Greedy Investors

[Xenia]

My brother in law thinks it is "unethical" to purchase investment properties and unethical that property markets go up and people make money from doing... well not much apart from taking the risk of an invesment loan.

My opinion, it's fantastic that everyone can have a view point, that's his and works for him in his reality. He has chosen not to be an investor...ever! I'm glad he knows what he wants.

You do not have to own or buy into other people's view points but it does not mean that they are wrong. Those views are right for them.

Buying investment properties is right for me and I am more than happy to make money from doing nothing despite what my brother in law thinks.

 

[mja]

The readers comments section at the end of the article is interesting. Lots are whinging people

Why do you care though? The bleating won't change, and it will always sound like bleating, no matter how many times you listen to it. There's a reason the 95% poor, 5% rich ratio will never change...

 

[Dazz]

Kim5,

The article is from such an august organ, that the sub-editor chose not to align the authors name to the piece. It's by Ms anon. The RBA says "insert irrelevancy". Gripping stuff indeed.

I would strongly suggest you scour your information from better sources.

 

[BayView]

I have to admit I'm probably 'greedy' as we're entirely in this thing for the money. I get to embark on a quest for a tenant next week, which is not the way it should be, but its money. Money is useful stuff, and with the asking rent on the place being over twice the P&I mortgage, it should work out.

Nah; I'm only in it to provide a community service by supplying housing for those who need it.

If it were up to me, I'd give it to them for free, but the PM insists we charge a good rent. What can you do?

It's a selfless act, but I'm up to the task.

 

[DavidMc]

I think that whole 'it only cost you 4x your income 30 years ago (in 1979) and now it costs 6x' argument doesn't make sense.

These days our financial products are much more advanced, allowing us to buy more with less deposit, more competitive lenders, offset accounts, longer loans, credit card sweeps, etc.

Our technology has increased a great deal more. Cars, applicances, phone calls, travel, basic food and clothing are much less than what they cost 30 years ago. This freed up cash allows for more money towards servicing a housing loan.

When your ability to service increases from say $250pw up to $350pw that creates a multiplier effect on the final house price.

A better comparision would be:
a) after subtracting the costs of other basic necessities, what % of the remaining income was required to be saved and for what period of time for the bare minimum $ amount required to purchase an average house in 1984.

and

b) what % of the ongoing income required (again, after the costs of basic necessities of the day were subtracted) to service this loan.

Compare that to the 2009 values for time and % amounts for that same control 1979 average property, not what consititues an average property today (which is probably something far superior).

I'd say the amounts of time, savings % rate and servicing % rate would be about the same.

My parents bought in outer burbs Langwarren, Vic for $25k in 1978 or so.

Today in 2009 that property would be worth around $300k.
$300k for a new FHB would mean a 90% loan, so
$30k deposit
+ $12k in stamps and costs
LMI of around $3k?
Total cost to purchase $45k

Saving $1.5k per month that would take around 2.5 years of saving. Not really that stressful for a couple earning the 1.5 the average salary between them (say 80k? - pretty generous I would think - ~25% of their yearly salary for 2.5 years).

And I didn't even include the grant, which would reduce it down to only ~1.6 years of saving at the pretty realistic rate of ~25%.

I haven't asked but I'd say it would have taken my parents around 2.5 years of savings too. Plus they had to pay a mortgage broker $1000 just to actually get the loan in the first place! (4% of the house cost! Equivaluent to $12k on $300k!)

Obviously we'll have differing views on 'basic necessities' between the generations and different cultures, but to be a fair comparision they would have to be the same.

 

[Francesco]

It's so interesting to hear diverse opinions about the price of properties and the often expressed cause of it - 'greedy investors'. At times it can be disheartening to observe that this presumption and generalisation is not just held by the uneducated but also by apparently well educated professionals. Thank God we are in a democracy and such robust discussions are tolerated without resolution through a revolution and a guillotine cleansing process.

But, is the price rise of properties merely reflecting many other inputs, other than supply and demand? Can property price just rise because 'greedy investors' will it to be so, or does the increase merely matches the cumulative cost of doing business in Australia?

 

[BayView]

The term "Greedy Investor" would never be used by someone who actually does it - only those who don't.

So then, the question has to be asked; "why do they think investors are greedy?"

1. They want to invest, but the greedy investors bought up every single property and there are none left in the Country for them to buy.

2. They are renting, and the greedy investors keep forcing up the prices when they constantly bid too much at auction or offer too much for the private sales, making property too expensive.

3. They are broke, and resent people who invest (rich) as they perceive them to all be Donald Trumps.

4. Oh yeah; rich people are evil as well as greedy, and only spend their money on themselves.

And so on.

 

[rugrat]

My mum works with a woman who was having a winge about how FTB should be based on a persons disposable income, because it wasn't 'fair' that she had less to 'spend' after paying her mortgage and other debt, then someone who didn't have this debt. This woman's income was about 70k p/a and her hubby was on 80k...

There will always be people who feel hard done by and who cann't budget, doesn't matter how much they earn.

 

[DavidMc]

Agreed. Some people really have an unhealthy view of money and a scarcity mindset.

One guy I spoke to thought that for every dollar he earns, that's one less dollar someone else has. i.e. the only way to get rich is by stepping on someone else. How could you ever move ahead financially thinking that?

I tried to explain to him money is just 'created' out of thin air, but he didn't accept it.

 

[Dazz]

We've got our "thin air" harvester running around the paddock 24hrs non-stop.

 

[JackC]

Agreed. Some people really have an unhealthy view of money and a scarcity mindset.

One guy I spoke to thought that for every dollar he earns, that's one less dollar someone else has. i.e. the only way to get rich is by stepping on someone else. How could you ever move ahead financially thinking that?

I tried to explain to him money is just 'created' out of thin air, but he didn't accept it.

I don't quite understand this concept of money being created out of thin air. The way I see it is that every single piece of land is owned by somebody. For you to purchase a piece of land, someone else needs to sell. The sharemarket is very similar. There is a certain number of shares, and someone else needs to sell in order for you to buy. These concepts are the foundation of our economy (and is why house prices increase, and this forum exists).

Money and resources are scarce (even if a 'guru' in a book told you otherwise). Scarcity is what makes house prices jump 100% in a few short years. I think a lot of people try and justify their business/property interests by simply saying "there's enough for everybody". If anyone thinks that each and every person in the world can lead a 'property investor lifestyle' in Australia, then you are very deluded.

 

[ianvestor]

I don't quite understand this concept of money being created out of thin air. The way I see it is that every single piece of land is owned by somebody.

Unlike money, land isn't created out of thin air (although it is sometimes reclaimed from the sea).

 

[JackC]

Unlike money, land isn't created out of thin air (although it is sometimes reclaimed from the sea).

So if money is made from land (which it certainly is in this forum), and money is also made from shares (which it is for anyone with super), and if money is also made from business (in which you can apply the same principles of scarcity), how on earth is money created out of thin air?

 

[keithj]

..... how on earth is money created out of thin air?

Ask anyone in Zimbabwe if $$ are created from thin air

 

[Hooray]

A very simple example is:

1) Start with nothing in the economy but you have 200k cash. You buy a property for $200k for cash.

2) next year, the vendor buys it back off you for $220k. They borrow 20k from the bank and use the 200k you gave them.

3) you get the 220k cash.

The amount of money in the economy just increased to 220k. Et volia! Cash has been created by the bank.

And I'm not even talking about governments printing money (or creating central bank deposits) to buy bonds to inject money into the economy.

 

[rugrat]

So if money is made from land (which it certainly is in this forum), and money is also made from shares (which it is for anyone with super), and if money is also made from business (in which you can apply the same principles of scarcity), how on earth is money created out of thin air?

I think it is more along the lines of thought that the piece of paper / plastic we use as money only hoolds value because we BELIEVE it holds value. This has certainly proved to be the case in many country's, where only certain currencies are accepted as money, sometimes not even the money native to that country will be accepted but only certain 'foreign' currencies (ie, $US), or precious metals. It is also very common in war torn countries for the concept of money to be thrownout all together in favour of bartering, where the value of the goods being bartered is intrinsic rather then 'imaginary' or 'created out of thin air'.

 

[Ausprop]

or you have 10 houses in a row that are sold for $1. total val = $10. then one sells for $2. now they are worth $20 but they only cost $6.

 

[DavidMc]

@JackC, money is not land.

There are an interesting series of videos on YouTube that explain it all. They were posted on this site.

The government just prints money and 'makes it up' when it needs it. We believe it in and assign a value to it. That's how inflation works.

Today we believe that a $20 note is worth about an hour of work in a basic retail job. 20 years ago we only 'believed' it was worth $3 or whatever.

 

[Piston Broke]

The government just prints money and 'makes it up' when it needs it. We believe it in and assign a value to it. That's how inflation works.
Today we believe that a $20 note is worth about an hour of work in a basic retail job. 20 years ago we only 'believed' it was worth $3 or whatever.

And the easier it is to borrow, the less it's worth.
The more you can borrow, the less its worth again.
Hence prices go up as someone who can borrow more will outbid those who cant or wont.
And it's worth even less when the gov gives it away ie FHBG, cheques in the mail & other benefits.

 

[JackC]

The amount of money is very different to its value.

Just because the amount of money out there is increasing, doesn't mean that there is any more value out there. The concept of 'Unlimited Wealth' has many flaws.

When you buy a house, you are buying something that someone else cannot buy.

When you buy some shares, you are buying something that someone else cannot buy.

When you sell a good or service, you are receiving money from people that would have spent it elsewhere.

If you do not understand these concepts, you should not be in the game. Microsoft make billions from taking out the small guys. The same happens in all industries and professions.

From middle class Australia, it is very easy to assume that the world is abundant, but it is not.

What if 10% of the population each buy 10 investment properties? Is the world abundant enough to allow 11% of the population to each have 10 properties?

I remember hearing from one property 'guru' that the solution to very few people having enough super was for everyone to go out and buy lots of property. Perhaps that one should be thought over a few times.

I'm not saying there is anything wrong with property investment (or else my position would be highly hypocritical), I just think it's naive to assume that the whole world can be rich, and live off passive income.