Afternoon sermon

There is no mortal sin that some nation would use for branding themselves. Like when we think of French - we imagine adultery, German - belly worship, Russians alcohol abuse, British..... Well,you know yourself.

It seems like here in Australia we want to brand ourselves not only as beer worshipers, but (what is much worse) - "savers"

http://www.domain.com.au/news/no-tolls-or-taxis-how-to-save-140000-by-the-age-of-29-20151029-gkkzb3/

Saving is a mortal sin not only because of its religious and social harm (it is a combination of covetousness and miserliness. It is an act of refusing fruits of labour of other people), but most of all it is anti-scientific.

Every man, woman and their pet should have read the most fundamental economic science publication. If you did not read it, you would have no foggiest idea of what is money and how economy works in reality.

You perhaps know the book I am talking about. "Das Kapital" by comrade Karl Marx. The centrepiece of it is the Law of "surplus value". For an average Joe Blogg it simply reads like "No one ever has become rich by working for someone else or by saving".

The only way to get financial freedom is either to exploit other people (run business - 1% success rate. 99% of "businesses" fail) or use other's people money (borrowing to purchase income producing appreciating assets). Some people borrow to buy shares (pseudo-assets - and with 10% success rate gain financial freedom). Or you can buy "real estate" it has called "real" for a reason.

In real estate game success rate is about 99% (1% of participants did not get brain transplants in time).

Media trumpets the (not so) young lady who accumulated $140K by the age of 29. What a miserable result.

I would not take you through techniques of how to buy hous with none of your own money. I would tell you the story of my son.

He is now 25. When he turned 18, his grandma (in a hope to get a glass of water from him when she will be on a death bed) gave a little baby $10,000 so he can buy a second hand car. Yep. He naturally bought a brand new sparkling vehicle. For $3000. What had added the spark was a hail damage that hit car dealership a month earlier.

Cut the long story short, 4 kilos of body filler and 10 liters of paint later the car started to spark the right way.

But we do not talk about the car. Baby went on a tour and in SA came across the place called Thompsons Beach. These days waterfront blocks of land were selling at the region of $10K. Using his negotiating skills (he can negotiate anybody to a painful death) he convinced the owner to part with their lot for $6,500 (what's left of grandma's money).

Seller naturally lost part of his sanity and part of his hair as a result, but then everybody was happy. To my baby's surprise in 12 months seller came back even with less sanity and hair and offered to buy land back for $25,000. Unusual? Not really. For some reason land at Thompson's beach skyrocketed and noe was worth a hundred grand. Seller was given bottle of vodka and sent to pull the rest of the hair out.

For the newly created equity my baby borrowed $90K and built a 3 bedder. Now he rents it out, and it brings quiet slightly more rent than he pays mortgage. Recent valuation has come at $320K. 320 minus 90 that he owes gives $230K of "net worth".

It seems to me that $230K by age of 25 is slightly better than $140K by the age of 29.

There is only one problem with that. Baby boy has drawn $200K out of his house two years ago. And borrowed... How much you can borrow using $200K at 95% LVR? Do you know? This would be your home work.

I only would say that he borrowed to buy several houses at NSW Central Coast. And they doubled in price since than.

Hopefully this will help you to stay away from abominable sin of saving.

 

For the newly created equity my baby borrowed $90K and built a 3 bedder. Now he rents it out, and it brings quiet slightly more rent than he pays mortgage.

OK I'm taking the bait.

Hi Notapom can you clarify the above from your post, as it seems you are implying a $320k property only jut returns enough rent to cover a 90k mortgage.

Although I completely agree financial independence can be gained from investing in property, even you have to admit the days of buying a seafront block of land for 10k are well and truly in the past and many would be property investors are struggling to find rentals that are positive cash flow.

I would also like to know which banks are offering 95% LTV loans for investment purposes?

Cheers

Yeah cause no one ever got caught out by buying properties as investments. No one ever went bankrupt that way. No one ever ended up with property worth less that the mortgage when things suddenly went sour.

Yeah cause no one ever got caught out by buying properties as investments. No one ever went bankrupt that way. No one ever ended up with property worth less that the mortgage when things suddenly went sour.

If interest rates turn full circle there will be many families losing their homes.

I bought my first investment property in 1999 and the interest rate was 21%!!!!

A lot of people are going to mortgage themselves to the hilt and small increases in interest and an increase in repayments will undoubtedly catch many people out.

I have friends who have just bought a $500,000 property. They have been here for 18 months and both are self employed. The bank wouldn't touch them with this size of loan but here are lenders out there who will. They pay an increased interest rate and the broker who secured their loan charged a fee (not normal) but at the end of the day they are paying only $50 per week more than they were paying to rent the same house.

At the first sign of trouble...fixing their variable rate could be an option.

OK I'm taking the bait.

Hi Notapom can you clarify the above from your post, as it seems you are implying a $320k property only jut returns enough rent to cover a 90k mortgage.

Although I completely agree financial independence can be gained from investing in property, even you have to admit the days of buying a seafront block of land for 10k are well and truly in the past and many would be property investors are struggling to find rentals that are positive cash flow.

I would also like to know which banks are offering 95% LTV loans for investment purposes?

Cheers

Sorry for the delay, was busy (and still am).

What do you mean $320K home rent covers only 90K worth of mortgage? Do not get it. I would be damned if in Adelaide I would not be able to get $320 a week for $320K house. Yeah, yeah, you perhaps would need to spend couple of hundred bucks on paint and couple of weekends to bring presentation up to scratch, but this is 5% return. This is when your mortgage interest rates are at low 4%.

Yeah, you get rates, levies and taxes, but you also get get tax deductions.

And please, do not pronounce this herecy "Positive cash flow" anywhere near me. This is worshipping false God. True God is Total Return - which means your rent plus your capital growth minus outgoings.

Mind you, that capital growth is taxed only at a quarter of your marginal tax rate. Which means one dollar earned by your home equals $1.75 you earn at your day job.

Yeah cause no one ever got caught out by buying properties as investments. No one ever went bankrupt that way. No one ever ended up with property worth less that the mortgage when things suddenly went sour.

Not a single person. "Person" means a specimen of Homo sapiens with working brain. Without that (working brain) money can be lost anywhere.

If interest rates turn full circle there will be many families losing their homes.

I bought my first investment property in 1999 and the interest rate was 21%!!!!

A lot of people are going to mortgage themselves to the hilt and small increases in interest and an increase in repayments will undoubtedly catch many people out.

 

I have friends who have just bought a $500,000 property. They have been here for 18 months and both are self employed. The bank wouldn't touch them with this size of loan but here are lenders out there who will. They pay an increased interest rate and the broker who secured their loan charged a fee (not normal) but at the end of the day they are paying only $50 per week more than they were paying to rent the same house.

At the first sign of trouble...fixing their variable rate could be an option.

This is more Ok Tamara than you think.

First point. In 6 or better 12 months if you friends go to the bank with the existing mortgage history - suddenly any bank would want them.

Second point - it is much better financially if you buy earlier rather than wait until prices go up.

About interest rates - in this country I can not see how they would not go even lower in foreseeable future. Miracle must happen for that.