House prices ALWAYS go up!

Some interesting data came out of the Reserve Bank recently. They have been tracking house prices and movement back to 1950. That is even before I was born… just.

It turns out that house prices have gone up since 1950… what!

They pay people lots of money to come up with that sort of revelation.

But actually the research has been more useful than just that because what they have done to give it more relevance is to strip out inflation.

So when it says that the median house price was about $100,000 in 1950, that wasn’t what the market price was back then, it was a lot less. That is in 2014 dollars, given what money buys you today. It is an interesting way of looking at it.

So when you look at the graph above you will notice that it was fairly flat through the late 70s and early 80s spiked in the early 90s to catch up to where it should be if you drew an average line through the graph and then flattened again later in the 90s. That was when inflation was high. So for example, if inflation was 17% as it was during the 80s and the graph is flat that means that property was keeping pace with inflation, hence 17 – 19% growth. Those of us that invested then will know that was the case. I bought quite a few apartments in those days and they doubled in value in just over 3 years.

So what does all this mean for the average investor?

It means that house prices go up consistently even during periods of high inflation.

It means that property is a good investment even in bad times so long as you hang on through the tough times.

It also means that anyone investing for anything less than about 7 years is gambling with the possibility that that might have hit one of the flat periods.

We have just gone through one of those flat periods similar to the early 90s so it would be reasonable to suggest that we might see a few years of catch up growth.

But it is important to realize that these figures represent the average… and there will be properties that underperform the average and there will be some that will out preform the average. That is where Investment Property Finders can help!

Give us a call on 1300 131099 if you are considering property investment in the next 12 months.

 

Who influences your property investment decisions?

Who influences your property investment decisions?

Family, friends, the media, your next door neighbour or your hairdresser…

Everyone has an opinion about property investing. A lot of our clients that come through our doors seem to be making property investment decisions without accurate information.

There is also a lot of misinformation out there.

Take one of our clients for example. He had some general questions about positive cash-flow property. It quickly became apparent that he had been sold on a story that doesn’t address his needs and goals, but was a good and compelling story none the less.

If he went ahead he might have a property that was going to put a few dollars in his pocket each week but if it did not grow in value (or even went down in value) over the long term what had he really achieved other than to tie up his borrowing potential and expose himself and his family to risk of a change in circumstances?

THE PROBLEM:

And then I realised that therein lies the problem, a lot of the misinformation about property investment is based around what are quite compelling stories. But those stories leave out crucial pieces of information or don’t address the real needs of the client.

It is the compelling nature of the story that gets people hooked. And then it is hard for them to see the truth without being embarrassed.

I guess that “spin” has found its way from Government and Politics and into property investment, and that is a real shame. (Safety Cameras... Ha! they are just Cameras the rest is "spin")

Take NRAS for example; thankfully it is gone now, but when it was being promoted the marketing material said that these properties were aimed at providing affordable rental accommodation to service industry worker like Teachers, Police Officers and Ambos etc.

But the bit they glossed over was that the maximum income an NRAS tenant could earn was less than about $50,000 per annum for a single person and a bit more for married and families. The only Teachers etc. that would earn less than that income would be working very part-time. So who was it really aimed at?

What NRAS really was, is social housing. The Government wanted to get out of providing housing to those that can’t afford it. The cost to them in unpaid rent and damaged properties was overwhelming their budget. So to pay $10,000 pa to get someone else to take on the problem was a bargain.

I am not saying that every NRAS property was a disaster. There are some very nice people renting NRAS properties but we have been told by some of the Property Managers that there is a higher than average number of NRAS properties that are significantly in arrears with their (discounted) rent and similarly large number that have been badly damaged. These were brand new houses, and unfortunately a lot were in areas that will not experience much growth over the long term. Particularly given the high numbers of NRASs that were built in some suburbs. So they could be hard to sell in the future and by the time you repair the damage will be over capitalised if they are not already.

But on the other side of these transactions were very high commissions paid to the sales agents in a lot of cases as encouragement to “sell the story”. It is a bit like I heard that Malaysian Airlines were paying Travel Agents double commission if they could get people to fly with them. Is that the right way to sell a product or to fix a problem?

This is just a couple of example of the misinformation that is guiding people into making poor investment decisions.

WE ARE DIFFERENT:

What we do is look at your circumstances and your needs and goals.

Then we establish a budget of what you should spend on a property in both total price and a net cost per week.

We then locate properties that fit into that total price budget and do some extrapolations as to what growth should be achievable from that property given the history of the area and what upcoming economic factors we know about that might affect the future.

We then compare that to the net cost to determine whether it is a worthwhile investment. Sounds simple when you put it like that!

What we wish for is that all property investors were able to get more accurate and reliable information before making a property decision?

 

So email me your questions and I will do my best to get back to everyone.

All the very best to you...

Graeme Clark
e: gclark@investmentpropertyfinders.com.au

Leverage makes a huge difference to the Growth of a Super Fund…

I am often asked, “What are the advantages of buying property in Super?”

We are all different and while there are actually many reason and I have listed some of the more common ones at the end of this document for me I think that the most significant is…

Leverage.

Let me give you an example of the significant difference leverage makes to a super fund growth.

Let’s assume your Super Fund has $120,000 in it, and it earns 8% each year after expenses.

(NOTE: That is hard to do nowadays…)

Ignoring fees, MERs and other expenses it will grow at $9,600p.a. plus yours and your employer’s contributions.

Alternative:

You use that $120,000 to buy a property for $400,000, borrowing $300,000. You would use $100,000 from the fund as deposit and the $20,000 to cover Stamp duty and other costs (approx. only).

That property only has to increase in value by 2.4% pa to get the same $9,600.

Which do you think is more likely 8% every year from your existing investment or 2.4% from a well located property?

History has shown that properties average above 7% in growth over the long term so if that continues then your fund would have an average growth of at least $28,000. Some well-located properties will exceed this (over the long term).

But there is more…

The property would be cash-flow positive from day one:

Mortgage on $300k @ 5% = $15,000 (may increase in the future but unlikely for a couple of years)

Rent on $400k @ 4.5% = $18,000 (rent will increase over time)

So growth of $28,000 + (18,000 –15,000) + Tax Deductions for depreciation = over $31,000 per annum + your and your employers contributions.

Your Super Fund growth would be in excess of $31,000 per year (on average) compared to $9,600 under the existing scheme.

The excess of funds can be used to reduce the principle of the loan so you should be able to pay off the loan in about 12-15 years or less. Then the rent and growth are positive cash-flow into the fund.

Then after retirement the growth and rent from the property are CGT and Tax free.

Because property is a less volatile asset this strategy is a “set and forget” strategy.

Other reasons are:

•       You might want a more stable asset in your Super

•       You might not have enough equity for the deposit the Bank requires as an ordinary investment (10% for most lenders).

•       You might have existing properties already and the Bank won’t lend you anymore money.

•       You might want to minimise CGT on the growth of the property.

•       You might not want to have any more properties affecting your personal cash-flow.

•       And there is another very big reason… Property continues to grow in value even after you have retired and ceased contributions. It may even be possible that the growth alone exceeds your income requirements in retirement.

For more information about Property investment within Super consult your Accountant, Financial Planner or give us a call 1300 13 10 99

 

Is Property Investment like Monopoly or Snakes and Ladders nowadays?

I remember when property investment was easy…

Buy a house in the street you live in and put a tenant in to help pay the mortgage.

Then sometime in the next few years the rent would have increased to the point where it was paying the mortgage so the property was paying for itself.

Over time the property increased in value so you were creating wealth without it costing you any money.

Simple!

 

That was called negative gearing and it worked.

But now we have Property Marketers and it seems that they are all Australia’s #1 property educator, and it has all got a little bit more complicated.

The big thing nowadays is Positive Cash-flow, whether that be through NRAS or buying “Smart” or buying in an area where rents have gone through the roof due to lack of supply eg. mining areas.

So does all this new complication actually work? Do we have better investment opportunities today?

The truth is, with interest rate where they are at present it is not too hard for a property to be positive cash-flow but where will that property be in 10 years in value and what will be the current interest rates then?

Well, I was having lunch the other day with a couple of clients that have each bought a number of properties with my help over the last 10 years.

One of them said that he had met a person that was a Property Manager for NRAS properties. She manages about 200 properties for her employer.

For those that don’t know NRAS stands for National Rental Affordability Scheme so it stands to reason that the tenants are getting lower (more affordable) rent. Well that is the intention of NRAS.

You would think that those tenants would appreciate the benefit they are getting but according to this Property Manager the tenants don’t appreciate it at all and many are significantly in arrears with their rent and many of the properties have been substantially damaged… some have been trashed. These were brand new properties in the last few years.

About 3 or 4 years ago I had told both of these clients that I didn’t think NRAS properties would turn out to be good investments, so you can imagine how my credibility rose after those comments from the Property Manager.

 

But it goes further than that…

 

A couple of years ago an Accountant that I was working with at the time had suggested to me that according to his research, mining towns were a great investment with house prices rising quickly and rent going through the roof. These were properties that were substantially Positively Geared. Rents for example in Moranbah Qld had recently risen to $2000 per week.

My advice to him and to our mutual clients was that the situation was both unsustainable and likely to attract too much attention from Builders wanting to cash in.  That attention would create an over-supply of properties and hence cause a catastrophe of price collapse.

Well I saw the other day that rents in Moranbah were down to about $300 per week for a house that depending when in the boom you bought it, you might have paid between $500,000 and $1m to buy.

The going price for such a house today is under $400,000 if you can find a buyer.

So what does all this tell us?

And more importantly what lessons can we learn from this experience?

Property investment can be easy but just as easily it can be quite complicated. We all feel we know property because we have all grown up with it. We have all played Monopoly and we think it is that simple. Throw the dice, land on a property, buy it and collect the rent.

I would say that from my experience property investment today is more like Snakes and Ladders.

 

Property is a great investment vehicle with many advantages over other investments but wherever there is a great opportunity there are even greater opportunists.

 

There are some good property investments out there that will help you grow your wealth but there are also some Snakes that if you land on one will take you back to start all over again.

 

My final word on this subject is "Be careful what you buy and who you get advice from..."

 

Graeme Clark

www.ipfinders.com.au

1300 131099

 

 

 

 

 

Life expectancy is one of my pet subjects and I read an interesting article the other day about medical advances to watch in 2014.

They include making body parts in a 3D printer and in the fight against cancer, cancer immunotherapy, where our body’s immune system is taught to fight the cancer without chemotherapy. Read the full article here, it’s very interesting…read more

I am fascinated not only by how dramatically our life expectancy is changing, but how far behind our collective thinking is to this. We are going to live a lot longer than any other generation.

Every generation lives longer than the previous but in the past that has been by just a few years. But now we are looking at medical advances that will have us living 20 -30 years longer.

It is one thing to live longer but that brings in a huge problem that everyone seems to be ignoring… Our money needs to last longer, too! Or we will simply run out of money and the current pension scheme won’t be able to handle it.

Many of us will live into our 90s and some well beyond that. So how can we build up enough reserves for these decades in retirement?

If Joe Hockey gets his way and we retire at 70 and we live beyond 90 with a modest income of $50,000 that means we need to have more than $1,000,000 in savings or super. Make that retire at 65 and live to 95 and it becomes $1.5M… and if you would like more than $50,000 a year to live on, well it becomes a very big number indeed.

How can we make the money last that long?

The importance and significance of these questions is amplified when you consider that our entire retirement system is built on a superannuation system that pretty much stops growing in value the day we retire and start drawing on it.

Even more interesting is the fact that high profile researchers openly talk about the possibility of a 20 year bear share market where our life savings would not grow at all for that time.

It’s not all bad news though… If you plan to LIVE more than 10 years then it’s not too late. We can still do something about it!

Some of our clients were over 60 when they started.

We all need to consider “Future Proofing” our retirement plan and to do that we need to take more control over it.

Our next few seminars will be about just that:

How to Future Proof your financial future?

What you will learn:

1. How much money do you need?
2. Why is property totally different to shares when it comes to your retirement income?
3. Investing in property inside and outside of Super.
4. What is the difference between a normal super account and SMSF?
5. Who should consider an SMSF?
6. How to set up your own SMSF?
7. What are your responsibilities?
8. What are the risks?
9. Why invest in property in a SMSF?
10. Case Studies

There will be a FREE Information Bulletin (hand out) available at the end of the seminar “Why use your SUPERANNUATION to buy and INVESTMENT PROPETY”.

This seminar should give you the knowledge you need to decide whether a property in a SMSF is right for you.

These seminars are 1hour 45 minutes (incl Q&A) and based in our Adelaide office boardroom.

Call 1300 131099 if you would like to attend.

For more information about property investment go to:

www.investmentpropertyfinders.com.au

THE ABOLITION OF THE MINING TAX AND WHAT THAT MIGHT DO FOR PROPERTY INVESTMENT...

If you look at the successful investors of our time, the Warren Buffets, Donald Trumps and others you will notice a number of common attributes. The most obvious of which is that they are able to find investments that are under-priced.

Some people describe that as the “Contrarian Principle” of investment. That is that they invest in what the popular opinion says is not a good investment.

But if you think that through you will come to the conclusion that that is not a good strategy for making money because there are plenty of investments that are not good investments today and will still not be good investments in the future. Just as there are investment that we could have made 10 years ago that are still not good investments today.

I don’t think that what successful investors do is “contrarian” at all. What they have is the ability to recognise change before it happens and have the self confidence in their ability to back themselves and to make a move before others and before the situation starts to improve.

That ability to recognise change comes from keeping themselves informed and thinking through what is a likely outcome from the information they are receiving.

One thing I find interesting about the investments that successful investors make is that if you look at their decisions objectively and with the benefit of hindsight, they seem quite obvious.

On that basis what do you think is the likely outcome of this information?

What that says to me is that the mining boom is likely to be “on again” sometime in the next few years. The follow on from that is likely to be that property prices in towns that are benefiting from any such mining boom might increase and perhaps substantially.

But then mining towns are high risk because they are too dependent on one industry for their long term viability. If the mine closes then the town dies. However there are towns that are benefiting from substantial infrastructure spending to allow for the processing and export of the various resources that are being mined.

These towns are likely to survive the ups and downs of a “Boom or bust” industry because the infrastructure that has been put in place like hospitals, schools, shopping centres, roads and housing subdivisions will remain. Other businesses will grow and thrive within the town because of the infrastructure that has been provided.

Food for thought…

Give us a call if you are considering investing in property sometime in the next 12 months.

1300 131099

or email <Click Here>

 

The most common mistakes people make when considering property investment!

One of the most common mistake people make when considering an investment property is:

They think that all property is the same or at the very least they don't adequately consider the differences between one property and another and what effect that will have on their ability to create wealth.

They think that all they have to do is to invest in property and they will make money...

And to some extent that is true... all property will eventually double in value, so they will make money. We all look at our family home and remember what we paid for it all those years ago and think that every property will do that.

Property experts will tell you that property doubles every 10 years...

But that is the average of all properties, so it stands to reason that some will do better than that and some will do worse. The fact is that some will do much worse.

 

The real trick to successful property investment is finding those properties that will double in less than 10 years.

If your investment was to take 20 years to double, then it is not necessarily a great investment and it won’t make you rich... in fact at that rate of growth it won't even keep pace with inflation. (We can show properties where that has been the case)

 EXAMPLES:

Eg. Worse than average (ie. in poor locations):

With a portfolio of 6 properties at $300,000ea. (equals $1.8m in loans)

If that portfolio double in value in 20 years (ie worse than average)

Then in 10 years you have made $900,000 profit. (not bad but...)

Eg. Better than average (ie in good locations):

With a portfolio of only 4 properties at $450,000ea. (still equals $1.8 in loans)

If that portfolio doubled in value in 7 years (ie better than average)

Then in 10 years you would have made $2,570,000 profit.

*Nearly 3 times as much for the same outlay.

 

Note: These examples are just used to show the relative difference and are not intended as guarantees that any property will perform as predicted.

 

A lot of people also believe that Property Marketers all tell the truth... all the time.

Think about it… they want to sell you a property because that is how they get paid.

Are they likely to say to you that the property they have is not suitable to you or that it might not capitally appreciate as quickly as you would like?
 
What I have found is that most don’t actually lie...
They tell a very good story or present compelling information by leaving out crucial facts.

What is common is for them to distract you from the real purpose of investing in real estate which is making money over the long term. They do that by focusing your attention on what I call “Hot Buttons”.

Typical “Hot Buttons” would be things like:

·         High rental yields or Rental Guarantees

·         National Rental Affordability Scheme (NRAS)

·         Government Grants

·         And pretty much anything called a scheme.

*Note: All of those can be very helpful, but they should not distract you from the real purpose.

The first question you should ask yourself should always be:

Would I buy that property, in that location and at that price if it did not have (whatever the offer is)?

In other words; Is it a good investment without the offer?

Then and only then, should you consider what other benefits or “schemes” can make it easier or more attractive to buy or to hold on to for the length of time that you need for it to increase in value to achieve your goals.

If you allow yourself to get distracted by the “Hot Buttons” then you risk overlooking key factors that might mean that you:

·         Pay too much

·         Buy in the wrong location

·         Or have a higher chance of getting the tenant from hell

Most importantly your investment in property might not grow in value quickly enough to achieve your goals and aspirations. And by the time you realise that you have made a mistake, it is likely too late to change or correct your financial position.

Absolutely I think property is a great investment vehicle. It has shown to be one of the safest investment classes particularly through the GFC (see graph above) but always “keep your eye on the prize”, ie the long term creation of wealth through the capital growth of your property portfolio.

But as I have said many times before:
"Where ever there is a great opportunity these is an even greater opportunist"
So be wary...

Call us if we can help… we have been creating wealth through property investment for our clients for nearly 15 years.

 

1300 131099