Alex.. good to see you havent lost your sense of humour, it's important this day in age you know.
Oh who am I kidding.. the 180b was a great car!
declining property prices?
- Thread starter momo
- Start date
Alex.. good to see you havent lost your sense of humour, it's important this day in age you know.
Oh who am I kidding.. the 180b was a great car!
My latest acquisition:
LMI - $15,145.68
Registration fees - $75.00
Stamp Duty - $31,180.00
Transfer fees - $1,325.00
Search fees - $18.80
Buyers agent - $9,768.00
Legals - $750.00
5% deposit on a 95% lend - $29,600
Total purchasing costs (not including deposit) = $58,262.48
Rental bond - 1 months rent = $1,806
Proving HG wrong - Priceless
* Note - I'm sure he was just exaggerating and it was an interesting comment he made.
I am curious about what the BA did for his fee. Is there more to it than bidding at auction for you?
I thought buyers agents found a property, but if you found it, the fee seems excessive, depending on just what he did. (But I know diddly squat about what they do as I have never known anyone who has used one, so would be interested to hear what was involved.)
Wylie
I thought buyers agents found a property, but if you found it, the fee seems excessive, depending on just what he did. (But I know diddly squat about what they do as I have never known anyone who has used one, so would be interested to hear what was involved.)
Wylie
PP 592k
Dep 29.6k
Fees 58k
Total Invested 88k
1 month rent 1806
Income rent 21.6k
Interest 44.4k
Costs (main+council etc) 5k
Op Cost (after tax) 3.7k
cashflow pa -31.4k
after tax -18.9k
Are these figures about right??
Sounds like you are a True Believer.
Can you even conceive of a time when people won't lend out money at a rate lower than house price inflation? Do you think it will or even could happen?
Close enough. I posted all about it in another thread.
Hi HG,
You realise of course that the value of the asset does not have to grow at a greater rate than the cost of capital for you to return a positive net present value don't you? I use NPV because its returns are still positive even after discounting for inflation at around 3%.
Lets just quickly build up the relationship a bit, and this is really the simple stuff that Jan Somers was best at explaining given her background as a mathematics teacher. But the principles are really simple. I'll use completely out of the box conservative figures to show that you still get a positive NPV from property under these conditions.
If we assume the following:
Inflation 3%
Borrowing rate 7%
Capital growth 3% (you're kidding me right, only 3% CG pa)
Rental yield 3% (lets assume we're in Sydney)
So, now it costs me 7% to borrow and my capital gain is only 3% pa, how can this possibly be a good investment? Instead of spelling out the calculation in detail, I quickly whipped up a 10yr simple NPV for you. She's massively cash flow negative at a lousy 3% yield versus a 7% borrowing cost, but that 3% CG is still enough to offset your cash flow loss and show a positive NPV over a 10yr horizon.
That's the crux of the equation for a negatively geared property: "So long as your capital gain exceeds your after tax cash flow loss, then you are in profit". And the "after tax" bit means the accounting loss helps you by giving you a negative gearing subsidy. Even at lousy 3% yields in Sydney, property is still almost a sure thing.
Cheers,
Michael.
PS I know I left a lot of costs out of the equation, but I did use only a 3% yield and a 3% capital growth assumption too. Just wanted to keep this more of a really simple theoretical observation to demonstrate you don't need your capital grain to be greater than the borrowing cost of capital to make money in property. If you did, then investors wouldn't be buying in Sydney on 3% yields.
Wylie,
Generally speaking, BA's charge somewhere between ~1.5-2.75% of the purchase price (perhaps a bit more or a bit less). Their fee depends on the level of service they provide. Also, like everything in life, they are open to negotiation.
The full 'hand holding' is the higher end of the spectrum (i.e. search and purchase). The 'purchase/negotiation only' is the lower end of the spectrum.
Generally speaking, BA's charge somewhere between ~1.5-2.75% of the purchase price (perhaps a bit more or a bit less). Their fee depends on the level of service they provide. Also, like everything in life, they are open to negotiation.
The full 'hand holding' is the higher end of the spectrum (i.e. search and purchase). The 'purchase/negotiation only' is the lower end of the spectrum.
Several reasons:
1. Leverage
2. Favourable taxation Treatment
And maybe add
3. Not that much more added risk
4. Relatively low work
But the big one is leverage. You're making those profits using largely borrowed money, (OPM). You don't need too much of that cash yourself to get into it. Banks lend to 90% now without LMI.
So, $100K could earn me 6% in cash which is $6K pa.
But that same $100K could buy me a $1M property that even at 3% growth is yielding me $30K pa. Even after discounting that $30K to take out my interest costs but allowing for my negative gearing deduction, its still MUCH more profitable to be in property than in cash.
Leverage my friend... Its not what you own, its what you control.
Cheers,
Michael.
leverage and opm ... gotta love it ...
you will discover, on your path, that the richest people on earth actually "own" very little - but they "control" a whole lot. and those that control the money, control the rules.
Leverage amplifies movements by using debt. If there are gains they will be bigger, but the same goes with losses.
So your answer is there will be capital gains because....
People can make a profit because of leveraged capital gains?
But that's a circular argument! You have a loss making business and someone else comes along and buys it off you, paying even more money to lose even more money! Do you think it will go on forever?
Most property purchases are not negatively geared as such. Some is bought with cash from the previous sale. Some is bought with a small mortgage. Most are bought by owner occuapiers who are usually not trying to make money as such - just buying a home to live in. Investors are a minority. And investors with high LVR's would be I imagine a minority of the investor group.
So no the growth is not all created by investors borrowed to the eyeballs but but those awful owners that hold onto their properties long term putting pressure on the little stock that does come up
So no the growth is not all created by investors borrowed to the eyeballs but but those awful owners that hold onto their properties long term putting pressure on the little stock that does come up
Michael, don't mean to be antagonistic, just exploring your use of NPV.
Isn't the use of NPV strictly to compare the value of a stream of net cash flows with a risk premium, against another investment, say cash or bonds?
In that case, a positive NPV is dependent on beating the return on that lower risk lower rate investment. NPV beating a zero risk zero return investment is meaningless.
Very well put.
To be truly sucessful, one must take a risk,
a well planned property portfolio over the long term to me, isnt very risky at all,
Or.. I could just not buy anything, think like you do until I realised that I just missed the next boom and coulda shoulda woulda done things,
Or I could just put my cash into an interest bearing account because Im too scared to do anything with it, My small amount thats slowly rising over time would incur around 3% PA [maybe 6% before tax]
have myself a nifty little savings and then realise the time value of money has all but obliterated my cash, I would realise that the house I was planning on buying with my big deposit has just doubled in value and therefore my savings is only half of what it really was.
I don't see why not,it's been the same way for a long time,unless you know something that most in this site have known for years..willair..
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