here is professionally, regulatory and governed body.

I will start with tips and topics and keep on referring back too these tips and topics when required.

Since out has been some time, the site might have me features by now, mods please support with tagging or anything that you feel can be done to refer to old posts in future posts.
 
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Discussion Starter · #8 ·
Concept#1: Property Cycle or Property Clock

One needs to understand that property never keeps on increasing. It is a cycle with lota of yps and downs. Every state has a different market at a given point and the cycle differs in terms of total time taken for one full sinusoidal wave.

The usual time for Sydney and Melbourne is 8 to 10 years. So that is the time frame you need to keep in mind while buying. Short term targets can lead you to lose money. Your hard earned money!

Property always increases is an understated term. Long term yes. Short term NO (in caps). Unless you are a professional and know your numbers, don't risk it.

Timelines and stages of a cycle or clock:

There are different concepts of longer and shorter cycles. However, I will keep it simple. In a cycle, there is a boom phase lasting 2 to 3 years, decline and stagnant phase lasting again upto 4 years amd lastly incline phase lasting 1 to 2 years.

Consider a clock, between 12 and 3 is the start of decline, between 3 and 6 is decline or bust phase, between 6 and 9 is start of boom and between 9 and 12 is the boom.

When you combine the cycle and clock concept, you get the hang of market.

Example, last boom in Sydney was between 2003 and 2006. Because of GFC, there was a delay of about 2 years in last cycle and current boom started in 2014 (about 11 years).

The boom ended in 2016 but it took some time to reflect in statistics (Will be covered as a concept with Median). Aysney is currently in decline phase. Starting quarter 3 of 2016, market has dropped more than 15% in some areas. A lot of buyers have startes to jump in but I feel I will wait more; purely thinking as an investor.

Please let me know how you liked the article, what would you like to see in further posts or if you have any questions. I will try to be regular in posting here on. 🙂

Good night
Ashish
 

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Discussion Starter · #9 ·
Concept#2: Abbreviations used in Australian Property

Here is a post to write about the abbreviations used in RE.
RE? Ahh! Real Estate. Lol
LOL!! Laugh out Loud, not related to RE. Though a good start to the post. ��
The following abbreviations might be your first start to Australian Real Estate and ensure you keep it handy for future reference.
Investing
• PPoR: Primary Place of Residence
• OO: Owner Occupied – used for a property that is occupied by an owner of the property similar to PPoR.
• IP: Investment Property
• PM: Property Manager: A professional who manages your rental property.
• B&P: Building & Pest (inspection) – An inspection conducted for structure and termites while buying a NOT new property.
• LL: Landlord
• DD: Due diligence
• DYODD: Do Your Own Due Diligence
• EOFY: End of Financial year
• FHOG: First Home Owner's Grant (A sum of money/ discount that is available to First Home Buyers)
• NRAS: National Rental Affordability Scheme
• SMSF: Self-Managed Super Fund: A Super account that is managed individually rather than through a super fund.
• QS: Quantity Surveyor
• BA: Buyers Agent: An agent who solely acts on a buyers behalf and in return charges to a buyer only.
• PA: per Annum (Each Year)
• ROI: Return on Investment (A method of calculating how much money you'll make on a deal)
• CG: Capital Growth/ Capital Gain (This is the increase/decrease in price. Like cashflow, this can be negative or positive)
• Equity: (The amount money the property is worth, minus any outstanding loans)
• IRR: Internal Rate of Return (A method of calculating how much money you'll make on a deal)
Finance
• P & I (P+I): Principal and Interest – A type of mortgage product where you pay principal and interest and at the end of the loan tenure your balance is 0)
• IO: Interest Only – A type of mortgage product where you pay interest only and start paying principal after few years (up to 5 or 10 years). At the end of the term, you still owe the entire amount.
• LOC: Line of Credit – A type of mortgage product that looks like a credit card. Secured against a property, you have a limit, and only pay interest on the current outstanding balance.
• CGT: Capital Gains Tax (tax paid when the property is sold)
• NG: Negative Gearing – A term used to show that expenses on property are more than income generated from the property
• CF: Cash Flow – Term used for the income generated from the property
o Further as Cash Flow positive or
o Cash Flow negative
• LVR: Loan to Value Ratio: Total Loan Value over Total Value of property. Example, 80% LVR means the buyer has borrowed 80% fund from the bank and paid 20% deposit.
• DSR: Debt to Service Ratio (How much your loans are over your income)
• GST: Goods and Services Tax (Australians pay 10% tax on just about everything)
• LMI: Lenders Mortgage Insurance (A one-time insurance amount charged by the bank to the borrower. This protects the funds provided by bank to a borrower to complete a 20% deposit or reduce)
• NPV: Net Present Value (current worth of the property)



Organisations
• APRA: Australian Prudential Regulation Authority - Prudential regulator of banks, insurance companies and superannuation funds, credit unions, building societies and friendly societies.
• ASIC: Australian Securities and Investment Commission
• ATO: Australian Tax Office
• DFT: Department of Fair Trading
• DHA: Defence Housing Authority
• DoH: Department of Housing
• DoP: Department of Planning
• FIRB: Federal Investment Review Board
• OSR: Office of State Revenue
• RBA: Reserve Bank of Australia
• REA: Real Estate Agent
• REINSW: Real Estate Institute of New South Wales
• REISA: Real Estate Institute of South Australia
• REIT: Real Estate Institute of Tasmania
• REIV: Real Estate Institute of Victoria
• REIWA: Real Estate Institute of Western Australia
Renovating/Building
• Reno/Rehab: Renovation
• STCA: Subject to Council Approval
o Very common term used in a lot of RE advertisements
• Flip: buying property at a lower price than market and/ or renovate and sell for profit
• OTP: Off the Plan (a unit/ apartment bought well before it is built or land and house package or land initially and then a house is built on it).
Locations
• ACT: Australian Capital Territory
• ADL: Adelaide
• BNE: Brisbane
• CBR: Canberra
• MEL: Melbourne
• NSW: New South Wales
• NT: Northern Territory
• NZ: New Zealand
• PQQ: Port Macquarie
• QLD: Queensland
• SA: South Australia
• SYD: Sydney
• TAS: Tasmania
• VIC: Victoria
• WA: Western Australia

Regards
 
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Hi Ashish

Excellent initiative and kudos to you. I did not know such a thread existed, but here I am. Would be great if you could answer some questions for my benefit as well as others

This is with regards to your post on building a property portfolio. I had couple of queries

1) Are you investing in residential or commercial?
2) How are you calculating yield? (I suppose yield means ROI?) I'm using the following formula

(Income) - (Expense)
---------------------------------------------- X 100
(Sum of all Charges) + (Down Payment)

3) How are you going about down payment for any property. I know it was possible in the past, but what about in current situation? If you are inflating the valuation, how do banks agree to lend you more? Arent they aware of actual valuation?

4) Have you partnered with anyone? If so, have you formed any enterprise or in individual names?

5) How do you ensure rental income? Is it a risk you take?

6) You mentioned about property cycle. What are the indicators to look for, when we decide as to which phase we are in? Because in Sydney, the agents give you a unrealistic view of the market. Also, some suburbs remain hot in-spite of market fluctuations.

Appreciate your inputs. Will certainly help me and many others here.
 
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Discussion Starter · #11 ·
Hi Ashish

Excellent initiative and kudos to you. I did not know such a thread existed, but here I am. Would be great if you could answer some questions for my benefit as well as others

This is with regards to your post on building a property portfolio. I had couple of queries

1) Are you investing in residential or commercial?
2) How are you calculating yield? (I suppose yield means ROI?) I'm using the following formula

(Income) - (Expense)
---------------------------------------------- X 100
(Sum of all Charges) + (Down Payment)

3) How are you going about down payment for any property. I know it was possible in the past, but what about in current situation? If you are inflating the valuation, how do banks agree to lend you more? Arent they aware of actual valuation?

4) Have you partnered with anyone? If so, have you formed any enterprise or in individual names?

5) How do you ensure rental income? Is it a risk you take?

6) You mentioned about property cycle. What are the indicators to look for, when we decide as to which phase we are in? Because in Sydney, the agents give you a unrealistic view of the market. Also, some suburbs remain hot in-spite of market fluctuations.

Appreciate your inputs. Will certainly help me and many others here.
Hi Fugitive,

Here are answers to your queries to the best of my knowledge and purely based on my experiences so far. Please do not consider this as a professional advice.

1. I have been only investing in Residential till now.
2. I was talking about Rental Yield. This is something that would decide how much you would contribute from your pocket after all expenses. It is calculated as:

(Total Rent received in a year/Total purchase price of the property)* 100

Example, say a 400k property returns 400 per week means a rental yield of [(400*52/400000)*100] = 5.2%.

3. There are ways to lower down your down payments for properties:
i. use the valuation from land to borrow more and reduce deposit
ii. use the equity gained from previous properties to buy more and reduce deposit
iii. add value to your property by renovating, buying lower than market value so the valuations can be used to borrow more and put less money upfront from your pocket.

There are different lenders who calculate your borrowing differently as they assess your circumstances and see you with a different risk score. So, I keep on knocking broker's doors to see which one can get me the money I need to borrow to get my next one.

There is no inflating the value. I ensure I buy less than market price by using strategies or add value by renovating or knocking down and rebuilding. I call this strategy as getting manufactured equity as opposed to usual mum and dad investing of buying and holding thinking prices would appreciate.

4. I love to keep things simple. So buying on individual names till now. Though if someone wants to buy under company structures or trust, best to visit a lawyer/ tax consultant/ advisor to understand the pros and cons of each and understand what suits your circumstances and objective.

5. This is the most common question I get asked. This is no Rocket Science. You need to understand the demographics of that area and how the demographics would behave. There are areas as far as 50-60 kms outside CBDs and still fetching higher than average rentals. You need to understand why and see the demand of rentals there. For established areas, you can measure stats while for new house and land areas, observe the rental listings and talk to the rental agents or property managers.

Each would have a difference of opinion so talk to a few and combine it with your understanding. you need to ask the right questions like
  • how much time it would take to rent a property
  • what is the rental you can achieve in that area
  • what sort of product is in demand and rentals for each product say a 3 bed or a 4 bed, single living or dual living, etcetera.
  • what is the demographic, there demand, etcetera

I now can easily estimate rentals and just validate my understanding using the above process. So, when you assess the answers, there is calculated decision. least risk.

6. This is a huge topic in itself and I will cover it in next write ups. But all in all, there are different indicators

Rising markets:
  • days on market reduces
  • a lot of people start to visit auctions
  • agents stop responding or chasing customers :)
  • Auction clearance rates go up with high total numbers
  • stock starts to come on market and quick turnaround (selling) time
  • A buyer is struggling to get a property of their choice and gets outbid.
are some that i can immediately think of.

Dropping markets show pretty much opposite signs to what is listed above.

6.b There are another concept of Markets within markets.
This put forward simply means each smaller market behaves differently to average behavior. Example, A particular group of suburbs keep increasing in value and properties being sold quickly which might be due to an announced or newly introduced train line as opposed to a dropping statewide market

stay tuned for the next write up on markets within markets. :)

Regards
 
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Thanks for taking time out and elaborating your experiences. Some more queries..;)

2. I was talking about Rental Yield. This is something that would decide how much you would contribute from your pocket after all expenses. It is calculated as:

(Total Rent received in a year/Total purchase price of the property)* 100

Example, say a 400k property returns 400 per week means a rental yield of [(400*52/400000)*100] = 5.2%.
I assume you also consider stamp duty, LMI and other upfront costs?

3. There are ways to lower down your down payments for properties:
i. use the valuation from land to borrow more and reduce deposit
ii. use the equity gained from previous properties to buy more and reduce deposit
iii. add value to your property by renovating, buying lower than market value so the valuations can be used to borrow more and put less money upfront from your pocket.
Thanks for that. So, ideally point(i) would be valid only for houses and not units / apartments, right?

For point(iii), you are saying to buy it cheap, renovate / refurbish it and re-mortgage at higher valuation?

There are different lenders who calculate your borrowing differently as they assess your circumstances and see you with a different risk score. So, I keep on knocking broker's doors to see which one can get me the money I need to borrow to get my next one.
Good to know that. Assume, the brokers would advise you of strategies as well, since it is their business to help lend from banks?

4. I love to keep things simple. So buying on individual names till now. Though if someone wants to buy under company structures or trust, best to visit a lawyer/ tax consultant/ advisor to understand the pros and cons of each and understand what suits your circumstances and objective.
The reason I asked this question is in case of bankruptcy. You can cover yourself by dissolving the enterprise and let lenders take over from there and you walk away. It may have some tax benefits too.

stay tuned for the next write up on markets within markets. :)

Regards
Will wait for this post..! But here are some additional questions


  • what is your thought on investing on Units, with negligible land value.

  • What is your thought on current market phase in Australia?
 

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Hi Fugitive,

Here are answers to your queries to the best of my knowledge and purely based on my experiences so far. Please do not consider this as a professional advice.

1. I have been only investing in Residential till now.
2. I was talking about Rental Yield. This is something that would decide how much you would contribute from your pocket after all expenses. It is calculated as:

(Total Rent received in a year/Total purchase price of the property)* 100

Example, say a 400k property returns 400 per week means a rental yield of [(400*52/400000)*100] = 5.2%.

3. There are ways to lower down your down payments for properties:
i. use the valuation from land to borrow more and reduce deposit
ii. use the equity gained from previous properties to buy more and reduce deposit
iii. add value to your property by renovating, buying lower than market value so the valuations can be used to borrow more and put less money upfront from your pocket.

There are different lenders who calculate your borrowing differently as they assess your circumstances and see you with a different risk score. So, I keep on knocking broker's doors to see which one can get me the money I need to borrow to get my next one.

There is no inflating the value. I ensure I buy less than market price by using strategies or add value by renovating or knocking down and rebuilding. I call this strategy as getting manufactured equity as opposed to usual mum and dad investing of buying and holding thinking prices would appreciate.

4. I love to keep things simple. So buying on individual names till now. Though if someone wants to buy under company structures or trust, best to visit a lawyer/ tax consultant/ advisor to understand the pros and cons of each and understand what suits your circumstances and objective.

5. This is the most common question I get asked. This is no Rocket Science. You need to understand the demographics of that area and how the demographics would behave. There are areas as far as 50-60 kms outside CBDs and still fetching higher than average rentals. You need to understand why and see the demand of rentals there. For established areas, you can measure stats while for new house and land areas, observe the rental listings and talk to the rental agents or property managers.

Each would have a difference of opinion so talk to a few and combine it with your understanding. you need to ask the right questions like
  • how much time it would take to rent a property
  • what is the rental you can achieve in that area
  • what sort of product is in demand and rentals for each product say a 3 bed or a 4 bed, single living or dual living, etcetera.
  • what is the demographic, there demand, etcetera

I now can easily estimate rentals and just validate my understanding using the above process. So, when you assess the answers, there is calculated decision. least risk.

6. This is a huge topic in itself and I will cover it in next write ups. But all in all, there are different indicators

Rising markets:
  • days on market reduces
  • a lot of people start to visit auctions
  • agents stop responding or chasing customers :)
  • Auction clearance rates go up with high total numbers
  • stock starts to come on market and quick turnaround (selling) time
  • A buyer is struggling to get a property of their choice and gets outbid.
are some that i can immediately think of.

Dropping markets show pretty much opposite signs to what is listed above.

6.b There are another concept of Markets within markets.
This put forward simply means each smaller market behaves differently to average behavior. Example, A particular group of suburbs keep increasing in value and properties being sold quickly which might be due to an announced or newly introduced train line as opposed to a dropping statewide market

stay tuned for the next write up on markets within markets. :)

Regards
2. Rental yield itself has no value in real life
The expenses on the property like body Corp fees or council rates, insurance, maintenance and repairs , agents fees, vacant period , have to be deducted from the rental income and then only the nett rental yield calculated

While your calculations show 5.2 % , after you deduct all these expenses, it will come down to 2.5% in most cases (or even 0 especially in apartments with high body Corp fees ) which may not look so attractive as 5.2%

I am not taking the interest and the emi on the loan when doing the calculations keep that in mind

Cheers
 

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Hi Fugitive,

Here are answers to your queries to the best of my knowledge and purely based on my experiences so far. Please do not consider this as a professional advice.

1. I have been only investing in Residential till now.
2. I was talking about Rental Yield. This is something that would decide how much you would contribute from your pocket after all expenses. It is calculated as:

(Total Rent received in a year/Total purchase price of the property)* 100

Example, say a 400k property returns 400 per week means a rental yield of [(400*52/400000)*100] = 5.2%.

3. There are ways to lower down your down payments for properties:
i. use the valuation from land to borrow more and reduce deposit
ii. use the equity gained from previous properties to buy more and reduce deposit
iii. add value to your property by renovating, buying lower than market value so the valuations can be used to borrow more and put less money upfront from your pocket.

There are different lenders who calculate your borrowing differently as they assess your circumstances and see you with a different risk score. So, I keep on knocking broker's doors to see which one can get me the money I need to borrow to get my next one.

There is no inflating the value. I ensure I buy less than market price by using strategies or add value by renovating or knocking down and rebuilding. I call this strategy as getting manufactured equity as opposed to usual mum and dad investing of buying and holding thinking prices would appreciate.

4. I love to keep things simple. So buying on individual names till now. Though if someone wants to buy under company structures or trust, best to visit a lawyer/ tax consultant/ advisor to understand the pros and cons of each and understand what suits your circumstances and objective.

5. This is the most common question I get asked. This is no Rocket Science. You need to understand the demographics of that area and how the demographics would behave. There are areas as far as 50-60 kms outside CBDs and still fetching higher than average rentals. You need to understand why and see the demand of rentals there. For established areas, you can measure stats while for new house and land areas, observe the rental listings and talk to the rental agents or property managers.

Each would have a difference of opinion so talk to a few and combine it with your understanding. you need to ask the right questions like
  • how much time it would take to rent a property
  • what is the rental you can achieve in that area
  • what sort of product is in demand and rentals for each product say a 3 bed or a 4 bed, single living or dual living, etcetera.
  • what is the demographic, there demand, etcetera

I now can easily estimate rentals and just validate my understanding using the above process. So, when you assess the answers, there is calculated decision. least risk.

6. This is a huge topic in itself and I will cover it in next write ups. But all in all, there are different indicators

Rising markets:
  • days on market reduces
  • a lot of people start to visit auctions
  • agents stop responding or chasing customers :)
  • Auction clearance rates go up with high total numbers
  • stock starts to come on market and quick turnaround (selling) time
  • A buyer is struggling to get a property of their choice and gets outbid.
are some that i can immediately think of.

Dropping markets show pretty much opposite signs to what is listed above.

6.b There are another concept of Markets within markets.
This put forward simply means each smaller market behaves differently to average behavior. Example, A particular group of suburbs keep increasing in value and properties being sold quickly which might be due to an announced or newly introduced train line as opposed to a dropping statewide market

stay tuned for the next write up on markets within markets. :)

Regards
Ashish has been lucky that he has not seen any downturn since he has started investing
So the properties have only increased in value and he has been able to use already held properties as equity to buy a new property
But it’s playing with fire if you have borrowed to the maximum limit, because if the property prices fall, then the bank may ask you to give additional margin else you may face foreclosure
Having no headroom to give additional margin is a very dangerous policy

All property agents are worried on what will happen with foreclosures once the moratorium ends in September October although publicly they may show they are not worried

Cheers
 

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2. Rental yield itself has no value in real life
The expenses on the property like body Corp fees or council rates, insurance, maintenance and repairs , agents fees, vacant period , have to be deducted from the rental income and then only the nett rental yield calculated

While your calculations show 5.2 % , after you deduct all these expenses, it will come down to 2.5% in most cases (or even 0 especially in apartments with high body Corp fees ) which may not look so attractive as 5.2%

I am not taking the interest and the emi on the loan when doing the calculations keep that in mind

Cheers
Generally for investment properties, cash-flow is what's normally looked up to see how profitable it is. Cash flow takes in to account incoming (rent) and outgoing's (whatever you mentioned above). In my ROI calculation, there are hardly any investment properties that provide an ROI of above 5%, which makes it incredibly unattractive (especially in Sydney and it's suburbs). Yes, it would make sense if you have bought something in 2010 for 1Mil, and sold in 2016 for 2Mil, while earning rent throughout. Thats a unique case of appreciation driven by foreign investor demands, but need not be the case always.

Either ways, his strategy sounds good in a bullish market. How does half a decade of downturn affects is something to look for.
 

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Ashish has been lucky that he has not seen any downturn since he has started investing
So the properties have only increased in value and he has been able to use already held properties as equity to buy a new property
But it’s playing with fire if you have borrowed to the maximum limit, because if the property prices fall, then the bank may ask you to give additional margin else you may face foreclosure
Having no headroom to give additional margin is a very dangerous policy

All property agents are worried on what will happen with foreclosures once the moratorium ends in September October although publicly they may show they are not worried

Cheers
There will always be ups and down. Australia didnt have one for 29 years, is a different story. Someone invested for long term will see this as an opportunity. More than 70% of Australia is on mortgage and you can see Govt trying to pump money into housing sector already. I'm sure there will be some support in the coming months, but that's something we need to wait and see.

There is a correction that's overdue and if someone has leveraged to the max, we need to see what happens in such a case.
 
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There will always be ups and down. Australia didnt have one for 29 years, is a different story. Someone invested for long term will see this as an opportunity. More than 70% of Australia is on mortgage and you can see Govt trying to pump money into housing sector already. I'm sure there will be some support in the coming months, but that's something we need to wait and see.

There is a correction that's overdue and if someone has leveraged to the max, we need to see what happens in such a case.
Most of the amateur investors has developed an impression that property is the safest investment. Not their fault at all because since last 2 generations no one has seen the real downturn. Most of the property investors still thinks that any downturn will be short and sweet and will be mere "Correction". Many fail to see the change in consumer pattern from Baby boomers to Millennials to Gen X. Baby boomers took risk on property investment and it paid off and Today people take that risk for granted. No matter whatever investment you are talking about but if investors started taking the price rise as granted then it's very much the peak of the cycle in long term!
 

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Most of the amateur investors has developed an impression that property is the safest investment. Not their fault at all because since last 2 generations no one has seen the real downturn. Most of the property investors still thinks that any downturn will be short and sweet and will be mere "Correction". Many fail to see the change in consumer pattern from Baby boomers to Millennials to Gen X. Baby boomers took risk on property investment and it paid off and Today people take that risk for granted. No matter whatever investment you are talking about but if investors started taking the price rise as granted then it's very much the peak of the cycle in long term!
What you are saying is correct in a general sense. However Australia is different for two main factors

- Over 70% of Australia is on mortgage
- The lender is one of the four banks (or their subsidiaries) who have no global exposure unlike American or European banks.

Country's economy is at stake if Govt allows either property or banks to go down. That is why you had an announcement today on home buyer grants of 25K. There was no need to do it this early, ignoring all other sectors like tourism, casual workers etc. This shows, govt is thinking to ensure property market survives this downturn. Of course there will be lows, but large scale re-possession or defaults will be catastrophic.

Just my thoughts..!
 

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Discussion Starter · #19 ·
Thanks for taking time out and elaborating your experiences. Some more queries..;)



I assume you also consider stamp duty, LMI and other upfront costs?



Thanks for that. So, ideally point(i) would be valid only for houses and not units / apartments, right?

For point(iii), you are saying to buy it cheap, renovate / refurbish it and re-mortgage at higher valuation?



Good to know that. Assume, the brokers would advise you of strategies as well, since it is their business to help lend from banks?



The reason I asked this question is in case of bankruptcy. You can cover yourself by dissolving the enterprise and let lenders take over from there and you walk away. It may have some tax benefits too.



Will wait for this post..! But here are some additional questions


  • what is your thought on investing on Units, with negligible land value.

  • What is your thought on current market phase in Australia?
Q: I assume you also consider stamp duty, LMI and other upfront costs?

A: When you invest, one time costs are always split across the term of investment. An average investment is 8 to 10 years and one time costs when split across this duration, turns out to be 1.5 to 2 k a year. These are never included in your yield calculations.

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Q: Thanks for that. So, ideally point(i) would be valid only for houses and not units / apartments, right?

A: yes, my experience so far has been with houses only. Even is it is a small 14 square house on 230 sq mt. land approx. which is equivalent to a unit. I do not see numbers working for units so far. :)

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Q: For point(iii), you are saying to buy it cheap, renovate / refurbish it and re-mortgage at higher valuation?

A: What I am trying to say is to add some value. I follow a different strategy but if your strategy works for you, by all means this is right.

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Q: Good to know that. Assume, the brokers would advise you of strategies as well, since it is their business to help lend from banks?

A: Good ones' does. I have the knowledge myself and do feel that I end up guiding them sometimes and learning from them on other occasions. :)
I would strongly urge you to work out your finances yourself as working out finances matter more than buying investment properties.

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Q: The reason I asked this question is in case of bankruptcy. You can cover yourself by dissolving the enterprise and let lenders take over from there and you walk away. It may have some tax benefits too.

A: It does. No doubt about it. When I was learning, I learnt to keep things simple. Considering the asset accumulation done by now, I would now seek professional help from the property lawyer/ tax consultant. The charges for such discussions from real talented people are like $300 an hour but their charges are well worth it for the advise that they give.

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Q: what is your thought on investing on Units, with negligible land value

A: I am looking at some units now. But I would be buying in areas only preferred by buyers of lower socio economic, are old so I can add value by renovation and increase the rent to achieve my targeted yield.

At the end, it is all about numbers. I may or may not end up buying that.

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Q: What is your thought on current market phase in Australia?

A: Every market behaves differently. I have two more in last 6 months. These are nearly 22% to 25% less than market value. Even if you add one time costs, my margin is way above the drop. One has to argue against the 25% drop. Not that it cannot happen. But your guess will be as good as mine. I do not rely on future growth. I only rely on manufactured equity and yield which lets me buy more and does not costs me to hold.
 

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Discussion Starter · #20 ·
2. Rental yield itself has no value in real life
The expenses on the property like body Corp fees or council rates, insurance, maintenance and repairs , agents fees, vacant period , have to be deducted from the rental income and then only the nett rental yield calculated

While your calculations show 5.2 % , after you deduct all these expenses, it will come down to 2.5% in most cases (or even 0 especially in apartments with high body Corp fees ) which may not look so attractive as 5.2%

I am not taking the interest and the emi on the loan when doing the calculations keep that in mind

Cheers
Hi NB,

It is a very common misconception. Your display of numbers itself is incorrect which displays a bit of inexperience (with all due respect my friend).

Simple example of some products that I saw recently. 400k property returning 400 per week. I am not taking into consideration the tax benefits of depreciation on brand new properties and claiming interest paid on your investment property from your taxable income.

Outgoings
Insurance: 1,200 per year
Council: 1,200 per year
Agent: @6% of annual rent: 1248 ~ 1250 (for ease of calculations)
Maintenance: 2k to 3k. Please bear in mind that I am building brand new properties (which is part of my strategy) which will have minimal expenses for first 10 to 15 years. Older properties tend to take away 20% of your rent though.
Total is between 5650 to 6650. ~6650 considering the worst in that year.

Incomings:
Annual Rent: 20,800

Effective income: 14150 (Call it A)

Net yield: 3.53%.

Loan Numbers: 5 years Interest only loans are at 3.19% with my preferred bank (Why IO? It is preferred product to boost your investment journey but separate discussion)

@ 10% deposit of 40k, your loan is 360k. Monthly Installment is 957. Yearly expense: 11,484 ~ 11,500 (for ease of calculation) (Call it B)

Effective cashflow: A - B: 14150 - 11500 = 2650 positive.

This calculation is without adding tax benefits and numbers. So such a property is also giving you yearly cashflow of $2650 after all expenses and minimal deposit.

Now, multiple this by 5 and you are talking further. This gets added to return and the property does not costs you to hold anything. So no compromise to your lifestyle.

We can continue on and on. But I will focus to find a deal further than argue here. :rolleyes:
 
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