How many more years of pain for the Perth market?

Could be that, could also be that you've literally looked for 1 night by the sounds of it and may need more time

You will certainly be getting less for your money than 6 or 12 months ago though so expectations may need to be adjusted a bit

 

Leederville properties snapped up by buyers at fastest rate in WA

Selling like hotcakes: Perth’s housing sale suburb

 

I understood it too, so I am going to say the answer to your question is: yes.

 

I am very hesitant about presenting this information - but both @sanj and @MTR have asked for it. Please be nice. And if you are not nice I will call you on it.

I have done a rough analysis to show how some people see a benefit. Basically you can get 5.9% after tax on a CPI adjusted property with 4 x gearing.


Now before we all get excited a lot of people can do worse off than 5.9% return on their investment. The truth with investment returns is that most people do not get the average headline rate. Life gets in the way, people die, people get divorced and people get scared. So an average bloke on the road who gets 5.9% is pretty happy with himself.

And my 5.9% is assuming that the asset is sold at the highest marginal tax rate. If it is not sold you get an internal rate of return of 8.47%. And you can crank that high by more debt.



The Dalbar study, has shown the real investor returns is very low. The average investor in stock markets has enjoyed a return over 30 years of 3.98% a year.



And if you do not believe Dalbar (which I do) look at our best of the best superannuation funds.



So just imagine if you were a balanced super investor in an average fund - what where you getting over 10 years? 4%?? Put a financial product advisor in charging 1% and where are we now?

The future fund has a long time investment return of CPI + 5%. And the future fund has more investment expertise and financial leverage than me.

So yes. More astute family owned investment businesses will chase something much higher than 5.9%. Yes I want more than that. And yes these business families (and my family) can do that because they do not have public accountability - audits, risk tolerances, governance and so forth. But a lot of "normal" people will get 3% capital growth a year and they will be happy with it. Many of those same operators have been burnt by financial product distributors in the past and they instinctively know that the fancy brochure handed out by an "advisor" does not equate to actual dollar returns.

And yes my numbers involves extra risk and extra debt. Yes it is not comparing apples with apples. Yes some of the variables will change depending on peoples situation. Yes you have interest rate risk.

Yes yes yes and yes.

And yes a 3% capital growth return + rent will appeal to a lot of people.

 

Good post @Ross Forrester. For my strategy, I buy properties where I can add value, sometimes a lot. So that 3% growth on the higher amount is all that I "need" along with rent. Of course I hope for more but I don't need it.

 

And that works as well. I have assumed a 33% cost of managing the property (all up) but you can reduce that by self managing and by doing repairs yourself.

You can also create equity by undertaking renovations to get a better income.

So you could alter the numbers to a 4% capital growth rate with 25% cost of ownership and the return equation becomes a lot more exciting.

I went to a Momentum Wealth seminar with Hegney and they chasing 8% capital growth properties. I am not sure if we see the like of that but that is all crystal ball stuff.

But if it works with a bad set of numbers then it will work better with a better set of numbers.

 

That is an outstanding post @Ross Forrester , thank you and I stand corrected as it's hard to disagree with the point yours making when the numbers don't lie.

Nice work

 

Thanks for posting that @Ross Forrester
I have a couple of questions that I don't understand.

1. My gut says that if growth is equal to inflation and the return from yield is negative, then you are actually going backwards in real terms. I can't quite see from the figures why this is wrong. I am not understanding something but I can't put my finger on it. Is it due to the fact currency is being devalued and since the loan is being devalued over time, the owner gets a profit through that?

2. If the property went up by 171,000 and the equity is 365,000, where did the other 94,000 come from (after removing the 100k initially and 171k in profit)? I am assuming this was not put in as principle from the loan repayments, because this should not be considered a profit, so just wondering where is this from? Is it from the interest that was not paid due to paying off some of the principle, and not actually due to anything the property investment itself did?

3. Also, did you account for the depreciation when the property was sold? After 10 years you have claimed 62,000 in depreciation, which means you would be adding that to the the capital gain taxable amount upon selling as far as I understand.

Cheers

 

The net present value is the fourth number down from the top left. And yes - with inflation you are treading water. And it is only by the gearing that you manage to tread water.

But most investors cannot do that.

I modelled the loan as a 25 year principal and interest calculation.

The pre tax cashflow includes the loan repayments.



If you take $20k less $17,699 less $6,792 you get $4,491. I did it that way as people try to calculation the tax deductions so I excluded the tax deductions.

Yes.

 

Thanks @Ross Forrester I guess so many variables come into play, these are projections, outcome could change dramatically ie interest rates changing rising/falling, there is rarely a consistent upward trend with any asset class. The outcome will be very much dependent on the entry/market conditions, get this right and you are going to do pretty well I think.


MTR

 

Who thinks this will sell for mid $2m?

121 Rosalie Street Shenton Park WA 6008 - House for Sale #127649062 - realestate.com.au

If it goes for that (or within 10%) I think we have to be heading into a definate upswing.

 

just read a report by Louis, believes this is the first time in 5 years that he believes you will see Perth market rise. conservatively 4%??

His words
Louis’s one piece of advice for buyers: if you’re going
to buy, go freestanding as close to the city or coast as
possible, and avoid the fringes.

 

Excuse my ignorance but who's Louis?

 

Boss of SQM research
One of the forecasters who seems to get it right backed with sound, relevant research

 

Don't see mid 2s happening. Not a good location. Too close to hospital and too far from train. Close to park though. Also only attractive to people looking for the classic type house so their market is limited.
Low 2m or high 1m for me. Much better buys out there for that price.

On the other hand, who am I to tell?

 

Interestingly, in Bassendean, people are loving the character homes and they are selling for a healthy premium.

 

Hi, sorry for the potentially stupid question but when you or others talk about free standing would you include a villa on a triplex strata title in this description?

Thanks

 

4 auctions by Paul Di Lanzo. All sold this weekend
Paul DiLanzo Property

 

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