Can you afford to live on $138,000 per annum even though you are paying a loan that is over 6 times your salary? Because that's roughly the argument that was put to me recently by a guy named dennis over at MB who claimed that was reckless bank lending.
Viewed from an investors eyes, that is something that he would like to do. From a banks POV they won't see it as risky, but a housing bear apparently does. What is your view?
bear pov ? id say its thinking longer term , glass half empty scenario ..
say in 1 or 2 years - rates go up - then your rents decline - or worse your property sits vacant - At $1100 a week its relying on high income earners who are no longer as abundant as before due to shift in employment in the area ...
your loan is costing more and rental income is less or gone and you have found your own salary is stagnating and possibility of your high paid position becoming redundant next year ...
that 80% loan if 960k is getting tougher to pay and all your savings are gone, restricting your options ... the bloke down the street has had his place on market for a few months and keeps lowering his asking price ....
now it all depends on ones view on which way the winds will be blowing in a couple of years ...
say in 1 or 2 years - rates go up - then your rents decline - or worse your property sits vacant - At $1100 a week its relying on high income earners who are no longer as abundant as before due to shift in employment in the area ...
Fortunately when rates go up, rents typically follow after a while. (Because people who thought they could buy suddenly can't so they rent for another year - the opposite of what is happening now.) But it is after a delay so you have to foot the extra interest for at least 6 months on average. Keep a buffer. That's what people do against other risks.
It's possible to invent a death scenario for every kind of investment. The question is, is it likely?
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
It's possible to invent a death scenario for every kind of investment. The question is, is it likely?
i dont think so .. but im not convinced on the bull argument either...
you wont find me lining up to drop $300,000 as a deposit into a basically 1 million dolllar mortgage no an IP , satisified my target market is of renters willing to cough up almost $60,000 in rent per year will be long and strong ..
content to sit out for now and watch from the sidelines..
you wont find me lining up to drop $300,000 as a deposit into a basically 1 million dolllar mortgage no an IP , satisified my target market is of renters willing to cough up almost $60,000 in rent per year will be long and strong ..
Me neither. Why would you buy a a $1.3M IP when you can use the same money to buy 3x$400k IPs that will yield higher, cost less in stamp duty, and give you the option of a partial sell later on?
I really don't think there are many $1.3M properties that were originally bought to be IPs. Most of them would originally have been bought PPOR and became IPs through inheritance or moving house.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Fortunately when rates go up, rents typically follow after a while. (Because people who thought they could buy suddenly can't so they rent for another year
Typically, in other words based on accumulated past experience. But we are not in the past are we, we are in a period of ultra low interest rates, a period where the proportion of housing units held by investors is far beyond anything ever experienced, a period of sustained falls in wages, etc etc etc.
Any claims about where rents or yields will go from here therefore are pure speculation.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
Me neither. Why would you buy a a $1.3M IP when you can use the same money to buy 3x$400k IPs that will yield higher, cost less in stamp duty, and give you the option of a partial sell later on?
I really don't think there are many $1.3M properties that were originally bought to be IPs. Most of them would originally have been bought PPOR and became IPs through inheritance or moving house.
yes 3X$400K properties would be a much smarter play, but I was using an example that I was queried on at MB.
Two points came out of the conversation - bears don't count rental income when they calculate the price/income ratio (so they are wrong in the calculations) and the relationship between the yield and interest cost has compressed to the point where buying an IP hardly matters to your normal cashflow if you buy wisely and structure I/O loans.
There could be a significant jolt in 5 years time when the I/O terms expire especially if it coincides with rate hikes, and that is a real possibility, but small first time investors don't think that far ahead. Only those who have been previously bitten truly understand that point.
I think that because of the above small investors will continue to pile into real estate. Many will be first time buyers. The contest between smart and dumb will be decided by long term interest rates. If rates stay under 6% for 20 years then it's been a smart play, if they go to 8% and 9% then for many it will have been a dumb play.
If the RBA are conscious of this vulnerability will they hike rates now to curb it and interrupt a construction boom which they need to fill an employment void, and if not now will they hike in 5 years when there will be so many exposed investors it would destabilise the housing sector, which they don't want to do.
In a reverse twist the Achilles heel of the small investor is their strength.
One of the biggest flaws, amongst many, in bearish modelling is the false assumption that housing should be cheap. It isn't, it will never be and the system was never set up so as to provide cheap housing.
‘Land prices need to be high enough so that workers who save to buy land of their own remain in the workforce long enough to avoid a labour shortage.’ Edward Gibbon Wakefield, 1829
One of the biggest flaws, amongst many, in bearish modelling is the false assumption that housing should be cheap. It isn't, it will never be and the system was never set up so as to provide cheap housing.
‘Land prices need to be high enough so that workers who save to buy land of their own remain in the workforce long enough to avoid a labour shortage.’ Edward Gibbon Wakefield, 1829
What a fucking stupid post.
Its been cheaper than it is now.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy