Buying a House

[Pag]

And just as I say that, we go out last weekend and find one we fell in love with, and by Tuesday night, it has become ours!!! (subject to building inspection of course)

Paying $5000 more than the first one we tried to get, and the house itself isn't as new and modern, but we have everything we wanted, and in a better location, one that we think will be excellent value for a long, long time.

Thanks for all the info and help guys! Can put up a link to it once it says 'Under Contract'.

Just remember, a Building Inspection is different to a Timber Pest Inspection (termites)- you should get both done.

Yeah we've managed to get both for $525.

[Punk Rooster]

And just as I say that, we go out last weekend and find one we fell in love with, and by Tuesday night, it has become ours!!! (subject to building inspection of course)

Paying $5000 more than the first one we tried to get, and the house itself isn't as new and modern, but we have everything we wanted, and in a better location, one that we think will be excellent value for a long, long time.

Thanks for all the info and help guys! Can put up a link to it once it says 'Under Contract'.

Just remember, a Building Inspection is different to a Timber Pest Inspection (termites)- you should get both done.

I believe some do that as part of the building inspections.
Still good point though!

Congrats Pag!

& a few of them end up on Today Tonight...

There is a difference between a Licensed, experienced Pest Manager doing a Timber Pest Inspection, & a Building Inspector saying "she's right mate..."
You do get what you pay for in this area, & the cost is often relative to the level of service.
I process these Timber Pest Inspection Reports, & email them to the client by close of business on the day of the Inspection.
Colour photo's are attached as supporting evidence, & the Report can be generally between 10-14 pages.

That's not to say you didn't receive a competent assessment, just that there are unfortunately some who will offer the service to grab & few extra bucks, without providing anything of value.
When people ask us to do a Building Inspection, I always decline, saying that we're licensed Pest Managers- not licensed Builders.

[mighty_tiger_79]

we got both done and well worth it




well so far so good it hasnt collapsed yet!!

[Q.]

Interesting article on Crikey (I'll post here in full because it's viewing is limited to subscribers):

The house bubble is popping, even the AFR agrees
by Adam Schwab

It seems to be cool to be a bear. For the contrarians among us, that in itself is a concern. However, for once, we will side the majority view, heck, even The Australian Financial Review appears to have taken an entirely somber view about the Australian residential property sector.

Robert Harley, writing the influential Chanticleer column (Tony Boyd is on leave), yesterday stated “nearly every housing indicator in the country is pointing down. New housing finance is 30% below the first home frenzy of 2009. Housing sales have dropped, with leading Ray White Real Estate recording a 16% decline in the value of houses last month…at the same time, the number of houses and apartments for sale has soared.”

Boyd then pointed out the first link in the vicious cycle of a bursting bubble: “Price growth has evaporated. In Brisbane and Perth, prices are in decline. On the Gold Coast, the Sunshine Coast and Cairns, the decline has turned into a rout.”

Today, Ben Hurley in the AFR noted “Australia’s wealthiest investors have lost interest in residential property, speaking a sell-down that could keep property markets weak for years to come”.

The problem with a bubble is that the price of an asset class becomes separated from their intrinsic value. The intrinsic value is loosely the value of an asset which gives it a commensurate cash return to compensate for the relative risk of holding that asset. Currently, the net return (after all expenses) on residential property is around 2%. That may be a good return if the “risk free” rate (a good proxy of which is government bonds) is zero. Currently, the risk-free rate is around 5% — more than double net rental yields. Property returns are even worse when you consider the substantial entry and exit fees (often around 10% of the price).

That means, a risky asset like property (which can go down in price as well as rise) is yielding less than an asset which is guaranteed by all taxpayers.

The reason for the low returns on property is due to people (investors and owner occupiers) bidding up the price of property. This is common in a bubble. Be it tulips, or stamps, or technology companies or commodities. There are few things more infuriating than to see someone else get rich (or appear to be rich). This causes people to make decisions based on emotion, rather than logic.

As property prices increased in the late 1990s and early 2000s, people saw their neighbours getting rich. This encouraged them to pay more for property. This caused property prices to rise further (aided by inequitable government policies like negative gearing, CGT discounts and the first home owner’s grant).

As property prices rose, the yield on the asset fell. But that didn’t matter, as people expected the price of the housing to continue to rise, simply because they had known nothing different. It actually began to feel like property prices simply could never fall.

But they can. And in some places, like Noosa, they already have.

The added problem with bubbles is that they are inevitably funded by debt. Debt is a particularly insidious beast — friend during good times, bitter foe during bad. While debt will magnify the returns of equity, it will also quickly wipe out that equity when prices fall. This is what happened to thousands of highly leveraged clients of Storm Financial

Australian home buyers are a very leveraged bunch. And even worse, that leverage is not evenly spread. While the CBA last year blithely attempted to appease investor concerns by noting that the “average” loan-to-valuation ratio (LVR) for its portfolio is 43%, that is grossly misrepresentative. Properties which have been owned for a longer period would tend to have a far lower LVR, as the borrower would have repaid part of their principal. For more recent loans, especially on properties bought during the bubble, the LVRs would be far higher. It is these loans and borrowers who are most at risk, or most “stressed”.

What that means is that a proportion of borrows are under severe risk of not being able to afford repayments should their circumstances change. Ruth Liew, also in yesterday’s especially bearish AFR, noted “one in 10 mortgage holders say they will not be able to make their repayments if interest rates rise by as little as a quarter of a percentage point”. Even worse, according to QBE LMI, the body that is most at risk should house prices fall dramatically, “if rates were to rise half a percentage points, nearly one in four Australians say they would be unable to pay their mortgages”.

If this were to happen, the price of property would quickly fall. And those falls would actually lead to even great falls. Just like a bubble can create a faux positive feedback loop, that bubble popping causes a vicious cycle. In a downturn, rational buyers hold off purchasing a property because (a) there was virtually no hope for a capital gain and it would take a true fool to purchase an asset yielding 2% and not rising in value; and (b) buyers expect lower prices in the future, so it makes sense to hold off purchasing now, because they would get more for their money down the track.

Falling house prices inevitably leads to slower growth and higher unemployment. This then causes struggling borrowers to default on their mortgage payment and forces mortgagees to sell off the collateral, further forcing prices downwards.

The cycle continues until the point where the cash yield is substantially higher than the risk-free rate. When property yields 7% or more, then it again becomes an attractive asset and the hope of capital gains returns.

In a final sign the bubble is popping, more than 80% of first home buyers believe the property market to be overvalued. Just waiting for that last 20%…

[Mythical Creature]

Good article Quchey! I personally find it very hard to draw up an argument as to why you would invest your money into property over other asset classes.

[mick]

Good article Quchey! I personally find it very hard to draw up an argument as to why you would invest your money into property over other asset classes.

You have to live somewhere! As an investment separate from the place of residence, I suppose because it is easy to understand in comparison to the stock market or running a successful business.

[Gingernuts]

My wife and I have decided to long term lease and pump our excess cash into managed funds for the next few years. Probably re-assess in about 5 years I'd reckon. The property market at the moment is ridiculous.

Quite happy to pay rent and have significantly less stress levels (no mortgage, maintenance costs, council rates etc.).

Owning property isn't the only option, and too many young people rush into it without thinking it through IMO.

[Mythical Creature]

Good article Quchey! I personally find it very hard to draw up an argument as to why you would invest your money into property over other asset classes.

You have to live somewhere! As an investment separate from the place of residence, I suppose because it is easy to understand in comparison to the stock market or running a successful business.

Yeah sorry, i meant as an investment. Definately need somewhere to live, having said that there is always an argument that can very easily be drawn up in favour of renting over buying. But, that would take some time to type and I don't really want to go into it.

[mick]

My wife and I have decided to long term lease and pump our excess cash into managed funds for the next few years. Probably re-assess in about 5 years I'd reckon. The property market at the moment is ridiculous.

Quite happy to pay rent and have significantly less stress levels (no mortgage, maintenance costs, council rates etc.).

Owning property isn't the only option, and too many young people rush into it without thinking it through IMO.

Probably not a bad strategy at the moment, Australian property is certainly overpriced, just so long as you have sufficient funds in a few years to get back into the market. Renting has it's advantages but when you are older you don't want to be moving every 12-24 months.

[Gingernuts]

My wife and I have decided to long term lease and pump our excess cash into managed funds for the next few years. Probably re-assess in about 5 years I'd reckon. The property market at the moment is ridiculous.

Quite happy to pay rent and have significantly less stress levels (no mortgage, maintenance costs, council rates etc.).

Owning property isn't the only option, and too many young people rush into it without thinking it through IMO.

Probably not a bad strategy at the moment, Australian property is certainly overpriced, just so long as you have sufficient funds in a few years to get back into the market. Renting has it's advantages but when you are older you don't want to be moving every 12-24 months.

Yep, plan is to stay renting and put money away while we have kids (first is in the oven at the moment), and then revisit the property market when they get to school age and our income increases with the missus back at work in a decent capacity (so about 5-7 years).

We live in a rural area to, so rents aren't inflated like the city which lessens the pressure to buy even more.

[White Line Fever]

I bought so I can have dogs, do projects on house to make money, move when I'm ready, be in a position to upgrade over the years to better/dearer houses and so I can retire mortgage/rent free.

I hated renting never felt secure or like it was my castle.

[Q.]

Good article Quchey! I personally find it very hard to draw up an argument as to why you would invest your money into property over other asset classes.

You have to live somewhere! As an investment separate from the place of residence, I suppose because it is easy to understand in comparison to the stock market or running a successful business.

Yeah sorry, i meant as an investment. Definately need somewhere to live, having said that there is always an argument that can very easily be drawn up in favour of renting over buying. But, that would take some time to type and I don't really want to go into it.

Early in the topic Pseudo posted a link to a website that explains that argument in detail.

[Psyber]

I'm helping CBA's average because I own my home outright.
Because of that I am not too fussed whether prices drop off or not - I'll stay in the same parity with the general local market whatever happens.
As an investor I am more circumspect, and I have not bought other property because rental returns are poor relative to the capital involved, and I do expect a slump in property prices.

I'm not big on economic theory, but believe I can comment based on my experience..
I don't expect the big collapse that has been seen overseas, but something more like previous local slumps - for example:
1. In 1977 I bought a house in Prospect, and for the next few years it looked like selling it would mean a 10 to15% drop, but the market started to lift in early 1984 - in May 84 I got 250% of my original purchase price.
2. Another slump began in 1987, and I just got out of a commercial property in time, because I got lucky at the last minute, just before the fall became obvious.
3. By 1994-5 prices were up again but the house I sold in 1996 got only 84% of what it would have a couple of years earlier, and about 18 months later I just managed to get back my money from its replacement.

Since 1999 I've done well out of property, and again luck with the timing has been a factor.
There was a brief slump in 2003 just after I'd sold at the peak in Melbourne to return to Adelaide for 6 months and I did well going back in early 2004 because that slump was still on.
Then prices rose rapidly until late 2008 when another slump was beginning and I just managed to sell before the price drop.
I hit the auction circuit in Adelaide in January 2009 when two auctions in a row in Stirling resulted in not one bid, which shocked the local agents as it is an area where property usually sells fast..
That drop off only lasted about 8 months though.

I think that recovery was a little fast and artificial, created by intensive propagandising by agents - so I do expect another slump this year.
My guess would be about a 20% drop, and a more lasting recovery beginning in a year or so..
But overall I have done well out of property - you just need to be in a position to not sell when the slumps are on and wait until the next rise.

If I'd missed the boat in 2008 I'd have simply pulled that house off the market and stayed in it until the prices rose again.
[We had already moved out of the house at Prospect 4 months before we sold it in 1984, and just waited a bit longer to sell because we could see the rise was beginning again.]

[unknown source]

congrats pag and a great read as im trying to break into the market myself just biding my time and doing some homework along the way.. saving my ass atm so except a new thread in a few months lol

[fisho mcspaz]

This thread is great. Mr McSpaz and I have a wedding to pay for before we buy a house (as far as I'm concerned, anyway!) but I'm looking at getting one of those first homeowner bank accounts where the interest is 17% or something. Ideally, my book will sell for a lot of money in 3 years' time, enabling us to buy a property out Echunga way (about $650K on average from what I can see on realestate.com.au). More realistically, we'll be aiming at a place around Happy Valley or Old Reynella, about $300-350K with four bedrooms. I hope it happens one day.

[heater31]

This thread is great. Mr McSpaz and I have a wedding to pay for before we buy a house (as far as I'm concerned, anyway!) but I'm looking at getting one of those first homeowner bank accounts where the interest is 17% or something. Ideally, my book will sell for a lot of money in 3 years' time, enabling us to buy a property out Echunga way (about $650K on average from what I can see on realestate.com.au). More realistically, we'll be aiming at a place around Happy Valley or Old Reynella, about $300-350K with four bedrooms. I hope it happens one day.

base rate of interest is only 5% or similar. Big Pluses here are the interest is only taxed at 15% and no fees and you only have to be able to a minimum of $20 per week for 4 financial years

[fisho mcspaz]

This thread is great. Mr McSpaz and I have a wedding to pay for before we buy a house (as far as I'm concerned, anyway!) but I'm looking at getting one of those first homeowner bank accounts where the interest is 17% or something. Ideally, my book will sell for a lot of money in 3 years' time, enabling us to buy a property out Echunga way (about $650K on average from what I can see on realestate.com.au). More realistically, we'll be aiming at a place around Happy Valley or Old Reynella, about $300-350K with four bedrooms. I hope it happens one day.

base rate of interest is only 5% or similar. Big Pluses here are the interest is only taxed at 15% and no fees and you only have to be able to a minimum of $20 per week for 4 financial years

Ahhhh, OK. I need to look into it some more. We've got 3K set aside for our house currently but it's stagnating away in my express saver account making bugger-all interest.

[Bully]

build new with house and land package which i am doing very soon. Have some money saved up for a deposit and the first home buyers grant will save alot of money.

I wont IMO buy a house thats been built for many years. Why spend all this money for something thats old and broken. But thats my choice and my thoughts.

[fish]

And just as I say that, we go out last weekend and find one we fell in love with, and by Tuesday night, it has become ours!!! (subject to building inspection of course)

Paying $5000 more than the first one we tried to get, and the house itself isn't as new and modern, but we have everything we wanted, and in a better location, one that we think will be excellent value for a long, long time.

Thanks for all the info and help guys! Can put up a link to it once it says 'Under Contract'.

Bewdy - when's the housewarming?

[Mic]

What's a reasonable price for a house inspection and a pest inspection?