A 10X return - the power of leverage

Imagine buying a property worth $1m with a $100k investment and getting a 10X return! 

With leverage, a 7% return per annum  or more per annum can become a 24% return per annum over 10 years. 

💥100k can give you $1m 

That's a huge difference! 

On the above assumption of property increasing by 7pc pa , a $100k investment with 90% gearing can give you $1m - a 10X return! 

💥The investment 

- a 10% deposit of $100k for a $1m property 

- a shortfall of circa $1500 per month 

(on a $1m property at 6% interest, giving a net rent of $30k pa. 

The risk - if property goes down in 10 years  - you lose more than your initial investment …. So you are making a call that property will either increase or decrease in 10 years) 

#investment #realestate #leverage  

Vote here 

#Leverage is the one word that can transform your investment game! 

Investment in Shares long term for capital growth is a good strategy - how does it compare to property?

The above graph shows that investing in shares long term is a good thing - and has been generating 7-10pc per annum since 1993 (for the past 30 years)

So 10k invested in 1993 would generate between 138k and 176k.

So why is property so much better if it only increases by 5pc per annum?

One word !!!!!!

LEVERAGE 

Using other people’s money 💰 💴 - gives you exponential returns….. and it seems so much safer borrowing against bricks and mortar than shares …..

If you put down 20k and borrowed 100k to buy a house - and property doubled every 15 years less than a 5pc return pa)

your return on $20k borrowed would have generated 400k !!!

What am I missing? 

Interest rates are rising and yet house prices continue to rise !! Why?

Homeownership is the Australian dream - and it seems that it’s becoming  harder and harder to buy a home! 

Those looking to enter the property market face a triple whammy of 

• high prices, 
• costly mortgages and 
• lack of supply 

making owning your own home  deeply unaffordable, with little sign of relief on the horizon. 

Mortgage rates soared from less than 3% to more than 6%. 

For the median family buying the median home, mortgage payments doubled from roughly 14% of monthly household income in 2020 to nearly 29% in June, the highest since 1985!

And yet prices continue to rise!!

Why?

 There are still buyers out there. They have very few options 

• Each house needs just one buyer 
• Lack of supply 
• Rents increasing 
• Net Migration 
• Australia is the best place to live 
• People feel secure if they own a home 

A strong housing-market contributes to the well-being feeling of a person, family, city and nation. 

The hope 

Let’s hope the property continues to increase - and that our children will still be able to afford to become homeowners ! 

It sounds like inflation - and it feels like growth  and growth is good? 

What am I missing ?

I remember buying our house when property prices were at 17pc . 

$200k sounded beyond affordable - yet we did it - and that property is now worth 10x -or $2m . 

• property increased , interest rates reduced, wages stayed the same - property still affordable 

• property increases  , interest rates rise , wages stayed the same - how can people afford to buy? 

A solution ?

• Maybe but to rent vs buy to live in - Australians become a nation of investors ?

https://www.economist.com/finance-and-economics/2023/08/30/how-can-american-house-prices-still-be-risingHow can American house prices still be rising? from TheEconomist

Solving the wicked problem of a housing crisis on Oz

A wicked problem in Oz that the Labour Government is trying to address 

- a housing and rental crisis - there is a lack of supply - and there is a push to increase migration - 

For skilled  people 

To cater for asylum seekers  

What are things government can do to solve the wicked problem of the rental and housing  crisis? 

Build more houses so that supply equals demand.

The government is looking to add $3.5 billion of incentives to  achieve 1.2 million homes over five years over 5 years - or an average of 20,000 homes for 60 consecutive months 

This has  never been accomplished

The monthly average is 15,986. 

20,000 has only been reached seven times in the past 180 months. 

What are things that can be done ?

Will property in Oz continue to rise?

How do we support those who can’t afford (frontline workers ) and disadvantaged to have their own home?

- share your ideas in comments below  and vote  below

It’s not that easy to switch lenders for better rates 

First home buyers now have to demonstrate they can pay their mortgage at 9% in order to refinance their loan, The Australian Financial Review reports. This has meant a large number of first home buyers are forced to stay with their existing lenders, which benefit the big banks. Read more: https://lnkd.in/gUV4ZxaW

Buyer's agent Jack Carter writes on LinkedIn that in the current environment, borrowers are unlikely to be able to refinance that easily and the impact is going to be felt by those most recent borrowers who are on lower incomes. "This is normally your mortgage belt suburbs that feature a large proportion of first-home buyers who are highly leveraged," he writes. Read more: https://lnkd.in/gnFKFJqQ 

CoreLogic Australia's Eliza Owen writes factors other than the mortgage cliff could be driving the rise in the number of new listings in recent weeks. "With home values rising for the past five months, this may be prompting more selling decisions that did not take place when the market was in decline last spring. Some prospective sellers may also be looking to get ahead of the spring selling season when competition among vendors is likely to be more intense," she writes. Read more: https://lnkd.in/gMjKf-vU

Is the mortgage cliff causing homeowners to stay with their existing lenders? 

What impact do you think this will have on the property market? 

 

Westpac bullish on property

The strength of Australia’s housing market in 2023 has surpassed expectations, leading Westpac economists to upgrade their forecast for prices.

Strong migration inflows, tightening rental markets and low on-market supply have been important drivers, although affordability is challenging and likely to constrain price growth over the longer term.

Senior economist Matt Hassan has more… 

https://lnkd.in/gwAnEh4s

For more information and various property calculators  go to

www.bsi finance.com.au

Sydney prices back to hypergrowth or is it a bubble?

Sydney’s property market recovery accelerated over the June quarter, with Domain’s latest house price report finding the city’s house values gained $77,000 (5.3%) in just three months. 

 

That’s four times faster than the March quarter and is the steepest quarterly gain since late 2021.

 

Taking the two consecutive quarters of growth together, Sydney house prices have now recouped $97,000 of the $151,000 value they lost during the recent downturn. 

Where to next? 

This is a link to a poll 

This is a link to a poll