Human Nature

[Rolf Latham]

Its no often I get this sort of reply anymore when dealing with young people that are buying their first home to thence rent out.


I've spoken to my family's financial advisor and he said to go PI, so that's what I'll do.

After mud maps, discussions, explanations and cash flow analysis that clearly show the IO with 100 % offset is a far superior method and the client having clearly understood same, I am once again reminded that our direct family and friends influences will often over ride our own logical conclusions.

Beware of what you take on as "evidence" is what I make of that

ta
rolf

 

[D.T.]

Some people hear what they want to hear.

Maybe one day they'll run into others who have 6 houses to their 2 and question how they afford it and IO will be the answer.

Sometimes things just need to "click" and they dont always do so on 1st hearing.

 

[allsuccess]

Sometimes it might not be for everyone though. I have friends who have (from my eyes) bad spending habits. There is a very good chance that they won't get the benefits of IO cos they'll spend the gains on non-investments. For them, PI is a way of forced saving.

 

[Rolf Latham]

Sometimes it might not be for everyone though. I have friends who have (from my eyes) bad spending habits. There is a very good chance that they won't get the benefits of IO cos they'll spend the gains on non-investments. For them, PI is a way of forced saving.

absolutely .

Bad money habits is a PI all the way until we can demonstrate control.

recommending IO to a client with obvious poor financial habits is poor practice.

ta

rolf

 

[Jamie M]

Beware of what you take on as "evidence" is what I make of that

I'm hearing you.

You can only do so much. Provide the information, explain the structure, answer questions and ultimately they will make the decision.

Cheers

Jamie

 

[baby blue eyes]

Parents and financial advisor are must be risk averse and not active investors. I know my parents would be horrified with what I have done (passed away a long time ago) their mantra was no debt.

He/she will hear your message from another and the light bulb moment will come!
Cheers

Vicki

 

[Dazz]

Beware of what you take on as "evidence"

Absolutely, in all walks of life, and all endeavours.

This is where respect comes into it. You can hear absolute gold, but if you don't respect the person delivering it, you won't recognise nor appreciate it.

Jan Somers details a property moment like this in one of her books, where she comes across a salesman in Sydney who describes a similar scenario to you Rolf.

The valuable advice didn't mesh with her and Ian's knowledge remit, and she summarily dismissed it to their detriment, even writing in the book, ad-libbing here now "what would he, a lowly sales agent, be able to teach me".

I received similar advice regarding investigating property other than residential over 20 years ago now and ignored it to my detriment for over 8 years. What would they know. We owned a gaggle of houses at the time and obviously knew everything there was to know about property. Bzzzt - fail whale. I was on about level 3 of the property investment ladder and completely ignorant of property and investors higher up the food chain.

It's quite embarrassing to think you know quite a bit many moons ago and then find out that you don't even know what you don't know.

"Gurus" within your own family structure play a huge role. Just be careful who you choose as your guru. If you are any good, you'll quickly outgrow them and need to find new gurus to replace and guide you up the property ladder. If you're on level 3 or 4, choose someone on level 5 or 6. Don't cling onto Uncle Fred who is still at level 3, or even worse, someone on level 9 who is speaking a different language entirely.

 

[Rolf Latham]

This is where respect comes into it.

Yup

Different wording also is trust.

I didnt earn sufficient trust from this person, and thats not their problem, in the end its mine.

ta
rolf

 

[ZachAnSel]

Gold Dazz !!!! Kudos..

 

[Richard Feynman]

3.5 years ago, I learned a nigh-$50k lesson by listening to a family member's advice on a loan structure, naively trusting it without even consulting an expert/qualified professional.

I'm slightly wiser now.

 

[alexlee]

3.5 years ago, I learned a nigh-$50k lesson by listening to a family member's advice on a loan structure, naively trusting it without even consulting an expert/qualified professional.

I'm slightly wiser now.

How would you really have reacted to an 'expert' who told you that rates were going to fall?

 

[tobe]

An expert wouldnt have said either, thats the point.

An expert would have talked about identifying your risk profiles, diferent ways of mitigating risks etc. they would not have given an indication of where rates were heading.

 

[alexlee]

An expert would probably have said something like generally, it's unlikely that people beat the variable rate by fixing. Richard would likely have said 'give me the data you have for how this works with 15 year fixed loans', and no data would be available since 15 year fixed loans are rare. Without data, it's unlikely anyone would have changed Richard's mind once he latched on the conservative approach of fixing for as long as he could.

 

[Richard Feynman]

How would you really have reacted to an 'expert' who told you that rates were going to fall?

We're shooting at different targets here.

I didn't need a prediction--I'd have trusted one even less. I just needed information relevant to my actual situation, instead of vague guidance (which I happily took as gospel).

If someone explained how much extra, per year, I'd be paying based on my fixed rate vs the current variable rate (nearly $30k over the first 3 years*) and if I'd actually looked over the increments by which the rates had moved over the past few decades instead of just taking on board the long term historical average rate, and being scared by mention of the 19% rates of the early 90s, I'm confident I would not have made the same choice, as me eyes would not have been closed to the financial outcomes of both situations.

I did not even speak to a broker, who, as tobe mentioned, would have been able to talk through some scenarios, ideas, options, my risk profile, goals etc. I went straight to the bank. Which bank? The one recommended by the family member.

I'm thankful for the lesson though. I learned a load about myriad facets of the lending world, finance, markets etc which I was totally ignorant of. And thanks the the damming effect of shooting myself in the foot early, in the 5 months since breaking that loan, switching to interest only and knowing a bit more about how things work, I've added $1mil to my portfolio.

* I did not actually calculate this myself prior to taking the loan out--a major error of judgement, occurring in the chaos of going from the comfort of renting the same place for 6 years and slowly saving a deposit for a purchase maybe a year later, to the late receipt of a lost letter to vacate (in 2 weeks), deciding to buy, scrambling to find a place, then having my first offer accepted, just over 2 weeks later.

 

[Brady]

Had a similiar situation happening at the moment. Trying to get a client to see the benefit of IO w/ Offset over a lower rate. She's gone home tonight and will call her father (who lives in China) about the best thing to do... Asked if he was aware of IO w/ Offset, she said yes but who knows.

Same client purchased at auction and asked agent for subject to finance on the contract she said the agent never said had to be unconditional.

 

[D.T.]

Had a similiar situation happening at the moment. Trying to get a client to see the benefit of IO w/ Offset over a lower rate. She's gone home tonight and will call her father (who lives in China) about the best thing to do... Asked if he was aware of IO w/ Offset, she said yes but who knows.

Same client purchased at auction and asked agent for subject to finance on the contract she said the agent never said had to be unconditional.

I doubt a Chinese would allow his daughter to go IO. Many cultures believe in owning their assets and / or have fear of debt.

As far as I'm aware (happy to be educated), Australia is the only country big on IO.

 

[dex]

As far as I'm aware (happy to be educated), Australia is the only country big on IO.

That's because Australians are debt junkies.

 

[Brady]

I doubt a Chinese would allow his daughter to go IO. Many cultures believe in owning their assets and / or have fear of debt.

As far as I'm aware (happy to be educated), Australia is the only country big on IO.

And that's the exact point, its due to her family and culture that she isn't likely to make the best financial decision.

 

[Rolf Latham]

I doubt a Chinese would allow his daughter to go IO.

I find the opposite.

Once they fully own the tax implications, they are all over it .

Chinese background Dads are as teachable as anyone else.

Its only where there is a lack of understanding or trust that such things become problematic,and thats not cultural, its human.

ta
rolf

 

[Michael_X]

Chinese background Dads are as teachable as anyone else.

rolf

I am of Chinese background and my parents were exactly the same, you are educated to pay off your loans in China.

Had all their investment properties on PI but once they realised the tax benefits and you could buy more using IO, switched very very quickly.