The Next Property Millionaire for Property Investors Blog

Questions from the last Meeting

Thu, 22 Jul 2010 04:01:00 GMT

Q1. What is the land tax liability for a couple who own property in joint names and land value is in excess of the threshold for both of them?

A1. There will be three assessment for them, one for the husband, one for the wife and one for the joint names, they will need to pay land tax under the joint names with one land tax free threshold only. Then they will get the tax paid as a credit ( not fully ) under their personal assessment. Of course this method only applies to NSW land tax.

Q2. Yuk - could you provide a case calculation for tax filter for scenario of 2nd and 3rd mortgage with say 40% return? What structure you may consider?

A1. Normally the investor would need to pay tax on the 40% income, thus I would suggest the investment would be under a lower income earner’s name or a super fund’s name to minimise the income tax. The calculation is easy, principle amount x 40% x days of investment/365 days.

Why Inflation Makes You Poor

Mon, 07 Jun 2010 04:54:00 GMT

by Shae Smith, Assistant Editor

Your $500 in 1967 would be equivalent to $5,236.35 in 2009!

Dave’s comment below in red

The media is at again.

And yesterday, 'inflation' reached it's highest annual level since October 2008, supposedly 'smashing' through the Reserve Bank of Australia's (RBA) own self imposed target inflation rate of 2 - 3%.

However, the media were quick to point out that smokers were at fault - again! You see, the new 25% tax on ciggies apparently caused the inflation gauge to increase as much as 0.5%.

And of course, with the RBA meeting today to decide to increase rates, according to one journalist these figures are a sure fire indicator that the RBA will have to raise the cash rate.

But then, according to another journalist, at the same paper, because lending and new credit has slowed, these inflation figures are only a warning sign, but it's unlikely that interest rates will increase.

Then there's the 'other guy' that suggested a 5% chance of a rate cut. Er, that's unlikely.

Who do you believe? None of them. They're all guessing.

One thing's for sure, it'll be a tough day for those at the RBA office today.

But you'll notice that the inflation figures aren't from the Australian Bureau of Statistics. In fact these figures have nothing to do with the supposedly all-important Consumer Price Index (CPI).

Now, the CPI data is only released quarterly and for over ten years the RBA decided that it needed monthly data because '...greater frequency may help to identify changes in underlying inflation more quickly.'

So the Melbourne Institute came along and developed the 'Inflation Gauge' that you heard so much about yesterday.

There are a few differences between the two measures, the most obvious one being the volume of the data collected. But most importantly, the Inflation Gauge seems to be a fairly accurate tool of consumer price inflation.

But however accurate an indicator is, it disguises what's really important. And that is, whatever the mainstream press tells you, inflation just makes you poorer.

Let me explain...

As I mentioned before, the RBA has a target rate for inflation of about 2 - 3% per year. So basically, each year your dollar is worth about 3 cents less than it was the previous year.

Or so it seems. The RBA has a groovy tool on its website called the inflation calculator. So while it's a bit of fun to play around with, it's frightening when you work just how little your money is worth now.

As an example, your $500 in 1967 would be equivalent to $5,236.35 in 2009! Which gives you an 'average' inflation rate of 5.8% over that period. Or another way of thinking about it, the cost to you has gone up 947%.

Or to put it another way, the value of the dollar has declined by 94.7%.

How's that fair?

See, I think anything that takes precious dollars out of your pocket as evil. But there are of course the arguments that inflation is good for you.

One of the biggest 'pro inflation' arguments is that it's good for your debt levels.

If you have a fixed rate mortgage and the inflationary beast comes along, then as your salary rises your debt levels remain the same and because of inflation your mortgage essentially becomes cheaper to pay off as it takes up less of your salary.

While it sounds like a simple solution, it doesn't work like that.

Firstly, inflation affects your everyday costs of living too. And you, like most people probably only have your salary reviewed once a year. You'll spend a whole year waiting for your salary to go up to meet your already rising living expenses.

But inflation doesn't stop once your salary goes up, it keeps going. So you're still struggling with the ever increasing living costs, even though you just had a pay rise. It's a scary thought to think that even though you're getting paid more, you still can't get on top.

Your pay goes up in nominal terms, but in real terms your pay has actually dropped.

There's even the misguided attempt to suggest that inflation is what the economy needs, even if it isn't what the consumer needs.

You see, central banks like the RBA believe that inflation is one way to ensure that there is moderate growth to the economy.

Most central banks believe that by slowly devaluing your dollar, and in turn decreasing your purchasing power the economy can grow at a stable pace.

And not to be outdone on the 'inflation is good for you' bandwagon is the US Federal Reserve. A few economists are suggesting that the only way to dig the country out of the subprime crisis is to raise the target inflation rate so people can pay off their debt!

That's right, they'll have to pay three or four times the price for a litre or pint of milk, but at least they can pay off the debt. Except that will probably encourage more debt as living costs rise and wages don't keep pace.

If the US thinks higher than 'normal' inflation will fix the subprime crisis what are the chances of the RBA following suit? I mean, we all know that Australia has some of the highest personal debt levels in the world.

At the end of the day, all inflation proves is just how much individuals are manipulated by central banks. It's sad, but true.

Shae.

[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning unless specifically stated. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]

Dave’s comment;

Great article as it identifies that the only way to hedge against inflation is to own assets that go up in value in line with inflation.

This is why for average people who earn average incomes, property investing is just about the only way to create wealth

It is the inflation cycle that creates real wealth if you know what you are doing and as you can see by the headlines, wealth is brought about by the constant de-value of our money – nothing less.

Note that inflation rates of 5.7% per annum have caused wages to increase over time and it is this basic phenomenon that makes sense out of the argument that house prices having to continue to rise

As an example, your $500 in 1967 would be equivalent to $5,236.35 in 2009!

The article states that this is an annual increase of 5.7% per annum.

I like to do numbers in rounded figures because it’s nice and easy so as you can see below;

6% per annum increase means that most things would double in value every 12 years (the rule of 72). They have doubled to $1,000 between 1967 and 1979 and to $2,000 by 1991 and to $4,000 by 2003 and to $8,000 by 2015

5% inflation means that prices double in value about every 14 years

$500 in 1967 to $1,000 in 1981 to $2,000 in 1995 to $4,000 in 2009 to $8,000 in 2023

Anyone remember what wages were back in 1967 – I wonder how the 5% or 6% thing works on wages.

I came to Australia back around then and my 1^st wage was about $40 per week or about $2,000 pa.

Using the 6% inflation guide-line it means that wages in 1967 would $4,000 in 1979, $8,000 in 1991, $16,000 in 2003 and $32,000 in 2015 – I don’t think so.

Let’s try the 9% per annum rule which means they double every 8 years (9 x 8 = 72)

$2,000 becomes $4,000 in 1975, $8,000 in 1983, $16,000 in 1991, $32,000 in 1999 and $64,000 in 2007, and $128,000 in 2015.

Now that’s looking a little closer to the mark and it stands to reason too, mainly because to keep up with a 5% inflation rate we need to earn 9% more because of – you guessed it – taxes.

Whichever way you look at it wages will continue to rise and they have to, because everything else continues to rise, it has to, because the RBA and the pollies and the banks promote it.

So why do houses go up in value by more than inflation – it’s simple – because average people can leverage by 90% to buy a house.

If we had to pay cash then it stands to good reason that houses would go up by 5%, per annum anyways, but as we have banks who encourage us to leverage, and governments who encourage us to pay stamp duty, and because it is only the deposit that needs to go up by 5% to keep in line with inflation, house prices have to continue to rise by more than the inflation rate.

And that’s how the world works. The average person is encouraged to buy property through advertising and by lending us money. No encouragement to borrow, no taxes, no fat cats.

So when Robert Allen says “Buy Right and Hold on Tight” he is correct – IT WILL MAKE YOU WEALTHY over time.

Learning how to hold on is the key to your success. Managing your cash flow (shortfalls) while you wait for the government, the banks, the RBA and all to help inflate the $$$ will make you wealthy. The key for average people to become wealthy is to learn how to own assets that go up in value.

The magic of property is that the tenant and the government helps you hold the property and then inflation helps you own the property outright. When you own 4 to 6 properties outright, inflation will make you wealthy beyond your wildest dreams.

Wishing you every success

Dave Dorian

Please note: These comments do not give trading or personal investment advice, but are intended to provide a useful, independent analysis service to supplement your own investing. Consult your financial advisor before making any investment decisions.

A Simple Property Investing Plan Anyone Can Implement

Thu, 22 Apr 2010 02:36:00 GMT

Below is a link to an article posted on EzineArticles.com, check it out:

http://ezinearticles.com/?A-Simple-Property-Investing-Plan-Anyone-Can-Implement&id=4065493

Questions from Preview Night - Thursday 15-4-2010

Mon, 19 Apr 2010 07:36:00 GMT

Can we take advantage of the generous government incentives for ‘green’ houses e.g. feed-in-tariffs rebates and tradeable carbon certificates before they are withdrawn?
- Government incentive is a win win strategy for tenant and environment for long term. You pay for investment on Green facility to save tenant utility bills and save the environment may not directly benefit you, but if the cost of Green material and installments getting cheaper because the government rebate, you also benefit.
What implication does the recent Henry Tax Review have for property investors in Australia?
- Henry Tax review – all because government worry about no money to take care people in the country, when people no happy, they have to go. Overall, they want to charge more tax on mining industry, keep people work longer, put more money into super, keep investment longer, taking over state government stamp duty and land tax.. if you want to make money for nice wine, nice car in short term, maybe not support by this new tax reform later, if you want to keep long term investment and support your retirement, I think this reform will benefit you. No one now what they going to do in detail, but in big picture, there is the intentions 1. Keep the party in the parliament as long as they can, 2. Keep feeding people in the country ( pay by rich people).
Are you concerned about the developing sovereign debt crisis in Dubai, UK, US and Europe (specifically Greece & Spain)?
- I don’t have brain smart enough to comment on the earth, sorry

Q and A on Mortgage Insurance

Mon, 05 Apr 2010 13:43:00 GMT

Q: How can Mortgage Insurance save you when you are in trouble?

Maree Imbruglia – Mortgage Broker - AUSTRALIAN FINANCIAL INNOVATIONS

Mortgage Insurance is an Insurance that is paid if you borrow more than 80% of the Market Value of the property. Mortgage Insurance is an insurance which covers the Bank not the client. If the loan goes into default and the Bank forecloses and the property is sold for less than the loan amount, the remaining funds are then paid from the Mortgage Insurer. The Mortgage Insurer then approaches the client to recoup these funds.

Dave Dorian – The Next Property Millionaire Coach and Mentor

My understanding that in this country it only covers the banks even though the borrower pays the premium over 80% LVR.

This means that in the event of foreclosure the banks would get paid out by the mortgage insurer if the property sold for less than the mortgage and then the mortgage insurer has the choice to pursue the owner for the balance of the debt.

In some countries they have a slightly different system whereby the purchaser takes out a life insurance policy whereby the debt on the house is covered under certain circumstances

There may be other variations.

There are benefits and it is recommended to use mortgage insurance to get 2 houses rather 1 in a safe property market.

Mortgage insurance used wisely can be very beneficial to the start-up investor if buying the right property in the right market

Dave Says - Ozinvest Article

Mon, 05 Apr 2010 13:43:00 GMT

What part of the cycle is the property market at & what is to come next?

There has been so much discussion on these subjects over the past few months from property investing commentators, especially relating to how inaccurate the numbers are and what influences them.

The RBA are now increasing interest rates which will affect the first home owners.

These individuals are the same people who recently entered the market on the back of the RBA interest rate drop and government subsidised FHOG which kick started the price rises we are seeing come through in data now.

Now the RBA is increasing rates and the banks have over the last 18 months tightened lending criteria to developers and investors – so we will see a massive imbalance in natural growth because of these regulators manipulating the money supply. In my opinion the ongoing affect is that these factors are likely to create a house price inflation bubble which is waiting in the wings, ready to explode. Once money is freed up and investors and developers can borrow again I believe we will see a further & continued surge in buying which in turn will add fuel to a price rise.

Below is an article from Ozinvest we received recently relating to the same subject.

“If you have been considering investing in property there has never been a better time! Two of the most important factors putting upward pressure on house prices are the huge population growth forecasts for the next 15-20 years and the severe structural under supply of housing in this country. Current estimates predict the shortfall will hit 60,000pa over the next year or so. The media is now publicizing what we have known for months!

The housing indicators below from one of the largest valuer groups in the country (and you know how conservative they are!!) has Sydney & Melbourne in the stage of a ‘Rising market’ AND Brisbane; in the ‘Start of Recovery’. phase. The place to be for the investor to reap all the rewards!!

The latest Residex Top 100 Predictions for Brisbane has 4 of our listed areas are in the top third, with 2 of them listed number 1 & number 5 for expected growth over the next 5-8 years!!

Suburb	Estate	Lot	House Size	Land Size	House Price	Land Price	Total Price	Brms	Design	Rent(L)	Rent(H)	Yield
Caboolture	North Springs	18	195m2	703m2	$200900	$194500	$395400	4	Penfolds C	$330	$350	4.47%
Heathwood	Parkwood Estate	1057	198m2	480m2	$208400	$239500	$447900	4	Pitchfork T	$420	$440	4.99%
Morayfield	The Summit	15	186m2	600m2	$195519	$203750	$399269	4	Kangaroo 'M'	$340	$360	4.56%
Narangba	Panorama Rise	184	209m2	610m2	$220630	$205000	$425630	4	The Horizon 23	$370	$390	4.64%

So, it’s the perfect time to invest, especially in Brisbane property. We have rising demand fuelled by growing population and falling household unit size. We are facing a structural undersupply of housing because of government restrictions on land releases/costs imposed on developers and due to the fact of skill shortages. The areas we offer for sale are categorized as entering the ‘Rising Market’ stage or better still, the ‘Start of Recovery’ stage.”

To get in on the start of this rise in Sydney contact us now at info@tnpm.com.au

Or call 02 9674 8647.

Taking Positive Action

Sun, 28 Feb 2010 06:31:00 GMT

Don’t hesitate to move on your ideas and respond to situations that call for action in order to keep the momentum going. If you’re sitting waiting for something to happen, doing other “important” tasks rather than those that you know will produce the results you desire, you are wasting time and you are no closer to your desire. You may realize that you have waited for so many things in your life that never showed up!

Act on your desire in order to get to where you want to be. Waiting will not do it. The best men are not those who have waited for chances, but who have taken them, and made chance the servitor. It is better to act first and apologize later than to seek permission first. We often wait for the feeling to be right first, before we take the action we know will bring us satisfaction. The feeling of satisfaction only comes from accomplishment, not from pondering and procrastinating. Take immediate action, not out of fear or to force things to happen, but because the next action you take brings you one step closer to your desire and you will see tremendous results come into your life.

Sometimes opportunity knocks but sometimes you must knock. If you truly desire what is behind the door, you will knock until it opens. Sometimes you may even have to break down the door to get through to what you want. The difference between using the force out of power and using the force out of fear, doubt or worry, is that when you are powerful, you know what it is you are doing and are doing it powerfully. It doesn’t feel forced but liberating to you.

Bank's blamed for rates hike hold off: Reserve

Sun, 28 Feb 2010 07:28:00 GMT

Publication: Sydney Morning Herald

Borrowers have been given a reprieve, with the Reserve Bank surprising pundits by leaving interest rates on hold - for now.

The central bank cited excessive hikes by major banks as one of the reasons for holding back. The market had been strongly tipping a quarter-percentage point rise - and the RBA's statement today suggests more rate rises in future.

The RBA left its key cash rate unchanged at 3.75 per cent after its monthly board meeting. The outcome snaps a run of three consecutive monthly increases that began in October, and added as much as $185 to a typical $300,000 home loan.

The dollar dived more than one US cent when the news was announced, falling to 88.23 US cents before sinking even further to sit at about 88.08 US cents 30 minutes later. Just before the RBA announcement, it had been buying 89.24 US cents.

JPMorgan chief economist Stephen Walters said it was "a big surprise'' that the RBA left rates unchanged, with China's efforts to slow its economy part of the reason for staying put.

"I think they're taking a tactical move to wait and see what's going to happen over the next few months, and what the impact of the earlier rate hikes will be," he told Reuters.

Even with today's pause, though, analysts expect the central bank will soon resume its series of rate rises as the economy recovers from last year's trough.

But the market is now pricing in a more-bearable rise of 77 basis points by this time next year. Before today's announcement, 103 basis points, just over a percentage point, was the expectation.

RBA governor Glenn Stevens cited the recent extra rate increases tacked on by commercial banks as a reason for leaving rates on hold this month.
"Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point,'' Mr Stevens in a statement accompanying the rates decision. "Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.''

Read the RBA's statement here

In December, three of the big four banks raised their variable lending rates by 35-45 basis points, more than the RBA's 25-point increase. NAB was the only one of the big four to match the RBA's increase.

The federal government welcomed the Reserve Bank’s decision to leave rates unchanged. "Today’s decision means a family with a $300,000 mortgage are still paying around $600 less than they were paying 18 months ago," Treasurer Wayne Swan told parliament.

Temporary pause

Still, Mr Stevens made it clear that he expects further rate increases to come.

"Interest rates to most borrowers nonetheless remain lower than average,'' he said. "If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.''

Warren Hogan, head of Australian economics at ANZ, said the pause is likely to be temporary.

"I don't think this fundamentally changes the outlook for interest rates, which is for them to move higher,'' Mr Hogan told Reuters. "We still think they'll get to 4.75 (per cent by the end of the year). I think they'll go (for an increase) next month.''

Global view

Mr Stevens was generally upbeat about the economy's prospects, noting conditions ''have been stronger than expected, after a mild downturn a year ago.''

While the effects of government cash handouts ''have now faded,'' household finances are being supported by a recovery in the jobs market and net worth, he said.

Shoring up growth in the economy are public spending on infrastructure, investment in the resources sector and an upturn in housing construction, the RBA said.

Significantly, Mr Steven said ''inflation is expected to be consistent with the target in 2010,'' with a strong dollar among the factors helping to keep a lid on prices.

At home, the general picture remains positive, although ''credit conditions remain difficult for many smaller businesses,'' he said.
Abroad, the picture is more mixed, with the pace of expansion likely to be ''modest'' in many economies as they repair damage from the global financial crisis.

In Asia, home to many of Australia's major export markets, the recovery has been much quicker. Indeed, China is now looking to reduce the level of its stimulus, Mr Stevens noted.

Australia was the only rich economy to avoid shrinking last year, with more than 135,000 jobs added in the final four months of last year. House prices - an issue that the RBA watches closely - are also accelerating, with national costs jumping 5.2 per cent in the final three months of 2009, the fastest pace since 2003.

Still, not all the readings are bullish, including today's NAB monthly business survey which showed a drop in confidence. ANZ survey of job advertisements, out yesterday, also reported a drop last month.

The buck really does stop with you

Sun, 28 Feb 2010 07:36:00 GMT

One of the most important things when deciding to increase your financial situation is to take control of your financial affairs. By this, we don’t mean you have to do everything yourself: we mean you need to take responsibility for every decision you take.

Many people these days go through life without accepting responsibility for their actions, let alone for their lives. They lead second-hand lives to the full.

One of the easiest ways to change this is to become accountable for your decisions. If you are fully accountable for everything that you do, you will begin to experience one of the great joys of life, self-fulfilment.

Think of it this way: why do big businesses generally do so much better than private individuals when it comes to the accumulation of wealth?

No, it’s not because they have more resources available to them, and it’s not because they have a broader knowledge base. You see, those same corporate individuals are also private individuals who are also trying to lead successful lives. And the truth is most of them are also struggling at home just as you are.

What is the difference?
Accountability is one of the differences.

In the corporate world there are many layers of accountability all the way up to the very top. Even the CEO is accountable to someone, usually the Board of Directors, or shareholders. If certain tasks aren’t met or goals not achieved, then there are consequences to be faced.

Who are you accountable to? Yourself? If so, understand that this is the worst person to be accountable to because it’s easy to fool yourself’ isn’t it? It’s easy to find excuses as to why you didn’t achieve what you said you would. If the truth be known, this is probably one of the main reasons you are where you are today.

You need to get clear, that when it comes to your life, the buck stops with you. You are, after all, the one who has to live it. It’s a fact you can’t escape. If you are not happy with the way your life is turning out, then you, and only you, can change it. But be clear that personal change requires taking extreme action. This is not a balancing act – that only leads to compromise or mediocrity. Either you change or you don’t. There are no half measures. There is no middle way.

Take a few moments now to think of all the times you have wanted to change. Did you? Was the change lasting or did you soon revert back to your old ways? How did you go with your last New Years Resolution? What about all your previous broken promises and aborted attempts at personal change?
Our experience has shown that promises fail because they have no power. No-one is truly responsible for making them stick and no-one is accountable.

Experience has also taught us that in situations like this, there are always “excuses”; why things didn’t turn out as planned. People start playing the blame game big time.

Successful people are in control of their lives for a simple reason: they accept full responsibility for their lives and they are intimately accountable for their actions. They live in the Rich Matrix.

So what is the secret to moving out of the Bitch Matrix and into the Rich Matrix?

The first thing to realise is that you need to set your sights on Metanoia, Which we define as a powerful, life changing experience; a point of departure from the old to the new. This involves a complete change: you need to change yourself, not just your behaviour.

Dave Dorian
Take the challenge

First home buyers the big winners

Sun, 06 Dec 2009 01:05:00 GMT

The economic downturn may be bad news for most of us but there is some good news to come out of this.

As part of a plan to help stimulate the local economy, the Federal Government has increased the amount of money it is giving to help people buy their first home. This is indeed great news, especially as it has come at a time when the cost of breaking into the home ownership market has soared to unprecedented levels.

The really good news is that the grant for buyers of new homes has increased by $14,000. This means if you are in the market for a brand new home – one that has just been built – you could be eligible for a grant of $21,000.

But it's not just buyers of new homes who score; buyers of established homes will now get $14,000, which is double what the old first homes buyers grant was.

The new grants are already effective and apply to all contracts entered into by 30^th June 2009.

I am often asked what types of homes qualify for the grant? Well, the home must be a fixed dwelling that meets local planning standards. This includes new or established dwellings such as a house, flat, unit, townhouse or apartment located anywhere in Australia. This means that houseboats or mobile homes are not eligible. Furthermore, the you must use the home as your principal place of residence for a continuous period of at least six months commencing within 12 months of the date of settlement in the case of an established home, or for a new home, 12 months from the date the building is ready for occupancy.

The best way to apply for the loan is through your estate agent at the time of purchase or through your solicitor or financial institution.

But what if you have already purchased your new property and forgot to apply? The good news is that you can apply retrospectively, but your application must be made within a period ending 12 months after the completion of the transaction, being settlement date or building completion date. However, this does not apply for the new, increased grants, which only came into effect when Prime Minister Rudd made the announcement.

So if you have never owned your own home before and are keen to realise the great Australian dream, now may be the perfect time. You will also be doing heaps to ensure this important sector of our economy keeps performing as it needs to for the greater benefit of us all.

Until next time, take the challenge.

Dave Dorian

Real Estate Investing...Interesting times

Sun, 06 Dec 2009 01:09:00 GMT

We are certainly living in interesting times. In fact, I am certain that many real estate investors have not lived through times like these before.

World economies continue their roller coaster ride leaving investors shell shocked, battered and bruised. Many wonder what to do next. What interests me is that we all know that markets go in cycles and this just happens to be a down one. OK, it is a very down one, but the fact remains that what goes down must at some stage come back up again.

Now is not the time to panic. In fact, I believe that every cloud has a silver lining and in the property market, if you do your research properly, you will still find great deals. But you must do thorough research.

So how have the various real estate markets been holding up?

Sales in the Sydney marketplace have generally been lower than normal, although high cash flow properties remain generally positive. Rental rates remain tight, which is good news for investors.

The ANZ report highlights the fact that housing supply in Australia remains tight, and with the slow down of new constructions, the situation looks set to worsen.

The Adelaide market has also experienced the affects of the downturn and we can expect there to be continued downward pressure on values in that marketplace.

In Brisbane, prices too have come off the boil. On the Gold Coast, it is once more a buyer's market. The rental sector is still performing well, however. The prestige unit market has taken a hard knock with demand well down.

In Tasmania, the Hobart top end of the market has been extremely slow. Darwin's affordable market appears to be the one holding up well and going against the national trend. How long will this last, I wonder?

Things in Perth are no better than the national average. Reports indicate that there is an oversupply of properties on the market there at present. The rental market in Melbourne remains strong with returns averaging around 4.1%.

Knowing that markets always return to positive territory sooner or later, is this the time to increase your portfolio? Interesting question, isn't it?

Until next time ...

Walk softly,

Dave Dorian

Another interest rate cut...Reserve Bank cuts interest rates by 75 basis points

Sun, 06 Dec 2009 01:05:00 GMT

The Board of the Reserve Bank of Australia has decided to reduce the cash rate by 75 basis points to 5.25 per cent, effective 5 November 2008.

This is good news for real estate investors as it makes the cost of ownership that much more affordable.

Now we all know that the lowering of interest rates usually means money or finance is cheaper to come by, but what makes the Reserve Bank take a decision to lower rates?

According to the Reserve Bank, the overall path of economic activity in Australia appears until recently to have been close to what the Board had expected, with a needed moderation in demand occurring after a period of earlier strength. In a media release they said that recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence. On balance, it appears likely that spending and activity will be weaker than earlier expected, they said.

So if they are forcasting spending to be weaker, they would be keen to stimulate spending as this would be good for the economy in general. This too, appears to be the thinking behind the Government's recent stimulus package. They want people to spend as it is in the country's interest to have a vibrant retail sector. The circulation of money through the system is what keeps the country ticking over.

Of course, the banks play an important role in this as they are at the centre of this flow path of money. They are in business to make money too; that is why they do not necessarily pass on the full extent of rate cuts announced by the Reserve Bank. They make money by lending to people like you and me. They need to lend to stay in business because it is through lending that they earn interest.

Bank managers tend to get evaluated on the value of the loans they write. This is one reason why, I think, that they love serious, well-educated real estate investors. It could be said that we play a vital role in ensuring the economy continues to function. Without real estate investors, countless thousands of people would have nowhere to live. They would be reliant on the Government to look after their housing needs. By paying rent, tenants insert money into the economy. This money flows through real estate agents to the owners of the property, to be spent on upkeep, maintenance, improvements, repayment of bank loans, investments, etc. One rental payment kicks off a whole string of events that go towards ensuring our economy continues to flourish. We all really do play an important part in the overall well being of our nation.

Until next time, take the challenge.

Dave Dorian