WHY are rents so high?

[thenewvee]

I have been following this thread since its start, cause I know I have been stung with high rents and not being in a position to even start on the home owning front until I started working 4 months ago. Only prob is on my wage there are not homes to be owned, and 4 months is not even long enough to get any kind of loan.
I'm in Brissie and if any of you have any pointers on how to get started, I would love to hear them!! I'm so over renting and I want to build a more reliable future for myself, as I don't even have a super fund to really speak of, having been a stay at home mother for a fair bit of my life! (I'm a late starter with so many things.... lol) But better late than never!

Vee

[Kohinoor]

Hi Katie,

I live in Broken Hill Koh. And definitely this isn't the town I am looking at.

OK, but I'd heard REALLY good words of BH some years back:-
1. Buy property on a credit card - say $15k
2. Rental returns from 15% to 50% HUGE !!!

Don't know it that is STILL the case, but you're right - buy where you believe is RIGHT for you, otherwise you'll be second-guessing forever.

The only reason I mentioned BH (and the words I'd heard) is that it sounded GOOD. Learn, and run, the numbers Katie - before you say "No!" The numbers don't lie - but you DO need to KNOW an area before buying - I don't know BH, but YOU would....

I only buy in Brisbane (or SEQ) as I know that area - and State laws are all different too..... So stick where you know, initially at least.


Good to hear you are also "looking" - I believe it's a GOOD time to be doing that. Isn't it Warren Buffett who says "Be greedy when others are fearful, and be fearful when others are greedy!" Right now, the stockmarket is fearful, AND Real Estate in some areas (but soon to move out of that I think....)

Koh

[katiefrank70]

Hi

Koh, I have heard that buy when others are selling etc etc. Just be sensible about it. And yes I think the buyers market in Real Estate is ending soon. But as all things like you said, are cyclic. Where there is an up there is a down. Perhaps the down will concide when I am ready to move, (I keep a good eye out on areas and high activity). PS you was right about the prices. They once were vy vy low, but not anymore, they have sure come up in price. Hubby and I bought our's for $36,000 and own a HUGE equity in this house. Something I want to use but he won't lol. sigh

Vee, well done for being a Stay at home Mum. It's not something I ever could do very well. You live your life for everyone else it seems. Something that is hard to shake. I tried it for 5yrs and went into the deepest depression.

All I can suggest, is keep saving @ least what you will be paying in mortgage repayments, stay steady, (study is a great big tick on approval), and there is always the First home deposit the Gov offers. I think that is up to $14,000 now. Oh and the golden rule to buying, "Buy the worst house in the best street". That's all this little duck knows
It is one of the most exciting things to own your own home.

Goodluck with the planning.

Katie

[Kohinoor]

Hi Vee,

I have been following this thread since its start, cause I know I have been stung with high rents and not being in a position to even start on the home owning front until I started working 4 months ago. Only prob is on my wage there are not homes to be owned, and 4 months is not even long enough to get any kind of loan.

The cycle is changing in your favour Vee. Because of a low availability of rentals, rents are going up, BUT, counter to that, the falling Interest rates will have a MASSIVE effect in many ways:-

1. It will draw more developers/investors back to property, thus easing rents (increase supply to meet the demand)
2. It will become easier for FHO's to buy, thus easing rents
3. The Fed Govt's increased FHOG will assist as above too.
4. With mortgages returning to more reasonable rates, there is less pressure on landlords to raise rents.


And, on the Home Buyer's side, the lower Interest rates will allow a new buyer to more easily buy. As always, there are rules - in your case, I believe many Banks want to see SIX months of Income as a minimum. So, you aren't too far away....

Then, they want to see a Deposit - are you eligible for FHOG? If so, that may be all you need - but, if not, you might need some kind of "history" with your favourite lender.

Vee, let me re-iterate some VERY wise words that an old friend shared with me when we were first looking to buy (in early 1970's ) :-

"First, get on the train - you can always change carriages later"

Translated, buy WHAT you can afford in an acceptable area as soon as you can afford it.

Even the "Logan's" of the world have their day. 10 years ago, you could buy ANYTHING in Logan for $50k to $100k - NOW, you can't buy those $50K properties for much under $250k. Will it last? Hmmm - well, the current world crisis will have an effect, so values may well stagnate for some years. On the other hand, though, Bne grew by 60,000 people last year - thus, at 3 people per family, 20,000 new homes were required. Umm, who is building right now? Thus supply is not meeting demand - but all of that can change.....

Vee, since you are acheing to do this, then do your level best to make it so. Owning property is a very forgiving investment over the long term (even if we "stuff up" early on) - so I hope you can make it happen for you and your son,

Hugs,

koh

[thenewvee]

Thanks Katie, that was interesting advice, and will keep it for future reference.
I didn't do too well at being a stay at home mother either, and unfortunately don't qualify for a first home owners grant, as that would be great if I did.
The study was a ME thing, which I did when the time was right for me, and I'm counting on it to help me to improve my skills and thus my income, but it won't happen overnight.... but it will happen... just not quick enough for me... LOL
I was thinking just today, that now was the time to be buying as so many people are selling or having to sell, and it is just such a pity that I'm not in a position to buy now.
Oh well, will just have to wait again, until the time is right.....
I take it when you buy the worst house in the street that you renovate it..... to make your money back that way... That might be an extra big challenge for me.. lol
Was never very good at that kind of thing, and especially not in seeing potential in a place!
Looks like I've got heaps to learn still!

Vee

[thenewvee]

Thanks Koh, also very sage advice.
Yes, I believe you need 6 months of income proof, and I'm not far off that.
Only prob is I'm on a contract for a year... and I don't think that will be seen too favourably.
Also, don't have any savings as have been on a pension for the last 5 years while studying full time. Not much chance of saving on that and meeting living expenses. But have developed a savings plan and paying myself first and managing with the rest, to at least get a bit ahead eventually.
Interesting what you say about getting on the train first... that makes a lot of sense. Got alot of questions.. but guess I need to do some research on it all. Like buying a unit versus a house (not keen on body corporate fees), and how it works if you buy a place but don't live in it etc.
Anyway, its all food for thought!
Who knows what lies around the corner!
Vee

[louise41]

Vee, when you buy the worst house in the best street, the better homes help pull up the value of your house and when you renovate (when money allows) you get that money back as you do not over capitalise, Dont be afraid to buy something small to start with, it wont be your dream home, but just think of it as your foot in the property market, the first one is the hardest, after that it gets easier.

[thenewvee]

Aaaah, thanks Louise, that explains a lot!

Vee

[louise41]

Vee its amazing what you can do with some elbow grease a bit of paint to make a house look great!

[Kohinoor]

Wow, I just checked back to the start of this thread - it was just two months ago that I said this:-

The cycle is moving on - and it will all be better "tomorrow" - so hang in there if you can.

Haven't the last two months been interesting???

The RBA has cut rates by 2% in that time. But is that really 2%? (See, you're learning !!! )
(If you haven't learned yet, go check out the FIRST post in this thread).

In short then, a lot of recent pain has been eased (or it would be if the Banks also played along). The Banks raised THEIR rates around 0.55% above the RBA's increases, and now, when the RBA is dropping their rate, the Banks want to retain some of that too....

Still, hopefully the recent action by the RBA will have saved MANY from going to the wall (perhaps making up for the fact that they RAISED the rates TOO FAR early in the year....)

Things ARE easing now though - and that is of some value.

What does it mean in reality? Well, of that initial 58% rise (first post) it's now like the rise is only ~30% (hard to quantify when different Banks don't "pass on" all of the cuts). Still, it helps, bigtime.

e.g. If you are looking to buy a $450,000 home, and had a mortgage of $400,000 then you WOULD have been paying something like $3500 per month (P & I). NOW, it should fall to something like $2900 per month.... Likely with more to come, if current trends prevail.

That's gotta help hey? An extra $600 per month staying in YOUR pocket

Koh
PS As I don't deal with P&I loans, my figures will not be accurate (but should be relative...)

[lindy]

Ok....I am going to out myself Katie Vee...check out this website and have a good read. www.somersoft.com.au Investment Property website full of information that you can research whilst saving....trying to get hubby to agree.

I think if you have a good look around you might even meet some very familiar people from this website....

Good Luck and as Koh says.....first you must get on the train.

[Kohinoor]

I think if you have a good look around you might even meet some very familiar people from this website....

It's a very good site for sure, and I'd recommend Jan's books for anyone seriously looking for "the way" to property investing - she's the awesome

Koh

[thenewvee]

Thanks Louise, Koh and Lindy!
All info/help is greatly appreciated, and I will be doing some more homework on it for sure!

Vee

[Kohinoor]

Hehe - I thought I'd made a pretty good point with this in that first post (but I hadn't looked further - doing that is even more scarey !!!)

The Interest on that mortgage 3 years ago was $18,000 per year
Today, the Interest would be nearer $28,500 per year. Hmm - now is that a 3.5% increase? Nup - it's a 58% increase !!

OK, so that's how I started this thread. Yet, the point I totally missed is when a landlord is "feeding the mortgage" out of his own funds. I'd been wondering why things seemed to be "getting so hard". I mean, I KNOW it's hard funding an extra 58%, as home buyers need to do....

For me, as a landlord, IT'S EVEN WORSE - and I hadn't realised that until I was spreadsheeting some numbers in an attempt to borrow more funds...

What I'm talking about here is the increase in "funds I need to provide" to keep the ship upright. Back 3 years ago, things were pretty cruisy. And any shortfall easily covered out of my wage. Then, the Interest Rate increases kicked in (along with 3 x Fixed Rate Loans coming "full term" in that time - a big hit there too).

In short, that 3.5% increase caused my "feeding the mortgages" input to climb by a MASSIVE 450% !!! No wonder why I was having to depend on Equity loans just to stay upright !!! My wage had NO CHANCE against that kind of increase. Fortunately, the properties have been growing nicely in value (with two renos thrown in) so a couple of Equity loans have helped to steady the ship. But, if these rate cuts hadn't happened soon, selling something was fast becoming a likelihood (I was planning ahead - no use in only selling "when you HAVE to" - better to bite the bullet early...)


The REALLY GOOD NEWS right now (today) is that many economists are now saying there could be another 1% drop in December - woohoo!!!! If true, I may not be forced to "sell something" after all (I don't want to). As this makes a total of a 3% drop in three months - ALMOST back to square one - except for the 0.75% that "the Banks" seem to be holding on to !! Still, FAR better for me than things were just 3 short months ago !!!

YES !!! Make it so !!!

So, the cycle is moving on with a vengeance - easier for Home Buyers to buy, easier for landlords to "hold on", a likely easing of rental vacancy rates, prices settling lower (somewhat...) - more opportunities for MANY !!

And, isn't it said that Property LEADS an economy OUT of hard times?

Always seemed about right to me. Now for the various State Govts to look to trim their various Taxes, and this could herald a "perfect storm" for a property recovery !!!

Bring it on......


Koh

[meagain]

Hmm,

Be very careful not to overcommit or rely on tax refunds at this present time. Last time we had this flavour of government they dumped negative gearing, insulating losses against the income producing asset & you weren't able to offset against other income sources, nor carry forward the loss. At the time investment loans carried a premium of between 1% to 3%, and you were unable to access mortage insurance to loan over 80% of the value of the property. So when intereset rates on the uncapped (i.e loans taken prior to 1981) loans hit 19% and up, many investors where left funding large gaps. Leveraging works really well in rising markets, but magnifies losses in any market decline.

The result of 1984/85 budget was a property market collapse, that took until 1996 to start coming out of. Melbourne had such a speculator rise at that time as it was severely undervalued, having been an almost technically bankrupted state (sound familar?)

Negative gearing requires an anticipated capital gain over and above the negative income for a period of years.

I am not saying that this government will get rid of negative gearing per se, but they ae making awfully similar noises to 1983.

Anyway, just my thoughts (lordy I must be getting old to remember that like it was yesterday!!).

[Kohinoor]

Hi Meagain,

SAGE advice there !!!

Be very careful not to overcommit or rely on tax refunds at this present time.

Probably worth considering AT ANY TIME - but especially right now...

Tax Refunds aren't a lot of use when you don't have a job - and the noises I'm hearing right now are saying that the unemployment %age is bound to rise. With the world as it is right now, I'd think that is a given...

Re your comments about 1981, I can't recall them, as I didn't arrive here until almost 1984 (Dec '83) - we bought our first Aussie home in '84. Then lived thru the years when Interest Rates climbed to 17.5% With only a low amount on mortgage, it wasn't a disaster for us - but could well have been for others. But, gawd, 19.5% in '81 ??? Sheesh - I thought WE had it bad.....

The result of 1984/85 budget was a property market collapse, that took until 1996 to start coming out of.

Yes - unfortunately, Govts stepping in with "rule changes" have forever impacted free markets. We had one only a few weeks back with the current Govt. offering "guaranteed Bank deposits" up to $1m per account. Sounds harmless, as the Banks were likely able to handle this anyway - but it has led to a "run" on deposits held in "non-Bank" institutions.... I think a cold shower is called for, before the next "change" is dreamt up

Negative gearing requires an anticipated capital gain over and above the negative income for a period of years.

Again, good words, Meagain - certainly not to be overlooked. For me, it was a considered approach - with wages funding any shortfalls (sort of like "enforced savings"). And, in the only market I deal in (SEQ) it has worked well up till now. I'm now noticing values settling back, despite the on-going population growth of SEQ. Most likely because the cost of a home had come close to its zenith.

BUT NOW, with Interest Rates dropping so much, and so quickly, this will engineer a whole new set of "numbers" that should look a lot better for me (once more). I hope it's working out for you too,

Koh

[lindy]

Sound advice Meagain...

You sound just like my father.... We used to have these discussions over the dinner table growing up and I still act on some of this advice today.

I do find it quite difficult as an investor to get my head around "good debt" and "bad debt" after being brought up to believe that all debt is bad and if you can't pay cash for it you can't afford it.

It is quite interesting times we are in at the minute and with the news that the reserve bank may drop another 1% makes me even happier than I am right now

I do hope that others are talking to their children about what is happening in the markets at the moment as I think that there are some very important lessons being taught - I do hope some are listening and even learning - I know I am.

[shell]

Thought I would post a question here as those participating in this discussion seem very knowlegable.

I will be renting my house out privately (no agents who do rentals here).

Does anybody know where I can get some info on what I have to do and things I have to look out for: eg: is renters insurance worth/not worth it.

How do I stop someone from "squatting" in my house if they stop paying rent.

OMG- How confusing.

Any help would be MUCH appreciated.

Shell

[Annabelle Joy]

You're planning to rent yourself aren't you shell? Ask the agent you will be renting from all your questions. They should have the latest knowledge.

Definitely worth having landlords' insurance. It's not very expensive (around $200 I think), and covers you if the tenant leaves owing you rent, or with damage that can't be recovered from the bond.

This site should help you: http://www.consumer.vic.gov.au/CA256...d+Obligations~.

AJ

[shell]

Hi AJ,
I will be living with my BIL & he is renting privately as well.
Thanks for the info- will do some research today.

Shell