Mortgage Prisoners with Negative Equity | 60 Minutes Australia

Discussion in 'Property Market Economics' started by GentleChief, 9th Feb, 2019.

Join Australia's most dynamic and respected property investment community
  1. Foxdan

    Foxdan Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    382
    Location:
    Hills district, sydney
    I see a lot of irony in someone who purchased a bunch of cashflow properties in aus that turned into a cash hole.... then starting a business that pedals the sales of a bunch of cashflow properties in another place...

    History doesn’t repeat, but it often rhymes
     
  2. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World
    We are talking Australia here.

    RBA has raised red flag, 480billion loans to revert from Interest only to [email protected]

    One third of households have less than one month of repayments in their account according to RBA, not my words

    It would be niave to assume there will be no impact, hence this post

    For the record I am not poo pooing Oz property which I also hold, just highlighting the significance of this
     
    Last edited: 9th Feb, 2019
    Kangabanga likes this.
  3. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World

    I think others sold for less in this complex??
    Hire the agent... a gun

    Disaster......not just this, also buying at peak
     
    Last edited: 9th Feb, 2019
  4. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    6,487
    Location:
    Brisbane
    I'm talking Australia too. I would guess most of the one third of households with less than one month of repayments in their account would not be investors with loans about to go from P&I to IO.

    And I didn't assume there will be no impact. I'm saying that those investors who are using IO to grow wealth generally would be savvy enough to know that the party will end and they must move to P&I.

    If they don't know that, they likely will get plenty of notice. We got a year's notice.
     
    kierank likes this.
  5. Kangabanga

    Kangabanga Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    1,126
    Location:
    Brisbane
    Lol realised that long ago. Thats why i always tell people if u dont need the leverage, just buy some stocks in REITs when times are bad and the stock price goes way way below net asset values. Totally passive and totally profitable..
     
    kierank and MTR like this.
  6. Kangabanga

    Kangabanga Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    1,126
    Location:
    Brisbane
    Yep i reckon many are under estimating the impact of IO cliff this year. [images of lemmings jumping off the cliff comes to mind].

    Or maybe i am over estimating the impact lol, time will tell, gonna be an interesting year ahead...
     
    MTR likes this.
  7. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World
    Ditto

    Because we have not seen this before in Oz, at least I dont think so
    I thought abolishment of low doc/no doc was bad enough...... but we survived this

    I think savvy investors will find a solution, part of being an investor

    I expect mortgage brokers would have a handle on this??
     
    SOULFLY3 likes this.
  8. Kangabanga

    Kangabanga Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    1,126
    Location:
    Brisbane
    Once cap is put on credit with the changes to servicing calcs, there's really no way around. Loopholes are closed and lending gets tighter.

    Most 'savvy investors' are just speculators. Those real investors in it for long run would have had low LVRs and highly positive cash flow holdings. Recent changes not gonna be much of a change for them. Others have already cashed out of property boom and looking at alternative assets or just waiting for next downturn.

    And lets not talk about mortgage brokers, i expect we will be seeing less and less of them as the property market goes lower, just like REAs and BAs.
     
    MTR likes this.
  9. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World

    Yes I understand, but its more than just getting notice from the bank, your scenario may be very different from others. Not one shoe fits all

    We are talking about lending policy changes that are Or could hurt investors, totally different issue.

    For example.......

    The value of the investors property may be lower than loan???

    Or

    They no longer have the option of refinancing or extending IO, due to credit squeeze, they do not meet servicing criteria
     
    Last edited: 9th Feb, 2019
  10. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    575
    Location:
    Vic
    Eh. The story was about negative equity watch it ! and about all the Australians who had negative equity. The example they gave they actually said had negative equity, but she didn't she had 20% positive equity. She owed 460k, sold it for 550k. Unemployment is low about 5% that is the amount of unemployable people there is. There is a shortage of workers . Just last week there was a report the Sunrayasia area alone needed 4000 workers. Over priced Melbourne prices and declining quality of living is causing a positive ripple affect regional areas are booming. with the exodus from Melbourne. Negative equity doesn't mean you loose money , It depends what you loose equity for. Equity can produce income, buy a business, buy growth assets worth much more than the security used . The first property I bought fell 50% for a few months and I had 25% negative equity so what ? it didn't matter an Iota, it was making money, After bargain hunters and buyers snapped up from weak sellers prices have kept rising and are up 700% in 30 years. I didn't loose a cent. In fact the loan against it didn't change I still had the same borrowing limit on it though the security was worth less, I fully drew the last 2k reducing my equity further. The 2k was spent on 3 stocks @ about 5c, those shares became worth over 200k some got as high as $17.00.
     
  11. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World

    Good points

    However you do recall when we had the hyped up threads..... many go hard and lose their heads. Not so sure about the cashflow???
     
  12. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World
    This is a good thread guys, except for rude comments directed at GC, no need to belittle it serves no purpose and takes away from the value this thread can add to PC
     
    Vishal Bhatti likes this.
  13. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    4,187
    Location:
    Brisbane
    Totally agree. We only have one REIT, namely ARF, which we first bought in September 2007.

    Performance has been OK:- income of 3.7% and compound growth of 7.3% pa. It has grown to more than 7% of our share portfolio.

    Yep, no debt, no work, just lovely income.
     
  14. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    4,187
    Location:
    Brisbane
    Low LVR: yep, 30% => real investor :D

    Positive C/F: nope, -$10,000pa => speculator :eek:

    I will keep trying and learning ;).
     
    Kangabanga, Fargo and Foxdan like this.
  15. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    575
    Location:
    Vic
    What stamp duty does she have to pay? First home owner less than 750k doesn't pay stamps do they. She may have got the first home owners grant and lost SFA.
     
    kierank likes this.
  16. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World
    No idea
    But in real terms she made a loss at least $50k

    In real life not everyone can hold property forever, infact many investors end up selling

    why??? Life happens.... just to name a few
    Divorce, illness, loss of job etc etc

    Negative equity, There is a thread on this

    States impacted most by negative equity is WA and SA, no surprises

    Lets see how Syd and Melb pans out, those who purchased at peak will feel the pain
     
    Last edited: 9th Feb, 2019
    Fargo likes this.
  17. standtall

    standtall Well-Known Member

    Joined:
    19th Oct, 2015
    Posts:
    788
    Location:
    Sydney, NSW
    I know someone who went on a shopping spree in 2017 and bought around $7million worth of unseen properties in QLD off 1 year’s financials from a retail business they had just bought and used equity from a home inherited from deceased parents. They borrowed from the likes of Liberty at exorbitant rates and planned to switch to big 4 when they had 2 years financials. Credit crunch happened before they could refinance and their portfolio is now bleeding $10k per month after rent and expenses. They will probably also lose fair bit of equity in their home if portfolio is sold at this point!!
     
  18. MTR

    MTR Material Girl Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    16,020
    Location:
    My World
    Can they service $10k per month??
     
  19. standtall

    standtall Well-Known Member

    Joined:
    19th Oct, 2015
    Posts:
    788
    Location:
    Sydney, NSW
    At this point yes (after cutting down) but they would need to refinance in 1-2 years.
     
  20. Kangabanga

    Kangabanga Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    1,126
    Location:
    Brisbane
    Lol real investor with negative gearing ...
     
    JohnPropChat likes this.