Somersoft Property Investment Forums - Kevmeister http://www.somersoft.com/forums/member.php?u=404 Posts from Somersoft Property Investment Forums by Kevmeister en Fri, 10 Sep 2010 11:51:30 GMT vBulletin 60 http://www.somersoft.com/forums/images/misc/rss.jpg Somersoft Property Investment Forums - Kevmeister http://www.somersoft.com/forums/member.php?u=404 Internal Rate of Return http://www.somersoft.com/forums/showthread.php?t=17824#post120936 Mon, 18 Oct 2004 08:03:36 GMT The relevance of IRR to property investing, or any investing for that matter (eg. shares), is it shows how hard your *cash* is working for you.

Other measures of investment performance, such as Yield and Growth, whilst being useful measures in themselves, do not specifically show how hard your cash is working for you in the investment. This is the cash you have tied up in the property (deposit, legals), plus any additional cash you are contributing along the way (if you are negatively geared).

"Cash on cash return" is another term used to express the same (or similar) concept.

The IRR calculation produces one single percentage rate that when applied to all the cash inflows (rent, capital gains on sale, tax refund) and cash outflows
(deposit, legals, loan interest, rates, maintenance, repairs), results in a zero result (the nett-present value of zero).

Time is an integral part of the calculation because getting $10,000 today is worth more than getting $10,000 in 3 years time whilst paying $10,000 today is costlier than paying $10,000 in 3 years time.

Therefore, for example, an investment that requires a $5K contribution at the beginning of each year for 4 consecutive years and returns $50K at the end of the fifth year will produce a higher IRR than an investment which demands $20K up-front and returns $50K after five years. In the second case more of your money is locked up sooner so the rate of return is less (20% versus 28.5% to be exact).

All monies contributed towards a property, and the time at which they are contributed, therefore have the potential to affect the IRR. The IRR can therefore serve as the basis of evaluating many potential "what if" scenarios purely in terms of how the scenario affects the IRR.

For example, consider a $300K property. Assume for simplicity that if you put up 10% deposit ($30K), you have a neutrally geared property. If you sell for $350K after 10 years that is an IRR of 10.3%. Let's say you instead put up a 5% deposit ($15K). You would no longer be neutrally geared, because the loan is higher hence the interest bill is higher. At 7% interest rate, you have to pay $1050 per year out of your own pocket. The IRR is now around 15%, because you have put less of your money to work to achieve the same outcome, and you have paid out that money later.

Another example might be "buy and rent as-is" versus "buy, renovate, and rent". The renovation is going to cost up-front money and should translate to[hopefully] both a higher weekly rental and [also hopefully] a higher final sales price. Plugging the revised numbers into an IRR calculation can show whether it improves the IRR or not. PIA would be useful in this regard, but a spreadsheet will probably also do an adequate job. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=17824#post120936 Superannuation Questions http://www.somersoft.com/forums/showthread.php?t=16732#post115056 Mon, 30 Aug 2004 04:49:18 GMT Colonial First State have a developing companies fund (Colonial First State Developing Companies Fund), a Future Leaders Fund, and a multi-manager Firstchoice Australian Small Companies Fund.

Entry fees should not be a real consideration in practice. I used Neville Ward Direct as a discount broker when I started my MLC Masterkey super fund and they rebated the entire 4% or 5% entry fee back to me in the form of additional units in the fund. And they are not the only one. Just use an adviser or fund broker who will rebate you the entry fee - they still get trailing commissions on the investment.

This should certainly lower the necessary investment time frame and enable you to switch if necessary. You will still pay buy/sell spreads on the entry and exit of an investment, however. Using the Firstchoice Australian Small Companies fund as an example, if you put in $10K and immediately withdrew it, the buy/sell spread would be you'd get back only $9960. In other words the buy/sell spread in this example is around 0.4%. But $40 is small potatoes compared to the 4% entry fee you'd be paying each time.

BTW, generally your $ will also be eroded slightly by the buy/sell spread if you switch between investments within the same manager (eg. switch from Australian Shares to Property Securities).

I reiterate Garry K's disclaimer. ]]> Information Resources Kevmeister http://www.somersoft.com/forums/showthread.php?t=16732#post115056 Digitally altered photos used in advertising http://www.somersoft.com/forums/showthread.php?t=12129#post76570 Wed, 08 Oct 2003 03:33:00 GMT To the photojournalist, a change to the photograph represents a lie. We're not talking about things like color correction, adjusting sharpness etc because that is concerned with getting the best picture quality.

But in advertising it seems to be a lot different. Real Estate agents have long been trying to make a silk purse from a sow's ear when it comes to their descriptions of property, so extending that to a digital photograph is much in the same vein I think.

Which is not to say I agree with it. The problem is that people [tend to] assume photographs are factual, a representation of reality, so in my opinion the deception is stronger when a photograph is changed compared to a text description. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=12129#post76570 I want to buy my next IP but.......... http://www.somersoft.com/forums/showthread.php?t=12134#post76569 Wed, 08 Oct 2003 03:26:23 GMT If you are spending money on ordinary every day items, perhaps you should also look whether your budget is actually realistic.

Like if you spend $200 per week on groceries there is no point putting $150 per week in your budget. Unless you are going to substantially change your eating/consumption habits.

You should go over your budget in detail and check whether your budget is genuinely realistic.

If your expenditure is truly on everyday items then you must ask yourself:

1. Do I really need these "everyday" items?
2. Am I willing to make a sacrifice and be without these everyday items in order to save more cash? ]]> Investor Psychology Kevmeister http://www.somersoft.com/forums/showthread.php?t=12134#post76569 Top This One http://www.somersoft.com/forums/showthread.php?t=11888#post75756 Tue, 30 Sep 2003 22:19:14 GMT Remove the windows (cover over with plasterboard) so they'll need to use the light :) ]]> Property Management Kevmeister http://www.somersoft.com/forums/showthread.php?t=11888#post75756 garden edging http://www.somersoft.com/forums/showthread.php?t=11873#post75609 Mon, 29 Sep 2003 23:04:58 GMT Okay, how about buying secondhand solid bricks and laying them into a mortar bed to form a mowing strip? Not mega-cheap, but might be a reasonable solution. Okay, how about buying secondhand solid bricks and laying them into a mortar bed to form a mowing strip? Not mega-cheap, but might be a reasonable solution. ]]> Adding Value Kevmeister http://www.somersoft.com/forums/showthread.php?t=11873#post75609 garden edging http://www.somersoft.com/forums/showthread.php?t=11873#post74953 Wed, 24 Sep 2003 22:20:40 GMT For a minimalist look you can buy rolls (Nylex I think) of green or black plastic garden edging. It is intended to be buried. Its only real function is as a weed barrier to some degree. It gives a similar look to using a spade to cut the edge. For a minimalist look you can buy rolls (Nylex I think) of green or black plastic garden edging. It is intended to be buried. Its only real function is as a weed barrier to some degree. It gives a similar look to using a spade to cut the edge. ]]> Adding Value Kevmeister http://www.somersoft.com/forums/showthread.php?t=11873#post74953 Your favourite credit/charge card rewards program http://www.somersoft.com/forums/showthread.php?t=11821#post74823 Tue, 23 Sep 2003 23:40:38 GMT Hmmm. "Favorite" rewards program? I voted for the ones I have, which is not necessarily my "favorite". I haven't been so anal as to investigate every one of them.

Suffice to say, the Westpac Altitude Rewards program effectively gives me something for nothing. The card is free with my home loan, I pay off the balance each month, which lets me keep money in my offset account for longer, and over the course of a couple of years I'll probably earn enough points to get a DVD player or small TV or something.

The one thing I do like about Altitude is that all of the redemptions are based on a strict points-per-dollar formula. $100 is 12,500 points. Doesn't matter if you are redeeming points for a hotel stay, a DVD player, a TV, if the cost is the same the points will be the same. I contrast this with Flybuys where, for a while (not sure about these days), some redemptions were "better value" than others.

Having said that, I agree that it's a tool be used judiciously. I BPAY pretty much everything I can (gas, electric, phone, council rates, water rates etc) through my credit card. My wife puts all our groceries on it. We put petrol on it. My Citylink Toll Account direct-debits from it. My Health Fund direct-debits from it. My internet provider direct-debits from it. etc etc.

All of the above are run-of-the-mill day-to-day expenses that are effectively non-negotiable anyway. There is no "discount" for cash etc available.

When it comes to other major purchases (like I bought a new mountain-bike a few months ago), I will negotiate the price and see if they'll then accept the credit card at that price. If not, I weigh up the benefits of the interest free period and the reward points versus the additional savings I might make paying cash. ]]> Coffee Lounge Kevmeister http://www.somersoft.com/forums/showthread.php?t=11821#post74823 Starting out finance http://www.somersoft.com/forums/showthread.php?t=11699#post74819 Tue, 23 Sep 2003 23:19:04 GMT
Quote:
Originally posted by Rolf Latham
I dont think that Liberty would do this deal at the 105 level simply because the cashflow isnt there unless the loan is very small, because the accelerared repayments schedule required of that product is quire harsh. 105 down 85 % lvr in 5 years is one hell of a principal redn.
(Edit: Apologies, didn't see that Dave asked the same question).

Hiya Rolf,

I'm curious whether Liberty wants a formal reduction of the loan balance or whether property growth can help account for the "reduced" LVR. For example, $100K home lend $105K but must reduce to 85% LVR in 5 years. At 8% growth in five years house will be worth $147K, so even the original $105K loan is now just 71.5% of property value? Or do they unequivocably want the principal reduced to $85K? ]]> Property Finance Kevmeister http://www.somersoft.com/forums/showthread.php?t=11699#post74819 picket fence looks fantastic! http://www.somersoft.com/forums/showthread.php?t=11822#post74813 Tue, 23 Sep 2003 22:54:37 GMT Very nice. Looks like a good job. Very nice. Looks like a good job. ]]> Adding Value Kevmeister http://www.somersoft.com/forums/showthread.php?t=11822#post74813 need some advice http://www.somersoft.com/forums/showthread.php?t=11841#post74812 Tue, 23 Sep 2003 22:53:06 GMT This is my understanding, but you cannot own another PPOR in the meantime. You can only own one PPOR at any given time. This means that whilst you are "moved out", you will probably be renting somewhere else yourself. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11841#post74812 Booming property market http://www.somersoft.com/forums/showthread.php?t=11772#post74811 Tue, 23 Sep 2003 22:49:56 GMT Agree with all of the above and wish to add another one: Greed. Or, put another way, fear of missing out.

As the boom has continued, people have seen $40K properties become $150K properties, $200K properties become $400K properties etc.

They get excited at the prospect of earning what could be the equivalent of several years of income due to capital growth, jump in and buy property at any price thinking the present growth will continue no matter what, determined to get their share of the "cream" like everyone else is. ]]> Property Market Economics Kevmeister http://www.somersoft.com/forums/showthread.php?t=11772#post74811 Insurance that pays your loan(s) off on death. http://www.somersoft.com/forums/showthread.php?t=11743#post74008 Wed, 17 Sep 2003 22:27:23 GMT
Quote:
Originally posted by asy
DaveP... Sorry, not sure I understood your post... What did it have to do with insurance? :) If someone dies, the LVR isn't going to pay the loan out...
The point DaveP was making was that if you hold property at a reasonable LVR, the value of the property itself (when sold) covers the loan.

As others have said, the insurance doesn't benefit you, only your beneficiaries.

The need for such insurance is different if you are a couple, however. You don't want your widow having to sell everything to keep paying the loans... ]]> Property Finance Kevmeister http://www.somersoft.com/forums/showthread.php?t=11743#post74008 Immediate equity from recent purchase http://www.somersoft.com/forums/showthread.php?t=11732#post73856 Wed, 17 Sep 2003 03:46:44 GMT The bank wants to limit its "exposure" on your property to a certain limit. That's why banks don't lend you 100% of the property value in the first place.

So, there is a maximum percentage for which you'll be able to get finance. This is the LVR - Loan to Valuation ratio.

To gain access to your equity you will usually take out a LOC (Line of Credit), and the total debt against your property will be subject to the LVR. Most people keep their LVR at 80% or less, partly because most banks require Lenders Mortgage Insurance (LMI) to be paid if you exceed 80% LVR. In other words, you must pay an insurance premium to protect the bank if you want them to increase their risk by increasing the LVR (if you can get them to agree to it in the first place).

At 80% LVR, the most you can borrow on a $100K property is $80K. Since you've already got an $80K mortgage, you can't borrow anymore.

If you went to 90% LVR, that permits $90K total borrowings against a $100K property, and since you've only got an $80K mortgage, they might lend you $10K more.

But, either way, the amount in your circumstance is probably not enough to something worthwhile with. You certainly can't get access to your whole 20% deposit. ]]> Property Finance Kevmeister http://www.somersoft.com/forums/showthread.php?t=11732#post73856 Shares v Property http://www.somersoft.com/forums/showthread.php?t=11693#post73836 Wed, 17 Sep 2003 02:34:18 GMT
Quote:
Originally posted by multi
[b]Oucchhhh!

Property market drops 20% !!!! How terrible!!! Can you please tell me when exactly has such a drop happenned in Australian history?
multi, you completely missed the point I was making. I was simply pointing out that the core benefit of property over shares is somewhat due to the additional leverage you can achieve. But leverage also works against you when the market drops.

I leave it up to others to point out or debate whether there have in fact been 20% drops in the market (Acey notes some), and it is also up to the individual to decide whether they consider the prospect a likely or unlikely event. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11693#post73836 Shares v Property http://www.somersoft.com/forums/showthread.php?t=11693#post73808 Tue, 16 Sep 2003 22:27:16 GMT multi has hit the nail on the head with this comparison. Your leverage with shares is greatly reduced compared to property. You might be able to borrow 70% LVR on shares compared to 90-95% LVR on property.

So if you have $20K you might be able to get $67K worth of shares at 70% LVR, but you could buy a $200K house at 90% LVR.

So you have $200K earning money for you instead of $67K.

But your true returns are measured against how much money you put into the deal ($20K). Even if each has the same percentage gain the increased leverage of property gives you a bigger cash-on-cash return. For example, 20% growth on shares gives you $13.4K on shares, or $40K on property.

But even then it's not that simple because you have a loan to service (in both cases) in order to get this gain, and in the case of property you had substantial buying costs to take into account to compute your cash-on-cash return. For comparative purposes you might assume that both investments are cashflow neutral. In the case of shares the dividends match the interest, and in the case of property the rental income matches the interest/expenses.

So you get something like a 67% cash-on-cash return with the shares, but a staggering 200% return with property.

But, for what it's worth, let's *never* forget that leverage works against you if the market drops. A 20% drop in your shares represents a cash-on-cash loss of 67% (ie. you've lost 2/3rd of the money you put in). A 20% drop in your property represents a 200% cash-on-cash loss (ie. you've lost double the money you put in). ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11693#post73808 Can I make fence posts longer? http://www.somersoft.com/forums/showthread.php?t=11704#post73541 Mon, 15 Sep 2003 22:17:02 GMT You could use some sturdy steel plates each side of the post to join the two posts together. Four holes in each plate, two bolts into each piece of post. It will still look pretty ugly, however. You could use some sturdy steel plates each side of the post to join the two posts together. Four holes in each plate, two bolts into each piece of post. It will still look pretty ugly, however. ]]> Adding Value Kevmeister http://www.somersoft.com/forums/showthread.php?t=11704#post73541 Somersof Flawed strategy? http://www.somersoft.com/forums/showthread.php?t=11668#post73357 Sun, 14 Sep 2003 22:51:17 GMT Janfan:

If you employ Jan's method for investing in residential property you may well have to fund a shortfall since rent may not cover interest+expenses. This of course depends on what you buy.

I only know Melbourne, and at the moment is it extremely difficult to find a positively geared investment in the Melbourne metro area, and to a lesser extent even a positive cashflow property.

If you wish to subscribe to Steve Navra's approach for when to buy, do a search on "Rental Reality", which is effectively a test to preclude you from buying when prices are too far ahead of their rental return. Steve's "Rental Reality" equation suggests that Melbourne is too overpriced at present (or rents are too low, amounting to the same thing).

But back to the Somer's technique. Andrew has already noted that after 5-9 years or so the property in question will become positively geared as the rent catches up. More importantly, the property value has hopefully increased substantially.

The whole idea of using property as an investment vehicle is the amount of leverage it offers you. If you can buy a $300K house today, rent it for say $250 per week, you may well have a shortfall of $100 per week (after allowing for the tax benefits of negative gearing). That's $5200 per year "out of pocket".

*But* (and it is a *but*) if you can get 8% growth on that $300K property, your property value has grown by $24K. $24K of growth kind of makes the $5K holding cost look not too bad.

The loan never increases but the value of the property does. At 8% growth, say, in five years your property is worth $440K but you still have a $300K loan. There's $140K of equity in that property that belongs to you. Of course, you've paid out $26K or so to gain the $140K.

If you sell, you won't realise the entire $140K because you'll have to take into account the purchasing costs (mainly stamp duty) and the selling costs (mainly agent's commissions), and you will presumably have to pay CGT (maximum of 24% or so allowing for the 50% CGT discount). But by this time, that $140K equity is sufficient to gain an equity loan of say $110K (80% LVR) to buy the next property (the median of which has now increased to $440K). This is another shortfall to fund, so you can see that you need very deep pockets to keep this up for anything but a very small number of properties.

Also, after 5 years the rent may have increased at the rate of inflation (3% say), so the original rent of $250/week is now $290 per week. Still doesn't cover the interest, but it has reduced the weekly holding cost.

At the end of the day, investors who go for negatively geared property are looking for capital growth in order to make their money. In areas of extreme growth the rental income almost becomes inconsequential. Imagine that $300K property if it achieved 25% growth (not that uncommon during our "boom"). A $60K increase in equity - the rent is obviously "cream" but you would still have made money even if you didn't have a tenant paying *any* rent. But with anything negatively geared, never forgot that you are buying in anticipation of something happening and that is obviously riskier - you are paying out money today in anticipation of achieving growth, and that growth represents your future "profit".

People buying positively geared properties are usually accepting the likelihood of reduced growth (if any) but the yield from their property is sufficient to cover the expenses, with a small surplus providing their additional income. It's a classic case of "a bird in the hand is worth two in the bush".

Which strategy you ultimately choose depends on your risk tolerance, your income, job stability, all kinds of things. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11668#post73357 Changing Lenders? http://www.somersoft.com/forums/showthread.php?t=11620#post73000 Thu, 11 Sep 2003 22:56:02 GMT Without resorting to the exquisite detail of Kristine's post ;), I agree with Rolf's first suggestion:

Fund your new PPOR at 80% LVR, and park the remainder in an offset account (for the moment) against the PPOR loan.

*Perhaps* you might go for a slightly lower LVR on the P&I loan and commence a small LOC. You still park your remaining funds in offset against the P&I loan. That way the LOC account is already "in place" for the future if you wish to revalue your PPOR later (on account of cap growth) to increase the LOC.

If you're serious about getting IPs consider getting one of the professional packs which sting you $X per year but don't charge additional application fees for subsequent loan applications (and the $X per year is usually well and truly compensated by the lower interest rate). ]]> Property Finance Kevmeister http://www.somersoft.com/forums/showthread.php?t=11620#post73000 laptops double dipping http://www.somersoft.com/forums/showthread.php?t=11618#post72999 Thu, 11 Sep 2003 22:48:38 GMT How can the employee claim this as a tax deduction if they do not have a receipt to substantiate the purchase? How can the employee claim this as a tax deduction if they do not have a receipt to substantiate the purchase? ]]> Accounting and Tax Kevmeister http://www.somersoft.com/forums/showthread.php?t=11618#post72999 ideas for tax money http://www.somersoft.com/forums/showthread.php?t=11617#post72834 Wed, 10 Sep 2003 23:29:46 GMT Buy yourself a PPOR, and get an offset account on that loan, and apply it to that... Buy yourself a PPOR, and get an offset account on that loan, and apply it to that... ]]> Innovative Techniques Kevmeister http://www.somersoft.com/forums/showthread.php?t=11617#post72834 units v Houses re. land value http://www.somersoft.com/forums/showthread.php?t=11566#post72693 Tue, 09 Sep 2003 22:45:23 GMT My understanding is this: If you spend $100K per unit build 10 units ($1million), and sell each for $220K, then $120K is the imputed land value. On the other hand, the real block of land itself on which the 10 units sits may have only cost $600K, or $60K per unit. My understanding is this:

If you spend $100K per unit build 10 units ($1million), and sell each for $220K, then $120K is the imputed land value.

On the other hand, the real block of land itself on which the 10 units sits may have only cost $600K, or $60K per unit. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11566#post72693 Is this a good property to wrap http://www.somersoft.com/forums/showthread.php?t=11568#post72692 Tue, 09 Sep 2003 22:41:28 GMT What rent can you get for that house *specifically*. The median is just that - a median, and what you can get for your specific house might be far different (up or down). What rent can you get for that house *specifically*. The median is just that - a median, and what you can get for your specific house might be far different (up or down). ]]> Innovative Techniques Kevmeister http://www.somersoft.com/forums/showthread.php?t=11568#post72692 units v Houses re. land value http://www.somersoft.com/forums/showthread.php?t=11566#post72688 Tue, 09 Sep 2003 22:29:01 GMT RightValue:

Can you elaborate on the "development problems"?

Thanks ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11566#post72688 PPOR and IP http://www.somersoft.com/forums/showthread.php?t=11567#post72687 Tue, 09 Sep 2003 22:26:10 GMT
Quote:
Originally posted by Matt Newbie
bear in mind that we couldnt afford the repayments on the total amount if the IP was vacant.
Well the alarm bells should be ringing for you at that very comment.

How long could you afford the repayments on the total amount if the IP was vacant? Keep in mind that you still get the tax deductions if the property is available for rent, even if it is not currently tenanted, so you have to factor that into your calculations.

Keep in mind you'll also need some deposit for the IP (whether part of your $40K saved or not), legals, etc. You will probably end up requiring Lenders Mortgage Insurance. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11567#post72687 Question http://www.somersoft.com/forums/showthread.php?t=11524#post72526 Mon, 08 Sep 2003 23:39:46 GMT TheBacon: I guess not everyone is necessarily materialistic. Some people might gain much more enjoyment from helping their children, or travelling, or donating to charities, etc. TheBacon:

I guess not everyone is necessarily materialistic. Some people might gain much more enjoyment from helping their children, or travelling, or donating to charities, etc. ]]> Coffee Lounge Kevmeister http://www.somersoft.com/forums/showthread.php?t=11524#post72526 Steps to buying an IP http://www.somersoft.com/forums/showthread.php?t=11512#post72376 Mon, 08 Sep 2003 02:41:15 GMT Or perhaps you need two finance stages - one to determine what you can borrow (which then lets you consider what areas you can probably buy in), followed by actually arranging the finance after you've found a property. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11512#post72376 calling all advice and tips http://www.somersoft.com/forums/showthread.php?t=11493#post72305 Sun, 07 Sep 2003 20:02:44 GMT Only you know your risk tolerance, but why wait 2 years to save $80K when you really only need $32K + costs to fund the purchases at 80% LVR. The market will have moved by then.

There have also been a couple of threads I read of late where people have questioned the wisdom of wrapping in the context of the current climate of capital gains. That is for you to decide.

The kind of property you're likely to wrap is probably also the kind of property that is likely to be cashflow positive. Why not [consider] finding a cashflow positive rental property, in which case you potentially also benefit from any future capital gains on the property. If you wrap, you forego any future capital gain on the property.

I would assume that employment in the Defence Forces is relatively secure, so it would seem to me you don't even have to particularly worry about job security for servicing these properties, either.

The $40K per annum you can save is capable of servicing the interest bill on $650K-odd of property, even if they were un-tenanted (ie. worst case scenario). In other words you have massive serviceability. ]]> Innovative Techniques Kevmeister http://www.somersoft.com/forums/showthread.php?t=11493#post72305 Unit oversupply in Cairns http://www.somersoft.com/forums/showthread.php?t=11476#post72301 Sun, 07 Sep 2003 19:26:48 GMT Can't comment on the oversupply, but I've been hearing radio ads of late (I'm in Vic) for at least 3 different Cairns developments.

Don't know if that is good or bad, but the pessimist in me suggests why advertise interstate unless you can't get local buyers? ]]> Where to Buy Kevmeister http://www.somersoft.com/forums/showthread.php?t=11476#post72301 $1m in Assets and Growing! http://www.somersoft.com/forums/showthread.php?t=11429#post71903 Wed, 03 Sep 2003 22:17:45 GMT
Quote:
Originally posted by np2003
multi-millionaire.. lol
Yeah, good point, np2003.

BUT actually if you go back and READ Brenda's comments, it refers to when the value doubles.

If the value doubles, that will be $2.1million of equity and $950K of debit. Looks like a millionaire to me...

Well done Corsa. Sounds like you've made a great start. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11429#post71903 Navra fund performance now online http://www.somersoft.com/forums/showthread.php?t=8435#post70875 Tue, 26 Aug 2003 19:41:10 GMT
Quote:
Originally posted by Tibor
Fund Performance for the selected period is:

Fund: Retail
Start Date: 1/5/2003
End Date: 20/8/2003
Performance: 3.51%
I don't presently have any money invested in the Navra Fund. But let's keep in mind what GeoffW said:

Quote:
Best part of this is that there's no fees payable. The fund is underperforming the index at this stage.

But I'd rather be paying fees and have it outperform the index.
Just out of interest, I checked my daughter's managed fund (Colonial First State Imputation Fund) for the same period as above, and the nett performance (nett of fees) is 4.64%. This is based on unit price only, and does *not* include distributions (one distribution would have been paid in that period).

So feel free to congratulate Steve on his continuing successes, as I do also, but I raise the above point simply to illustrate that my "ordinary" managed fund is also having a purple patch.

The statistics for 3-4 months are too short to determine anything useful. Other Australian Equity funds have had similar or better successes over the same period, so the Navra fund may well just be benefitting from the market like other funds. ]]> Coffee Lounge Kevmeister http://www.somersoft.com/forums/showthread.php?t=8435#post70875 Negative gearing: Everyone else pays http://www.somersoft.com/forums/showthread.php?t=11191#post70756 Mon, 25 Aug 2003 23:05:48 GMT
Quote:
Originally posted by sbe
...even though the most we can ever get back is what we pay, and as soon as we make a profit, we have to pay anyway
Maybe I've misunderstood this comment, but I thought the most you can get back is about 50% of what you've paid (48.5% at the highest marginal rate). ]]> Property Market Economics Kevmeister http://www.somersoft.com/forums/showthread.php?t=11191#post70756 Bust and then what....???? http://www.somersoft.com/forums/showthread.php?t=11113#post70259 Fri, 22 Aug 2003 02:35:10 GMT see_change: The fact that you know there are herds probably makes you one of the smart ones. see_change:

The fact that you know there are herds probably makes you one of the smart ones. ]]> Property Market Economics Kevmeister http://www.somersoft.com/forums/showthread.php?t=11113#post70259 Tricks of The Rich and Infamous http://www.somersoft.com/forums/showthread.php?t=11190#post70251 Fri, 22 Aug 2003 02:01:46 GMT Duncan:

Actually, you can "rent" a car. There are different forms of leases. There are finance leases and there are operating leases.

Operating leases are all about "renting" a car. You don't pay for any of the up-keep, it's all factored into the monthly payment.

Of course, the payment factors in the kms you are going to do, and there are usually penalties of some description if you exceed the kilometres. ]]> Accounting and Tax Kevmeister http://www.somersoft.com/forums/showthread.php?t=11190#post70251 Uncertain future ahead http://www.somersoft.com/forums/showthread.php?t=11180#post70222 Thu, 21 Aug 2003 23:17:02 GMT
Quote:
Originally posted by L Bernham
Its not London, unless they've changed the side of the road they drive on since I was there.
LB, that's a classic comment! ]]> Coffee Lounge Kevmeister http://www.somersoft.com/forums/showthread.php?t=11180#post70222 Tricks of The Rich and Infamous http://www.somersoft.com/forums/showthread.php?t=11190#post70221 Thu, 21 Aug 2003 23:11:49 GMT Sim:

I think salary sacrificing is still "slightly" better because you essentially pay pre-tax for the pre-GST price of the machine. If you buy it yourself (inc GST) you'll get a tax refund on at most 50% of that GST component. On a $3K notebook that makes salary sacrificing still $150 better off, based on the highest tax rate.

And, I'm really interested to know what particular feature IBM's notebook has for $5500 that can't be gotten in something around the $3-3.5K mark? ]]> Accounting and Tax Kevmeister http://www.somersoft.com/forums/showthread.php?t=11190#post70221 Stigma attached to Property Investing http://www.somersoft.com/forums/showthread.php?t=11110#post70217 Thu, 21 Aug 2003 23:02:16 GMT
Quote:
Originally posted by see_change
Not sure if they now think we know what we're doing , or they 've given up " trying to make sure we're careful " but it was a nice change.
A nice change, or a see change? ]]> Investor Psychology Kevmeister http://www.somersoft.com/forums/showthread.php?t=11110#post70217 <![CDATA[Loophole - ATO & Centrelink]]> http://www.somersoft.com/forums/showthread.php?t=11134#post70215 Thu, 21 Aug 2003 23:00:20 GMT $X from centrelink in the form of family benefit payments. When I changed jobs my salary increased and I stopped salary-sacrifice super (I also had a lease vehicle) all of which meant my wife stopped receiving some degree of family benefit allowance. Prior to that I think in total we got about $300/month, probably not even that. And I was putting away well over $600/month into super at the time.]]> Show me an example where one can put away $X into superannuation (through salary sacrifice) and get > $X from centrelink in the form of family benefit payments.

When I changed jobs my salary increased and I stopped salary-sacrifice super (I also had a lease vehicle) all of which meant my wife stopped receiving some degree of family benefit allowance. Prior to that I think in total we got about $300/month, probably not even that. And I was putting away well over $600/month into super at the time. ]]> Accounting and Tax Kevmeister http://www.somersoft.com/forums/showthread.php?t=11134#post70215 Property rental competition http://www.somersoft.com/forums/showthread.php?t=11193#post70211 Thu, 21 Aug 2003 22:47:10 GMT Oh, I forgot something. If the developer was offering rental guarantees or something on these apartments, offering a free car is not going to cost them anywhere near the cost of upholding the rental guarantees. Oh, I forgot something. If the developer was offering rental guarantees or something on these apartments, offering a free car is not going to cost them anywhere near the cost of upholding the rental guarantees. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11193#post70211 Property rental competition http://www.somersoft.com/forums/showthread.php?t=11193#post70210 Thu, 21 Aug 2003 22:45:39 GMT Isn't that the ad where one renter can win a car or something?

Yes, it could be an indication of the state of the Melbourne apartment market. It could also be very clever marketing.

Apartment market is in oversupply. You have 100 units you are trying to help the owners rent out. Everyone chips in perhaps $250-300 and that buys a $25-30K car.

Punters looking for a place to live might just choose this area over another (all other things being equal) to get a 1 in 100 chance of winning a car. Don't get 1 in 100 chances to win something (of that value) in many places, do you? ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11193#post70210 Negative gearing: Everyone else pays http://www.somersoft.com/forums/showthread.php?t=11191#post70208 Thu, 21 Aug 2003 22:42:28 GMT Gee, I wonder how the construction industry would respond seeing how many investors are buying into new apartments etc. Gee, I wonder how the construction industry would respond seeing how many investors are buying into new apartments etc. ]]> Property Market Economics Kevmeister http://www.somersoft.com/forums/showthread.php?t=11191#post70208 Valuation http://www.somersoft.com/forums/showthread.php?t=11196#post70207 Thu, 21 Aug 2003 22:40:14 GMT I think it depends when the valuation was done. I think councils (in Vic) value every 2 years. It used to be every 4 years I believe but some bright spark realised the council could probably make much more money (in this boom period) by revaluing more often.

The valuations are drive-by valuations so perhaps if you can buy at a price near to the council valuation that's great, but if you can't doesn't really mean a lot either. The valuer can't tell from the street how great the house is inside, how great the entertaining area in the back yard is, etc. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11196#post70207 Tricks of The Rich and Infamous http://www.somersoft.com/forums/showthread.php?t=11190#post70205 Thu, 21 Aug 2003 22:37:23 GMT
Quote:
Originally posted by steven
Hi Duncan,
Interesting topic, I know very little about leasing, but i have been thinking about the pros and cons of leasing a $5500 lap top for a new buisness venture,
The pros as I see it could be, the tax deductions on payments,
and the ability to upgrade to a new model when needed, as the technology on pc/lap tops seems to become out dated rather fast,

But as i said I know very little on this subject so I would appreciate any info.
Regards Steven
Steven:

Consider using a salary sacrifice arrangement with your employer (if they are agreeable) to get your laptop. The benefits:

1. There is no FBT on notebooks (or wasn't last time I checked).
2. The employer will claim the 10% GST as an input tax credit and should therefore charge you only the pre-GST price of the notebook.
3. Whilst you cannot claim any tax deduction for the notebook, it's been paid for out of your pre-tax dollars. You get the value of the deduction in your hand immediately rather than depreciating it over 3 years or whatever. $1 in your hand today is better than $1 in your hand 2 years from now.

And, a $5500 notebook is overkill. I bought mine (a Dell) for $3000 in May - 2.8Ghz processor, 512Mb memory, 40Gb disk, 15" TFT screen, CDRW, DVD, floppy, modem, LAN, etc. This same machine is now only $2600 from Dell. Buy at a sensible price point.

Kevin. ]]> Accounting and Tax Kevmeister http://www.somersoft.com/forums/showthread.php?t=11190#post70205 Syd/Mel CBD Apartment market reportedly in decline http://www.somersoft.com/forums/showthread.php?t=11192#post70203 Thu, 21 Aug 2003 22:25:01 GMT I agree land content is king, so high-rise apartments are disadvantaged from the outset (although if you take Melbourne Docklands apartments, for example, the land they are built on is still worth a mint).

I think the triple whammy comes from some of these developments being bought in the majority by investors. Like on 60 minutes the other week when the Meriton boss said 85% of his apartment stock was sold to investors.

This creates a market environment like the sharemarket, where investors start getting antsy if a small decline in value occurs, and market sentiment is much more likely to unsettle things. Contrast this to an area which is heavily owner-occupied, who don't take anywhere as near as much notice how much their home is worth year-to-year, because they ultimately need somewhere to live regardless, and will simply delay selling if necessary.

For investors it's purely a numbers game and if the numbers are not stacking up they sometime lose their nerve and get out. ]]> Property Market Economics Kevmeister http://www.somersoft.com/forums/showthread.php?t=11192#post70203 Bust and then what....???? http://www.somersoft.com/forums/showthread.php?t=11113#post70060 Wed, 20 Aug 2003 23:29:44 GMT kierank:

Don't forget there is a difference between buying when the price is going down, and buying at the bottom of the market. Would you genuinely buy a house in a *falling* market when the potential was that in 6 months time the property would be worth less? That would perhaps be acceptable if the property was positively geared, but a recipe for disaster if it was negatively geared, surely?

Anyway, back to the main debate about the sustainability of housing growth...

I am amazed that there can in fact be sufficient factual evidence to even compute that there has been 9% capital growth over 900 years. It would suggest to me there are too many variables, and it suggests to me this "9% for 900 years" idea was dreamt up by someone trying to prove property is a good investment.

When analysing any phenomena, to arrive at a value for one variable generally means all of the other variables need to be constant to produce a valid result.

And, so, with that in mind, I offer a few comments:

1. What was the size of a typical land parcel for a home 900 years ago compared to today? It's obvious that a house of 900 years ago cannot be compared to one of today, so we can only really consider land.

2. Acey, do you have any comparable figures that are purely for land?

3. What did a consumable such as a loaf of bread cost 900 years ago? This potentially allows us to determine inflation over that period.

4. What about holding costs for property over the period? Nowadays we have council rates, water rates, land taxes, etc. All of these erode the growth gains. What kind of costs applied back then?

5. Bill L makes a good point about affordability. But you can't change the variables as he suggest with "you've now advanced in your job, so you're earning more". If the benchmark is a house bought 30 years ago for $X representing N times the wage of a 21-year old school teacher, then the benchmark today must be based on the same house, and the wage for the same position, not the wage of the 21-year old now being a 51-year old school principal. ]]> Property Market Economics Kevmeister http://www.somersoft.com/forums/showthread.php?t=11113#post70060 <![CDATA[Opinions on prices at "The Block"]]> http://www.somersoft.com/forums/showthread.php?t=11104#post69551 Mon, 18 Aug 2003 00:42:23 GMT But you don't wear a hat, Jas, your avatar doesn't show one! ]]> Coffee Lounge Kevmeister http://www.somersoft.com/forums/showthread.php?t=11104#post69551 Yield question http://www.somersoft.com/forums/showthread.php?t=11076#post69540 Mon, 18 Aug 2003 00:19:29 GMT Hmmm. I think what you choose to calculate as a Yield depends on what you want to use the value for.

Consider you bought a growth property 20 years ago for $50K. Today it is renting for $200 per week. Do you have a 20.8% Yield?

I would contend that you do not have a 20.8% Yield, because your Yield has failed to take into account the current value of your investment. In fact, if the property is now worth $600K, you only receive 1.7% of the value of the property each year in rent (deliberately avoiding use of the term "Yield").

Your 20-year-old property is now worth $600K, so why be delusional with thinking you are getting a 20.8% yield? The $600K of funds

Yields are useful for comparing the returns from like investments. Two properties are not necessarily "like" investments unless they are delivering the same growth, in my opinion.

The crappy "yield" of 1.7% in the above example doesn't do justice to the 13.5% (approx) growth that the property has averaged over 20 years. The gross return today is therefore about 15%.

Yield ignores the growth of a property so it does nothing to tell me how good the investment is as a whole.

The only useful thing a Yield gives me is a quick idea of whether the property will likely be positively or negatively geared, depending on the current interest rate. ]]> Property Investment - Other Kevmeister http://www.somersoft.com/forums/showthread.php?t=11076#post69540 Stigma attached to Property Investing http://www.somersoft.com/forums/showthread.php?t=11110#post69531 Sun, 17 Aug 2003 23:32:56 GMT We haven't bought our first IP yet, but we're out looking, and we've copped the negative vibe thing from certain members of family. We just don't mention it much now to some of them. I know my wife's brother would not like to see us lose money, but he'd really enjoy rubbing our face in it if we failed, the classic "I told you so". His wife's brother (whom he doesn't particularly like) mentioned they were considering buying an investment property, and he openly told us how he hopes interest rates rise and "********s like him who don't know the first thing about property investment get burnt". I think that comment was also directed to us...

I would point out, however, that there is a difference between being criticised compared to what one might call reasonable or legitimate "what ifs". That playing devil's advocate can be useful to see if you understand what you are getting yourself in for, and what your contingency plans are if things aren't working out.

We've heard all the things like "What if you can't get a tenant", "What if they trash your property", "What if there's a property crash", "What if you lose your job", "What if interest rates rise" etc.

Actually, they're pretty good questions to be asking yourself. Motivational/insprirational books on investing (Rich Dad, Poor Dad, et al) may well have a tendency to push us towards acting in haste and without thought, our optimism overtakes our good sense, and a well-meaning family member/friend might well ask a question that you haven't considered.

There is a thread on this forum (going back at least six months I would think) where I was lamenting all the "criticism" my wife was giving me about property investing. I came to the realisation it wasn't criticism - they were valid concerns from her point of view. It took me a while to come to that realisation - prior to that I was thinking her criticism was "nonsense" or "a load of crap" or she was "holding me back".

The naysayers always throw up "what if" questions to rain on your parade. Most of the time they are making a big deal of something that is unlikely to happen. They'll then say "yeah, but what if it *did* happen". That's when it's worth having your contingency plan. There's an old saying that "If my Auntie had balls she'd be my Uncle".

Don't forget that there is such a thing as "constructive criticism". ]]> Investor Psychology Kevmeister http://www.somersoft.com/forums/showthread.php?t=11110#post69531 <![CDATA[60 Minutes "Home Truths"]]> http://www.somersoft.com/forums/showthread.php?t=11103#post69524 Sun, 17 Aug 2003 23:00:22 GMT I think it's pretty obvious that sooner or later our current property boom is going to come to an end. As Peter Costello said on the 60 minutes episode the boom is already starting to come to a stop in certain segments such as high-rise apartments.

If you were investing in high-rise apartments and then heard the Meriton boss saying 85% of his buyers were investors, personally I'd be pretty worried. It's equivalent to suggesting that in certain market segments, investors and not owner-occupiers are actually responsible for driving the boom. And I think that's a dangerous situation to be in, because investors are in it for the numbers, and they will [potentially] bail out if the numbers don't work, presumably much quicker than an owner-occupier.

I therefore think that Steve Navra's strategy of buying into areas with a high %age owner-occupiers is therefore a smart move in terms of perhaps bringing the hope of price stability. ]]> Property Market Economics Kevmeister http://www.somersoft.com/forums/showthread.php?t=11103#post69524 <![CDATA[Opinions on prices at "The Block"]]> http://www.somersoft.com/forums/showthread.php?t=11104#post69478 Sun, 17 Aug 2003 20:31:31 GMT BUNDY summed it up nicely: you can do a lot with $100K.

Let's face it, their budget was $40K. Some of the couples extended their budget to perhaps $50K because of their various winnings.

The couples predominantly used tradespeople to do the work, which presumably was billed at standard rates?

So, even if you didn't like Phil & Amity's decor, but you wanted an upstairs apartment, you could trash the interior and redecorate and still save yourself $50K-odd. An exactly the same argument goes for Gav/Wozza's apartment.

Here's another question:

Did the buyer's of Phil/Amity's and Gav/Wozza's apartment get a bargain, or did they pay "reasonable" money and the other buyers pay too much? ]]> Coffee Lounge Kevmeister http://www.somersoft.com/forums/showthread.php?t=11104#post69478