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.

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'.

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.

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.

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.

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? 

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?

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. 

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?

Big Houses And Hours Of Cleaning

Since I've moved to a house, there's been endless cleaning and work. If you've been wondering why SMG has been offline and haven't posted for a while, that's the reason.

When I wrote about the endless search in the quest to buy a house, I mentioned that I liked houses with wooden floorboards, high ceilings, minimum of two bathrooms, built ins and so forth. Now that I've moved into the actual house, reality hits.

Houses with large rooms take longer to heat up, houses with high ceilings take even longer to heat up, and generally houses with the combination of large rooms, high ceilings and wooden floorboards are destined to be cold in winter and takes forever to heat up. 

Dust likes to pile up along the edge of the rooms and along the hallways. Dust will pile up regardless of how often you vacuum! Where on earth does all the dust come from when the windows are almost always shut?!

I've rattled on about loving gardening and plants and my addiction to plants. Now that there's a garden attached to the house, there's hours of gardening work involved which is more maintenance than pleasure. House dwellers never seem to mention these things. Previously when I've lived on the farm, everything was allowed to grow wild and it looked great.

Living in a house however, there's endless lawn to mow, weeds to pull out from the garden, the footpath, the paving and from the lawn itself. Dead flower heads to cut off, plants to trim and hedges to maintain. 

We are still unpacking despite having moved for several weeks now. Bigger houses need more furniture and the house is semi furnished with furniture from the apartment. There are vacant rooms with nothing in them and although that doesn't bother me, it does bother Mr SMG who is a perfectionist, loves brand new and doesn't like hand-me-downs. I can be a perfectionist as well, but fortunately not when it relates to furnishing the house and housing decor or else I'd have gone mad looking at the empty rooms and endless space.

So more shopping to do and on top of that, the mortgage payments have commenced and the monthly interest is painful. I had forgotten how much mortgage interest charges suck. 

The goal would be to knuckle down and work on tackling the mortgage to make huge ass lump sum repayments. However, that goal has been derailed somewhat by the endless quest to furnish the house, repair the house (leaking taps, broken/damaged washers), installing security doors and dead bolts, installing down lights so the house isn't so fashionably dim and buying rugs so that we can heat up the house.

Oh, and you know what happens when you buy houses that have beautifully high ceilings? You need to buy a HUGE, TALL ladder so that you can reach the lights, the top of the built ins and be able to repair and clean the higher sections of the house ;p So think twice before your dreams become reality and the reality doesn't measure up with expectations... larger houses aren't always the solution and the reality of maintaining a larger house means dedicating hours to housework that wasn't previously required.

What Advice Would You Give Yourself 10 Years Ago?

"The time for extracting a lesson from history is ever at
hand for those who are wise." Demosthenes 

Ten years is long enough for any of us to see how an important decision we chose to take at the cross road has led to the point in the road that we are facing now. What significant decisions have you made ten years ago?

Was it the choice of which college or university to attend? Which degree to study? Which employer to work for? Which business to start for yourself? How much you decided to save up in those years? What and how many properties or shares you have bought and invested in? How many holidays you have had? The significant others that you have dated, married, had a child with or separated from?

Do you regret some of the choices that you made ten years ago? Or are you happy with the choices you made all those years ago?

After reading the Somersoft Property forum about what the forum posters wished to tell their younger selves, I thought it would be interesting to post up some of their advices that they wish they could have advised their younger selves. We only get older right? So if what we learn today can mean that we gain knowledge to implement and action for the rest of our lives to make our life easier, wouldn't you want to know?

Here are some of the advice that the forum posters wished they could have given their younger self ten years ago after knowing what they know now, happy reading =). Oh and read with an open mind because the quotes below are from a PROPERTY forum and as such, they are pro-property investors with less inclination towards investing in the stock market compared to members of stock forums:

*  "buy something, for goodness sake. Get into real estate. Be careful- but not so careful as not to buy...If someone was going to buy another property, I would be suggesting, as Rolf de Roos does, to at least aim to look at 100 properties.I'm not sure about his other figures- but, at least, if you look aim at looking at 100 properties, you'll start to get at some ideas of good vs bad value"

*  "Get a real education, a financial education. Read as many books on financial topics as you can...Your borrowing capacity is not a problem (if you know the rights things and speak to the right people)"

* "Educate myself on all things financial, Property, Tax, shares etc...Invest as early as possible as time is the essence of good investing...Do not be suckered into public or media hype or fear...Device a plan and stick to it...Keep all things in perspective...By(sic: buy) all the property you can! "now"!!!!!!!!"

* "If I was to give myself advice for 10 years ago it would probably be to put into practice the principles from the book The Richest Man in Babylon."

* "FINANCIALLY – Educate yourself. Don’t follow the crowd. Take a chance now and then. MORALLY – Stubbornly believe in your abilities and be good to those less fortunate.For one thing I would have hugged and kissed my mum a lot more often and not taken her for granted."

* "1. First, last, foremost: Educate yourself financially, friend. Read some good books, it's not really difficult, get to know the basics and understand how this money stuff works!! Learn, learn, learn so you can work smarter, not harder. 2. Spend less. Those doodads add up. Did you know you can afford a property on what you spend on lunches/coffees/etc? 3. Use 1 and 2 to buy effective investments. Buy property now. Don't wait to 'save up the deposit', don't wait 'to pay off your mortgage'. Use the house equity & buy now. Balance negative geared with positive cashflow."

* " I would have got into property and not share traded or bought into managed funds like I did then!! That is for sure!" [Must have been burnt by the stock market]

* "What I would do differently if I could go back would be to purchase a property as close to the beach or city as possible, take interest only loans for 90% of purchase price (and pay the LMI), wait 6 - 12 months to see the effect on my cashflow and use surplus savings from my income to fund the next purchase....quite a conservative strategy but one that would have me sitting on at least 5 properties that as a group would be putting cash in my pocket and worth substantially more than my purchase costs. I would have my current accountant preparing my tax returns and give me advice on how to structure investments."


* "I wish I had read the book E-Myth by Michael Gerber back then. The best book for business owners I have read... I invest in what I know, which is real estate and I always have a plan "B", my what if it doesn't work plan. I have written goals, a business plan and I let those around me know what they are and try to keep them focused on them also. Being part of a great network is a very big help, I now know the advantage of franchises although I had never before been an advocate."

* "*make sure you are armed with information
     *develop your strategy and then make a move
     *don't blindly follow the advise of someone else
     *don't be complacent, know what's going on at all times
     *use the rental income to your advantage
     *do everything possible to avoid selling."

* " 1. Invest whilst you are living at home with your parents. It would seem to be the easiest way to gain a good foothold for achieving financial independence.
2. Buy property that you can rent out, not land. I bought land at the age of 21, with the intent of building my future home on it in X years time. Would have been much smarter to buy a rental property, especially one I could live in later, perhaps.
3. Obtain financial education - not from your parents because more likely than not their "advice" will be ultra-conservative and keep you in the rat race (but you still gotta love your parents).
4. Get into the habit of saving a'la Richest Man in Babylon. Material possessions are not everything.
5. Balance your life and your work, and value your health."


* "Don't waste your time on jealousy. Sometimes you're ahead, sometimes you're behind. The race is long and, in the end, it's only with yourself...Get to know your parents. You never know when they'll be gone for good. Be nice to your siblings. They're your best link to your past and the people most likely to stick with you in the future. Understand that friends come and go, but with a precious few you should hold on. Work hard to bridge the gaps in geography and lifestyle, because the older you get, the more you need the people who knew you when you were young."

* "Keep going with your plan. It works out. Don't get scared as the numbers get bigger."

Living Large When You're Less Than Flushed

Andre Rison in the promotion of the documentary 'Broke.' Credit: Broke

I thought I’d approach lifestyle from a different angle and perspective. Instead of the slow and steady ways of saving up to buy, there are other reasons as to why and when using credit can be an attractive option. Did I just say using credit can be an attractive option? YEP!!

The financial responsibilities that new homeowners face can feel overwhelming. Due to the higher cost of living, many people simply cannot afford all aspects of the "good life." Particularly when it concerns furnishing their house.

An effective way to create a luxurious life for yourself without having to spend a great deal of money upfront is through furniture rental.

If you have plenty of expenses such as school fees, children, living, social, clothes or starting a new business, you can create leverage for yourself through the judicious use of rental credit options. Credit options allow immediate gratification until you are able to save up the money to make cash purchases.

When Renting Furniture Makes Sense

If you have attended open houses before, you may notice that some houses are lavishly and stylishly decorated. The owners don’t necessarily have exquisite taste nor style, they simply rent their furniture to decorate their houses so that it looks beautiful to prospective home buyers.

If you’re starting up a business or decorating a home office, you may not wish to spend lump sums of cash on furniture and equipment upfront and may wish to rent furniture and equipment so that it helps with your cash flow.

If you’re keen on changing the style of your home frequently, then renting furniture can be a good option because you can indulge in the latest seasonal trend. You may not know how you wish to style your house permanently so renting furniture can be an option until you decide on which pieces of furniture you wish to acquire for the long run.

Renting furniture oddly enough, makes a lot more sense than renting luxury cars and luxury handbags because you get to use it daily. Used as part of a strategy to sell your home, you can attract more buyers to bid for the property you are trying to sell. Used as a strategy to look stylish and professional to clients when you're operating a home office or starting up a business, it can look a lot more professional and help with your monthly cash flow.

Used as a strategy to counter your fickle styling taste and desire to be on trend with home decor, you don't get stuck with permanent pieces of furniture that you'll have to dump afterwards or try to desperately sell so that you can upgrade to the latest fashion.

Are 'Working Age People' Saving Enough?

Whilst reading the Sydney Morning Herald, there was an article saying that, "One of the nation's biggest superannuation funds has urged the government to encourage people to make more voluntary super contributions, saying most working-age people will have inadequate savings to fund a comfortable retirement."

The problem with those type of statements and claims is that the Australian super funds aka retirement funds, have no idea how much assets and investments that the 'working-age people' hold outside of super. So their comments aren't exactly applicable for certain subsets of the population.

Why would 'working-age people' voluntarily contribute more into their super funds when there are inherent risks in contributing more?

Risks such as legislative risk with successive governments constantly fidgeting with the tax rates and tax structures within the super fund environment. Increasing the access age also is a deterrent. Instead of being able to access at 55 years old, later generations are able to access at 68 years old. Lastly, the super fund's performances has been erratic at best. They charge fees to maintain and 'invest' our super money but I've yet to see my own fund outperform the index and justify the 'management' and 'investment' fees that they charge.

Not everyone is driven by the tax incentives and think that contributing the maximum into super is a great strategy simply because the tax on super is 15% on contribution and 15% on earnings. Even marginal tax rates of up to 45% outside of super isn't going to encourage people to maximise their voluntary super contributions.

So on the surface, if the super funds were to look at my balance or my friends' balances for example, then they're likely to see minimal voluntary contributions and think, "this generation has inadequate savings!". But they lack the ability to see that many friends and relatives prefer to invest directly into property and the stock market. It's not all about the tax savings! It's also about accessibility and flexibility to our savings, the ability to use our money however we desire and whenever we desire.

Once any money is voluntarily contributed into super funds, access is restricted. Early access is pretty much nil unless you are under extreme financial hardship and are about to be homeless, then you may be 'lucky' to be able to access $10,000 of your own money that's been locked up in super. The only other way you can have early access is if you've got a terminal illness. Those aren't attractive incentives to encourage my generation to contribute more into super.

Limited access and flexibility is a huge disincentive for the 'working-age people'. If those 'working-age people' are anything like my friends and I, then they'd prefer their funds outside of super so that it can be used to buy a house to live in, fund any family plans such as having children, pay for weddings, travelling and all the other financial demands of living life.

It's feasible for folks over 50 years old to contribute more to super but for Generation X, Y and Generation iGadgets, the restrictions are a HUGE disincentive.

So will my generation have a comfortable retirement just because we don't contribute large amounts voluntarily to our super funds?

Just by looking at my peers and friends' peers, I can resoundingly say yes. The majority that I know of, have invested outside of their super fund. They're saving and they're investing, but they're simply doing it outside of the super fund environment because the freedom and flexibility of using their funds however they wish outweigh the allure of the super funds' 15% tax environment that comes with plenty of strings attached.

Moving From One PPOR To A New PPOR

Sorry to any international readers but this post is particularly for the local readers in Australia.

What is a PPOR? A PPOR is the acronym for Principal Place of Residence. The Australian Tax Office (ATO) has various capital gains tax free arrangements for PPORs depending on when you moved in, when you moved out, when it was sold or how long it has been rented out for.

A friend of mine recently bought a new PPOR home. His previous house is going to be rented out when he moves into the new one. These actions have several tax implications.

If you find yourself in a situation where you've outgrown your current house, need to buy a new one and move into it but still wish to retain and rent out your old home, then there are a few crucial steps to take.

These steps help to ensure that you can minimise the potential income tax payable while the old property is rented and the capital gains tax payable later down the track should the ex-PPOR be sold.

The Three Scenarios

1) PPOR are capital gains tax free if you buy, move in and then sell and move out. Any price appreciation on the PPOR is tax free.

 2) However, if you buy, move in, move out and then rent the property without nominating a new abode as your PPOR(so you are renting your new residency), then the property can be rented out for 6 years before capital gains tax is payable on a pro rata basis.

3) If you buy a new PPOR house, move out of the ex-PPOR house and turn that ex-PPOR into a rental property, then capital gains tax is payable on the price appreciation on the ex-PPOR the moment it is a rental property and there is no 6 years of rental grace with regards to capital gains. Income tax is payable on all rental income, expenses for running and maintaining the property becomes deductible and various items and expenses becomes depreciable.

When You Turn The Old PPOR Into A Rental Property

This is a crucial moment for a few important steps to be taken if you wish to save yourself a lot of taxation headaches.

1) The moment that you move out, engage a professional property valuer to value your old PPOR before it is rented out so that any property price appreciation that the property has experienced thus far is capital gains tax free and you will only be taxed capital gains on any price appreciation once the property is available for rent.

2) Engage a Quantity Surveyor to provide you with a property depreciation schedule which consists of two parts:
       A) Capital Works Allowances which is depreciation on the construction cost of the building(items such built ins, kitchen cupboards, floor tiles, clothes hoist, toilet bowls and tubs) if the residential building was built after 18 July 1985. For applicable residential properties, refurbishments and renovation works are also deductible. Capital Works Allowances also applies to any structural improvements such as fencing, paving, pergolas, garden sheds etc that have been constructed after February 2002. 
       B) Plant And Equipment Depreciation covers items such as carpets, curtains, washing machines, stoves and hot water tanks for example.

Both Capital Works Allowances and Plant And Equipment Depreciation will be applied to reduce your rental income and thus, your income tax.

These are a few important steps that can save you thousands of dollars of income tax annually and should you sell the old-ex-PPOR in the future, potentially save you thousands in capital gains tax as well. And just when you thought relocating all the furniture was the hardest part...

Bought A House And My Portfolio Is Up 20%

Finally, Mr SMG and I have bought a house. If you've been visiting my progress bars on my homepage then you will have noticed that last year in June, I reached my goal for a house deposit and have since then, been house hunting madly. It's either dump the funds into another asset or leave it earning a pitiful amount of bank interest that becomes bugger all after tax.

After checking out almost seventy open house inspections, making a few multiple re-visits, reading property contracts after contracts, I can definitely say that I'm much more of a walking encyclopaedia when it relates to property structures, easements, covenants, location, aspects and layouts.

It's significantly tougher looking for a house to live in than buying an investment property(IP).

With IPs, you can literally overlook annoying little things like the ceiling being an average standard height or the bedrooms are smaller than usual. But oh my...when looking for a house to actually live in, the hunt is tougher because of minor things like some rooms not receiving sufficient sunlight(installing skylights being impractical or impossible due to the house being double storey), the kitchen pantry is too small, the ceilings aren't high enough, there is scruffy or dingy carpet that has to be pulled off and wooden floorboards installed, the master bedroom is too small, no built ins, the stove isn't gas but electric, the house isn't double brick, three bedrooms and one bathroom aren't big enough, it's strata or community titled and not free standing...so on and so forth.

I have absolutely no qualms about renovating but at this stage of my life, I don't have time to sniff paint, rip carpets off, drill and rebuild. Theoretically, ripping up the carpets, installing polished wooden floorboards, adding skylights, building outdoor alfresco dining areas, fresh paint, building built ins, renovating kitchens and bathrooms all add value to property than buying one that already has all those features in place(thus building equity to enable refinancing for further acquisitions) . However, like mentioned, I simply haven't got the time to do those things in the near future...perhaps with the next property in the coming years.

All these fussy complaints would have been overlooked if we were just buying another IP. If it was just another investment property, I'd have no issues with buying a single brick, fibro, cladding or whatever type of property as long as it met the simple requisites of location, transport, shops and possibly schools (it depends on which type of tenants you wish to target).

With our latest acquisition, my finances have become merged somewhat with Mr SMG's finances so it is getting rather difficult to break down the performance of my investment portfolio. The only thing that hasn't been merged or intermingled is my stock portfolio, which I'm happy to say actually grew by 20% over the past year. If you have read previous posts of mine, then you'll know which stocks I hold across the various sectors (mining, agricultural, retail and financial).

The power of compounding is nothing to be sneezed at. Every single dollar has been working hard over these years and it's amazing how much capital growth and passive income there have been from investing and reinvesting the income from those investments back into obtaining additional assets.

So far, so good.

Simple Ways To Increase The Value Of Your Home Before Selling

 

If you have ever tried to buy or sell a home before, you probably already know that negotiations can be tough to get the best price for yourself. The best way to quickly increase the value of your home in readiness for a sale is to embark on simple, but value-increasing home improvement projects.

These can be as extensive or as small as you would like depending on your budget. Ultimately, the smarter your approach to improvements before a sale, the better placed you will be to reap the rewards come sale time.

Here are a few clever ways to increase your home's selling price that won't take a lot of time or money.

Increase Curb Appeal

The first thing that potential buyers see when they approach your home is the driveway, the front yard and the front door. Since so many buyers make their decision based on sight alone, it is important to make a great first impression. ‘Curb appeal’ is an important part of the process, so you should be willing to spend some time tackling this. If you have a driveway, rent a pressure washer to clean it completely. Mow the grass, plant some flowers and even look to replace – or at least paint - the door if it’s looking a little dishevelled. Seems minimal, right? But this alone may be enough to plant a serious seed of approval before they even walk through the door.

Invest in Designer Flooring

Flooring is something that many people overlook when selling a home, but it represents a huge part of how potential buyers will perceive a property. Old, cracked or unattractive flooring can set the tone for the rest of the home, turning people off before they’ve even gotten past the entrance. Although elegant designer flooring might seem like a bit of an outlay at first, you might be surprised to learn that vinyl is actually very affordable, and these days pack a serious design punch. The contemporary styles can replicate the look of wood or stone and will give your home a stylish, modern look.

Replace Existing Window Treatments

Do people pay attention to windows and coverings? You bet you they do! Since curtains, blinds, shades and shutters take up a large portion of the home and are typically at eye level, any old and shabby blinds or curtains should be replaced. Dusty curtains should be wiped clean. A simple, sleek design works best for most homes, and white blinds can often be a contemporary option that blends in cohesively without imposing much onto the space. Replacing window treatments is a simple, but highly effective way of revamping the look of your home entirely.

Add a Fresh Coat of Paint

Perhaps the simplest way to increase the value of your home is to apply a fresh coat of paint. This simple task instantly eliminates any dings or scratches on the wall, and it makes the entire property look newer and more valuable. If you only have time to do one thing before showing your home to potential buyers, make sure it is repainting the interior of your home!

Update the Kitchen

The kitchen is often called the money-maker when it comes to real estate. Buyers like to see a kitchen with new appliances and a modern look. They want to be able to imagine themselves eating, cooking and entertaining within the space. Therefore it’s a good idea to dedicate some time and budget to this if you can afford to.

Simple ways to update your kitchen might include replacing some of the older appliances or resurfacing the cabinets. If you are short on time or money to do these larger projects, focus on thoroughly cleaning the kitchen from top to bottom.

Light Fixtures

Ugly lighting not only detracts from some of your other improvements, but it says something about the legitimacy of the overall improvement process as this can represent a massive weak link in the chain. Replacing old light fixtures with newer, stylish models does more than simply update the look of your home. It also acts as a way to make the property more energy efficient.

Signalling to potential buyers that the lighting is energy efficient and environmentally friendly will likely go a long way in keeping them interested. Select lights that allow you to dim in the main living areas as this will help set an overall tone and this is something potential buyers WILL test as they walk through your home. By the way - bright lights are fine for task lighting such as in the kitchen and wet areas.

No matter where you live, you are competing with many sellers in the same position as you. So think smart about how you tackle your home improvements and you will add value to your property, enabling you to demand a higher resale value. Increasing the value of your home is within everybody’s reach, and the short term expense of doing so pays off in the long run.

Sequencing Risks: Bad Luck With Bad Timing

Sequencing Risks: Bad Luck With Bad Timing

Been reading the papers and encountered a new financial phrase dubbed as 'sequencing risk'. So what is sequencing risk?

Basically it refers to the risk that you will experience annual returns in the wrong order. That a negative year or negative event closer to retirement is significantly more detrimental than a negative year or event occuring earlier on in your younger years. A negative financial event in your later years will impact on a larger balance than the balance you have in your younger years.

You may have heard the general idea that younger people have a longer time frame for their funds/savings/investments to recover and grow than older folks have.

The 'Woe Is I' and 'Poor Me' Attitude

Michael Drew, a professor of finance at Griffiths University commented on baby boomers and their bad luck and bad timing, "In their last decade of work, they experienced the bursting of the dotcom bubble, the subprime (mortgage) crisis, the GFC and they're now living through a sovereign debt crisis."

Those sequential financial events are nothing out of the ordinary if you analyse the global financial market going back to the 1930s. Does he think the last ten years are abnormal? If you look at the financial markets from the 1930s to the late 1990s, the business cycles have been marked with booms and slumps due to over gearing, too much loans, inflation and house prices escalating, Black Tuesdays, Asian financial currency crises and suicides.

2008 and the events thereafter impacting the financial markets are nothing new and I find it ridiculous that people behave like it was unexpected and a surprise. As markets rise, they eventually fall. If they don't drammatically fall, then they go sideways. Markets simply don't rise forever and ever in a straight line.

That's why retirement planning shouldn't always be about growth and particularly for those in their 50s. The reason why many baby boomers were caught with their pants down were because they hadn't saved enough in their younger years, and due to desperation to grow their retirement funds closer to their twilight years, they placed their money into growth funds when they should have been ideally moving their funds into more stable income funds or income investments (with a lower allocation in the riskier stock and property asset classes).

Close To Retirement?

Don't have all your funds invested into the stockmarket. If you've got ALL your savings and retirement funds saved in a superannuation fund(for Aussie readers) or a mutual fund (for US readers) then that is the WORST strategy you can ever devise for your money. Even if you have your money invested into two or three superannuation or mutual funds, you are NOT spreading your risk in the best way.

That is the worst investment strategy. Ever.  

The best strategy is to be diversified ACROSS asset classes (eg: property, stocks, cash, bonds, super/mutual funds) and to be diversified WITHIN the asset classes (eg for property- a mix of residential and commercial, for stocks- a mix of financial, resources, retail and for cash- in different banks and financial institution and for super/mutual funds- in different allocations such as property, domestic and international shares.)

5 Tips To Achieving Your Financial Goals For 2013

The New Year is in full swing, bringing with it a clean slate and a year full of promises. So if you haven’t set your financial goals for 2013 yet, then now’s the time because setting financial goals at this point of the year can mean a very different Christmas in 2013 to the one you had in 2012.

Different people will have different financial goals for 2013. For some, clearing credit card debt is a major win, for others putting more money against the mortgage. Some will want to set aside money for a new bathroom or kitchen, others for a vacation or dream purchase. To each their own. Irrespective of what your goal is, the important thing is that you have a financial goal for 2013. Whether it’s clearing debt, increasing savings or saving for a specific goal, any goal is better than no goal. It’s cliché but true; it’s very hard to hit a target if you don’t know where to aim!

Can you imagine yourself lying on a tropical beach in Fiji next Christmas? Or relaxing at home with a glass of champagne on New Year’s Eve holding a credit card statement bearing a zero balance? How nice would that be? And if these options don’t sound good to you, what does? At this early stage of the year, it’s important to think about your immediate, medium and long term financial goals, because the actions you take today will help bring you closer to your financial goals sooner. 

Tips To Help You Set And Achieve Your Financial Goals For 2013

The first step is to choose a financial goal that’s important and realistic to you. The point here is that there’s no sense in aiming for a Ferrari if you’re having trouble making ends meet day to day. Better to set a goal that’s focused on having enough money in the bank to cover unexpected eventualities so you don’t have the stress of living pay check to pay check. So take a good hard look at your current financial state and decide on a clear, simple goal that you’d be really pleased to achieve.

After you have your clear goal, write it down. And when you’ve written it down, put it everywhere where you can see it regularly: on the fridge, behind the toilet door, in your office, taped to your bedside table or your cat, even on the sun visor of your car. Doing this keeps your goal top of mind.

Then, every time you see one of your reminder notes, take a moment to clearly visualise the outcome of your goal. Take a moment to imagine the satisfaction you’ll get having a zero credit card balance, or to imagine the sun on your skin as you laze on a Fijian beach. Feels good, doesn’t it?

Now take action every day towards your goal. It doesn’t have to be massive action, but action each and every day will keep you on track and keep your goal top of mind. Small actions, like bringing your lunch from home rather than buying it or walking to work instead of driving, will keep you goal-minded and ‘on mission’.

Most importantly, if you fall off the horse, get right back on the horse. Life throws us curve balls at times, so if your goal calls for you to save a portion of each pay check but you get an unexpected bill, or heaven forbid you splurge at a sale, don’t beat yourself up about it. Just remind yourself what the end goal is and get back to your plan.

Life happens, so when it does, simply remind yourself what the end goal is, recommit to it, taking a moment to visualise it - then get back to it!

You can achieve financial success a lot quicker with a professional team of experts around you such as a great property manager, a fabulous financial adviser, an expert solicitor or lawyer, reliable tradesmen and a for those who live in Sydney and/or Brisbane, a team of Sydney Chartered Accountants such as Azure Group at your beck and call to help you with tax deductions and depreciations!

2013 can be a year of financial success, or “same old, same old”. Whether it is or not is up to you!

Questions To Ask Your Car Insurer

Everyone who drives a car should have car insurance. If you can't afford car insurance, then you can't afford to drive. If you can't afford comprehensive car insurance, then at least get third party insurance.

With so many companies offering car insurance quotes online, it’s never been easier to find the right car insurance cover for your needs. Having said that, it’s still vitally important to take the time to compare apples with apples after you have a short-list of prospective insurance providers to make sure you get the best deal and you understand the fine print. So after you have your short-list, take the time to get on the phone and ask them the following questions; it may save you hundreds of dollars on your premium and potentially thousands of dollars if the very worst should happen.

Claims

First, don’t be afraid to ask them outright about their claims process. It’s important to dig into the nitty gritty here to find out how long it normally takes them to process a claim and what factors usually slow down a claim process. Plus it’s worth asking, after a claim is approved who sources the quotes and repairers (you or them) and how long it normally takes to get a vehicle back on the road.

Vehicle

If you’re into modifying your car, ask them what, if any, modifications you can make to your car. The last thing you would want to do is obtain an insurance policy for a stock standard vehicle that then becomes defunct by you naively adding mags, extractors, or other standard and non-standard modifications.

Reducing Risk

Ask your potential insurer, what difference it will make to your premium if you install anti-theft devices like car alarms and vehicle disabling technologies. Installing an alarm or anti-intrusion device prior to obtaining a policy may reduce your premium, or at the very least reduce your theft excess.

What Does Your Rating Look Like?

Another question to ask is whether an insurer is willing to transfer your existing insurance rating and no-claim bonus from your current provider. These are key factors in determining part of your total premium cost, as well as reducing your excess, so don’t be afraid to ask as it can save you money.

Be Up Front

When you’re on the phone with insurance providers you should also come clean about your driving history. Some people may be tempted to try and leave out any negative incidence in their past, but insurance providers need to know if you have had any licence suspensions, as well as any history of accidents that you may, or may not, have been the cause of. Failing to disclose your driving history may sound like a good idea if you think it will save you money on your premium, but if you have an accident and your driving history is discovered your policy will become void.

It’s worth keeping in mind that your past driving history may not have as large an impact on your premium or excess as you may think, as the type of offence and the recency of the offence are both factors they will consider. A few extra dollars out of your pocket for the premium, or a slightly larger excess commitment, are small prices to pay to ensure you are adequately covered and protected.