Are you still buying IP's?

[Pablo]

Hi,

I am wondering how the current economic climate and the increases in interest rates have effected investors ip buying habits.

My interest payments have risen by $100 a week and while I am not feeling the pinch just yet I have had to put off my 2nd IP purchase as that would get close to putting me over the edge.

Cheers Pablo.

 

[mystery]

We have just bought two more IP's and just waiting for settlement on both. We don't think we'll buy again this year, not because of interest rates, ... purely because we want to sit back and let growth do it's thing.

We are due to have re-valuations done on most of our IP's later in the year. At that point we will see where we sit with equity and will most probably look at buying again in 2009. That's not to say if an absolute bargain came along we wouldn't jump at it, ... we just want to consolidate what we have.

We will be taking advantage of low vacancy rates though, and I have already done the rounds with our PM's putting up rents again on all our IP's. The economic environment at the moment is a good opportunity to improve rent yields.

Martin .....

 

[MPmelb]

unfortunately I didn't lock in rates a few years ago, so my i/r are now much higher. My repayments have gone up about $1000+ per month, but my rents are rising to compensate.

but petrol is rising, grocery is rising, utilities are rising, tradies are rising...everything is rising across the board, unless you want a plasma!

also i've been in a very low paying job which I'm working to rectify atm.

so unfortunately have not been buying ip's.

 

[WBG Redcliffe]

I settle both sides of a duplex this month. I think the 2nd half of this year will be the time to start looking for bargins, flip and reduce the debt on the holding stock.

 

[alexlee]

Actively looking. I was planning to do this a couple of rate rises ago, and the plan hasn't changed. I live below my means. I also invest below my means.
Alex

 

[Nathan]

fix each rate as i get new 1.

although any new rates i will be fixing for only 3 yrs, as i feel they are getting too high to justify and in 3 years predict a reversal in rates.

 

[alexlee]

fix each rate as i get new 1.

although any new rates i will be fixing for only 3 yrs, as i feel they are getting too high to justify and in 3 years predict a reversal in rates.

Given that the RBA is increasing rates because it's concerned about inflation, what do you think would cause the RBA to cut rates? I also agree that rates will come down in the medium term (I think in a year or two, max) but what do you think would be the cause of such cuts?
Alex

 

[Nathan]

rate cuts come in to improve an economy. they rarely cut rates for no reason.

i feel that within a few more rate hikes, there will be many in distress and inflation/unemployment will be in a different position as it is today.

 

[steveadl]

Geez Mystery, slow down and let us catch up!

I'm in two minds. Part of me wants to get another IP now to catch more of the upswing we're having, the other part of me wants to let the equity build more and get a bigger deal at the end of the year.

For now I'm in a holding pattern but still activaly keeping an eye out for any good deals that come along. The increased rates certainly make the figures look worse when doing the calculations for a new one.

PS Just re-read the poll question. The recent rises haven't effected me as I locked in last year, but as I said - making new purchases look more of a cashflow drain.

 

[MichaelW]

Hi guys,

I've stopped buying, or more accurately, I've stopped building. I've decided to put the brakes on the Mona Vale development for a while and just let the whole sub-prime thing play out over the next 6 months or so. There is a real risk that it will send Australia into recession as well as the US, and as such this is not the right time to take on a highly leveraged, high risk development for the upper end of the market. Given its got a house on it currently that is tennanted at an acceptable rent, my ougoings on it annually are only $10K odd after tax back. I can sit on that for a while and see what happens to the Sydney property market. I'd rather be building into a bouyant market than a depressed one. My DA is good for three years, plus another years extension if requested. So there really is no rush to press the build button.

Its also a leveraged play for me, a bit like a stock option with a $1M strike price. I now hold that site at an annual cost of only $10K. But the gross realisation of the development is currently $2.7M. So, if Sydney prices go up by 10%, then my Gross Realisation goes up to almost $3M, or a $270K increase for a $10K pa holding cost. The cost to develop it shouldn't rise above inflation, so I'm happy to sit on my DA for a while and not rush it. I've done a lot of the hard work now, so don't want to blow it by timing my build poorly and being forced into liquidating it at discounted prices in a depressed market. Low risk of that happening, but why rush it when in six months time it will all be clear what is going to happen.

So, now I'm just managing my day to day cash flow and staying on top of my $1M in debts serviced entirely out of my salaried income and rent now that I don't hold any managed funds any more. I can actually make ends meet without doing a Section 221D Witholding Tax variation form, but given that refund is some $30K pa, I think I'll get that form filled out and improve my monthly cash flow a bit more.

Happy just sitting back and watching for a while. I got burnt by the stock market due to too much leverage and don't want to make the same mistake with Mona Vale. It was always the bigger play, and I don't want to stuff it up...

Cheers,
Michael.

 

[asdf]

Very wise approach Michael. Now is not the time to go all guns blazing. But then again, no guts no glory. Depending on where you are on the risk scale I suppose... and the all important factor... time. If you're in your 20s, then go for it. If you fail, just start again. You can't buy that kind of experience.

Have you tendered the job for quotes? Interested to find out what they are coming in at. Speaking to a builder who was building a nice resi (with a lift in a 2 storey resi!) for one of his clients and its coming in at around $2500 /m2. He told me don't start anything without pricing in a minimum $1500-$1700/m2. Ouch!!

 

[MichaelW]

Have you tendered the job for quotes? Interested to find out what they are coming in at. Speaking to a builder who was building a nice resi (with a lift in a 2 storey resi!) for one of his clients and its coming in at around $2500 /m2. He told me don't start anything without pricing in a minimum $1500-$1700/m2. Ouch!!

asdf,

Answered this in my other thread about my Mona Vale development to keep this thread on topic. Linked below:

http://www.somersoft.com/forums/showpost.php?p=376493&postcount=121

Cheers,
Michael

 

[Modal Harmony]

Still going ahead with IP06 purchase at the Sunshine Coast (to get a foot in the market there for when retirement occurs in 15 years or so). Will use CG on IP06 plus sale of PPOR to fund new PPOR, with other IP's being used as necessary to fund retirement lifestyle.

 

[ice]

Way too neg geared at the moment to continue to purchase. Will buy more when rates come back down & rents have had a chance to move up.

 

[Harris]

Consolidation phase for me whilst I get DA on 3 developments. First one for 6 townhouses to start mid this year. The development at finish will be truly CF neutral from day one and with depreciation, it should return +ve cash flow. So no qualms of starting that one.

Waiting for the market to move atleast 20% for the other 2 in order to gain a 40% + return on the project - Expecting that growth in the next 24 months, however I wouldn't be surprised if the market moves >25% before the year end.

Renovated 2 properties late last year (minor renovations) that has increased the rental yields considerably for those.

Planning to renovate (repaint, re-carpeting, kitchen/ bathroom improvements) another 5 by the year end as tenants move out and before the new ones arrive.

Sydney is a different market currently to Melbourne and I would not generalise my decisions based on overall state of play nationally.

Melbourne is recording a big population increase, demand of housing is way short of supply, rental vacancy is at historical lows and is getting wose by the month, pressure on rental yields is driving the yields up considerably, ripple effect is driving the values up in middle and some outer suburbs and massive infrastructure projects (mostly freeways/ tollways) are exacerbating the growth in middle/ outer burbs.

I have all my interest rates locked for the next 5 years barring 3. So for me, amongst all the doom and gloom talk, I could not be happier with the performance of my portfolio, both in CG and overall yield.

In response to the poll, if I had not had my hands full with the developments and renovations this year, I would be actively buying.

Harris

 

[Bazza]

My interest payments have risen by $100 a week and while I am not feeling the pinch just yet I have had to put off my 2nd IP purchase as that would get close to putting me over the edge.

Why don't you have a fixed term loan - then it doesn't matter.

Cheers,

Bazza

 

[sash]

I am selling my underperformers....have sold 1....1 more to go!

Also, buying more but looking for higher yield properties to ensure my cashflow still remains positive or neutral.

There are going to be some good buys or bargains shortly...particularly in Sydney!

 

[Pablo]

Why don't you have a fixed term loan - then it doesn't matter.

Cheers,

Bazza

I just like to go with the flow, I do not believe that rates will go much higher than 0.5-1% than what they are now.

There was a thread I remeber seeing a long time ago that compared the variable rates to fixed term rates over 20 or so years and the variable rates came in on average to be lower.

But in saying this I will fix my loans if the rates ever go back down to 6-7%

 

[phil]

I'm still going ahead with my plans. I'm still a very very small fish in a very very large pond, but I'm in for the long term so I try to tune out to all the static.

I think time heals all wounds.

Phil.

 

[Tin Tin]

looking to buy.. will have an overall negative position yet not too worried as will have a decent LOC.. Even though Brissie is predicted to be slower this year, still think there will be some gains to be made.