First Home Buyers

[Intrinsic_Value]

http://www.theaustralian.com.au/bus...g-off-the-charts/story-fn9656lz-1226728856943

Interesting, are we seeing the first signs of a structural shift due to fundamental changes in government policy (away from existing to new).

Future impact:
significant increase in supply.

My strategic plan regarding residential property is still to start exiting once the first interest rate rises occur. This is just making me more confident of my decision.

 

[hobo-jo]

IV, I thought your properties were in Melbourne (purchased recently?) where there has already been a significant boom in construction/supply?

When do you expect the first rate rise to occur?

Property doesn't seem like the best vehicle for a trade like this given the high entry/exit costs, surely there was a resi construction company or something like that you could have bought instead?

 

[Aaron_C]

I don't like buying properties in FHB land. I think you really need economies of scale to pull it off well due to the high cost of developing in Victoria for low-cost items.

 

[Intrinsic_Value]

IV, I thought your properties were in Melbourne (purchased recently?) where there has already been a significant boom in construction/supply?

When do you expect the first rate rise to occur?

Property doesn't seem like the best vehicle for a trade like this given the high entry/exit costs, surely there was a resi construction company or something like that you could have bought instead?

5 were purchased in 2007, one sold in 2010, two purchased in 2013.

The two recent purchases stack up very well on net yields vs interest. They are generating a cash return of around 7% or higher (without calculating tax effect issues such as depreciation).

Any capital growth will be multiplied by the leverage factor of 3.3 (30% deposit required to obtain the borrowing interest rate of 4.1%).

Therefore total return will be yield (since it is cash flow positive) + (capital growth x capital growth multiplier).

As interest rates rise I will start to offload the worst property first (which is one bought in 2007) and continue to offload as interest rates rise. With 6 properties the number that would be sold would be dependent on the quantum of interest rate rises over the cycle.

However I would hold a minimum of two as I would not like to be priced out of the market and my properties are all just medium priced apartments.

As to the first interest rate rise, I don't know when this will occur. I am guessing somewhere around 2015, but this is just a guess.

Entry costs are high, exit costs not so much, but of course there is CGT payable on exit.