Property In Adelaide - Investment

[Tangles]

............ and then you divorce and lose everything!!!

[ISC-Performance]

Sorry I have to completely disagree there Ryan .... tax benefits are only useful if you have bucketloads of income. And even then, in saving 40% tax, you are still losing 60%. Always better to have an asset fully paid off, no matter what.

True, it's going to depend on your tax bracket as to how much benifit you'll get. Still disagree with paying it off completely though....if you have the extra funds..buy another property...and another...etc (depending on the market). No point having all your investment $$ tied up in the one property doing nothing, also depends on your goals and if there short term/long term etc.

[mr_rbman]

Sorry I have to completely disagree there Ryan .... tax benefits are only useful if you have bucketloads of income. And even then, in saving 40% tax, you are still losing 60%. Always better to have an asset fully paid off, no matter what.

Very interested in this Andrew, most of the research I did prior to building my investment property suggested I make my investment property loan interest only and put any extra money into my live in house (which currently I am lucky enough to be paying double my repayments a fortnight) but from reading your comment maybe I should look at making my investment property loan principal and interst and pay extra off both???

[SLED]

If thinking about an investment property, don't wait till your principle place of residence is paid off...........as soon as you gain equity in your home, use it for a deposit (security) for an investment

The growth will take care of itself......if you wait till it's paid off, you've missed out on the capital gain from your investment property.........obviously you need to be able to service the new loan.

....and that's where the principle vs interest debate starts............principle & interest payments on your home but interest only payments on your investments...........keep your loans on the investments fully drawn so as to give you servicing power for further investments

Once you're ready to retire (sooner than later hopefully) you can sell off 1 or 2 of the investment properties which will pay off the others due to the capital growth.

Let the properties work for you, not the other way around.

[Nightcrawler]

Being able to service the loan is the key though Pete .... you are in the fortunate position where the prices of properties were so cheap to buy and you could build equity quickly. Nowadays, even if you borrowed $250k to buy a modest rental property, on an interest only basis you are talking repayments of nearly $19k per annum ($365 per week - which it is NEVER going to rent out for that much). Almost no property will return this, let alone all the overheads you also have to pay, which reduces the effective rental income. Then factor in the in every likelyhood there will be NO capital growth for the next 5 years (especially if/when the carbon tax comes in), combined with rising interest rates (which in my opinion will hit 9% due to the carbon tax).

Investment properties are great if you earn plenty of coin and can service the debts when interest rates rise, but are a financial deathtrap if you don't have capacity to service the loans.

Ash, my advice to you would be to go see a decent financial adviser, or if you want the cheaper option go see someone like Mortgage Choice - they can run ALL of your finiancials through a computer program and calculate a net figure to tell you whether you should be pouring money into your own home or servicing both loans. My attitude (different to Pete) is to concentrate paying off your own home first (like you are doing) - it is your tax free asset, so it is better to be making a loss on your rental interest (which does offset some of the income generated by it), and pumping money into paying off your own home principal. My wife is a chartered accountant and financial adviser, and this is her advice that we go by. But like I said, a decent fincancial adviser can tell you the numbers quick smart.

[mr_rbman]

Being able to service the loan is the key though Pete .... you are in the fortunate position where the prices of properties were so cheap to buy and you could build equity quickly. Nowadays, even if you borrowed $250k to buy a modest rental property, on an interest only basis you are talking repayments of nearly $19k per annum ($365 per week - which it is NEVER going to rent out for that much). Almost no property will return this, let alone all the overheads you also have to pay, which reduces the effective rental income. Then factor in the in every likelyhood there will be NO capital growth for the next 5 years (especially if/when the carbon tax comes in), combined with rising interest rates (which in my opinion will hit 9% due to the carbon tax).

Investment properties are great if you earn plenty of coin and can service the debts when interest rates rise, but are a financial deathtrap if you don't have capacity to service the loans.

Ash, my advice to you would be to go see a decent financial adviser, or if you want the cheaper option go see someone like Mortgage Choice - they can run ALL of your finiancials through a computer program and calculate a net figure to tell you whether you should be pouring money into your own home or servicing both loans. My attitude (different to Pete) is to concentrate paying off your own home first (like you are doing) - it is your tax free asset, so it is better to be making a loss on your rental interest (which does offset some of the income generated by it), and pumping money into paying off your own home principal. My wife is a chartered accountant and financial adviser, and this is her advice that we go by. But like I said, a decent fincancial adviser can tell you the numbers quick smart.

Thanks for that input Andrew.

I think I will have to invest in seeing a financial advisor as I've just bought a block of land and once we've built i'm hoping to keep our current house as a rental. With whats left on the current house loan we should be able to cover the mortgage leaving the loan principal and interest but I think its time to as you said to get some professional advice and see what their thoughts are as I'm in this for the long term gain (30 years) not short term.

[SLED]

Yeah I agree Andrew.....servicing the loan (or loans) is the key........no bank will look at you otherwise

[mr_rbman]

just had my 2 properties valued.

my live in house down south got valued about what i expected maybe slightly under but my property out north came in $30/40k under what we expected.

Have to perhaps postpone building the new house now as I really don't want to sell in this market.

[SLED]

just had my 2 properties valued.

my live in house down south got valued about what i expected maybe slightly under but my property out north came in $30/40k under what we expected.

Have to perhaps postpone building the new house now as I really don't want to sell in this market.

Yeah, I'd have to agree there.

Perfect example of this happened just today.

A 45sq solid brick 2 storey home with high ceilings on a block around 1000m sq (directly across the road from me) was auctioned off today (deceased estate) for $650K

To give you an idea, a bare block directly behind me (slightly bigger) sold last year for $705K (no house on it).........both blocks have uninterrupted views of Adelaide and the Beaches.

The people across the road pretty much paid for the land today and got this monster house for free

To try and build a house this size these days would cost between $600 & $800K.........and that doesn't factor in the price of the land!!

[JiN_MaN]

I need to go talk to a property investment company, suggestions? Or seminars worth attending?

There seem to be alot on offer and it would be good to weed the BS out sooner rather than later.

[Nightcrawler]

As I have said above in posts, it is important to see a financial adviser first to work out your net financial position and what type of investment benefits you the most. Property investment is NOT just about rent (in fact, far from it) .... you need to work out relative to your personal financial situation whether you want an investment for depreciation/income shield (brand new home), high rental return (cheap home in the outer suburbs - and/or look at a larger block if you want potential to redevelop/sub-divide down the track) or high capital gain with moderate rental returns (safer, but you will have to find more out of your own pocket to top up mortgage payments) .... then you need to find out what type of loan best suits you - interest only, fixed rate etc etc ..... only THEN is it really worth talking to a property professional or similar.

Problem is that ANY seminar you attend will push THEIR product, whether or not it actually is the best product for you. At the end of the day MOST people are just out to make their commission out of your deal, so it is hard ot get good advice.

I even know of loan consultants who push a particular brand or product as they get kick-backs from how many loans they write of that product/brand - whereas they are SUPPOSED to be finding you the BEST deal for your situation ... sadly many do not.

[JiN_MaN]

'Nightcrawler' That's actually the EXACT information of after, I assumed I would get the from a property investment company.

As for seminars, the more people I talk to the more information I have to work with. Even if I only take 5% of the information, its 5% I didnt have before.

Recommendation of financial advisers?

[Nightcrawler]

Yeah true, listening to every point of view is a good idea - learning is learning. As long as you don't get sucked in to any ideal where the professor of that ideal has some personal gain in your learning or actions thereafter.

But if you are smalrt enough to filter through the bullshit, then you will be better off.

Sorry I have no recommendation of financial advisers. My wife is a charetered accountant, so she does all our advice/planning (and most of our spending lol) .... maybe check with your relatives/friends and see who they use?

[Damo_R34]

Jin_man, give WB financial a ring.

http://www.wb.com.au/Home.aspx

[MattR]

buy in roxby downs. (or any up and coming mining areas) thats if you just want it for investment and good return. eg whyalla ardrossan. even eyre peninsula. but look at it for 10years plus.

i baught my place for 220 seven years ago with 200 week rent. now im getting $430 a week rent and have had offers to sell for close to 400K. with the go ahead of the open cut. with loan at interest only on 200K or there abouts it is roughly $1200 per month. you can figure out what the return is compared to outlay.

just my 2cents on what has worked with me.

[SLED]

interesting how markets have changed since this thread was started only 7 mths ago.

We were saying that Adelaide prices were still on their way down with no light at the end of the tunnel while interest rates were still on their way up.

Today is a different story though...we have already experienced 2 interest rate drops with a another .25% drop predicted for the Feb quarter.

Analysts are now singing a much better tune, predicting a full 1% drop in rates by the RBA before the year is out....if this does in fact happen and unemployment doesn't rise, we'll most likely see a 'mini-boom' by the following year me thinks.

Other contributing factors are the fact that it has now been 11 years since the last (bigger than usual) housing boom and these sort of things tend to be cyclical as proven over the last few decades....another factor is that Adelaide prices have now sunken to their lowest and are expected to just flat-line this year.....a flat-line in the market after such a depressed market is what property investors always look out for, so expect them to start spending again as the year progresses.....this will also add fuel to the 'mini-boom'.

Having said that, until rents literally double, we won't be seeing a housing boom as big as the last one......not before I'm ready to retire anyway.

[Dohmar]

Analysts are now singing a much better tune, predicting a full 1% drop in rates by the RBA before the year is out....if this does in fact happen and unemployment doesn't rise, we'll most likely see a 'mini-boom' by the following year me thinks.

I sure hope so... there was talk today of GFC part 2 which didn't sound so great...

-D

[Nightcrawler]

Sled you are forgetting one VERY improtant factor - that idiot redhead's Carbon Tax.

So as of July 2011 we will see businesses having to either suck it up, pay the carbon tax (and make 15% less profit per year), OR pass on the 15% increase in prices to the consumer. And this is a compounding tax. Not a remittal tax like the GST - the 15% gets added at EVERY STAGE of production, packaging, transport, wholsaliing, transprt again, and retailing.

I will give you one guess which one will happen.

So now imagine a whole generation of people who paid significantly too much for property during the boom, have HUGE mortgages that they took at 5.5%, but are currently struggling with at 7%. Then factor in inflation of every single thing we do of AT LEAST 15%, THEN factor in the RBA RAISING interest rates to try to dampen consumer spending/inflation, then see interest rates hit 8-9% while the cost of living rises by 15%+. Then consider the tens of thousands of manufacturing businesses in Aus (that already cannot compete with overseas-made items) have their operating costs rise by 15% overnight due to having to buy carbon credits. These factories will cease to exist, as why would you stay in Aus and make a product when you can have it made in China (where of course there is no carbon tax) for half the price. Fact is, most of them are only still in Aus to be good sports ....

I see only significant doom and gloom in the Aus property market between people having less disposable income, significant mortgagee in possession sales (we are already seeing significant numbers of thes - I did 2 today) and massively increasing unemplyoment qeues.

There is a bad 5-10 year period ahead of us I am sorry to say .... time willl tell if I am right, and to be honest I sure hope that I am wrong.

And in the longer term, exactly as you pointed out Sled - our incomes are relatively fixed and will be for a significant period to come - how can rents (and subsequently property values) rise? Already since rents have move a poultry 10-20% in the past 10 years - yet values have doubled and in some cases tripled - the balance is way out of whack when you only return 2-3% on a property, with no prospect of capital gains ....

[skiids]

And this will bring us to dec 21 2012.... The end of the world as we know it, so might as well forget succession planning and blow whatever cash you got now because this time next year it'll be game over! LOL

Mate, everyone has an opinion about investing. My advise is don't take anyone's advise unless they are successful investors themselves. Financial planners, advisors, seminar sprookers, dooms dayers and to a lessor extent accountants all have their own agenda and in their own right are rarely financially free and here they are ready to tell you what to do with your own money.

The truth is no one really knows what the future brings and with everything in life if you want to get ahead sometimes you need to trust your own judgement and take a risk.

So do your homework and make your own decisions.

[Dohmar]

So do your homework and make your own decisions.

An 8 ball of crack and some high priced prostitutes it is...

-D