Utilise The Power Of Leverage

• Make sure you use leverage to acquire assets, not liabilities.

• Embrace the idea of ‘good debt’. An Investment Property Loan is an example of a good debt

• The first level of financial freedom is having your leveraged (passive) income exceeding your

expenditure.

• Leveraging other people’s time and money will allow you the freedom to choose how to spend your time.

• Think of leverage as an accelerant of your timescale to achieving your financial and personal goals.

The Potential Of Leverage.

In August 2007, when Amstrad’s merger with BSkyB was announced, Sir Alan Sugar told The Sunday Times he was planning to turn his attention to his property portfolio, which he deeply regretted not spending more time on in the‘golden’ 10 years from the mid-’90s:

“Throughout my career I have invested in property as security and seen the electronics as the risky part of my business. I’ve got £300m of property, mostly in trophy buildings around London, and I don’t owe a penny. If this were leveraged properly it could be £3 billion overnight. I need to put these assets to work, raise equity and become a proper real-estate trader.”

(Source: The Sunday Times, 5th August 2007)

If it’s taken Sir Alan all these years to appreciate the value of leverage, then you needn’t feel too bad if the penny hadn’t quite dropped for you until now either! What I would emphasise is the phrase in the middle of that quotation – “If this were leveraged properly…” – because it’s imperative that you do your homework and have a solid plan for servicing the debt you’ll be taking on, before you rush out and start looking to remortgage your home. Again, it’s a simple principle, but not an easy strategy to execute.

Steve Bolton.

Aussie housing market outperforms shares, with significantly less risk

What’s been the best store of wealth over the last decade? It’s a question I will seek to quickly address today.
In order to do so, I have taken all the major asset class information over the period January 2001 through to July 2011. This spans a number of economic and financial market booms and busts.
Australian house prices had a stellar run through to end 2003, but then went nowhere for a couple of years. They recovered at a sprightly clip over 2006 and 2007 yet came to a grinding halt in 2008. A combination of 9.6% mortgage rates and the GFC conspired to push national prices down about 2.6% over the 2008 calendar year.
In 2009 and 2010 we saw the Aussie housing market shake off these headwinds. Indeed, the RBA’s reduction in mortgage rates to around 5% supplied ample momentum.
But as is the case with all good things, they tend not to last. And the RBA has prudently started to apply the interest rate brakes as inflation pressures have reared their ugly head. The coincidence of two de facto rate hikes in November last year with the community presumption that many more are to come has seen prices cool 2% year-on-year.
The Australian share market had a slow start to the 2000s, and even after incorporating the benefit of dividends fell by 8% in 2001, and a much more painful 15% in 2003.
Following this nadir, Aussie shares rebounded very vigorously indeed through to their late 2007 peak. As most now know, Australian and global shares (including dividends) suffered a catastrophic 40% to 50% slide during the GFC and still remain more than 20% below that peak.
In the chart and table that follow (click to enlarge) I compare Aussie housing, Aussie shares, government bonds, and cash, over the past 11 years. The specific data I have used include the ASX All Ordinaries Accumulation Index (which reinvests dividends), the RP Data-Rismark Combined Capital Cities Index plus 50% (or half) of the RP Data-Rismark hedonically-estimated gross rents (to control for around 2% pa worth of property costs), the total returns realised by 10-year Australian government bonds, and the total returns delivered by 90-day bank bills.

The chart suggests that a national portfolio of housing has comprehensively outperformed all other investment categories over this tumultuous period. What is also fascinating is that AAA-rated Australian government bonds have delivered almost the same returns as Australian shares (plus dividends) with vastly lower risk.
On the question of risk, the table below shows us that there have been five months over the last 11 years where Aussie shares have fallen in value by more than 5% (the worst being a stunning 14% loss). None of the other asset classes have had a single monthly loss of five per cent plus.
This just hammers home the point that if you get your market-timing wrong with shares, you could be underwater on your investment for many years. Think, for example, of all the poor folks who piled into Aussie shares around the market apogee in 2007 (see the peak of the red line in the chart above).

Christopher Joye is a leading financial economist and works with Rismark International. Rismark and RP Data provide house price analytics products, and solutions that enable investors to go long and/or short the housing market. The above article is not investment advice.


 Original Link:  http://www.propertyobserver.com.au/trends/economy/aussie-housing-market-outperforms-shares-with-significantly-less-risk/2011081851211

Australian property prices at 2006 levels

New research by RP data suggests that Australian property prices today are roughly where they were five years ago. This is an indication of  a clear improvement in home affordability.

See full article at
http://www.realestatereview.com.au/australian-home-prices-at-2006-levels/

Fixed or Variable? Which Way Should I Go?

By Aussie on August 23rd, 2011


WITH the major lenders all dropping their fixed rates in the last few weeks, it’s a good time to consider whether locking in a rate is the way to go.

There have been many studies which have shown that over time, it’s better to stick with a variable rate and ride the rollercoaster those rates can sometimes travel on.

Which is exactly what interest rates have done in the last few years here in Australia. In August 2007, the official cash rate set by the Reserve Bank was 6.5 per cent. By December that year it was slashed to 4.25 per cent at the start of the GFC and by the following February it was 3.25 per cent.

With more global uncertainty and unemployment numbers up here locally, the banks dropping their fixed rates, there’s speculation that the RBA will cut the cash rate from 4.75 per cent when they next meet on September 6.

However, Aussie’s Executive Chairman and founder John Symond said while there is a chance variable rates will also drop in the upcoming months, a fixed rate can be useful for homeowners, particularly if they are planning a change in their circumstances.

“Fixed rates are good when you’re planning to start a family, or a work situation is changing as it gives the homeowner some security over the level of the repayments,” he said.

Mr Symond said fixed rate loans have conditions such as the amount of the extra repayments which can be made each year, break costs if the house is sold or the loan is paid out early and a lack of extra features which might be associated with variable loans, such as redraw.

“Personally I believe it’s better to go with a variable rate as you can pay as much as you like off the loan, reducing the term and the level of interest payments,” he said.

“However, if homeowners are concerned about interest rates going up the perhaps splitting the loan into a fixed and variable component may be a good option.

“It’s an each-way bet, which gives some peace of mind over the repayment amount while still allowing them to repay the variable component as fast as they want.”

http://www.rba.gov.au/monetary-policy/int-rate-decisions/2008/index.html

http://www.rba.gov.au/monetary-policy/int-rate-decisions/2007/index.html

Original Link:  http://blog.aussie.com.au/fixed-or-variable/

Books I’d recommend you read.

Building Wealth through Investment Property by Jan Somers

Property Portfolio Building Step 4. Purchase a second property using the equity built up in the first property as a deposit

Tapping into equity built up in your first property is a tried and tested method for finding the deposit for your second property  If you're looking to do this, you should be prepared for when your lender comes to revalue your property,  the best way to get the most out of its valuation is to keep it well maintained.

"By maintaining your investment property, the value stays up to scratch and this means that you can make the most of the revaluation".

Making any changes to your financial position – such as buying a second property and getting another investment loan – offers the perfect opportunity to give your existing mortgage a health check. So, before searching the property market, take some time to reconsider your loan needs in relation to your future goals and ask yourself how well your current one is performing for you. If you're satisfied with the service your lender is providing and you have determined that the interest rate and fees you’re paying are competitive, there is little reason for you to spend time and money refinancing with a different lender.
If you've reassessed your financial situation, however, and your mortgage is no longer working effectively for you, the next step is to decide whether you're going to refinance your current loan (while taking out a second one) with your current lender or start afresh with new one. Your first move, then, should be to  analyse your cash flow and establish the right approach to your debt as an investor with two loans.
 A second mortgage is going to have a significant impact on your monthly cash flow, so make sure you're in a position to service both of them by having a stable income. From the lender's point of view, the key to minimising risk as a borrower lies in your ability to earn enough income to service your first and second mortgages successfully on top of the cost of living. This not only ensures you're ready to take on a second mortgage, but it also satisfies your lender's requirements for approving the additional finances. As you're buying for investment purposes, it's essential to get your hands on a rental estimate letter from a local real estate agent. The lender requires this letter at the application stage and it's important to keep in mind that it's unlikely that your lender will take 100% of the rental income into account as part of your serviceability calculation. They generally factor in around 50–75%, depending on the property type and its location.
As you are planning to use your existing property as security to fund the deposit for the second one, bear in mind that you are putting yourself at risk of losing both if you find you can't meet the repayments.This is why it's essential to have a strong contingency plan. Depending on your ability to save, a safety buffer could come in the form of three to six months' worth of repayments and living expenses.

Investors rush to fix interest rates

As market uncertainty grows, more investors and borrowers are locking in fixed term interest rates.
http://www.apimagazine.com.au/api-online/news/2011/08/investors-rush-to-fix-interest-rates

Why advisers want more property advice

http://www.moneymanagement.com.au/news/why-advisers-want-more-property-advice

Investment Property Australia:Energy and vibrancy of Hunter region to withstand carbon tax hit

http://www.theaustralian.com.au/business/property/energy-and-vibrancy-of-hunter-region-to-withstand-carbon-tax-hit/story-fn9656lz-1226094029901