Market Crash? A different perspective on IO

So it's an interest free loan with no stamp duty or buying and selling costs? hook me up!

NET RESULT for an iliquid 439k investment over 7 years, not something i'd hold up as an example. Period.

 

So you can't prove what you are saying? It's ok to just say so.

 

Sure. And let me know where I can get that interest free loan on a property with no holding, selling costs or stamp duty If you get time in between trying to talk up a falling market in every single thread.

 

When I sold my IP in Melbourne the selling fees and tax did not add up to $100,000.

This property was rented for $410. At an 80% LVR the loan would have been around $351,000. A typical interest rate is 4.5% for investors. So rent per year is $21,320 and interest is $15,804. And the holding costs over 7 years adds up to $50k? Suuuuure.

 

Where did I post interest free and no selling costs? Read what I posted: taxes and fees. Fees = stamp duty and selling costs etc

It would be very easy for you to post your assumptions of stamp duty, rent, interest, PM fees, other holding costs, selling costs and tax to demonstrate that $151k before taxes and fees is less than $24.2k before taxes and fees.

 

So you're managing the property yourself too? Sounds like a great payoff for 7 years work.

Haha, okay mate. It's a great deal and everything is fine!

 

It's always seemed illogical to me that minimum expenses assessment is tied to income. Household composition, property holding costs, etc sure, but if a high income household wants to live like a pensioner and make their own soap to meet mortgage repayments, what responsibility or business does a bank have stopping them? When push comes to shove, households will nearly always cut costs and drop discretionary spending to keep up with payments to avoid losing their house.

 

Let me put some numbers for you since you keep ignoring @Perthguy valid question.
Purchase price $439k, stamp duty $22k, other fees $2k. So total buying cost is $24k.
Selling price $590k, selling fee $15k, legal fees $1k. So total selling cost $16k.
Assuming average gross rent is $400/w, after all cost (PM fees, maintanance, etc are 30%) net annual rent is $14.5k. Average interest rate 5%, LVR 80% means annual interest paid is $17.56k. So net negative $3k per year (assuming no depreciation, no negative gearing for a conservative calculation). So holding cost over the ownership period is $21k.
Capital gain = $590k - $439k - $24k - $16k - $21k = $90k. Taxable CG is $45k. Assuming tax rate 37.5%, CGT is $17k approx. So net profit is $73k. I think it is not as good as yours .
I am not saying this is a good IP. Just to show you a simple calc.

 

I admire your patience, calmness and courage @Perthguy . No wonder what you have achieved.

 

So 10k p.a. during the boom of the century. Might do better selling trinkets on Ebay then?

439k in a 3% HISA Is 13.6k p.a. But seems the point may have escaped you, it’s simply not a great ROI imo so don’t get why you’re tooting it.

 

You still don't get the point. It is not $439k cash investment. It is more or less $90k-$100k cash investment or even lower. So assuming $100k initial capital, your HISA return is $3k p.a. Again, I am not saying this is a great IP (one of my IPs made more than that within 3 years with less initial investment) but its return is still much higher than your HISA example. I actually have a question for you: "do you know anything about property investment?".

 

@berten
At right valuations an 'investment property play' can be up-to 9x leveraged bet on your initial capital, without the danger of margin call provided repayment is on time.
With property, the cost of leverage is as low as it can get due to favourable treatment of home loans by lenders in terms of risk.

In OZ its a highly tax efficient instrument due to NG benefits especially for high income earners.

As with any leveraged investment the risk are both ways,
but leverage at low cost with no margin call and tax efficient treatment can do wonder for ones portfolio if purchased at right valuations.

 

You get to dictate the terms of the purchase too? Tough crowd.

I bought my last property with cash, and will buy a ppor next, likewise.

I get it, but it seems like the point of my initial comment that ruffled some sensitive feathers was missed: That the deal is nothin to crow about.

To answer your question: wouldn’t say I know a lot about property investment no, but I’ve been lucky enough with it and some other calls, that I don’t need to work.

 

No doubt understating is coming to the forefront with the introduction of scrutinized statements.
It is still however a flawed assessment model because most people can simply adjust their fixed expenses.
I really don’t have the answers because I understand from a lenders perspective all they have is someone’s word or their statements, and statements are a safer bet.
I know if you looked at my statements whilst I was building compared to when I was finished and had equity back out they would tell a very different story.

 

Flawed it may be but its a typical overshoot on the back of RC,

Its 'what one has done' over 'what one can do'.

From credit assessors view... 'what one has done' (over a period) is a safer gauge to learn about spending behaviour then to rely on subjective assumption of 'what one can do', as it is unpredictable and subject to vary from individual to individual.

Its important to understand
'why they are doing'.... 'what they are doing.'

 

@TheSackedWiggle i don’t disagree, as per my comment. I’m just saying that it is a flawed measurement system.
By the same token if a person can show they spend under the HEM then why isn’t their servicing increased?

The system is if you spend below we don’t care your assessed at HEM, if your over then your assessed at that.

 

What economists predict for house prices in 2019
All predicting drops, I think last year only one predicted drops for 2018 while rest predicted small gains. Will be interesting to see..

 

Got this in my mail today:

Local market updates by my real estate agent. He says investors are having to switch to principal and interest which is compelling them to sell their properties.

 

At the same time I got another market update from Mcgrath inner east suburbs which says this:
Perhaps the safest bet on Cup Day was that the Reserve Bank would keep interest rates on hold, and it did, with odds on that it will do so perhaps right through to next Cup Day!

The decision in not surprising in a varied economic climate, particularly when interest rates are already being increased by many banks anyway, meaning the Reserve Bank doesn’t need to pass further rises on to consumers. Stricter bank lending practices have increased the cost of holding property for many investors as typically many took interest only loans that are coming to the end of their terms, and they are now being required to switch to principal & interest loans, which can significantly increase repayments. As a result, we expect a growing number of investors will opt to sell.