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  1. #101
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    Default Housing / negative gearing / politicians

    Quote Originally Posted by babyno1onboard View Post
    IMO rent is driven by demand not interest rates. Anyway, I've never made anything off NG (I've lost money) and have some friends who have lost their life savings and are in serious financial trouble from investing in property. There are people who makes heaps, but there are also those who lose heaps. It's not all roses.
    Yes demand AND supply. When interest rates go up, investment properties become less attractive, less people want to invest because the overall return is not as high. In addition, owner-occupiers who are highly geared might not be able to a service their debt anymore and might be forced to sell. The first scenario reduces the supply of rental housing, the second scenario increases the demand of rental housing. These things both happen together simultaneously. As a consequence of these (increase in demand and reduction in supply) rental prices go up.

    When interest rates go up, there are a lot of negative impacts on the economy. Business costs go up, export sales are affected, tourism is affected.. Eventually, wages go down, and the economy slows down. That is why RBA increases rates, to contract the economy and reduce inflation. When that happens, people have a harder time paying for their homes, especially if they are self employed or expecting a pay rise that doesn't come. Landlords on the other hand have the flexibility to increase rents or find new tenants willing to pay the higher rent. As long as they can ride out a short-term loss until their tenancy agreement expires. It's a grim view of the rental market but it's the truth.

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  3. #102
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    Quote Originally Posted by witherwings View Post
    Yes demand AND supply. When interest rates go up, investment properties become less attractive, less people want to invest because the overall return is not as high. In addition, owner-occupiers who are highly geared might not be able to a service their debt anymore and might be forced to sell. The first scenario reduces the supply of rental housing, the second scenario increases the demand of rental housing. These things both happen together simultaneously. As a consequence of these (increase in demand and reduction in supply) rental prices go up.

    When interest rates go up, there are a lot of negative impacts on the economy. Business costs go up, export sales are affected, tourism is affected.. Eventually, wages go down, and the economy slows down. That is why RBA increases rates, to contract the economy and reduce inflation. When that happens, people have a harder time paying for their homes, especially if they are self employed or expecting a pay rise that doesn't come. Landlords on the other hand have the flexibility to increase rents or find new tenants willing to pay the higher rent. As long as they can ride out a short-term loss until their tenancy agreement expires. It's a grim view of the rental market but it's the truth.
    When the economy turn to poo and unemployment is high where are landlord going to find these wonderful new tenants who can afford to pay extra rent? I'd love new tenants like that at my place! Send them my way!

    Rent in Perth has gone down 13% over the past 18 months, rental vacancies rates are high and house prices have dropped by about 5%. Interest rates of this time haven't changed much. Not pretty for investors that have recently entered the market.

  4. #103
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    Quote Originally Posted by babyno1onboard View Post

    Rent in Perth has gone down 13% over the past 18 months, rental vacancies rates are high and house prices have dropped by about 5%. Interest rates of this time haven't changed much. Not pretty for investors that have recently entered the market.
    Maybe the reason that vacancies are high and rents have gone down is because interest is so low, which makes more people decide to become owner-occupiers? When it's cheaper to pay mortgage than it is to rent, why would anyone rent? As for investors entering the market, you're right, it's not pretty if vacancies are high and rent has gone down. Thankfully for the ones already in the market, the holding cost of the asset is low enough that they can offer lower rent for the property. That's my point.

  5. #104
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    Quote Originally Posted by witherwings View Post
    Maybe the reason that vacancies are high and rents have gone down is because interest is so low, which makes more people decide to become owner-occupiers? When it's cheaper to pay mortgage than it is to rent, why would anyone rent? As for investors entering the market, you're right, it's not pretty if vacancies are high and rent has gone down. Thankfully for the ones already in the market, the holding cost of the asset is low enough that they can offer lower rent for the property. That's my point.
    I don't think you're getting my point. Not all investors win. There are losers. There is risk involved. And not all landlord can afford to 'ride out the bad times' because they are people and people and get made redundant / get sick / unplanned pregnancies. The economy on a grand scale works the way you describe but not on a micro level.

  6. #105
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    Quote Originally Posted by babyno1onboard View Post
    When the economy turn to poo and unemployment is high where are landlord going to find these wonderful new tenants who can afford to pay extra rent? I'd love new tenants like that at my place! Send them my way!

    Rent in Perth has gone down 13% over the past 18 months, rental vacancies rates are high and house prices have dropped by about 5%. Interest rates of this time haven't changed much. Not pretty for investors that have recently entered the market.
    But that's just the normal part of investment property ownership , people think the last 2 years is normal, it's not - property investment is very safe - long term - the majority of landlords ( the mum and dad ones) hold these properties for 20 plus years , ride out the tougher times, rate hikes, vacating tenants, maintenance , utility increases etc they don't buy and sell every 5 years and make a fortune they struggle like everyone else to pay the bills , there would only be a very small percentage of investors that regularly buy and sell , flip houses and make money as the risk ( and taxes, stamp duty, agents fees, holding costs etc are enormous ) I've sold many a house in good and bad markets as people just couldn't make the repayments and plans/life/jobs change

    Yes they may get a tax deduction but they still have to come up with the repayments and expenses every week , long term it's a brilliant investment but for most of us it's still really hard work and sacrifice to make sure we are set up for retirement , in our area there are only 7% investment properties, that's not a lot , yes more people want to invest but it's just not that easy

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  8. #106
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    Quote Originally Posted by Elijahs Mum View Post
    But that's just the normal part of investment property ownership , people think the last 2 years is normal, it's not - property investment is very safe - long term - the majority of landlords ( the mum and dad ones) hold these properties for 20 plus years , ride out the tougher times, rate hikes, vacating tenants, maintenance , utility increases etc they don't buy and sell every 5 years and make a fortune they struggle like everyone else to pay the bills , there would only be a very small percentage of investors that regularly buy and sell , flip houses and make money as the risk ( and taxes, stamp duty, agents fees, holding costs etc are enormous ) I've sold many a house in good and bad markets as people just couldn't make the repayments and plans/life/jobs change

    Yes they may get a tax deduction but they still have to come up with the repayments and expenses every week , long term it's a brilliant investment but for most of us it's still really hard work and sacrifice to make sure we are set up for retirement , in our area there are only 7% investment properties, that's not a lot , yes more people want to invest but it's just not that easy
    I think we are on the same page. I was trying to get across the point that NG and property invest does not necessarily make money overnight and some people lose out. It has just taken about 10 posts to get there 😂

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  10. #107
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    Quote Originally Posted by babyno1onboard View Post
    I don't think you're getting my point. Not all investors win. There are losers. There is risk involved. And not all landlord can afford to 'ride out the bad times' because they are people and people and get made redundant / get sick / unplanned pregnancies. The economy on a grand scale works the way you describe but not on a micro level.
    I didn't say that there are only winners. I didn't say there was no risk involved.

    I was only commenting on the relationship between interest rates and rent

  11. #108
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    Default Housing / negative gearing / politicians

    Quote Originally Posted by Wise Enough View Post
    So if I had a property, charging $300 rent a week, owed $125k on it and it's negatively geared, what happens when it goes positively geared?
    You keep it, make a profit from it, pay the Tax Office tax on your capital gain (at your tax rate) and hold it until you've built enough equity in it to either pay off your own mortgage or buy another property where you see more capital growth.

    Oh and pay the tax office AGAIN when you make a capital gain.
    @BigRedV, your first option you mention, is hardly worth it because the stamp duty you have to pay on the new property will be more than the tax you get back when you negatively gear said property. So financially that doesn't make sense.

    Or the other option is to keep the property, use the equity to buy another investment property which you will negatively gear. I wouldn't buy a ready to go property, I'd buy something off the plan or that needs work as that's the best way to make money.

    For me it's all about the capital gains. NG is just a sweetener really.

    My investment property I bought for $180k, I paid $12k stamp duty. I held it for 4 years, in each of those 4 years the most I got back was $1,200 one year, other years it was less than $1,000.

    When I sold it I made $80k profit, paid $12k in capital gains.

    So without factoring in my 'loss' I paid $24k to the government (state and federal) and I received a max of $4,200 back in tax (that also doesn't factor in any tax overpayments I made across 2 financial years, so the NG portion was less than $4,200). But let's be conservative and say the $4,200 was just NG (which it wasn't) I have paid out $19,800 to the government.

    I'm soooo greedy aren't I!?

    So yes if investors do this for multiple properties they're in effect paying out more to the government than they ever make in NG and CGD. Especially those investors who hold onto their properties and positively gear them.
    Last edited by A-Squared; 11-05-2016 at 10:24.

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  13. #109
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    Quote Originally Posted by babyno1onboard View Post
    You will just need to pay income tax on the 'positive' portion. You will finically make income off the investment! Which should be the goal IMO
    This! Paying tax is a good thing because you are earning an income. People seem to forget this. If you lost your job and we're getting $300/ week in rent this would put food and the table and fuel in the car. Having in income producing asset it something to aim for and not shy away from. When the "housing bubble" stops and prices flatten out you are in the winning position not people in a negative equity situation which in the GFC have been there and lost 150k cash when I had to sell my property and fund the difference owing on the loan. Can't believe how much bad advice is being given out here. I am all for Bill Shortens policy on negative gearing. It's retrospective so if you have an investment property now you don't need to worry. They need to raise money somewhere so this is a good place to start.

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  15. #110
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    Thank you everyone for letting me scab free advice 😄. I just ignore my rental property till tax time and then my accountant takes care of it.

    I am going to try to hold onto it for as long as I can. I'm not game to buy another as I'm scared of interest rates going up and not being able to make the repayments. Maybe in 5 years when I'm more secure financially.


 

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