Positive cashflow properties not far away

IF the banks passed on all the rate cuts since Sep 2008, an average investment loan of $300K @ the then high rate of 9.5% will soon equate to a mere 5.5%- that's a saving of some $230 per week on a loan of this size.

With increasing yields already making a dent in the property market, these interest rate drops are really going to have an impact on the back pocket and cashflow of your average investor.

For example, an average property costing $350K returns $370 per week in rent or $19,240 p/a. Interest @ 5.5% = $370.20 per wk or $19,250 p/a.
Even given expenses (rates, maintenance, vacancy) it's getting cheaper- the cheapest Australia's seen for some time.

 

Many will be able to keep property even with no job or when prices go down. Almost too good to be true. What’s the catch? Which way the patch is coming from?

 

The catch is that despite all the interest rate cuts, rising unemployment will more than likely force house prices down over the next 12 months. Also rental yields will definitely stop growing and may even start to wane a little given that the previous upward pressure on rents that was created by the high demand for rental properties which gave owners greater leverage to negotiate higher rents will be significantly reduced given that renters now are able to afford their own homes with the very low interest rates. Though obviously the plus side to this is that former rents that turn into buyers will help hold up housing prices (at least temporarily).

My fear is that many will enter the market when rates are low, and whilst there is still significant deflationary pressure and high unemployment (giving incentive to interest rate cuts). However this deflationary pressure is likely to abate at some point giving rise to high inflation in light of all the liquidity injections occurring all over the world, and this inflation will probably prompt monetary tightening (ie rising rates) which coupled with the remaining high employment (usually takes awhile for new jobs to be created after a recession) might prompt rising levels of defaults by new owners who were budgeting on rates staying low, causing further reduction in house prices. I'm not saying this WILL happen, I just fear it might.

 

Hi Sim,

That makes me feel better as my loan is 5.14% pa
Certainly with St George's 4.4% pa promotion at the moment it makes borrowing to buy a property a very attractive deal.

Cheers,

Dan

 

All my IP's are now cash flow +ve
It's a good thing but on the other hand I will have to pay a lot of income tax....

 

buy more IPs , I would if I could. Or get some loan and park in shares. Locking at low rates may pay big times when market recovers in 3-4 years.

 

dudek

I can only afford 1 more IP without having to pay LMI.
I'd love to buy more but I have already used up the equity of my IP's
and I don't feel comfortable accessing the equity of my PPOR.

If the market was to take off I'd take more risks and buy as many IP's as possible but I feel that people are scared and property prices won't move up by much so I am taking small and careful steps.

Additionaly, there is too much competition from first home buyers and ofcourse we live in uncertain times so we have to be careful not to over extend ourselves.

Hopefully the FHB grant will not get extended past June

cheers

 

Same here, I can’t borrow more money and have to wait for next raise in Real Estate. I suspect there are more people in the same position. Do you mind if I ask you how long it took you to get to positive gearing? I got mine four years ago and still paying couple hundred per months. I suspect rents may not go up in the near future so the only hope is the next cut by RBA.

 

I just signed on my first property this week. I'm paying $335k for the property. Living in it for 6 months for FHOG then renting out. I've got an 80% loan ($268k) which is costing my ~$340 a week.

When I sell off some shares and exit some MFs, in the new financial year I'll be able to drop $30k into an offset, bringing the loan cost down to about $300.

I should be able to rent out for about $340 a week. So minus some money for expenses and my property is close to cash positive.

 

dudek

The time it takes to become +ve geared will vary depending on what yield you get.

The yield of my latest purchase (townhouse) was a bit over 5% and with interest rates now at 5.19% the rent & depreciation would more than cover the repayments.

We were lucky that interest rates came down, while rents went up 20%
otherwise I would have been paying 9% interest and having 5% yield.

I am careful and only buy properties with good yields.
The below property for example assuming it sold for $265K+$15K in stamp duty, rent would be $290/w yielding 5.38% and as from this month it will be positive geared
http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2007509871

Hopefully fixed interest rates will come down soon because I want to lock 3 of my loans for 10 or 15 years. Something close to 5.5% for 10 years would be good.

cheers

 

Well I have to say I always put more focus on capital gains. I never say properties will double every 10 years or they always go up but if we look at the average grow it looks OK and if we get lets say 1ml portfolio I am sure I can bit inflation during the 10 years period.

I never came across of bank willing to sign such a low credit rate over longer than 5 years period. But then again I don’t say is not possible.

Over all I can see one pattern emerging. People who went against doom and gloom seems to be doing well. I got my latest one around April last year and got bit spooked by every day news. I didn’t know I will be in better position just 6 months later when fist rates started to go down. As someone already said on this forum, there are endless opportunities every day. Not all of the people can see them.
Congrats to both of you did very well.

 

the commonwealth bank offers fixed loans of 10 + 15 years

Congratulations on your purchase last year.
You must be very brave buying in that environment when every1 was looking for cover
Yes there are many opportunities now and particularly for those with secure jobs and good buying power.

cheers

 

Riiight... all I see are big capital losses coming over the next 3 - 5 years, but hey that's me just being forward thinking, rather than thinking the last 12 months will be reflective of the next 12.

Plus why would you put money in property yeilding 5% return, when you can put money in stocks (STW) yeilding 10% return PLUS with a 50% reduction in prices already the downside risk is signficantly less than property??

Don't let the last 6 months fool you, Australia's economic results are lagging the rest of the world, from here on out it will be very much downhill. In my mind, it is no longer a question of if property prices will go down, but rather by how much.

 

Chris,

I rather make 5% than aim at 10% and loose a lot. I am not against shares or any structured investment but this is where the problem started - structured loans to hide bad debt and I am going to avoid it for some time. Shares are great but today chances are that company can go bust within days but when property losses even 40 % in value I still have 60% left. You are probably right that worst is yet to come but as I said I rather be left with 60% of what I have.

 

forward thinking??
Common mate have another read of what you wrote.
You are only trying to make a prediction based on the junk you read on the web.

NONE can predict how the world will look like in 6 months time and you can tell what will happen in 3 to 5 years?
Also, if the world will end as you are trying to tell us
and/or companies have massive losses STW will be yielding a lot less than 10%.

Do you know why people and funds who previously had large exposure in shares are still in cash? Because they are afraid of the worst.
I am not saying that the worst will come, I am simply saying there is a lot of fear around.

Fear seems to have overtaken your current and forward ( ) thinking and you've become a D&G merchant.

Don't believe everything you read and don't try to become a prophet.
Fear doesn't always become reality so those who rush to make a judgment will be disappointed and those who see an opportunity and are brave enough to take it, they will be handsomely rewarded

 

Right... so what you are saying is that you'd never take say a 25% deposit into an IP and then borrow the other 75%, because if you did and prices fell by 25% - you'd have lost the LOT... the only difference would be that the bank "probably" wouldn't force you to sell as long as you could make the payments, giving you the added opportunity of running into negative equity.

People love to vomit statements like "but my rental income is high and covers my payments" (a risky assumption in my opinion) and one that will prove to be the downfall of many. Alternatively people love to remind themselves, "but I have a good stable job" oblivious to the likelihood that unemployment is going to more than double, and that your employment is not always based on if you do a good job.

At least if you leveraged into the stock market the bank would force you into a margin call, saving you from being in a position of negative equity. Not that I'd recommend anyone leverage into shares right now.

I mentioned purchasing STW (an index fund to diversify your risk across the entire asx 200), it is already yielding 10.7% pa, and if you think the asx 200 is going to 0 then I can assure you, you will have much bigger problems to worry about at that point.

You clearly are against shares judging by the statements you made, but just because you don't understand the share market doesn't mean you shouldn't consider it, the worst that can happen is that you learn something, and if there is one thing I have learnt in my short 23 years, it is that the best investment you can ever make is in yourself and your education. Ignorance is bliss, and the turth destorys happiness - but at the end of the day the world opeartes on the system of Darwinism, and it has no sympathy for the weak.

Also, I'd just like to inform you that the problem actually started with average joe blows in America over investing in PROPERTY (guys and girls just like you, sticking to what they knew) with sayings like "get in now or be priced out forever" echoing in their heads. Of course there was a lot of loose credit being thrown around the market as well, but let's not put all the blame the bankers just because they gave loans to idiots. It definitely takes two to tango, and the ignorant masses had a vital part to play in this whole mess - yet it is the ignorant masses that want to point the finger at those more intelligent than them for not informing them of the dangers of their decisions. All I can say to that is...

"Hypocricy, thy name is you."

I did read what I wrote, I'll say it again - all I see are big capital losses coming over the next 3 - 5 years.

It seems pretty simple to understand, and please don't tell me that it's not possible, because you only need to look at the rest of the world to see that house prices have been falling since 2006 in places like the US and Europe, with only the most misinformed real estate journalists pushing the "now, is a good time to buy" line.

You're right, I'm totally misinformed, a completely ignorant, idiot.

Let's ignore the fact that I graduated top three of a 100+ economics class in the third best high school in QLD, and that I'm two subjects away from graduating from UQ with my Degree in Economics, nor the fact that I read financial and economics "junk on the web" 8+ hours a day 5 - 6 days a week, or I have more text books and books on economics sitting on my shelf than most people have books. Finance, economics and marketing are my life and my passion, so I'd appreciate if you didn't imply my opinions were just reguritated rubbish from junk websites.

I'm not claiming that I know even a fraction of what there is to know when it comes to finance and economics, but I know that I know more than a HUGE proportion of the population, and I'm also quick to find my short comings and am even quicker at rectifying them.

I'm formulating opinions based on facts, figures, and trends that I'm seeing from a HUGE array of sources on a HUGE array of aspects that influence an economy.

I don't think it is fair I try to justify my credentials, without offering your the opportunity to say what makes your opinion, valued, informed or at least not a waste of people's time, while mine is apparently based on "junk"? Can to enlighten us BV?

That's bull, people do it all the time. You're just listening to the wrong people, and reading the wrong websites/newspapers/magazines.

Plus it is actually a lot easier for me to predict what is likely to happen in 12 - 24 months from now, than it is for me to predict what will happen 2 - 3 months from now.

I have never said the world will end, but the financial b*tch slap you are about to receive will hurt a lot less if you see it coming and structure yourself accordingly.

No I'm not saying companies will continue to yield what they have, that dividend yield of 10.7% is too high, it will fall at least 20 - 30%, but then again share prices still have a bit of falling to do themselves.

I don't know why I get labelled an evil Doomer and Gloomer, when the track record of optimists over the last 18 months has been wrong EVERY time! Hell I used to be one of them! How many good calls have you made in the last 6 - 12 months?

I know I was wrong enough times through the early part of 2008 that I was determined to find out why, with each passing week as I found more of my short comings it became very apparent to me that no amount of positive thinking is stopping this DEEP recession from happening, and Australia isn't immune like so many ignorant media pundits love to tell us.

Keeping your head in the sand will not prevent the lion from eating you. There is a reason why your IP's are positively geared! Because no one wants houses! The banks can't give away their credit! If interest rates were at 0% credit levels in Australia would still contract! Why? Because there is no confidence in the economy, nor employment, and the world is waking up to just how high our debt levels are, and just how little we actually produce! We have quite a lot of unwinding to do, particularly in property.

I'm afraid the ignorant masses have been sufficiently convince they have no idea what is going on with the world and they will refuse to part with their hard earn money until those in the know lead the way. The greater fool property bubble has popped, credit is contracting despite the lowest interest rates in decades - the writing is on the wall.

No they are in cash because they are educated and informed about the likely progression of this recession/correction/unwinding.

I'm more than happy to speculate on the future, because I know what I know, and I am confident in my predictions, and I'm more than happy to put my money where my mouth is.

Fear doesn't weigh into my decisions, the only thing I'm really fearful of is the devastation others are about to go through because they have no idea of the workings of an economy. Though, truth be told, someone needs to cop the losses, that's the way the system works. It just saddens me that the informed are jumping ship, or already have, leaving the naive and ignorant holding the bag unaware of what hit them.

Optimism combined with ignorance will be the undoing of many.

What makes you think I believe everything I read, and what exactly do you think I read. I know I read the courier mail or the Australian from time to time and find myself swearing at it and promptly informing my family of why we are in the situation we are in when the misinformed are given facilities of mass media to spread their deception and/or ignorance.

Stop begin proverbial and start being logically, if you got some predictions to make (ie you think things are going to get better) then make them and tell us why (using reliable information or facts and figures that can be easily verified).

Also stop telling me "fear" is ruling my analysis, when that couldn't be further from the truth - FACT and FIGURES are what I'm looking at and using to make my judgements. If you want to step up to the plate and actually contribute something of value to the conversation please do, rather than just optimistic statements of faith based on your brief history of investing in the greenest times since the roaring 20's. Otherwise go get yourself an education and let me know what you learn.

 

You are right. I am going to work tomorrow and I will work harder so I don’t loose my job. Meantime people like you can take full advantage and buy shares in my company because productivity will hit the roof. You just made me believe that I would never succeed and that my place is at the factory floor.

Is this what you trying to say mr know everything better?

So since I know nothing and have nothing I fear nothing.

I, my friend have total respect to everyone and never call names. Now, that what they call education.

So why someone can't have their own opinion?????? what ever it is, you don't need to agree but don't call anyone stupid or make him feel like one.
(again education and maners)

yes you told us there will be massive price reduction in RE. I don't call 3.3% annually adjusted across of all Australia national disaster. Well off the target my friend. There is something economists can't predict - human feelings and basic human behavior. That is most why your graphs are out of wack and you guess is as good as my guess.

On my planet people live in houses not caves so they do buy houses.

At this point I had to ware my sunnies although is dark outside.

 

Hi Chris C.
A passionate response, and an interesting read!
You wrote:
"At least if you leveraged into the stock market the bank would force you into a margin call, saving you from being in a position of negative equity. Not that I'd recommend anyone leverage into shares right now."
Weren't some Storm clients' holdings sold down into negative equity by the bank without a margin call?

I read somewhere:
"Being an Economist is the only job where you can be wrong your whole career
and it's never your fault."
or
"an Economist is like a fortune teller with a crystal ball, only without the crystal ball..."
[definitely NOT a personal attack since you aren't yet an economist!]

 

Chris

Studying economics makes none an expert in predicting the future.

Even professor Keen has degrees in something, possibly economics and can also tell you how passionate he is on the subject but when he is proven wrong he will have to disappear in shame when he could have worded his predictions differently and save himself all the embarrassment.

The comment about regurgitated rubbish is yours
Your writing though seems to be highly influenced by junk appearing elsewhere on the web.

I don't bring my academic achievements into this discussion because they are mostly irrelevant but like many others who frequent here we come from various professional backgrounds with tertiary education and the most important we have a degree in life and this one you don't get it from the UQ or from any other Uni

Slow down and think for a sec.
When things become unpredictable as they are now the prudent thing to do is to stop making illogical predictions.

 

Chris, probably one of the most difficult things to do in life is to retreat from an entrenched position. Regardless of whether it be a military, financial or emotional situation the inbuilt human reaction is the same, hold firm, no retreat, it'll recover, boom over doom.

On the surface of it this position appears admirable, respectable or even honourable. The truth though is far closer to as you've described it 'Darwinism'. The winning character card isn't heroism its survivalist and as the herd slowly regains its senses each individual will be forced to face his Sword of Damocles.

Reading through this thread highlights a few things very clearly. Firstly that those who are entrenched will remain so until either they realise their folly or are forced to and secondly that you are likely to be a survivor.

Watch the impact of shrinking household incomes undo the work of zero interest rate policy (ZIRP). That fat bloated pig called Ozzie real estate has but one future.