July 2016

How many investment properties do I need? – Prepare to live for 100 years

A common question from our property investors is “How many investment properties do I need?” A new book now available is suggesting that children born now in western Sydney have a 50% chance of living beyond 105 years! Some really interesting facts and figures in the attached article but the information should not make much difference to how many investment properties you need for a happy, long life. Read on to find out why?

“A life well lived requires careful planning in order to balance the financial and the non-financial, the economic and the psychological, the rational and the emotional. Getting your finances right is essential to 100-year life, but money is far from being the most important resource. Family, friendships, mental health and happiness are all crucial components.

How many investment properties do you need to achieve your goals?

You can’t have a long and financially successful career if your skills, health and relationships are depleted. Similarly, without sound finances, you will not be able to afford the time to invest in those crucial non-financial matters. Getting the balance right is hard in a short life – and while it is more complex in a long life, there are many more opportunities to do so.”

All extracted from today’s article and all making perfect sense to me, so what is the answer to the question “How many investment properties do I need for a comfortable long life”. If this is a question you have pondered then there is a basic misunderstanding of why we buy investment property! A property investment is not an end in itself but a means or the vehicle you use to help achieve your end goal. Your end goal is not the number of property investments you own but the financial goal you have set yourself.

With most people it is sensible to aim for a retirement income of around 75% of your final income. If you can achieve this then retirement should not interfere too much with your current life style and you should have enough discretionary income to purchase the things in life that keep your life interesting. Basically, this means if you are earning $100,000 per annum, then you should be aiming for a retirement income of around $75,000 per annum. If two partners are earning $100K each, then the goal should be around $150,000 per annum joint income. To ensure the income you want, you can use the 20 times rule. This means if you want an income of $100,000 in perpetuity then you should aim for an asset base of 20 x 100,000 = $2,000,000 outside of the value of your family home. Why $2 million you may ask? Well in safe secure investment, we can’t expect much more than 5% of return on average on funds invested. This means if you have $2 million invested securely then you will have an average income of $2 million x 5% = $100,000 for the rest of your life.

So to answer the question of how many investment properties you need, you must look at your financial goal. If your goal is to accumulate $2 million then the number of properties that will achieve this amount all depends on initial value and time in the market. One median-priced Sydney property of $1 million value today will see you with an investment property asset base of $2 million in 10 years time (minus the $1 million of purchase loan you probably still owe). Give Lime property Solutions a call and we can discuss your personal plan and your personal goals in the timeframe you are considering.

Read more: http://goo.gl/zkhmQA

Understanding the property cycle – obvious and predictable news as South coast property on the rise as Sydneysiders chase good value

Latest news this weekend tells us that South coast property is on the rise as Sydneysiders chase good value, this is the next obvious step in understanding the property cycle.

The ‘hot’ area for price growth is the South Coast property market. We are told that this market has been dormant for years after the global financial crisis (2008) but now prices in the Shoalhaven area near Nowra and the pristine waters of Jervis Bay are growing faster than Sydney!

The ripple effect sees property price growth in Sydney’s outer regions

So let’s just have a look at how this is so predictable in terms of understanding the property cycle.

Anyone who did not realise that up until the end of 2015 Sydney was in a house property price boom must have been living in a country that was not Australia! The ‘boom’ seems to have been going on since around the middle of 2010. Now if you lived in Blacktown in 2012/13, you may have been wondering what the media were talking about when they said Sydney house prices were booming because there was nothing happening in Blacktown!

By the end of 2013 beginning of 2014 all of a sudde3n we are being informed that the highest growth area in Sydney is in the Blacktown area, all of a sudden prices just took off. However, people living in Liverpool and Campbelltown and even Wollongong could only scratch their head when they read that prices in Sydney were ‘booming’ because the price of their home hadn’t really changed much over the last 10 years!

By the beginning of 2015, the hottest growth markets in the Sydney basin were Liverpool and Campbelltown showing double digit growth – to be expected as the ‘ripple effect’ extended to our outer suburbs.

Basically, price growth starts in the centre of our major cities. As the inner suburbs become too expensive, the market ripples out to the middle suburbs. Over a relatively short period of time, these middle suburbs become too expensive so property buyers move out to the outer suburbs.

Today’s article is now informing us that this ripple effect has moved out of the Sydney basin and the greatest growth has now passed Wollongong and has reached the south coast market.

Understanding the property cycle is helpful in assisting the property investor choose the next ‘boom’ are for their next investment property.

Read more: http://goo.gl/lGql96

Property Cycle and how it affects first home buyers

We are informed today that “first-home buyers hit lowest level in a decade, price falls ‘needed’”, probably not surprising news particularly if you understand the property cycle and how it affects first home buyers.

Data released on Monday shows that first-home buyers are now at their lowest levels in the last ten years. First-home buyers dropped to just13.9 per cent in May, according to the Australian Bureau of Statistics. We have questioned before, the accuracy of these figures and perhaps the definition of “first home buyer’ being used by the ABS.

How do the ABS know who is and is not a first home buyer? The obvious and easiest measure of course, is just to look at the number of people claiming the first home buyer’s grant. Our feeling is that these are the figures that are being represented here. Otherwise, how do we know that the $800,000 house or unit being sold in your street is to a first home owner? As the property is not brand new and is over the first home owner’s grant price limit, the new buyers will not be applying for a first home owner’s grant. It would also appear that most first home buyers actually purchase a second hand property and so disqualify themselves from the grant.

Affordability for first time buyers is cyclical

So, what about the property cycle and how it affects first home buyers? Isn’t it going to be pretty obvious that if house prices are at their highest peak then fewer first home buyers can afford to enter the market? The first home buyer market collapsed in Sydney back in 2004 and didn’t really start to recover until around 2007 or later. This was the few years after the huge 140% rises in the housing market we saw between 1996 and late 2003. At that time, Sydney with a median price of around $510,000 was just seen as totally unaffordable. As time went on, after the GFC we saw the lowest interest rates in living memory, a NSW surge in employment and growth, we saw an average 21% growth in income from 2003 to 2009 resulting in a Sydney property market that was relatively affordable again. We all know what has happened to Sydney property prices since 2010.

Now we are back to the days after the last boom. Property investors are looking outside of Sydney to buy their next property investment and first home buyers find it just too expensive to enter the market. It’s all part of the same continuous cycle.

Find out more: http://goo.gl/HaAjD1

Use selection criteria for property investment

Most people will use selection criteria for property investment. There are the very obvious attributes that most property investors will consider and then there are some that may often be overlooked or not considered.

The first thing to cross a new property investors mind is probably one of the most important, where will I buy? The answer will depend a lot on the property investor’s knowledge and experience in firstly choosing the current ” best” city for investment be it Sydney, Melbourne, Brisbane or Perth.

The next question may well be the type of property to purchase as an investment property be it a unit, townhouse or house and land. We would always make this decision based on the most popular type of property in the area for property investors and owner/occupiers. For example, if you are purchasing your investment property near a CBD, then the obvious ‘type’ is a one or two bedroom unit. If you are purchasing a property investment in the outer suburbs of a major city, then house and land will probably be the best property investment.

Other issues to consider are the micro (near to) facilities and the macro (ten minute drive away) facilities. Look at a selection criteria for your property investment and you should be considering everything from local cafes, child care centres, convenience stores and hairdresser’s to major hospitals, transport links, universities and schools.

One issue is highlighted in the media this weekend that many do not pay enough attention too; the suburbs where almost every home is an investment property! While this is not always a bad thing, it can increase the risk quite considerably on your property investment.

CoreLogic’s Profile of the Australian residential property investor report has stated that there are now 2.6 million investment properties around Australia. In some suburbs, almost all the homes are investment properties, including some of Sydney and Melbourne’s inner-most property hotspots.

Property investors tend to dominated around typically strong rental market areas, such as inner-city locations near hospitals and universities. Ultimo, which topped Sydney’s list of property investor dominated suburbs actually recorded a massive 99.8 per cent of apartments in the hands of investors.

Angie Zigomanis​, BIS Shrapnel senior manager of residential identifies some of the potential problems of property investment in suburbs with extremely high property investor ownership.

“One of the problems of having a high proportion of investors in one area is more volatility in the market.

Where an owner occupier would attempt to batten down the hatches in times of financial difficulty, investors could respond by putting the property up for sale.

Investment properties are a discretionary purchase to some extent, and if times got harder they’re the properties that would be the first to go,” Mr Zigomanis said.

More information: http://goo.gl/dCJZwv