Sunday, November 17, 2013

First Home Buyer Crisis: Housing Affordability

There's been a lot of press lately on first home buyers being sidelined in this frenzied property market.

The Sydney Morning Herald(SMH) recently published an article, 'Home deposit hurdle won't clear itself', stating that out of new housing loan commitments, first home buyers only accounted for 6.8 per cent of buyers in September, down from a peak of 34 per cent in May 2009. First home buyers have been on the decline since the Government winded back their generous housing deposit grants.

The SMH also stated, "...in August(first home buyers) they made up just one in fifteen borrowers in NSW and one in eight borrowers in Victoria...house prices have risen faster than incomes over time-from 2.5 times the average disposable household income in 1985 to about 4.5 times last year, the Reserve Bank estimates...home ownership rates nationally have been in decline...the largest fall is among households in the 25-44 age bracket...the share of households owning their homes outright has slumped by more than 13 percentage points since 1995-96. Almost 35 per cent of the city's households are now renting."

According to RP Data, property prices in Sydney has grown by 13.2% in 2013.

Influential business owners, wealthy individuals, investors and politicians are likely to hold several investment properties, so there's very little likelihood of negative gearing being abolished. Negative gearing alone isn't really a great incentive. It's only useful if property price growth is appreciating more than the losses being incurred.

In another SMH article, 'Investors keep first-timers out of market as  prices surge', there were quotes from Nick Gunn, a first home buyer who had failed to buy a Potts Point apartment for $431k because he was out offered.  He says, "...I don't think I am likely to find anywhere that I can actually afford...there are a lot of us. Basically we sit around moaning about the same thing."

Of course he can find properties that he can afford.

Instead of buying in the heart of Sydney, he might have to look further out either West or South of the city. If he and his friends decide to sit around 'moaning' that they can't afford to buy a property because they only want to buy an inner city property, then that's not an issue of affordability.

If they keep moaning about it, even property further out from the CBD will keep on increasing in price and they will be priced out of both, inner city and outer city suburbs.

Why do first home buyers think that they are entitled to be able to buy their first home in very desirable suburbs and if they can't, then they complain and say that they can't afford to buy anything? They CAN afford to buy something, they just have to downgrade their expectations and look at upgrading later.


Saturday, November 16, 2013

Classic Advice On Stock Investing

Have been going through some Spring cleaning otherwise known as Spring dumping and found an old investment magazine from 1997, 'Personal Investment: Shares, Your Next Move'. Good, solid financial advice is always going to remain current.

Here is one old, but good sixteen year old advice from the magazine:
"The market in 1987 proved that if you hang on it will come good. And if you can buy some good  blue-chip shares paying 5 to 7 percent dividends, that is still 1 to 3 percent more than cash management trusts. And if it's fully franked, it's a great alternative."
There are dividend yields for quality stocks roughly at that level again. The cash rate is roughly 1 to 3 percent below the dividend yields. It's as if sixteen years haven't passed.

Like most advice about trading, technical analysis on what to buy and sell, that stuff is not fundamental and has aged. The best strategy with regards to stock investing (if you are not that experienced) is just to buy the solid, blue chip companies that manufacture the everyday products that you use or the companies that provide the services that you use every single year.

Buy the ones that pay dividend so that you'll have income. Buying trendy growth stocks is highly risky, particularly when the company isn't profitable. I thoroughly dislike investing into IPOs for exploratory mining companies.

Liquidating stocks during financial crisis due to fear isn't the best strategy, especially if you've sold your stocks, ended up sitting on cash and didn't buy back into the market because you were waiting for the 'bottom'.

Tuesday, November 12, 2013

Trading Up And House Hunting



















When the stock market is sizzling hot, the conversation at parties and gatherings are about share trading and expanding the share portfolio. Similarly, when the property market is booming, family and friends like to talk about the property market and how they're looking to buy additional properties or trade up to a larger sized house. Why do most of us get the urge to buy when prices trend up?

Friends ABC have just bought a house at Maroubra. The house is smaller than their current abode but they've upgraded their suburb from Narwee. Maroubra is in the catchment zone for better schools for their child so that guarantees an academic competitive advantage for their son provided he is inclined to be educated.

Friends DEF are about to move out of their three bedroom Bondi Junction apartment into their newly built house at Little Bay. Not necessarily a suburb upgrade, but definitely a house and land size upgrade. They're just like Mr SMG and I, oozing out of the apartment with 'stuff' that we've accumulated over the years which means, either upgrade to a house or sleep on top of the entertainment unit and snowboards.

Friends GHI are planning on selling their house in Ermington and buying a house in Lane Cove or Gladesville. House size is probably negligible in difference but the suburb would be an upgrade to a more prestigious suburb.

Friends JKL are looking to buy in the Hills District around Baulkham Hills region. They've just migrated/returned permanently back to Sydney after a 6 year 'sojourn' of working in London. They'll be house hunting shortly. They've just sold their London 1 bedder for almost 500,000 pounds. London real estate prices can be even more insane than Sydney...

Friends MNO are looking for a house to buy. They're still undecided on suburbs and still in disagreement over what type of house and what budget they wish to lavish onto their house purchase so who knows when they'll bite the bullet. But...that hasn't stopped them from attending open houses.

Friends PQR have been looking at buying a house along the North Shore train line, mainly in the leafy suburbs of Turramurra and Wahroonga. That would necessitate them moving out of their apartment in Wollstonecraft so it's more of a suburb downgrade but a housing size upgrade.

The real estate market is really sizzling. Sometimes I read property articles on the major news sites and there are commentators there still going on about the housing price crash and how they're going to buy real estate dirt cheap, and that Sydney has run out of people who have money to buy properties. They've got their blinkers on. Seriously. If they've done their research and gone to open houses then they might see the massive crowd of Chinese folks who have plenty of dough to buy houses non stop. Population growth practically guarantees that we need additional housing built and that existing real estate near amenities and transport will always be in demand.

I'm trying to decide whether it's worth waiting to plunge into another IP after the market has calmed down(who knows when?) or to buy one now. The problem with waiting to buy (as always) is that if the boom creates more price appreciation, waiting will mean having to pay several thousands of dollars more. If property prices keep trending upwards, that means it's better to buy now and enjoy the price gains.

But buying now will mean jumping into the hungry hordes of buyers who are paying above the listed price in order to obtain a piece of real estate. Auctions have seen properties sold way over their reserve price. If we were to buy another IP, then we are very likely to get zero discount from the listed price and probably even have to offer above the listed price to secure the purchase.

As one of my friend keeps saying, "What to do? What to do?".

I'm going to have to set a deadline of next week to work on our budget and figures to see what we can afford in terms of loans and LVRs. The portfolio and numbers are getting more complex, taking longer and longer to compile but I really need to get my act together regardless of how busy I am.



Monday, October 28, 2013

Saving Up For Your First Mortgage



















Are you a home owner yet? Or a property investor? Are you currently neither but are saving up for your first place?

If you haven't bought a property to invest in or live in, then you might be wondering how to and how much to save up for your first property and first mortgage.

Depending on how much you wish to borrow, the idea of borrowing up to hundreds of thousands of dollars can be daunting. Remember, only borrow what you can comfortably afford to repay.

How Much Do You Need To Save Up To Buy A Property?

Property expenses vary depending on the property buy price. Miscellaneous expenses are approximately 5% of the house purchase price.

Some of the common expenses that you'll encounter when buying a property are:

* 5% to 10% deposit on the buy price
* Bank deposit cheque fees (usually used to pay stamp duty, the 5% or 10% deposit and the final deposit amount at settlement)
* Stamp Duty to the OSR which can be from $10k and upwards, approx $40k on a $1m house
* Home and Content Insurance - your lender may require insurance to be organised
* Bank fees for attending settlement
* Adjustment costs for council rates, water/sewerage and water usage
* Legal fees for conveyancing
* Land Titles Office Charge

I've written plenty of posts about how to save money, how to understand loans, saving up for an emergency fund and I've also written plenty of posts on our property buying experience.

So in summary, if you want to save up for your first house and mortgage:

1) Aim to save 5% of the purchase price and that will approximately cover the various fees that you'll have, such as the ones listed above
2) Aim to save at least 20% of the purchase price to use as a deposit so that you won't have to pay lenders mortgage insurance
3) Example: On a $1m house, save $200k for the deposit and save $50k(approximately 5%) for the miscellaneous expenses

I've been looking at Newcastle Permanent's fixed rate loans which are rather competitive. Their two year fixed rate is 4.64%pa. Before you start attending open houses and making offers, ensure that you get a pre-approval organised with your lending financial institution. That way, you know what you can borrow and what you can repay.

Buying a property is really exciting and I wish you all the best in saving up for your first, second or multiple properties.


Traffic Statistics For SMG and SEO Manipulation

Traffic to this site has been growing exponentially in 2013 even though I haven't really posted much this year. Over 200,000 visits this year bringing the total visit to 311,360 according to Google Analytics:


If you're a regular reader, thank you for checking in and reading. It's nice to know that several visitors to this blog are reading several pages instead of reading just one page and exiting.

Life grows in complexity as we get older. Work wise, friendship wise, relationship wise and finance wise.

If reading about advertisers and SEO floats your boat, you can visit my previous posts, 'Gaining Traction In The PF Blog Market', 'Traffic Stats: Over 100,000 visits to SMG' and 'Traffic Statistics For SMG'.

I still haven't really actively worked on the SEO of this blog. There's simply too much work to do elsewhere and this blog was unfortunately placed on the back burner. But I'm back and better than ever lol. 

If you blog and wish to grow the traffic to your blog, writing unique content helps. Writing useful, unique content is even better because you will get repeat visits and multiple page views instead of getting one page visitor bounce.

Commenting on other blogs operating in the same niche or industry helps not to mention getting them to link back to your blog.

Tuesday, October 22, 2013

Firefighters Are Doing An Awesome Job

Of all the worthy amazing occupations to be in, being a firefighter is up there.

With so many fires burning around Sydney, our local firefighters are heroes.

I recall a hot, humid Christmas many years ago. Bush fires were burning all around Sydney and one particular bush and grass fire came racing up the neighbouring farms. If it wasn't for our local fire fighters, we'd have lost our house and all our fruit trees.

Bravely they battled the flames in the searing summer sun, even when exhausted, they continued well into the night and doused the grass and bush fires that surrounded us.

There's nothing more terrifying than facing a wall of flame that is moving so quickly that you fear for your life and your house. It's you with your tiny hose and weak trickle of water against the wall of flame.

Until the fire fighters came to the rescue with their trucks, their professionalism, their experience and their hard work.

I will never forget that day and we are forever thankful and grateful to our fire fighters.

I am thinking of the families who have lost so much to the bush fires in these hard times. I am thinking that our fire fighters are amongst our modern day heroes. I am hoping that it will rain hard and douse the flames.

Wednesday, October 16, 2013

Property Market Is HOT



















Property market in Sydney is crazy and burning hot right now. I wrote about some friends speculating about the property market back in December 2011 and that they were going to hold off on buying. Other friends have been steadily building their property portfolio.

Anyone with the doomsday 'property market will crash' mentality has lost out big time. Since December 2011 when I wrote about property speculation, the market has grown so strongly by $100k to $200k plus per property (this is the ball park figure for houses and semi detached etc, not apartments). Either way, property of all type and in all locations have appreciated in value.

The more property you own, the more your net wealth has increased. Simple as that. Time to get revaluations on all our properties and refinance to buy more for more rental income.

The house that we bought in April 2013 earlier this year has already appreciated in value by $100k. Recent local sales for similar sized house and land have been really strong. The real estate agent told us, "Lucky you bought a few months ago because if you had waited to buy now, you'd be paying $100k extra for the house that you bought."

Is it luck? Or is it just consistent planning and effort? 

Saturday, July 27, 2013

Paying Endless Insurance Bills

Lately it feels like all I've been doing is paying insurance bills one after the other to protect against an unknown future and unforeseen events that may be detrimental to my hip pocket.

In the past few weeks, there have been a multitude of bills and statements regarding death insurance, disability insurance, car insurance, home and contents insurance, health insurance and the list is endless.

Since I haven't claimed against my insurance providers for years and years, I feel like I'm paying premiums into a black hole. Although being young means we are the ones paying for the older folks who are claiming insurance, it still doesn't alleviate the feeling that paying for insurance is such a (necessary) waste.

I'd rather pay my premiums and not claim, than have to claim of course. To claim insurance would mean whatever detrimental event that I've insured against has actually happened and I'd rather not have those events happen!

Does anyone else find insurance bills tiresome?

Thursday, July 25, 2013

To Fix The Mortgage Or Not Fix?



















Now that we are thoroughly settled into the house and getting used to the new local amenities, travelling arrangements and so forth, it's time to review our finances again.

With a few mortgage payments already made, there's a little bit of routine happening now. Bills are coming fast and furiously with the multiple investments assets but that's fine because the bad stuff(bills and expenses) is exceeded by the greater positive stuff(investment income).

Currently, mortgage interest rates are at historic lows and looks to be staying that way indefinitely until our economy improves. Particularly the mining industry which is in the doldrums and majorly affecting government tax revenue, thus curtailing the government's spending in relation to social welfare and spending on infrastructure.

To Fix Or Not Fix The Mortgage Rates?

Hamlet(or rather Shakespeare) posed the question, "to be or not to be?" ... although he faced an existential crisis, our crisis is not as dramatic but rather a financial issue.

While interest rates are at record lows, they can be lowered even further. However on the other hand, if the economy improved then the rates would head upwards again to curtail inflation. 50/50 really.

The house mortgage is currently a 100% variable mortgage loan attached with features such as unlimited repayments, ability to redraw, 100% offset facility and the interest is at 5.25%. 

If we were to fix, the interest rate would be 4.99% with the option to fix for two or three years. By fixing a portion of the mortgage, that fixed portion would then be stymied by the ability to only make a maximum of $10k in extra repayments per annum and there's probably a limit applicable for redraws(will have to check the terms and conditions), penalties and limits to loan portability, penalties on breaking fixed loans and the offset account will no longer be 100% offset against the fixed loan component.

I've been contemplating on fixing 50% of the loan because I prefer certainty to uncertainty and if interest rates were to drop further, that's okay. BUT if interest rates were to rise then that could possibly hamper our lifestyle somewhat and pose new financial challenges. 

Property Planning Australia wrote a short little article which illustrates reasons that are to be considered prior to fixing which I thought was rather useful and may be of help to you if you're facing a similar scenario:
"• Would you like more certainty in knowing what your loan repayments will be?• Do you feel like you are stretched with your cash flow?• Do you have little equity or cash buffer to draw upon if things got tougher?• Are you risk averse?• If rates kept going lower after you fix, would you be comfortable knowing that you cannot access the lower variable rate without a hefty penalty that would almost certainly make it non-beneficial to get out of your higher fixed rate?• Are you confident that you will not sell your house or want to refinance during the fixed rate period?• Do you have non-deductible and deductible debt, and would you feel more comfortable knowing that you had a set repayment for part or all of one or the other?
If you answer yes to many of these questions, then you are starting to build a case for fixing your debt."
Did You Know That You Can Fix Your Mortgage Loan In Multiple Structures?

I was thinking about fixing and how it would throw a spanner in the works against making unlimited extra repayments due to the $10k limit on extra repayments...then the question arose, what if we could have multiple fixed portions? That would mean the extra repayments would only be capped by the structure that we've set up. Thought that was too good to be true, however a trip to the bank confirmed that YES it was possible to have several concurrent fixed loan components and each fixed loan component has the facility to accept $10k in extra repayments per annum!

That means that instead of the original structure that I was considering, I could have a better structure that was more flexible. We could even have 5 fixed loan components which would allow $50k in extra repayments per annum in addition to the unlimited extra repayment on the variable portion if we were really that flush with spare funds.

Structure 1: 
50% variable at 5.25%, 50% fixed at 4.99% for two years
Thus extra repayments on fixed portion capped at $10k per annum while extra repayments on variable portion is unlimited

Structure 2: 
50% variable at 5.25%, 25% fixed at 4.99% for two years and 25% fixed at 4.99% for three years
Thus extra repayments on fixed portions capped at total of $20k per annum while extra repayments on variable portion is unlimited

When I queried the branch manager on why people didn't structure their loan with the greatest flexibility, she replied that not many people knew about structuring and even if you tried explaining or suggesting the structure to them they would get confused, so her work was to help people arrange what they wanted.

As mentioned before in previous posts, I haven't got a crystal ball for the future, however with our current loan, I would like some certainty regarding mortgage repayments. On the other hand, I don't want to limit our ability to make extra repayments so the best option for our scenario is to go ahead with Structure 2 and restructure the mortgage into three parts. 


Tuesday, July 23, 2013

Buy Next Investment Property Along North West Rail Link?



















Although the reality of buying another investment property(IP) isn't anywhere on the immediate horizon, these sort of plans need a long time to think about before implementation. Especially since property prices in Sydney are so crazy.

There are so many promising areas to buy properties for rental income. I've written about passive income from my investment property previously and most recently about the most recent house acquisition to live in.

Having visited Castle Hill Towers recently, I saw the construction of the North West Rail Link being built. This new train line will connect Nor West Business Park with the city and connect the Hills district suburbs that are densely populated(they currently only have bus services available) to finally acquire public rail services.

Suburbs that are likely to rise in prices due to the North West Rail Link stations being built: Cudgegong Road, Rouse Hill, Kellyville, Bella Vista, Norwest, Showground, Castle Hill and Cherrybrook. The new train line will hook up via Epping to go to Macquarie University, Macquarie Park, North Ryde and Chatswood, possibly terminating at the city.

When the Epping to Chatswood rail link was being built, I KNEW that property prices would boom DURING the construction and AFTER the rail line was finally completed. Never in my wildest imagination could I have known how quickly property prices APPRECIATED when the rail line was finally complete. Pretty much almost all the apartments within 10-15 minutes walking distance went up in value by approximately $100k to $150k within the year.

You could work and save year after year by scrimping and eating peanut butter sandwiches, not going on holidays and living miserly OR you could make wise investment moves and simply capture investment gains by investing wisely.

Other friends of ours are looking at buying IPs and there are so many potential suburbs. Any property within 15km proximity to the city will go up in value as our population grows and any suburbs that has large scale, public/social infrastructures being built will go up in value.

I'm still tossing over the idea about whether it would be a better move to buy close to the new railway stations being built on the new rail line or whether to stick to the tried and tested blue chip suburbs that are within 5km of Sydney CBD and are close to either water, cafes, schools or transport etc.

Historically, either choices would be wise but which would be the wisest move? Wouldn't we all like to see the future?