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Sydney's reality check
- Thread starter HTO
- Start date
Block out the noise!
Every year someone's putting their two cents in.
Interest rates are likely to rise towards the end of this year. Those in the mortgage belt will feel this more so than the top end of town. So this will cause first homebuyers to stay out of the market. That will cause an increase in demand for rental properties which means a rise in rents...supply and demand. Then sometime in the future interest rates will come down but rents remain.... and the cycle continues.
Just my two cents.
I've decided that at the end of this year when I need to get a new PPoR I will actually just rent for a while. Particularly in Newcastle, I see places selling for 380k that I can still rent for 300/wk in some instances. The only reason the landlord still hangs onto it is because he is from the old days where his equity doubled once upon a time so he only owes 200k on the place, otherwise the numbers of course don't stack up.
There is just zero incentive to **** into the wind against a 400k mortgage if you can live in the same place for 300/wk and have the landlord pay your land rates. The yields are terrible. Sure rents will rise further, but its still a bargain compared to purchasing at that price.
I was really in a rush late last year and early this year to dive in and pick up a bargain or two, I have the equity lined up ready to roll, but all I see is increased holding costs around the corner and crippling buy in prices. There is no "value".
When I bought my first place about 11 years ago, I remember that apart from the up front initial deposit, the cost of renting and a mortgage each week, were about the same! That was in 2000. So as long as you could save up 20-30k to get going, you would be on the path and quite comfortably cover the mortgage. It was an absolute no brainer back then, why would you rent when a mortgage cost the same. Now a mortgage will send you broke and renting represents good value, the landlord is actually getting ripped off and subsidising your living costs for you.
If you want to go down the path of granny flats and multi-dwellings to increase yield, then that's fine, but I can create more cash flow more easily through business, not residential property. I'm only interested in capital growth, not crappy resi cash flow which becomes a full time effort just to "create" an asset that puts $50/wk in my pocket after I dodge my tax up with an ATO section whatever you call it. Meanwhile, I'm exhausted from reno and administrative hassles and the place isn't going to grow for another 5+ years anyway. No thanks, that's a lot of effort for $50/wk.
Its the best time to be renting to maximise cash flow and focusing on building your income and other investments rather than mentally masturbating over property. The same big, huge growth spurts just aren't going to be there any time soon to make it worthwhile enough like it has been over the past decade and prior. And I still see so many suckers buy buy buying and going into deeper debt with that glimpse of no-strategy hope that if they buy something, over time they will come out on top, eventually. But this time they won't. I strongly suspect just a little further around the corner, more people will hit the wall as values cool and try to de-leverage again. I know people doing it already, they come in way too late to try to cash in on the fortunes that have already been and gone.
This is going to be a pretty lingering cooling/stagnant period if you ask me. Sure you might get an ok 5-8% gain here and there in certain pockets, but that's speculating not strategy and not enough of a reward for me to obsess over it and focus on it. Property just doesn't represent "good value" at the present time.
2011 - The year for knuckling down, ignoring property until it becomes "good value" again and not being any further behind by 2012.
There is just zero incentive to **** into the wind against a 400k mortgage if you can live in the same place for 300/wk and have the landlord pay your land rates. The yields are terrible. Sure rents will rise further, but its still a bargain compared to purchasing at that price.
I was really in a rush late last year and early this year to dive in and pick up a bargain or two, I have the equity lined up ready to roll, but all I see is increased holding costs around the corner and crippling buy in prices. There is no "value".
When I bought my first place about 11 years ago, I remember that apart from the up front initial deposit, the cost of renting and a mortgage each week, were about the same! That was in 2000. So as long as you could save up 20-30k to get going, you would be on the path and quite comfortably cover the mortgage. It was an absolute no brainer back then, why would you rent when a mortgage cost the same. Now a mortgage will send you broke and renting represents good value, the landlord is actually getting ripped off and subsidising your living costs for you.
If you want to go down the path of granny flats and multi-dwellings to increase yield, then that's fine, but I can create more cash flow more easily through business, not residential property. I'm only interested in capital growth, not crappy resi cash flow which becomes a full time effort just to "create" an asset that puts $50/wk in my pocket after I dodge my tax up with an ATO section whatever you call it. Meanwhile, I'm exhausted from reno and administrative hassles and the place isn't going to grow for another 5+ years anyway. No thanks, that's a lot of effort for $50/wk.
Its the best time to be renting to maximise cash flow and focusing on building your income and other investments rather than mentally masturbating over property. The same big, huge growth spurts just aren't going to be there any time soon to make it worthwhile enough like it has been over the past decade and prior. And I still see so many suckers buy buy buying and going into deeper debt with that glimpse of no-strategy hope that if they buy something, over time they will come out on top, eventually. But this time they won't. I strongly suspect just a little further around the corner, more people will hit the wall as values cool and try to de-leverage again. I know people doing it already, they come in way too late to try to cash in on the fortunes that have already been and gone.
This is going to be a pretty lingering cooling/stagnant period if you ask me. Sure you might get an ok 5-8% gain here and there in certain pockets, but that's speculating not strategy and not enough of a reward for me to obsess over it and focus on it. Property just doesn't represent "good value" at the present time.
2011 - The year for knuckling down, ignoring property until it becomes "good value" again and not being any further behind by 2012.
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Good point, in comparison you would probably get $380/w rent in Sydney. Newcastle rents will rise further but it will take sometime so you could rent for a while and if there is no shortage of housing, prices shouldn't move much higher.
Did you include all the costs of buying? Or just the interest rate. And did you mean P&I or I only?
I think if you went through your numbers you'd come up with a different story.
I think if you went through your numbers you'd come up with a different story.
They do, but overall I find the responses balanced.
You said that more people will rent.
With the current rental shortage some first home buyers are forced to bring forward their buying plans and there is still interest by investors so prices of reasonably priced properties will move upwards and 5 or more % isn't unlikely.
People thinking of buying they should also consider that when market conditions improve, the governments will take away the incentives for first home buyers so we'll have to pay stamp duty as well
Yeah agree. That said, there are also higher yielding places in Newcastle, e.g. 350k value renting for $350/wk, but they are probably the highest yielding ones and you don't have to look far to find cheaper rent than that in an equivalent kind of property that may even be worth slightly more depending on the location.
It was just a vanilla P&I loan on standard, variable rates, I've never touched IO. I had saved up a decent 20% deposit though $30k (20k from living at home saving up until age 20 + $10k borrowed from my parents which I paid back in the next 2 years). And because of that, I didn't need LMI. Interest rates were something like 5.5% from memory and I also got the FHB grant back then which I think gave me $7000 and a discount on stamp duty, although I don't fully remember how much it added up to. But anyway, with all of that considered, after I'd handed over the deposit, the fortnightly repayments were pretty much on par with renting. You might be right and it was still *slightly* higher than renting, but I specifically remember that there was bugger all in it. The hardest part was just getting that initial 20k deposit because I wasn't earning much. Even without the extra 10k from the parents, I still had enough for a 20% deposit into a cheaper suburb which I was going to do anyway.
Look, my main point is that resi property just doesn't represent "great value" any more. Sure, competition is tougher all the time, the rising tide happens and I have never doubted the theory that property just eventually gets more and more expensive over time. But I am just saying, I am not compelled to race out and load myself up with ridiculous amounts of debt in the current market. There is no reason to rush and there is just nothing that you're missing out on. I am not compelled to buy. I believe my efforts are much better focused elsewhere. I am just grateful that I did pretty well because I made sure I got in early enough when times were good and I was exposed to some of the best growth years ever. I believe I am best off by leaving my equity just sitting there as a nice buffer for now and coming back when the situation changes a bit more. There is just no rush any more, you're not missing out on anything by sitting on the sidelines during this year.
I have also previously purchased during a local market peak in 2003, sunk $30k on landscaping and fittings on a stupid house and land package while the market went nowhere for 3 years. Financially, I would have been totally better off renting for those 3 years. I was lucky to exit out at break even and made 0 profit after loads of sweat and hard work. I bought at the stupidist time in a peak and I sunk money into a stupid property that was mostly depreciating building and not enough land content. But the biggest factor was that the market was going sideways. Enough said. If I had just rented, I would have at least saved something or perhaps gone on more overseas trips or *something* anyway. But a great learning experience and reminds me not to be compelled to buy in these local peaks when the value isn't there. You can seriously be better off renting during certain periods and this is another one of them where I see the exact same thing happening all over again, except this time I reckon its even more of a stagnant/cooling period. Maybe you can rent for the next 3-5 years and come out better off. A great time to focus on health, income and wellbeing, getting yourself into an even better position for when property becomes better value later.
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You guys make a valid point. Rents are way to low at the expense of the investor. Its only a matter of time until rents skyrocket up to where they should be.
Cheers
Cheers
I Agree. It's just the nature of the beast...and the cycle repeats itself and round and round we go.
If people struggle to pay rent now, how on earth are they going to accommodate these skyrocketing rents? It is entirely possible that houses being overpriced, not rents being too low, is the cause of poor yields.
It depends on the type of property you are investing in.
I'm settling on a property with 7.36% gross yield. It's a 30-40 yr old brick house on 600m block. 15 minutes drive from Parramatta.
With rents on the way up, it won't take long til it's neutrally geared.
Is this like saying PE ratios are too high, dividends must skyrocket to accommodate?
Love it bene, you are spot on. Perhaps the high house prices will also force my salary higher at the same time. 
The simple reality is that rents are still in line with incomes and are relatively affordable. It is house prices that are far too high for both the rents that can be achieved and affordability to purchase.
The simple reality is that rents are still in line with incomes and are relatively affordable. It is house prices that are far too high for both the rents that can be achieved and affordability to purchase.
hmmmm - settled last month on two properties in inner ring newcastle for less than $235k each. both rented for over $310/wk.
i thought they were good value.
want to buy another two this year but missed out on another similar deal just last week. still looking
PE Ratios are calculated based on the current price and earnings per share. It has nothing to do with dividends. Dividends can skyrocket and P/E ratio can still stay the same.
Cheers,
Oracle.
