Unsure if it is the time to buy rental property?!

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From: Ian Johnson


I'm just a bit confused! I know that interest rates are very favourable but at least in Newcastle, property in the bottom 20% of the market is snapped up on the first day on the market and possibly before!? There is nothing to buy and the prices are very inflated. Is this a case of people being whipped into a frenzy due to low interest rates, government grants and a pack mentality? Would it be better to wait till the market cools before investing in further rental properties? I'm trying to resist the urge. Has anyone got any wisdom re this? Roosy
 
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Reply: 1
From: Rolf Latham


Hi Roosy

That depends on I suppose what to you is a cooler market ? In % terms how much cheaper does a property sold today at 200 k today have to be in a cool market.

Ta

Rolf
 
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Reply: 1.1
From: Owen .


Good point Rolf.

Say an average 2br apartment cost $280k now and the I/O interest rates are 6%.

280000 * 0.06 = 16800 * 5 = $84,000 in interest over 5 years.

If you wait until the market drops say ~10% but interest rates have risen to 8%. A 2br apartment now costs $250k.

250000 * 0.08 = 20000 * 5 = $100,000 in interest over 5 years.

Which is the better deal?

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 2
From: Miakat .


I know where you are coming from. I'm in the Newcastle market, and it's not so much that the prices are too high, it's just that you have to be super quick. It can be extremely frustrating. The way I deal with it is not get too stressed about having to buy something RIGHT NOW! I have my finances sorted, I'm consolidating while looking so I know when I find something I can be the lucky bugger that bought it on the first day. Anyway, if you ever need a pep talk, come along to our Freestyler meeting. First one is on this weekend. Great way to chirp you up and give you the energy to get through the next month. I certainly can't wait. Contact me if you want details miaclapton@ozemail.com.au
 
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Reply: 1.1.1
From: Rolf Latham


Hi Owen

I dont feel that a 2 % rise would cause a 10 % collapse in average prices of below median priced stock. Indeed, it depends on what causes the interest rate rise in the first place.


Ta

Rolf
 
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Reply: 1.1.1.1
From: Owen .


The example was extreme for sure but it was just to provide some food for thought. If the price of property doesn't drop and interest rates do rise then the differentiation in cost in my example is even more.

I guess the point I was trying to make was if you can buy now and utilise the low interest rates, over a specified time frame the cost of holding that property will be less. The capital growth may stagnate but as the interest rate rise the yield should improve too. As you hold the asset there is always the chance to add value through renovation and increase yield the same way. Even in a flat market there is opportunity to make money and grow your portfolio. Prices will go up again at some time so it is a matter of managing the cashflow in the mean time. Make use of the low interest rates.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 3
From: Dale Gatherum-Goss


Hi Ian

I take the view that the answer will depend upon why you are investing in property.

If you are investing for a quick dollar gain - then when the market is already high, it might not be a good time.

If however, you are investing for a long term gain then the current apparently high prices will not cause you a problem because in 20 to 30 years from now we will have been through a couple more property booms and today's prices will appear quite low.

Importantly, clarify in your own mind the reasons why you are investing, the results which you would like to achieve, and the rules by which you wish to play this wonderful game.

Have fun and good luck

Dale
 
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Reply: 4
From: Danny Dwyer


Ian,
Can I refer you to Jan S's book, B.W.I.C.T., page 178. (You do have this book, don't you?) "Am I paying too much for the Property?. The details in that section might assist you.

As Dale pointed out, you need to decide what you wanta do - do you want to be a "long term" investor or a "property trader".

(Just my 2c worth - I am still a bit of a newie.)
 
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Reply: 1.1.1.1.1
From: Ian Johnson


Thankyou for your replies. What I meant by the market cooling off was when the First Home buyers assistance goes off. If one is looking in the bottom 20% of the market for a rental property (as Jan suggests in her first book), then this is the market also that the first home buyers are looking in. What I am finding at the moment is that only the least desirable properties are left are available to so there is not the choice and the competition is fierce.
I take your points about taking advantage of the lower interest rates now. Thankyou.
Roosy
 
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Reply: 4.1
From: Ian Johnson


Danny,
actually I don't have this book yet but I have a 1992 copy of Building Wealth through Property investment. At this stage I have a 1/2 share in a rental property making a positive return so I thought it time to buy another rental property while not contributing any extra on a weekly basis if possible. I guess I am more of a long term investor although I wouldn't mind buying a property cheaply and making a few cosmetic improvements and selling on if that were possible.I am trying to make sure that I have a comfortable retirement. I am really a novice here and although I made a number of classic mistakes on my first property, it has still increased in value and is now making money. Roosy
 
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Reply: 4.1.1
From: Jeremy Laws


Roosy,
We bought an IP in Newcastle yesterday. I hadn't been there for a few months, when I bought several in a weekend. Technique. Go and see a few properties and make offers on the best. Buy one (get offer accepted), and then find the finance. Just imagine how hard that would be with those silly written offers people still seem to want!
 
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Reply: 4.1.1.1
From: Terry O


hi jeremy,
what sort of property did you buy
house or unit
old or new
one to renovate
what suburb.whats your thoughts on newcastle long term and short.
thanks

TerryO
 
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Reply: 4.1.1.1.1
From: Jeremy Laws


Newcastle is great. Love it. Bought in Cessnock - was very hard not to buy a few. Sadly money tied up (or about to be) elsewhere. 3br (I think it was three) a sort of bathroom, a sort of kitchen, and a DLUG on 1200m block. Basic thoughts - Sydney now spans Wollongong to Newcastle, yet Newcastle seems dramatically cheaper than Wollongong. Makes no sense to me! I was a Mt Druitt fan before that got too exxy. Fortunately I discovered Newcastle at that point!
 
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Reply: 4.1.1.1.1.1
From: Rolf Latham


HI JL

The big price differential is that the Gong is seen as commutable by some romantics, yet Newcastle isnt (yet)

Ta

Rolf
 
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Reply: 4.1.1.1.1.1.1
From: Gee Cee Clay


Wollongong's Northern suburbs are now fetching big $$. Sydney commuters looking for beachside living.

However the big growth areas and growth is at present in the beachside & Shellharbour City Council areas.

New shopping centres, picture theatres, town centre, road links, electric rail and new railway stations are being built. All this within 10 minutes of the beach and 15 minutes of Wollongong.

No I am not spamming. Everything just sells instantly at present.

Happy investing

Gee Cee
 
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