386,000 home owners owe the bank more than the value of their home

Melbourne had a downturn from 2010 - 2012. The market peaked in 2010 and by 2011 a lot of people were feeling fairly bad about their purchasing decisions. By 2014 they weren't too worried about it. Perhaps they were a little irritated that they picked the peak instead of the bottom, but that's only easy in hind sight.

 

K

Maybe you need to half your expectation and put 40% in ?
Join with friends to widen the market search ?

 

Exactly but isn’t that any negatively geared property? You purchase it knowing it’s going to cost you more to hold in the hope when you sell those costs will be returned back and then some.
I’m in no way advocating negative gearing because I thinks it’s a terrible strategy.

My point is when your in negative equity, whether you hold a property for 5 years and it goes nowhere, whether you purchase it and it booms is irrelevant unless you sell.

My brother in law purchased 20k in crypto right before the boom. His paper worth was 450k! Was it a good investment? Who knows....he didn’t sell and still hasn’t when it’s now worth 10k.

 

The data includes offset accounts

 

Property is driven by fear and greed. At the moment we are in a fear stage.

 

But that still wouldn't meet your definition of positively geared? I'm just curious that you are able to find prooerties positively geared at 105% of the loan?

 

Or hold in anticipation of rental rises rather than sell

 

I posted some deals that my mates had brought
Talking to them their aim is keep 60p to 80pc of the net rental as profit.

Why not ring the agent from Colliers real estate (or any other agent) and chat to them.
I am sure they will help you.
I have not gone in for these high yielding properties recently instead going for the safe low yielding properties (with zero vacancies for maybe a few hundred years) where only 30pc of the rental is profit!
But note these properties are not without problems.
You need to pay lots of taxation and every day you have problems figuring out where to spend your profit

 

Oh really? Should have read the article haha

 

My IP in a middle ring suburb of Hobart has a net rental yield of 5.5% on (total purchase cost + initial repair, roughly 108%) so positively geared without any depreciation. Value has increased around 22% since purchase (18 months approx.). You cannot find properties positively geared at 105% does not mean it does not exist. Often you need to go out of your local area/city and/or be creative with your investment (value add, reno, dual income, etc.).

 

When you count all the holding costs, including rates, taxes, maintenance, management, vacancies, as well as the cost of the loan, 5.5% would optimistically be neutrally geared. The bottom line, is does this property give you a tax refund or do you pay extra tax? Positive geared is defined by the latter.

Still, that's a good return, a lot better than most deals out there.

 

5.5% is net yield which already takes into account all holding cost (PM fees, rates, water, insurance, land tax) but no vacancies. Gross yield is 7.5%. And we need to pay extra tax since this IP generates approx. 6k surplus per annum before tax. Of course if there is any repair and/or vacancy, it will be lower.

 

@hieund85 fair enough, that would be positively geared.

I couldn't tell you how many times I've heard people say they're positive geared because their rental income exceeds their interest payment.

 

How distressing for you .

 

With the Interest Only loan, I assume the mortgagee is expecting the house price to increase/double the price, otherwise it is a useless loan that only gives more money to the bank/finance institutions.

 

I don't think the bank (mortgagee) could care less about the house value up, down, or sideways as long as the borrower keeps making interest payments.
Their business model is to borrow money in the marketplace at say 1.5% and lend it out to their customer at say 4.5% so they pick up the 3% difference.

In fact if I were a bank, I'd be quite happy to lend at IO forever. If a borrower pays me back P&I - I've got to then find another customer to lend the P to again, which will cost me money to market to, to find and sign up.

 

And what would happen in a worst case scenario where house prices went nowhere for another 8 years in Sydney and Melbourne.
For those sitting on IO and unable to pay any principle off it would put them under a lot of pressure to sell.
You only need enough people in the same situation and house prices go no where.

 

When RE prices went "nowhere" as you say from post GFC to 2014 (ish) in Sydney and Melbourne, I personally was sitting on IO on everything, and not wanting to pay off principal (and still don't want to), I felt no pressure to sell. I cannot understand why anybody else would want to? (unless they were nervous Nelly's). In a 10-12 year full RE cycle there are typically flat periods of around 6 years at least. This is the time when you hunker down and keep the long term goal in mind.

 

Which is possible since wages haven't been growing

 

With interest rates at records lows you will just see a lot more volatility in out economy as its unable to respond to future shocks to our economy , so I dont think looking at past graphs is going to be much help.
The U.S cannot even unwind itself from QE , and that was the result of an event that happened over 10 years ago, and now Australia might have to try and get creative if a couple of 25 pt interest rate drops cant save our economy.
Its already been dropped by about 300 pts a few years back with nothing to show for it.
Lets not even get started on zero wage growth, dead inflation , possible major changes to negative gearing and many investors that borrowed heavily on I/O in the days of easy cash , now being pushed into P&I loans over the next couple of years.