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Timing the turning point

Timing the turning point

With housing prices falling and many markets in disarray, there’s been a lot of talk in the property media about the benefits of counter cyclical investing, or buying at the bottom.

It seems simple enough to follow the advice of experts such as Warren Buffet, who advises investors to “buy when everyone is selling, and sell when they’re buying”, or Baron Rothschild who even more dramatically, told investors to “buy when there’s blood in the streets”.  But if that was all there was to it, we could all easily become highly successful investors with little more effort than to do the opposite of everyone else.

In reality, such advice is almost impossible to follow successfully because it flies in the face of perceived logic – if everyone is selling and prices are falling, how do we know that this trend won’t continue and leave us even worse off? Unless we are sure that the market has bottomed out, and we have reached the turning point, our efforts are likely to be futile and costly.

Most investors and analysts attempt to time the bottoming out of market by relying on lagging indicators such as sales and sale prices, but these can only reveal the past, not the future. It’s a bit like trying to navigate a car by looking through the rear-view mirror. Only leading indicators, such as the number of properties on the market, asking price trends and search trends can forecast a likely change in direction.   

Even if the turning point has really arrived and it’s time to buy, it becomes impossible for most of us to take any action, because the price crash has left us with insufficient cash reserves and we discover that the banks are unwilling or unable to lend. The solution to this dilemma is to look for low priced properties in areas which have price growth potential and high rental yields driven by genuine rental demand

Such investments are low risk and will give your lender more confidence in providing finance. Then you can look forward to positive cash flow from day one with healthy price growth over time.

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The feeding frenzy furphy

The feeding frenzy furphy

Many commentators are predicting that investors will rush to buy established properties before the negative gearing and capital gains tax rules are changed if Labor wins the Federal election. They claim this could cause a mini boom, but the stats show that the opposite may actually occur.

This is because many owners are holding off listing their properties in expectation of the buyer feeding frenzy later this year. This could result in a sudden surge of properties for sale, rather than a surge in buyers.

 

The numbers are revealing this steady decline of new listings in both Sydney and Melbourne – that is, the number of properties for sale on the market is falling, even though the number of sales isn’t rising. The graph clearly shows this downward trend, which is much greater than the seasonal variations that occur each year.

The only possible reason that fewer owners are listing their properties for sale is that they think investors will rush to buy established properties if Labor wins and they’ll get a better price by holding off for a while, so owners are waiting until after the election for the feeding frenzy to start.

But, will sales rise after the election if Labor wins? Investors form only a small percentage of buyers and there’s no evidence that they are putting off buying properties until after the election. There’s no point in their waiting, because if the Liberals win nothing changes, and if Labor wins, the time window to avoid the new tax rules is already open. Property purchases are being held back because of tighter lending rules, and the new tax rules won’t directly affect owner occupiers anyway.

 

On the other hand, it looks like we will see a massive lift in listings later this year from owners keen to secure the anticipated higher prices. This rise in supply is unlikely to be matched by a similar rise in demand from investors. Relying on hypotheticals is never a good reason to put off buying or selling, because the right time to buy or sell should be determined by how such actions help you meet your aims from investment, such as securing long term growth, doing renovations, developments or obtaining positive cash flow. 

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Top tips for obtaining housing finance

Top Tips for obtaining housing finance

Newcastle mortgage broker, David Hoar shares his passion for property by giving us his top tips for obtaining housing finance

The best strategy for getting into the market now depends upon your particular circumstances, and your ultimate objective(s), but remember that in December 2018 around 40% of all home loan applications were rejected – so before you get too excited talk to your broker or bank about getting pre-approved to save yourself unnecessary cost, time and stress.

Leveraging equity

If you’ve been fortunate enough to own property that has gone up in value over the last 5 or so year’s then you can look at using equity in your current property to buy another one.   In this situation the bank re-values your property, to identify the equity you have available, and will generally allow you to borrow up to 80% of your current properties value.

Most lenders will structure the deal as follows:

  • 20% of the new property value plus costs (stamp duty, pest and build, conveyancing etc) secured against your current property
  • 80% of the new property value secured against your new property

By doing it this way you avoid Lenders Mortgage Insurance (LMI), which is normally charged by lenders if your loan on the new property is more than 80% of its value.

Buying on low or no deposit

There are some lenders that will allow you to borrow up to 95% (including LMI) to buy an investment property, however this can be expensive as LMI ramps up quite considerably when your loan/value ratio is over 90%.

If your parents or siblings own a property, then some lenders will allow you to use equity from their property to help support your purchase and avoid LMI.

Like where you live but can’t afford to buy there?

Then rentvesting might be a good strategy for you.  In this case you continue to rent and then buy an investment property somewhere else.

Many people choose to do this – as they enjoy the lifestyle or proximity to work and social and entertainment options of where they live – but can’t afford to buy there. 

So rather than miss good buying opportunities an investment is purchased in another location. Remember, that you don’t have to like where you buy an investment property, you just need a good supply of tenants that do!

About David Hoar

David Hoar of Home Loans Newcastle is a finance lending expert with clients from Brisbane to Hobart. David is a qualified Accountant, has a Graduate Diploma in Taxation, a Graduate Diploma in Marketing and Management, and a Certificate IV in Mortgage Broking – and he is passionate about ensuring property buyers have access to expert information and help.

For more information, visit: https://www.homeloansnewcastle.com.au/

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Top Tips for dealing with Real Estate Agents

Top tips for dealing with Real Estate Agents

Melbourne real estate agent, Bryce Houston shares his passion for property by giving us his top tips for dealing with real estate agents

Become a local expert

Try to inspect at least twenty properties of the type that meet your criteria in the town or locality you are looking at before making any purchase decision.

Don’t rush things

Make the effort to visit the area a few times. During the week, at weekends, in the day and during evenings. Talk to the locals to get a feel for the area and what it has to offer – and what it doesn’t.

Check recent sales

Look at the property sales (sold results) on realestate.com.au or domain for the last six to twelve months to ascertain the actual market value of sales. Don’t go only by the listed asking sale price – study what has sold and for how much.

Know your buy price limit and preferred type of property

Know how much you can borrow and the type of property you want before talking to agents. Then tell them that you are pre-approved and what you are looking for. This will make you a serious buyer in their eyes and they’ll try hard to find you a suitable property. Call them once a week to see if anything has turned up.

Set up alerts

Set watch alerts on your favourite real state app like realestate.com.au or domain to alert you of any new listings so you can get into action as soon as they come online.

Check the days on market

Ask the agent how many days on the market a property has been on for or simply search realestate.com.au from newest to oldest as this will show you the oldest. Older listed properties are often more negotiable and agents will be keen to sell.

Don’t be reluctant to make an offer

Real estate agents and Vendors love to get offers especially if the property has been on the market for a while. Even if it’s a low offer, it could be the one the vendor accepts.

Keep in front of the agent’s mind

Agents may not chase you, especially in hot markets, and good deals go quickly in any market. Let them know you are a serious buyer and stay in touch. You may be offered a property off-market, which can save the vendor thousands of dollars in advertising and staging costs, save the agent’s time and reduce your purchase price.

About Bryce Houston

Bryce has bought, subdivided, renovated and sold properties from Frankston to Byron Bay. He combined his thirty years of sales experience with his passion for property by becoming a real estate agent in 2016, and now gets to share his passion for property with other sellers and buyers.

For more information about Bryce: https://carrumdowns.harcourts.com.au/Profile/Bryce-Houston

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Hold or sell?

Why it's better to hold than to sell

Did you know that there have only ever been three times in our history as a nation when Australian property prices suffered significant falls? They are shown in these graphs:

Each of these price falls was precipitated by an economic crisis – there was the Great Depression in the thirties, the sixties Credit Squeeze and the more recent Global Financial Crisis. More significant is that each of these crises followed the same sequence of events – firstly the share market crashed, then there was rising unemployment, falling wages and salaries and a curtailing of housing finance.

It was the lack of housing finance which actually caused housing prices to fall, and as you can see from the graphs, the only really big price fall was during the Great Depression, which incidentally was followed by the biggest rise in housing price history a few year later, when house prices trebled in ten years from 1945 to 1955.

What we are witnessing right now is a cut in housing finance – there has not been an economic crisis, nor a share market crash, neither are wages and salaries falling or unemployment rising. The banks are simply responding to the tighter APRA regulations and the Royal Commission by cutting their lending to property buyers.

The only eventual outcome of this is that rents will rise, as we are not building enough dwellings to meet the demand from our growing population, and if new households can’t buy, then they have to rent.

Once rents start rising, governments will come under pressure to increase lending to owner occupiers and investors, and so prices will start to rise again. It will just as easy for the banks to increase lending as it has been for them to reduce housing finance.

In that regard, it is important to see that the growth in house prices has averaged 8.3% per annum since 1901. This equates to a doubling in house prices every ten years and that is exactly what has occurred in Sydney and Melbourne, except that virtually all the growth has taken place in the last five years. This means that we haven’t had a boom in Sydney or Melbourne at all, while prices have only been marking time in the other capital cities.

So hang in there, investors – the next boom is not far away.

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Our Accuracy

My published predictions - an unequalled record of accuracy

In the Australian Property Investor magazine’s Hot One Hundred Issue of April 2012, I was the only expert whose predictions all rose in price over the next two years.

I also picked the hottest performer of all the experts – Highgate units, where prices rose by nearly 50% in a no-growth market.

 

 

In the Australian Property Investor magazine’s Hot One Hundred Issue of May 2013, I was the first expert to publicly predict Sydney’s imminent housing market boom.

My predictions also revealed which of Sydney’s suburbs would be the first to rise in price, heralding the boom to come.

 

 

My published articles have correctly predicted booms for Hay and Berri where prices doubled in a year or less and Byron Bay, Weipa and Highgate, where prices doubled in just a few years. 

 

 

 

In Property Observer Issue of 27 May 2016, I correctly predicted that Hobart was the next property hotspot and would boom in 2017, just before the growth kicked in.

Hobart was the best performer of all capital city housing markets in both 2017 and 2018.

 

 

In Your Investment Property’s Annual Top 100 suburbs guide Issue of January 2018, I picked the top performer, which is Karuah.

Karuah is not only the top performer of the Top 100, but has been one the best performers in the whole of Australia, with the median house price increasing by nearly 50% in less than one year.

 

All of the above predictions were authored by John Lindeman and published in the sources quoted, with the results independently verified by CoreLogic published data.