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Showing posts with label selling real estate. Show all posts
Showing posts with label selling real estate. Show all posts
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What to Consider before Buying Investment Rental Property
A Rental property can be an excellent way to bring in additional income as well as invest in an asset that is actually tangible; however, investing in real estate does involve more than just purchasing a property and watching the money roll in.
Many people believe that the biggest hurdle they may face is obtaining the loan; however, this may be easier than they actually think. It is other issues which you may face along the way which should be considered before you actually take the step of purchasing an investment property
First, always make sure you take the time to know exactly what you can afford. Many people make the mistake of overlooking this step, assuming that the rent alone will cover the mortgage payments and other associated costs.
If you rely solely on rental income and there is a change in the market conditions , you could find yourself in financial trouble later on. In addition, you need to give some thought and consideration to the type of property that will best suit you. You can find rental properties in many different sizes as well as types. Each of these different types can pull in different rental rates as well as attract different types of renters. So, giving thought to the property that best suits you is really an important step which should not be overlooked.
For example, if you purchase a property that is near a college or university you are likely going to find that most, if not all, of your tenants are college students. While you may never have a vacancy, you may also find that you have a continual turnover, problems collecting rent and even possible damage to the property itself.
You should always research rental properties just as you would any investment with the large amount of money involved. If you do not have the experience, the expertise or the inclination to do this yourself talk to an expert.
Not only do you need to understand the going rates for similar properties you need to decide why you are investing and what type of property best suits your budget, risk analysis and the objectives you set out to achieve
To research yourself check the areas local newspaper for information on going rental rates as well as the internet. The internet is predominantly dominated with Real Estate Agent or Broker advertisements which may not provide a true indication of the actually going rate. A desperate private landlord will drop their price and advertise this usually well before anAgent or Real Estate Broker would do.
Another major consideration is that you will need cash flow to take into consideration expenses which may come up along the way. Ideally, you should have a reserve fund or cash buffer established to tide you over in the event you experience emergency expenses or your property is vacant for a period of time.
Before you commit to purchasing a property, make sure that you obtain some sound advice. This doesn’t mean an Uncle or a mate who knows a cousin who’s Aunty has 30 properties. It is important you take information from an experienced advisor not emotionally or financially involved in the transaction. Making a mistake and purchasing the wrong property can be catastrophic to your financial well being. Don’t allow the sake of a few hundred dollars or so stop you from obtaining independent advice.
In addition, you should make sure you understand your responsibilities as a landlord. Keep in mind that your obligations are typically regulated by the statute laws or legislation in the area which the property is located.
Some states have very little regulation while other states are highly regulated.
If you fail to follow state regulations you could find yourself in for quite a bit of financial as well as legal trouble. It is always best to educate yourself ahead of time.
Finally, make sure you consider how much insurance you will need to not only property the property in the event of damage or destruction but also to cover all liabilities as well. One liability claim can be enough to cause serious repercussions so this is not an issue where you want to take a short-cut. Remember that it is your responsibility as the landlord to provide liability insurance, not your tenant. If someone should slip and fall on your rental property then it will be you who is responsible, not the renter.
Rental investment property truly can be an excellent investment and long term wealth builder provided that you are prepared and understand what you should expect from the outset.
Do not be afraid to seek help where you need it, especially from associations and from professionals such as attorneys. This is the hallmark that can often set a successful rental property investor apart from one who fails.
When they were first introduced banner ads literally became a rage. Everyone wanted to click on those colorful, flashy ads. One could throw in a couple of cool looking banners in a website and voila, there you have clicks and tons of money generated through them.
The more appealing the banners, the more was the surety of clicks. Apart from being an excellent alternative to television advertising, banner ads also provided an enhanced visual appeal to the website. The money that the banners generated with clicks acted like a cherry on top!
In today’s world, the things are a little different, with passage of time, people have learnt to ignore or simply pass by a banner ad. Internet users have matured since the late nineties and now they know what it does and why it is there. This phenomenon is known as banner blindness and is one of the biggest headaches faced by a webmaster or a web designer in deciding which or what banner ad to place. Unless the website visitors really need a product, they won’t click on that banner.
Conversion ratio relates to the conversion of a viewed banner to a clicked banner. I.e. the number of times a banner viewed by a visitor is actually clicked by a visitor.
The answer to these questions lies in effective selection, management and placement of a banner advertisement.
Placement – Proper usage of banner ads would still fetch money for your bank account. Well many companies are still doing it, and so can you. Initially, when the banner ad era came, banners were just available in standard sizes only. This created problems in proper placement of banner ads. To tackle this problem, there were only two possible solutions, either you place them anywhere and carry on with a haphazard looking website design or build your web design around the banner ads. Most of the professional webmasters chose the latter but because of lack of proper web design skills, many rookies were stuck with the first choice.
Size – A big change that has come since the time when banner ads first came is that back then they were usually of one common size. People grew over them and learnt to ignore them which caused banner blindness to many websites. Different sizes and shapes of banners ads were then conceptualized to tackle this problem. Research has shown that people click some banner ads more than other banner ads because of their size and shapes.
Choose Wisely – A greater variety in banner ads not only means that banner ads would become more ‘clickable’, it also means that now even rookie webmasters are able to better incorporate these banner ads into their website without compromising their web design. Now, instead of putting banner ads in common places, we can have them in headers, footers, sidebars and in-between the content also. Doing this takes the visitors by surprise and because they are not hoping to see a banner there and as such are likely to be more open to the idea of clicking on a banner advertisement.
1.Get it in writing. Have an engagement letter or services agreement to protect your
legal right to be paid fairly for services rendered.
2. Get a deposit or a retainer. This helps to reduce your overall financial exposure.
3.Get your invoices out quickly. The longer you sit on your bills, the slower you will get paid.
4. Communicate early and often. Customers tend not to pay quickly or at all when
they are dissatisfied. Reach out to them right away if there is a problem or a dispute
and talk it through. Be ready to compromise if their complaints or concerns are legitimate,
but only in exchange for prompt payment on the adjusted balance.
5. Establish budgets and target ranges. Customers hate surprises. If the bill is much
higher than expected, they might delay payment in protest.
6. Get creative. Can you include mutual incentives for prompt payment? Can you
break payments into installments? If you make it easier and more rewarding to help
them pay you, you might get paid faster.
7. Establish mutually beneficial and dynamic relationships with your customers and
clients. Customers will pay faster when they like you, appreciate your product/service
and feel as though it is a two-way street.
8. Try the carrot before the stick. If a customer pays late, don't threaten them with
litigation until you first try to work things out. A reasonable approach is less invasive
and less stressful. It can also save your business relationship.
9. Protect against the inevitable. If you know that customers or clients will pay late, then make
sure you have a line of credit or access to financing to cover cash flow gaps. Your business is
a car. You are the driver. Cash flow is the gas that makes your business go.
Choosing the right real estate agent to
sell your house can be an overwhelming prospect. Deciding to sell is a big step
in itself, and selecting the right person to take on the challenge with you can
be tough. Most consumers will meet with a few different agents before making a
decision about which person to entrust the job to, but after the agents have
done their ‘pitch’ and headed home, who do you choose?
They All seemed to make sense
Each contender was probably equally
friendly and professional, albeit overly extroverted and a little pushy as
sales people tend to be, but no matter how ‘nice’, ultimately you know that
they’re trying to sell you something - themselves! - which can make it
difficult to trust your gut.
Do you pick the down-to-earth agent with
the realistic price and fair, reasoned approach? Should you pick the one with
the lowest commission fees, or instead choose the agent who promised to get you
your asking price? Maybe you should take a leap of faith with the guy who
promised to sell for more, even though he could be too good to be true.
Head or Heart
Whether the agent is pitching their
years of experience, promising to get you exactly the price you’re asking for,
or ‘buying the listing’ by offering more than they expect to get in the
long-run, sometimes you have to ask yourself “can I trust my instincts?”
especially when it comes to hiring a master salesperson.
It helps to arm yourself with as much
information as possible, and there’s plenty of it out there once you know what
you’re looking for, but even if you know everything you need to know about the
market, it’s ultimately the agent’s experience and attitude that will play the
biggest role in determining the outcome of your sale.
Most Salespeople are hard-working
There are many dedicated, hard-working,
ethical and compassionate people working in the industry, that’s for sure, but
there is also no doubt that real estate agents have a reputation for
insincerity. In an industry motivated largely by commissions it’s easy to
understand why. One particularly surprising thing about the commission
structure of the industry is that although it feels like something that will
work in your favour, in actual fact, that isn't always the case.
According to Steven Levitt and Stephen
Lubner, authors of Freakonomics (www.freakonomics.com) it is actually more profitable for an estate
agent to sell your house sooner, for less money, than to hold out for a higher
price.
It’s counter intuitive, but the math holds out; if your agent gets a 3%
commission on your $300,000 home they will walk away with a $9000 cheque in
their hand.
But 3% of $310,000 is only an additional $300, so if the higher
offer takes an additional 14 days to come through, that’s only an extra $21.50
each day for the agent. While holding out would work out to be an almost
$10,000 benefit to the seller, the agent is actually better off selling the
house for the lower bid rather than investing any more of their time.
Maybe an Independent 3rd Party
That’s just one of the reasons why
savvy consumers are seeking out an objective third party who can help them make
a clear headed decision about their choices. Getting an independent property
appraisal from a property coach who will make no money from the transaction is
the best way to guarantee yourself an honest opinion about the state of your
property and what to expect over the course of the sale.
A property coach isn’t an agent, and
doesn’t sell property or arrange financing, but with years of experience in all
types of property transactions they know the best in the business who do, and
can offer you invaluable, unbiased, independent advice about every aspect of
the selling process.
Taking the time to talk to a property
coach could save you a small fortune, not to mention help you make the best
decision when it comes to choosing an agent.
Rent to own agreements have been given a bad reputation.
A few bad landlords who got desperate people to agree to shady transactions made rent to own agreements look like dodgy real estate transactions.
Today, however, with a shift in the lending market, and the challenging financial climate, rent to own agreements, also called lease options or lease purchase agreements, are returning as a mainstream home buying option.
Rent to own got a bad name for a variety of reasons.
Perhaps first and foremost, these agreements were only entered into by those with extremely poor credit. As a result, they generally ended poorly, with the transfer of property from one owner to another not being completed, but instead with an enormous amount of hassle for everyone involved. Today however, demographics with fair credit have looked to owner financing as a feasible alternative credit option. Both buyers and sellers have experienced significant benefits from these agreements.
The global economy and changes in lending policy in Australia, the United States, and Europe have forever altered many families' ability to get a mortgage. Those who have even small blemishes on their credit history, who have other large loans, or who are self employed may find it especially hard to acquire traditional home financing.
People are transferring from city to city searching for gainful employment, and lower cost of living. Those who wish to accrue interest in a property, who are not interested in renting, but are also not prepared to take out a mortgage with a traditional lender, are increasingly looking at homes with a rent to own option.
With housing prices near their all time high, one of the greatest struggles for those interested in home ownership is saving up a down payment. Banks require a minimum of five or ten percent, and as much as 20 percent down at the time of purchase. Saving this large a sum can limit most families' ability to buy for years.
With rent to buy options, there is no down payment required. Instead, renters agree to a rental period of one to two years, with the option to purchase the home at the agreed upon price at the end of the lease period. Then, each month, a portion of the rent is deducted from the agreed upon purchase price.
With Rent to Buy you basically agree to rent the property for an agreed period, usually 1 -2 years with an option to purchase the property for a price agreed upon today. Usually the seller will ask for an option fee that is taken off the purchase price if you proceed to purchase the property. Further a portion of the rent is usually also credited off the price of the property. These credits can then take the place of a traditional down payment when the buyer is in a position to take out a traditional mortgage on the property.
Generally, those who engage in a lease to purchase agreement get all the benefits of home ownership from the day they sign the lease, but understand that they will not truly own the property, or that the title will not transfer into their name, until they get a traditional mortgage for the purchase balance from a bank, or pay off the agreed purchase price in full.
Rent to own purchase options are a serious transaction, and should be entered into with sincerity. Talk to a lawyer when setting up a lease option to ensure that it is legally binding and written in a manner that is fair to both parties
The Effects of the Upcoming Election on Interest Rates
Prime Minister Julia Gillard caught both the financial and political community by surprise by calling for elections on 14 September 2013. Many analysts believe that the reason underlying her announcement is the increased criticism her minority Labor government faces about their abandonment of the pledge to deliver a budget surplus in 2013.
When Treasurer Wayne Swan initially presented the 2013 budget in July 2012, it included a forecast of $1.5 billion. In October, he announced the surplus would only be $1 billion. Unfortunately, this trend has continued and the now a $10 billion deficit is forecast for 2013. While Paul Bloxham of HBSC Australia sees this is a significant improvement over the 2012 deficit of $44 billion, those in the opposition parties have not been as generous in their assessment.
How Labor Got It Wrong
Much of the Labor budget depends upon generating revenue from taxes on the mining industry. As China's economy has begun to cool somewhat, the demand for raw materials has dropped, especially for iron ore. As a result, investors are pulling back from the mining industry, which was spurred by announcements by Rio Pinto and BHP Billiton of their plans to slow expansion and cut jobs. This slowdown in the mining industry has revealed the flaws in Labor's scheme to rely on taxes from the mining industry.
Both Parties have lost the electorates trust in the past
The Liberal Alternative The opposition Liberal party advocates for cuts in government spending to close the budget deficit in a manner similar to the austerity schemes of the governments in Europe and the UK. Given that the Australian economic growth has slowed to about 3 per cent and unemployment as risen to 5.5 per cent, which is the highest it has been in the past three years, the wisdom of government spending cuts has been brought into question. In October 2012, the chief economist of the International Monetary Fund (IMF), Olivier Blanchard, discussed his observation that the austerity measures enacted in the European Union have done more harm than good by choking economic recoveries by withdrawing the lifeblood of government stimulus spending that makes up for reduced consumer demand.
RBA Interest Rate Trends The Reserve Bank of Australia's interest reduction cycle seems to support the viewpoint that the Australian economy needs some stimulus in order to stimulate continued economic growth. With its 0.25-point cut of interest rates to 2 per cent in December 2012, the rates have reached lows not seen since the 2008 Global Financial Crisis. While the global economy has shown some optimistic signs of late, Westpac's Bill Evens does not think they are sufficient to support growth in demand.
Bottom Line: Interest Rates and the Elections
The forecasts from analysts for the election and interest rates are as different as the parties themselves. Norma Martin Whetton, an interest rate strategist, thinks that a lengthy election campaign will put a damper on consumer confidence. Normally interest rate drops favour the incumbent, but if the RBA drops interest rates as a result of the slow growth and high unemployment, the advantage goes to the opposition. ANZ's Andrew Salter thinks that the call for early elections suggests a change in government, and this will affect the interests rates as business investment planners make their assessments of how austerity measures will affect the overall economy. Overall, investors can expect to see broad swings in interest rates during the next several months in reaction to the developments in the election campaigns
News for the Australian Property Market raises concerns
as China announces a new energy conserving policy that will cut demand of coal dramatically
after 2015.
Speaking about the Chinese Government Energy Conservation
plan Mr Jiang Kejun, as spokesperson for the Chinese Government told the media ''Coal
consumption will peak below 4 billion tonnes,'' by 2015.
Over last 12 years demand for coal from china has
increased 2.4 billion tonnes, or 163 per cent, the news from China makes it
clear that future demand will a return to much more moderate levels.
Commenting on the news, Mr Antonio Santolo, CEO of The Property
Advocacy Group of Australia and founder of the popular free advocacy website
mypropertycoach.com.au states “that this news will send shock waves throughout
our mining regions” indicating a lot of smaller players and start up projects will struggle to find demand for their
product at a price that will make it viable to dig the stuff out of the ground”
Santolo further explains how there is already strong evidence of a more
balanced property market in the regions, “the money was made in these areas
over the last 5 or so years, the people that had the foresight or the luck to
hold property at that time done very well, however like any Real Estate
purchase the profit is in the buying, so everyone that saw the rise and jumped
on the band wagon most likely brought at prices that were not fundamentally
sustainable. This is going to leave a lot of people in financial stress if
markets start returning to the more sustainable areas”
Santolo predicts a large decrease in demand for long term
Rental accommodation with a shift to portable accommodation in regional areas
over the next 2 -5 years with miners looking for a flexible workforce, Santolo
explains “When guys like Gerry Harvey are getting involved in temporary mining accommodation
units there is a reason why, They obviously feel the money is to be made in
supplying the accommodation as a business and are not relying on the local
market to dictate prices”
Santolo recommends anyone who is holding property as an
investment in these areas needs to speak to an independent advisor now, “like
any problem, tackling it head on will make the outcome a lot better that
sticking your head in the sand”
was founded to revolutionise the property industry by helping everyday Australians realise their dreams of wealth through property investment.
What makes us unique is the fact that we provide 100% unbiased professional property advice.
Every client is assured that our primary focus is on their needs and helping them find effective solutions to their property investment questions and concerns.
Visit mypropertycoach.com.au for more details on how mypropertycoach.com.au can teach you how to build Wealth through Property.
Australia's Latest Growth Industry: Personal Service Coaching
As life becomes increasingly complicated in a world with tough economic conditions most people experience an increased amount of stress in some form.
People who want to perform better at their jobs and improve their quality of life are employing personal lifestyle and business coaches.
Personal service coaches establish a dynamic and highly interactive relationship with their clients to work toward solving the broad range of life and work-related issues that might impede the client's success.
Recession Proof
When coaching first gained a foothold in the early 2000s, analysts questioned whether the concept would remain viable in the long-term, or if it was just a vanity service that people would view as expendable in periods of economic contraction.
This question was answered during the 2008 Global Economic Crisis when people and businesses not only chose to continuing working with their coaches, but business leaders and other individuals who had not previously used coaches also opted to try this service to improve their productivity and competitive edge in both life and business. As a result, personal service coaching not only remained stable during the economic downturn, but also grew as an industry as more forward thinking individuals and businesses used these services to gain a competitive edge.
Coaching Today
Today, personal service coaching in Australia is the second fasted growing industry after the Information Technology sector.
Lifestyle and business coaching generate roughly $ 2 billion in revenue on an annual basis.
The outlook for this high growth industry remains strong, as both individuals and business find that they receive as much as a 50:1 return on their investment. (ie. $50 return for every $1 spent on coaches / mentors)
Individuals find they are able to find new career opportunities more quickly than they were able to before they worked with a coach. Additionally, they find that they are happier, less stressed, make better decisions, and have more fulfilling personal and business relationships than they did before they hired a personal service coach.
Business leaders, entrepreneurs, and small business owners find that they are able to recruit better talent, have less employee turnover, and are able to develop and execute more effective and innovative strategic plans when they work with a business coach.
Lifestyle and Business Coaching
According to the International Coaching Federation, professional lifestyle and business coaches offer a unique service that focuses on working with a client to establish goals, creating desired outcomes, and implementing strategies to manage and enhance the personal change the person has achieved.
According to the Worldwide Association of Business Coaches, the process of lifestyle and business coaching entails the following steps:
1. Initial Meetings
During this first meeting, the coach will meet with the client to determine the client's goals, to determine what obstacles prevent the client from achieving these aspuirations, to define the roles of the coach and client, andto make clear the responsibilities of each person in this dynamic relationship. During these first two initial meetings, the coach works to establish trust and an atmosphere of safety and both coach and client make a mutual commitment to honesty. These sessions also involve the coach offering support as well as high value feedback. Additionally, the coach might start to challenge the client about negative habits and patterns of thinking that can impede the client's progress toward desired goals.
At the end of this step, a formal contract is presented to the client that defines the coaching process, the role of the coach and the client, and the responsibilities of each party. Additionally, the client and coach will also sign a separate confidentiality agreement.
2. Compiling Information and Debriefing
People live in a variety of complex systems. Together, the coach and client will work to assess and define each system in which the client operates on a regular basis. For lifestyle coaches, this might entail exploring the client's relationships with a significant other, family, friends, and colleagues, as well as how the client handles his or her career and personal finances. For business coaches, this might entail reviewing the structure, vision, and mission of the business in which the client is involved, the client's personnel file, as well as other documentation that can provide insight into the person's business environment and the manner in which the client functions in this climate.
With the permission of the client, the coach might gather information from people with whom the client interacts. The coach will directly observe the client in a variety of contexts. This will provide the coach with insight into the manner in which the client handles a number of situations so that the coach can develop strategies.
Additionally, the coach might employ a variety of assessment tools to provide further insight into the person's thoughts and behaviours that affect their daily performance.
3. Feedback
The coach will provide their client with the coach's impressions about the way in which the client performed in each situation the coach observed.
4. Planning and Coaching
Based upon the client's baseline level of functioning, the coach and client can develop goals and benchmarks along with strategies to help the client can use to overcome the challenges they face in achieving these goals. The interventions and strategies are experiential actions that take place in real world situations.
5. Reassessment
At a time specified in the coaching agreement, the client and coach will revisit the initial assessment to evaluate the progress that has been made during the months of active coaching. Based upon this assessment, the client and coach can determine what goals the client has achieved, the need for additional goals and benchmarks, and means to reinforce the positive changes that the client has made.
6. Final Assessment
At the end of the coaching services, the coach and client will meet to evaluate the progress that has been made by the client. The coach will point of how the behavioural change the client has made has improved his quality of life or his or her performance in the business world. Prior to this meeting, with the permission of the client, the coach might re-interview the people whom he or she initially interviewed to determine the impressions of significant others in the client life about the changes the client has made. The coach and client will develop a plan that the client can use for continued change and growth.
Since personal service coaching is involves intensive individualised investment of a considerable amount of time, it is easy to how both individuals and businesses can spend thousands of dollars on personal service coaching. Fortunately, this coaching service is tax deductible so that those who invest in coaching haveanother source of investment deduction.
Demographics
Those who opt to use lifestyle and business coaches tend to be people who have already achieved a certain degree of success in their life and business ventures and who want to achieve the next level of achievement. They tend to be self-motivated professionals in their 30s to 50s who are in the upper middle class to upper class socio-economic groups. Some examples of people who opt for lifestyle and business personal serving coaching include Chief Executive Officers and directors of major corporations, entrepreneurs, and those who achieved a high level of success in their business life who want to find the same level of fulfillment in other areas of their lives. According to the Chartered Institute for Personnel and Development, large corporations have started to employ business coaches for their front line employees in order to increase productivity and decrease turnover.
The Benefits of Lifestyle and Business Coaching
Some of the benefits of lifestyle and business include the following
* Help establish and implement strategies to overcome barriers in both personal and business situation
* Rejuvenate both personal and business growth
* Build interpersonal confidence and competencies
* Learn new skills and refine old ones
The Future of Lifestyle and Business Coaching
Just as personal athletic trainers started as independent contractors who then found that in order to meet demand, they needed to join forces and open gyms that later turned into franchises, the future of personal service coaching appears to be moving in the same direction. Think of how Gold' Gym in the United States that started as a small neighbourhood gym for weight builders transformed into a national franchise of gyms that cater to the fitness needs of casual fitness enthusiasts as well as those who are training for competition.
Rationalisation
Currently, the lifestyle and fitness coaching industry is highly fragmented as most coaches offer their services as independent contractors. In order to meet demand, personal lifestyle coaches will start to join forces and those who are most effective will begin to start franchises. As these initial start-ups gain a foothold, the industry is forecasted to evolve into multi-service franchise organisations offering personal service coaching services under a single corporation. As corporations become established and the lifestyle franchises gain brand recognition with the public, it will be much more difficult for independent lifestyle coaches and small groups of coaches to remain viable or to transform their business into a franchise. The reason for this difficulty is it will be much more difficult for new franchises to gain the brand recognition and clientele, as they will be competing against a known established brand.
For venture capitalists and investors, lifestyle coaching franchises offer the opportunity to get in on the ground floor of a new industry with solid long-term growth potential
Meet The Aurthor
Antonio Santolo is the founder and CEO of My Property Coach, a professional real estate coaching company that provides honest and reliable property investment advice. He has more than 20 years of experience in all areas of the real estate market, and provides expert property coaching advice to clients interested in property investment. Santolo specializes in both residential and commercial property, and helps his clients invest properly in real estate to maximize their investment potential. His years of experience in both investment strategies and real estate have provided him with the leadership skills and knowledge necessary to coach others on how to realize their own financial freedom through strategic property investments. Santolo also shares his real estate expertise as a freelance property author, and has experience in property case conflict, arbitration and resolution
Impact of Global Crisis now being felt in Australian Property
Australia has weathered the recent global financial crisis
better than most countries. Thanks to a more stringent set of banking laws, it
did not experience the same sub-prime issues that other nations did. As
a result it had one of the strongest economies in the world after the crisis
began. However, the average Australian has seen relatively little benefit from
this, due to a quickly rising cost of living. In a relatively short period of
time, Australia has become more expensive to live in than almost any other country.
Living in Australian cities is now less affordable than even New York, London,
or Singapore are. This is having a significant negative impact on many first
time home buyers.
The Rising Cost of Living in Australia
Sydney is
now the sixth most expensive city to live in out of all the countries in the
world. Even though the Australian dollar has nearly doubled in value relative
to the US dollar between 2002 and 2011, the purchasing power of the average
Australian has not increased at all. The price of imported goods has not been
significantly reduced as a result. Over this same period, the Consumer Price
Index rose by a whopping 28 percent. The average Australian home owner spends
45 percent of his or her income after taxes just in paying off debts. One in
five first time Australian home owners spends more than half of his or her
income paying off debt. This is a significantly higher level of debt than that
carried by citizens of most other developed countries. The citizens of the
United States, the United Kingdom, Canada, Ireland, India, and Mexico had an
average of 38 percent of their income spent on debt.
The Rising Cost of Housing in Australia
In
the 1980, an average house cost three times the median family income, which is
considered to be an affordable level. Today, the average house costs nine times
the median family income, which is not very affordable. Interest rates have
been rising as well, making mortgage payments higher and more difficult to
meet. Mortgage payments now account for over 27 percent of the total household
income. As of 2010, more than 40 percent of all first time home buyers were
having some degree of difficulty paying their mortgages. In other words,
housing costs are skyrocketing at the same time that it is becoming more
difficult for Australians to purchase food, fuel, and all of the other
necessities of living. This is counterintuitive, as Australia's abundance of
land should mean that housing prices are amongst the lowest in the world. Nor is
the government able to do much to ameliorate this situation. There is very
little public housing available, the government only provides 1.4 percent of
Australia's total housing property, and isloathto build
large amounts of additional housing for fear of negatively impacting existing
house prices and causing economic instability.
The Effect on First Time Home Buyers
This has radically changed the
home buying landscape in Australia. In the 1970s, the average age of a first
time home buyer was 25. Today, it is 31. Many young people are now finding home
ownership to be entirely out of reach, and are having to settle for either
renting, or continuing to live with their parents. In a recent survey of
members of the youngest generation, Generation Y, one out of three respondents
replied that they did not believe that they would ever be able to afford a home
of their own when asked. Generation Y may be shaping up to become the first
"homeless generation." This kind of radical change in living patterns
would have repercussions across almost every facet of Australian life.
Home Ownership and Dynastic Wealth
This
pessimistic housing outlook may spur some "Mum and Dad investors"
into thinking that they should play it safe, and wait to see how the global
financial crisis plays out before making a move. This kind of fear can be the
wrong reaction, though. Many of the biggest fortunes were made during
recessions and even during depressions, and the perennial wisdom that
"there is security in land" is as true as ever. Now is the time for
Mum and Dad investors to buy a home because no matter what happens with the
economy, that home offers significant long term profit of one kind or another.
With prices and interest rates going up, it is better to buy a home sooner
rather than later. If the economy rebounds after the recession in the same way
that it has tended to historically, then this home will have been a good
investment financially. Even if the economy does not rebound, then parental
investors will still have gained in another important way. They'll have created
dynastic wealth, something that will be passed on to theirchildren and their childrens
children
Mum and Dad investors putting
their money into buying a home are helping subsequent generations to have a
better standard of living, a substantial investment in the family's future. As
with many economic downturns in the past, the present situation presents an
opportunity for those who look toward the long term when assessing their
investment opportunities.
From The Author
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