Thanks, but that is dependant on LVR that you started with.
Over geared? Problems with high LVRs?
- Thread starter Fuzzboy
- Start date
Thanks, but that is dependant on LVR that you started with.
In 1987 I was selling a very ordinary 3 bed red brick veneer house in Gosford for $63K
In 1997 that same house was $125K
In 2007 that same house was $250K, in 2009 it is more like $270-280K
Just for interest sake, and to prove nothing to anyone, this is the actual selling price of some farming dirt identical to mine. Prices have been converted from pounds to dollars.
1912. $28.28/hectare. [subdivided after closer settlement scheme].
1927. $19.28/hectare. [prices then dropped heaps in the depression].
1943. $32.73/hectare.
1965. $207/hectare.
1975. $323/hectare.
1980. $865/hectare.
1997. $2000/hectare.
Today it's worth $5000/hectare.
Probably could have flogged it off for $7000/hectare 12 months ago at the height of the commodities bubble.
See ya's.
TC that looks like one big bubble you are sitting on there fella. Shouldn't you be selling?
Sorry I can't do a very good impression of a D&Ger.
The lvr on the prop is 103%. Or do you mean the investors overall lvr- that's a different story, but doesn't effect the stats of an individual property in the talk about interest expense vs rental income over a period of yrs.
Yeah, Propertunity, you keep telling yourself that house prices double every 7-10 years.
Here's the graph of Australia prices. (averagehouseprice1860todc7.gif ). Much of the growth is post world war, for a number of reasons. Single income (man only working), because 2 income norm now, so x6 income ratios are sustainable (don't agree with the X3 normal the doomsayer refer to), as you now have 2 income households. Women entering the workforce I think allowed households to have greater disposable income.
2) easier credit, meaning people who would have found it harder to get credit in even the early 80's, could now get credit, and therefore push the prices up.
But keep dreaming that the prices double every 10year ad infinitum.
Attachments
And picking those dates proves nothing. We all know that these were the 2 main booms, after the post war rise (with the 1997 boom unprecidented in property).
If you want to talk rubbish, then put up the facts.
You don't have those factors any more. 2 income household already, so there is no gain there (as happened before then married women were forced to leave work). Easier credit, as easier as it is gonna get, so little hope there. Only hope might be population growth as a driving factor.
What the graph shows Propertunity, is that until post-war when the factors that I mentioned kicked in, property in real-terms was a little more than flatline, ie, a little above inflation. To I'll give you even 4% inflation rate (above the target of 3-4*), which puts the normal double period at 18% yrs historically (if you really want to take 140yrs Propertunity).
But no, it helps your business to keep talking up the double in 7yrs rubbish based on more recent growth.
So yes, Sydney will reach $900K, from the current $570K ($450K 2003). Maybe in about 2021 if things revert back to history!
But have you high LVR's now, hoping for the coming boom in 2011 Propertunity. I'll wait for the pain to come with overgearing FHB, etc.
But no, it helps your business to keep talking up the double in 7yrs rubbish based on more recent growth.
So yes, Sydney will reach $900K, from the current $570K ($450K 2003). Maybe in about 2021 if things revert back to history!
But have you high LVR's now, hoping for the coming boom in 2011 Propertunity. I'll wait for the pain to come with overgearing FHB, etc.
I just view at it as an ongoing expense of holding the property, same as council rates, repairs, etc. Would you be nervous about leaving your kids a property because they'd have to pay the rates?
Going back to what I think I remember was the point of the thread... I think that high LVRs can be OK if you have the cashflow to ride out periods of low/no/negative growth, and your investment timeframe is long (>10 years). This is particularly the case if you're young and cashflow-rich but equity-poor.
If you already have a lot of equity (ie that's worth protecting), and/or if you don't have ample spare cashflow, then high LVRs aren't right for you.
This topic has been done to death in past threads - so for the sake of not wanting to bore people, I'll leave it.
That is OK is that is your strategy. However, if you want to profit from other people's misfortune (as you are hoping), why aren't you doing it now? There is always opportunity in any market to do well as a purchaser.
There are people who lose employment (unfortunately), have relationship breakdowns, have lenders foreclose, purchase without selling first and get in trouble with debt, to name just a few. All these things can lead to distressed sales and therefore the opportunity to profit from the deal (albeit at someones else's expense). This is the state of play in the current marketplace right now. So I'll ask the Q again. Why aren't you taking advantage now?
I suspect (I don't know), that because you are 'waiting' and not acting now, that you are not really genuine in what you've said, and taken together with your other comments about property as an asset class you are probably just here to vent your spleen. Fine - you do your thing.
As for me, I'll continue to put my money where my mouth is and buy (with as high a leverage as I can) as long as the deals stack up. (I'm not suggesting that people just buy anything or that they take on a highly geared position if they are novices or they do not have all their risk mitigation in place). And if the boom comes in 2012 - fine and if it takes until 2021 - that's fine too because it isn't costing me anything out of my own pocket (other than opportunity cost).
I'm just calling it as I see it. I'm in the property marketplace everyday and I see a turn in sentiment - and I've been seeing it for several months now - and if it continues then this will be (when looked on with the benefit of hindsight) the start of the upswing.
On the flipside, I have been hearing how the world as we know it is coming to an end. I've been hearing this for nearly 2 years now - but I have seen none of it actually come to pass.
Thanks Prop, am quite enjoying this discussion on high leverage and don't want to see it degrade into another property price crash, mental masturbation thread (ie. my charts better than yours). Head over to the Property Market Economics forum Investor888, you'll love it there.
Theres a big difference between the cost of the rates and the cost of a never ending IO loan.
I would be nervous about leaving them encumbered with a debt, that they may not be able to service.
In all fairness, I am not trying to judge or steer others, I just look at this process at a point in time having come 30 years down the track and I probably haven't got 30, 20, or 10 years left to capitalise if I were to take an IO loan.
I agree its not so bad when your younger and starting out.
Battler, you can always adjust the strategy. For example convert to P&I 10yrs into the purchase once the rents risen enough to more than cover the interest component. That way when you pass on it will be debt free.
No right or wrong, just up to you whether you feel the Principal portion of the payments is best spent paying down the loan or used elsewhere for other purposes - investment or otherwise.
If you do a spreadsheet of a property over say 30yrs-40yrs (we're talking about being uncomfortable passing it onto your kids with debt when you die), assuming say 8% constant interest rates (sometimes 10%, sometimes 5% etc), just 4% average increase in rents with say a starting yield on the property of 5% - think you'll find you'll have more than enough rent at some point to convert to P&I if you desire.
No right or wrong, just up to you whether you feel the Principal portion of the payments is best spent paying down the loan or used elsewhere for other purposes - investment or otherwise.
If you do a spreadsheet of a property over say 30yrs-40yrs (we're talking about being uncomfortable passing it onto your kids with debt when you die), assuming say 8% constant interest rates (sometimes 10%, sometimes 5% etc), just 4% average increase in rents with say a starting yield on the property of 5% - think you'll find you'll have more than enough rent at some point to convert to P&I if you desire.
On the contrary. Cashed up on a lower LVR waiting to purchase 2-3 more properties when the time suits. And not waiting to "profit" from others misfortune. IMO the current government propped up mini boom with be short lived, and reality will set in next year. If there are more like you, then that all the better for me in 2010/2011.
)If that's the case, then I wish you well.
As we said at the beginning - let's meet back up in 12 - 18 months and compare notes
Travelbug,
I personally do not think the Elizabeth Bay area will do anything spectacular in the next 2-3 years (no double digit capital growth, but id like to be proven wrong), but because i have a decent yield and have put a small amount of my own money into the property (due to FHBG), i only need about 3-4% growth to achieve a healthy total leveraged return.
However, i have researched the area intensively for the last 24 months before buying and my conclusion is that the quality of properties and returns can vary greatly throughout the area. The most important thing, i believe is to get into a complex that is highly desirable and your equity should be relatively safe. There are a lot of poor buildings in the area in which capital growth can be volatile.
As an investor in the area im sure you know the 'Rex' building (50 Macleay St, PP), i dont think this building is a great building, but it can deliver at great yield (circa 6-6.25% gross yield), however, those investors who bought off the plan (1 bedders with CP) for $500k in 2003 were selling for $430k in 2008. However, recent interest from FHB's has resulted in sales up to an inflated $490k.
At about the same time the highly regarded 'Ikon' building was selling off the plan at a rapid rate, $600k in 2003 for 1 bedders, prices did drop in the building after the bubble burst, but if you sold today you should still be able to achieve $650k+ for you 1 bedder. But why did one grow and the other did nt, simple = quality and desirability of the building. But to offset this risk, a building like the 'Rex' offers yields of 6-6.25%, but in the Ikon, you are luckly to get 4.75%.
Overall, i believe you have to be very specific where you buy in the EB/PP area, its hard to generalise about the area, in terms of market movement. Love to hear your feedback from a fellow investor in the area.
Fuzzboy
Hope that you do know that if you used the FHBG to purchase this property, that you eventually have to move into it for a period of time no later than 12mths from purchase (then move out later). You can't just use the FHBG to purchase IP, and not move in.
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