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Joined: Sep 05, 2007 Posts: 1,316 Location: Waiting for the great leap forward
Posted: Tue 22/Jul/08 2:52pm Post subject:
Dazzle wrote:
I have been looking at rental's of late - and he is right on the money about people expecting to be able to sell at 5% rental returns being way off base from reality.
There are a hell of a lot of them on the market though, the low return because rent hasn't increased with property value and people are trying to cash up their capital gains.
Not looking like a great time to be investing at the moment, I think I'll give it another year before I think about buying another rental, and prune a bit off my own mortgage instead.
I don't think it's all doom and despair if you're looking long term, but probably not good if your 100% financed, interest only mortgage and contributing an unsustainable amount of your income into a property hoping for capital gain.
There are a hell of a lot of them on the market though, the low return because rent hasn't increased with property value and people are trying to cash up their capital gains.
So that would put you in the 'denial' stage of my original link
Joined: Sep 05, 2007 Posts: 1,316 Location: Waiting for the great leap forward
Posted: Tue 22/Jul/08 9:06pm Post subject:
Dazzle wrote:
So that would put you in the 'denial' stage of my original link .
Nope, in the 'head in the sand' stage.
But seriously, if you own property with a reasonable % return, then there should be no reason to panic just because the value of said property has increased astronomically since you bought it, and is about to deflate back to it's correct value. Unless rents suddenly crash, which is unlikely when prices have gone beyond the reach of bottom end buyers.
Dazzle wrote:
Perhaps you could also say, house prices far outpaced rental value and is now correcting.
House sale prices reflect what people are willing and able to borrow.
Rental prices reflect what people are willing and able to pay.
Correct And at the moment prices have reached the point where people can't service the debt to buy them. Hell, I couldn't afford to buy my house now. But if you tried to increase rent by 100% in a couple of years the tenancy tribunal can deem it excessive and enforce a 'market rent', so it's not a free market like house prices.
Landlord tried a substantive rent increase on some friends, who were long term trouble free tenants. They moved.
And we are ignoring the other two huge losers in this change of economics. The book sales for all those 'how to get rich in property' tomes, and the many 'get on the property ladder' TV shows.
Joined: Sep 05, 2007 Posts: 1,316 Location: Waiting for the great leap forward
Posted: Tue 22/Jul/08 9:19pm Post subject:
Dazzle wrote:
Landlord tried a substantive rent increase on some friends, who were long term trouble free tenants. They moved.
Exzachary, you can't double the rent because the property has doubled in value unless every other landlord does the same thing. And housing NZ isn't going to do that, as your article said they own about 40% of the rental property in new zealand, and therefore are a huge factor in setting 'market rent'
Dazzle wrote:
And we are ignoring the other two huge losers in this change of economics. The book sales for all those 'how to get rich in property' tomes, and the many 'get on the property ladder' TV shows.
When the wheels fall off the bandwagon, someone has to get hurt. Probably a bit short of material for the tv shows now (thank god), I think there's a shortage of people shouting about how they'll make a million dollars in property in 5 years at the moment.
What I found funny about most of those 'buy a house, do it up, flip it' tv programs.....
If you did the math, effectively the people concerned were BUYING a property on credit, to earn less than minimum wage per hour if they managed to sell for the 'improved value' when taking into account all the hours and material they put in. Taking on debt to buy a minimum wage business with huge risk if you couldn't sell the result. Meanwhile, builders and contractors were making WAY more than minimum wage to do much the same work.
Joined: Sep 05, 2007 Posts: 1,316 Location: Waiting for the great leap forward
Posted: Tue 22/Jul/08 9:30pm Post subject:
Dazzle wrote:
What I found funny about most of those 'buy a house, do it up, flip it' tv programs.....
If you did the math, effectively the people concerned were BUYING a property on credit, to earn less than minimum wage per hour if they managed to sell for the 'improved value' when taking into account all the hours and material they put in. Taking on debt to buy a minimum wage business with huge risk if you couldn't sell the result. Meanwhile, builders and contractors were making WAY more than minimum wage to do much the same work.
And they were paying interest to the bank for the privilege, watching the profit disappear as it sat on the market not selling.
And the contractors they paid to do work for them are sitting on the deck at home having a beer, because they've been paid and can afford it.
Joined: Mar 05, 2007 Posts: 2,336 Location: 172.20.0.151
Posted: Tue 22/Jul/08 9:41pm Post subject:
Dazzle wrote:
There are a hell of a lot of them on the market though, the low return because rent hasn't increased with property value and people are trying to cash up their capital gains.
The IRD should go all of them for capital gains tax. You would be hard pressed to say the only reason you purchased a property in the last 6 years was for income only. It never made investment sense at all, almost all would have been losing money.
I owned rental properties back when they would yield nearly 20% and that was only back about 1992 ish. It made sense back then and I sold them when it didnt make sense anymore.
If you want a proper rental income purchase commercial property instead.
Joined: Mar 05, 2007 Posts: 2,336 Location: 172.20.0.151
Posted: Tue 22/Jul/08 9:44pm Post subject:
Dazzle wrote:
What I found funny about most of those 'buy a house, do it up, flip it' tv programs.....
If you did the math, effectively the people concerned were BUYING a property on credit, to earn less than minimum wage per hour if they managed to sell for the 'improved value' when taking into account all the hours and material they put in. Taking on debt to buy a minimum wage business with huge risk if you couldn't sell the result. Meanwhile, builders and contractors were making WAY more than minimum wage to do much the same work.
Always made me laugh as well, they purchase a property, take on huge risk, work 80 hours a week for a few months and pocket maybe $10k profit and think they have done well.. Hmm get a job, no risk, earn loads more than that for less stress and hours.
By Jeffrey H. Birnbaum
THE WASHINGTON POST
WASHINGTON -- Fannie Mae and Freddie Mac are giants of the mortgage-finance industry. But to investors, they're rapidly shrinking.
And as they struggle, they're taking the housing market with them, reinforcing a downward spiral in which their troubles translate into pricier home loans and increasing foreclosures, in turn further undermining the companies.
"Right now, you have a giant negative-feedback loop," said Paul Miller, an industry analyst at Friedman, Billings, Ramsey Group. "How you break it, I don't know."
About 70 percent of newly issued mortgages are owned or guaranteed by Fannie Mae and Freddie Mac. Without this financial backing, the banks and other lenders who typically make home loans no longer would be able to do so. The housing market could collapse.
Joined: Mar 10, 2004 Posts: 3,894 Location: Bodymore, Murderland
Posted: Wed 27/Aug/08 9:15am Post subject:
neels wrote:
Dazzle wrote:
And we are ignoring the other two huge losers in this change of economics. The book sales for all those 'how to get rich in property' tomes, and the many 'get on the property ladder' TV shows.
When the wheels fall off the bandwagon, someone has to get hurt. Probably a bit short of material for the tv shows now (thank god), I think there's a shortage of people shouting about how they'll make a million dollars in property in 5 years at the moment.
You both underestimate the allure of property grief TV. During the great deperssion, people wanted escapist fantasies. This is a more cynical time. People who have lost their investments (and the majority of people, who were never in a position to ride the property boom) want to see uppity douchebags lose it all.
US Govt seizes control of Fanny, Freddie
The US government has seized control of mortgage finance companies Fannie Mae and Freddie Mac, in what could be the biggest federal bailout in US history in a bid to support the US housing market and ward off more global financial market turbulence.
Officials were concerned mounting losses at the two companies, which own or guarantee almost half of the country's US$12 trillion in outstanding home mortgage debt, was sapping their vitality and threatening to undermine them at a time other sources of housing finance had largely run dry.
To attempt to put this in perspective US$6 trillion = NZ$2.1 million for every New Zealander
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And at the moment prices have reached the point where people can't service the debt to buy them. Hell, I couldn't afford to buy my house now. But if you tried to increase rent by 100% in a couple of years the tenancy tribunal can deem it excessive and enforce a 'market rent', so it's not a free market like house prices.
