Regional Property Prices

regionsAs you may have picked up I’m passionate about regional investment and it forms a large part of my portfolio. A lot of people are skeptical about regional investment and subsequently limit themselves to capital cities. Whilst capital cities have often shown better capital growth than some regional areas there are also some great reasons to consider investing outside of metropolitan areas, not the least of which is that it’s commonly a lot less expensive to get into the market. I have heard many people comment about how expensive it is to purchase in capital cities and that sometimes it’s next to impossible, however in the same breath you’ll hear them comment that regional cities don’t return the same capital growth, so what do they do? Nothing!

It’s important to do your homework and weigh up the pros and cons before you limit yourself to just one market which can potentially mean you end up doing nothing and waiting for the prices to drop (it might never happen!). Today I came across the data below which provides the median (not medium as written!) value of a large range of Victorian towns and cities. Information like this can be difficult to come across so it’s good when you can find it. Click on the image below to be taken to the active site. There you can also select and search by region.

REGIONAL

 

Advertisements

Doing the sums #2

I had some great responses to my post on October 13th about doing the sums when looking at investment properties and how important (and sometimes surprising) it is to get an idea of how much it will cost you to start and also to maintain. I’m always keeping an eye out for great examples so will post them when I come across something which shows a simple and affordable approach.

main

This property is a simple one bedroom unit in a complex of 12 units. It’s in a well established suburban area which is well regarded and in the same city as my first example. The area again demonstrates good infrastructure and is close to necessary facilities (shops, hospitals, schools etc). 

On face value the unit appears to be well maintained but of course you would want to inspect not only the property itself but also look around the complex and the units around it. It is for sale for $142,500 and is returning a healthy $190/week. Let’s say that it ticks the boxes as far as the quality and standard of the complex and we manage to get a realistic offer of $140k accepted. What do the figures look like and is it affordable?

How Much Will It Cost Me?
 Property Price – $140,000 Deposit (10%) – $14000 Mortgage – $126,000
Stamp Duty – $3470 Interest Rate – 4.69%
Conveyancing – $800
Mortgage Insurance – $1800
Total Costs (estimated) $20070

Once again, these are the main costs with a deposit of 10%, if you can get to 20% for a deposit the mortgage insurance disappears and the total estimated cost would then be $32,270. So you could get this property for an initial outlay of between $20,070 and $32,270. This is all great but let’s once again look at how you maintain this. Rather than being overly conservative, this time I’ve gone with one of the better interest rates that I can find at the moment of 4.69%

How Much Will It Cost To Service?
 Loan Amount
– $126,000/$112,000
Council Rates – $900 Rent Income – $190/wk
 Interest Rate – 4.69% Water Rates – $900
 Repayments/Wk (10% deposit)
– $150.50
Body Corp – $800
 Repayments/Wk (20% deposit)
– $134.00
Property Mgmt. – $700
 Yearly Repayments – $7826/6968 Yearly Costs – $3300  Rent/Yr – $9880

For a 1 bedroom unit the rent is very good and in a tight rental market this is becoming increasingly realistic. If you started with the 10% deposit you would find yourself out of pocket $1246 a year (or $24 a week). If you managed to pull together the 20% deposit you would be out of pocket $388 a year or less than $7.50 a week! A dollar a day really is loose change! Come tax time and factoring in some depreciation I’d think it could even be likely to end up being cost neutral.

Again remember this is a ‘one moment in time’ scenario and things can change, but even with some unforeseen expenses and the odd maintenance request a property like this has the potential to be a great starter for an investment portfolio!

REIA response to Renovating Housing Policy

logoFollowing on from my post this week regarding the Grattan Institute Report on housing policy it’s not surprising that the Real Estate Institute of Australia (REIA) has responded quickly to the recommendations in the report. Published this week on the Your Investment Property website is the following article outlining the response from the REIA. Once again it’s always fascinating to see the debate it stirs up in the comments posted after the article. You can access the original article here, or, read below.

Hands Off Negative Gearing, Warns REIA

A report issued earlier this week slamming government housing policies has provoked a strong reaction from the Real Estate Institute of Australia (REIA), which said a recommendation to scrap negative gearing is ‘short-sighted’.

The REIA said it agrees with the Grattan Institute Renovating Housing Policy report in that a major overhaul of housing policy in Australia is needed, but disagreed with what needs to be done.

“We strongly agree with the report’s recommendations to eliminate stamp duties, however it’s essential negative gearing be retained in its current form for the purpose of property investment,” said REIA president Peter Bushby

“REIA has always supported negative gearing because it helps in the provision of rental accommodation. Negative gearing for property investment is complementary to the goals of the Government’s Housing Affordability Fund (HAF) in addressing the supply of rental accommodation.”

Bushby said removing negative gearing would show that Australians ‘haven’t learnt anything from history’.

“When negative gearing was abolished in 1985 it had disastrous consequences for the property market and for people trying to rent. Rents rose 37% across Australia and by 57% in Sydney.

“Thankfully, negative gearing was reinstated in 1987. It is far too short-sighted to link investor interest in housing to negative gearing alone. Negative gearing is only one of a range of factors that contribute to the level of investment in property. Other factors include interest rates, availability and accessibility of finance, share market performance, the unemployment rate, housing supply and consumer confidence.”

Bushby said the ‘myth’ that negative gearing is a plaything of the well-heeled also needs to be dispelled. He claims the majority of taxpayers with negatively geared property earn less than $80,000 per annum.

“Findings in the Renovating Housing Policy report are important and let’s hope they assist in kick-starting a debate on housing policy. With the new government, expectations that industry will be involved in finding workable solutions to these old issues are high.”

http://www.yourinvestmentpropertymag.com.au/article/hands-off-negative-gearing-warns-reia-180767.aspx

An agent with bling!

Thanks to everyone who is sending me ideas and great pieces for the blog. My wonderful sister who also loves a bit of property investment herself sent me this great advertisement for a property currently for sale in South Australia. I’ve heard people comment about getting their money’s worth out of their estate agent and the vendors of this house have done particularly well with theirs. I can’t envisage a lot of agents out their singing and dancing (even if pretty badly) to sell a property but good luck to him, it’s certainly unique!

Renovating Housing Policy

mza_8623053361525323846.170x170-75The Grattan Institute was formed in 2008 as an ‘independent think tank’ intended to develop public policy for Australia. This week there has been a lot of media commentary about a publication by the institute addressing housing policy in Australia. Renovating Housing Policy was published on October 20th and states:

This report looks at our complex housing system as a whole. By quantifying the major government outlays on the private housing system, it reveals the cumulative impact of housing policies both on individual choices of where and how to live, and on productivity and inequality in our cities.

The initial part of the report examines some fascinating trends and demographics related to home ownership in Australia, there is interesting data presented on the change in home ownership rates over the last 100 years as well as examination of current ownership rates by age as well as earnings. It then continues on to look at renting in Australia and it is from here that the information presented starts to become increasingly relevant to property investors. There is also significant focus within the report looking at the different government support provided to property owners versus those who rent a home. The report states that support for residential property investors costs $6.8 billion a year,or about $4,500 per year for each investor household. If you want to skip to the really interesting part though I’d suggest heading straight to page 36 where the recommendations commence. There are three main recommendations looking at stamp duty and property tax, reform of tax incentives for property investment and also reform of the private rental sector.

Whilst I certainly don’t agree with all of the proposals there appears to be some strong evidence available to support the statements being put forward. What I have found interesting is the way that it has been portrayed in a range of media and particularly the comments that have been posted by readers. I’d be eager to hear people’s thoughts on this as it would have a significant impact on property investors should these recommendations be put into practice. Don’t be afraid to comment below! Click here to read the article.

You can also check out some of the following media articles, don’t forget to check the reader’s comments, it’s certainly stirred up some debate!

The Age property section – Domain

ABC News

The Herald Sun

Business Spectator

Your Investment Property Magazine

MoneySmartAu

Moneysmart-compassThanks to my good friend and avid reader of my blog Renee for reminding us of the great website  www.moneysmart.gov.au and also their Facebook page. The website is full of great (and sensible) suggestions and ideas looking at money management, borrowing, credit and importantly property investing just to name a few. It’s an Australian site but a lot of the information could be utilised wherever you may be living. The Facebook page poses regular questions to readers about their own thoughts on money management and contains some excellent (and provocative) discussions. Posted yesterday was the question ‘Do you think it’s easier to rent or buy a home?‘ Check it out and see what people are thinking. Is there a right or wrong answer to this question? The range of discussion suggests maybe not! There is also a MoneySmartAu YouTube channel that has a range of videos on some really useful money management ideas.

Taking your first step – Doing the sums!

I was reading recently that less than 8% of the Australian population are property investors which equates to about 1.8 million people. Of these, the Australian Tax Office reported that 72% of these investors (or around 1.3 million) own just one property. There is a steep drop to less than 100,000 people that own more than 3 properties and less than 1% of Australian property investors (about 15,000 people in the entire country) own more than 6 properties. This information not only shows how few people manage to develop a large property portfolio but also that there is a huge proportion of people that never even get their foot on the ladder. Of course property investing is not everyone’s cup of tea but I have spoken with many people just wanting to make a start but possibly not feeling prepared to take the leap of faith. Today I was speaking with a family member who was interested in learning more about the steps to take to get on the investment ladder. I mapped out a basic example of what I would consider a great ‘starter’, something quite similar to what I started with on my first investment and also an investment which won’t break the bank to get you started. Let’s take a look.

mainThe property I chose to demonstrate with was a one bedroom unit currently for sale in a regional city of around 100,000 people. It is serviced well with good infrastructure and is close to necessary facilities (shops, hospitals, schools etc). The location is highly desirable and the unit itself appears to be in excellent condition. It is for sale for $145k – $155k. Let’s say that we manage to get an offer of $145k accepted, what do the figures look like and is it affordable?

How Much Will It Cost Me?
 Property Price – $145,000 Deposit (10%) – $14500 Mortgage – $130500
Stamp Duty – $3700 Interest Rate – 5.5%
Conveyancing – $800
Mortgage Insurance – $1800
Total Costs (estimated) $20800

These are the main costs with a deposit of 10%, if you can get to 20% for a deposit the mortgage insurance disappears and the total estimated cost would then be $33,500. So you could get the property for an initial outlay of between $20,800 and $33,500 but what then? How are you going to service the loan and how much is it going to cost out of your own pocket?

How Much Will It Cost To Service?
 Loan Amount – $130,500 Council Rates – $900 Rent Income – $200/wk
 Interest Rate – 5.5% Water Rates – $900
 Weekly Repayments – $171 Body Corp – $800
  Property Mgmt. – $728
Yearly Repayments – $8892 Yearly Costs – $3328  Rent/Yr – $10400

The rent on this property is very healthy and over the course of the year you would be out of pocket $1820 (or $35 a week). Remember that this is a ‘one moment in time’ scenario and things can change in both positive and negative ways. The interest rate above is fairly conservative currently, I could locate a deal at 4.69% which would reduce your weekly repayments to $156 meaning you’re now only out of pocket $20 a week! If you managed the initial 20% deposit at that interest rate then your repayments drop to $139/week which means you would have to dig between the couch cushions once a week to find the spare $3 to fund your investment property!

On the flip side you also need to be aware that tenants can move out, things can break that need repairing and the cost of rates, insurance and property management can (and usually do) go up. It would be great to only have to pay $3 a week but in reality it will sometimes be more than that. Can I afford $20, $50 or even $100 a week if it came to that? These are all questions that you need to ask yourself and factor into your own budget. Overall though, what I’m hoping is that this example shows that you don’t need to be a millionaire to start on the investment ladder. Yes it takes some saving but it’s property and you don’t get it for free. When you do the sums though it can often work out to be a lot less than you may have initially thought!