Matt Ellis (rationalradical.me) discusses his petition calling out Senator Nick Xenophon for pushing superannuation access as a vehicle for housing affordability. More money on a fixed land mass = higher land prices AKA a seller’s subsidy. Policy fraud must end!
Karl reports back from the Ultimate Positive Cashflow Breakthrough seminar on this property speculation weapon delivering thousands to some for a few hours work. Is it by accident and how does it effect the rest of the community?
With Rental Backed Mortage Securities, Self Managed Super Funds (exempt from Capital Gains Tax if sold in the pension phase & able to borrow), Negative Gearing, Capital Gains Tax exemptions, foreign investment, superannuation investing in housing, the advantages for the investor class continue to grow. Now listeners need to get up to speed on Property Options, a tool that has been around for years (Kerry Packer reportedly made millions out of it). Its popularity continues to grow as the pressure on affordability ramps up. Passive income for some.
Options ”An option is defined as the right to buy a property for a specified price (strike price) during a specified period of time. An owner of a property may sell an option for someone to buy it on or before a future date at a predetermined price. The buyer of the option hopes the value of the property will either go up or is already low. The seller receives a premium called “option consideration”. The buyer may then either exercise the option by buying the property or sell the option to someone else to exercise (or sell). This is often done to obtain control over a property without much cash. Option premiums are typically non-refundable. The option represents an equitable interest in the property and may be recorded at the county recorders office.”
Other comments on the Mark Rolton presentation:
Talks about US middle class evaporating but there is no connection to how such property investment, the profiteering off the fruits of the earth, leads to the divide!
Now till 2020 – 4m boomers retire – reduced UE -> increased immigration, increase retirement age.
Pension just $14k pa, by 2021 it to end. Maybe he talking about the assets test
dont sell all the properties, keep 10 / 14
One couple kept 46 properties in just 1 year. DA adds massive value. You cant borrow that kind of money, but you can with soft equity. Soft equity – option owner doesn’t own property but can use the option as a deposit to garner loans!!!!!
Gotta be curbed.
Loves land subdivisions, “its insane how much money is made.”
If it sounds too good to be true – it is. This is a corruption on the very fabric of a democratic society. We the people have lost control, lost even an insight into what the property lobby are able to do to OUR land. $15K for 5 hours work – another example of economic rents being forfeited by the public financing system. We are demeaning our earth rights, in preference for a place on the beggars table.
The investor pays the pensioner a monthly fee in exchange for the option to buy the pensioner’s home in the future but at today’s price.
Generally, a pensioner is “asset rich but cash flow poor”. They own their own home, which may be worth many hundreds of thousands of dollars, but have to live off an aged pension which is only a few hundred dollars per week.
In effect, a Popi allows the pensioner to receive cash from an investor on a regular basis, and in return the capital growth of the property will be passed on to the investor.
A Popi allows an investor to get into the property market without requiring a deposit or taking out a loan. Providing the investor has sufficient cash flow, all they need to do is pay a monthly fee and they are able to benefit from the capital growth of the property. However, my favourite is that there are no tenant hassles; the pensioner still owns the house and is technically not a tenant.
The downside is that the investor isn’t able to control when they can buy the property; that is controlled by the senior and is triggered when the pensioner wants/needs to sell their home. So a Popi isn’t ideal for people who need maximum control over their investment timelines
Popi is a lifestyle solution for retirees! Essentially, a Retiree exchanges the uncertainty of future capital growth on their property, for the certainty and financial security of a monthly income today, without putting their existing household equity at risk.
What you’re aiming to do is use other people’s money (OPM) to organise you deals or to net you a buy and hold investment.
3. Option agreements
Strategy: Get the vendor to agree to an option agreement, where you have the right, but not the obligation to buy the property. Find a way to increase the property value and onsell it for a profit
Requires: A vendor who will agree to an option agreement, usually a distressed seller
When a buyer and seller agree to an option, it means the buyer will pay the seller a specified amount – usually a couple of thousand dollars, depending on the property – to acquire the right to purchase the property at an agreed price until a certain date.
This amount, say $4,000, will usually be credited against the purchase price of the property should the buyer purchase the property. If the buyer does not exercise the option, the seller retains the payment.
During the option period, the buyer has the option and exclusive right (but not the obligation) to buy the seller’s property. Before signing the option, there will usually be a contract of sale already drawn up, which means that if the option is exercised it will be under terms already agreed to.
An investor can use these types of agreements to raise finance if they can find some way to increase the property’s value. This way they can sell the option to purchase to another buyer who is willing to buy the property at its new value and net the profit.
It’s a risky strategy and relies on the investor having two skills: the ability to add value to the property in a cost effective way (such as a cosmetic renovation), as well as the ability to negotiate a fairly low purchase price for the option.
The other issue is that few vendors will be willing to agree to an option unless they have had some trouble selling their properties.
Prof Michael Hudson is a compelling interviewee – could you imagine him at a dinner party? During this discussion we investigate the most influential think tanks in US economic history, along the way Michael reveals insights into what really drives US foreign policy, how fracking fits in and the state of democracy. He also provides a unique insight into how Bill Clinton got off his impeachment charges. We finish with commentary on speculative housing and the future economic plays now that US interest rates seem set to rise.
This week an insight into the Fisherman’s Bend developments with Rowan Groves (Fisherman’s Bend Network Committee). The Planning Minister commits a planning 101 multi-million dollar mistake but few are aware of the cost.
Ninety per cent of the 250-hectare area falls within the City of Port Phillip, which had drawn up draft design guidelines for development that mandated surpassing the building code in relation to sustainability.
Measures the council proposed include a preference for cogeneration, solar power and grey water recycling; a requirement all developments of more than 20 dwellings to utilise rooftop space for gardens or recreation areas; and a guideline that minimises car park provision to 0.5 spaces per two-bedroom dwelling and generally none for one-bedroom dwellings, while increasing the amount of bicycle parking.
Under the state government’s new Fishermans Bend Urban Redevelopment Authority design guidelines, sustainability aspects beyond the bare minimum required under the Building Code are “encouraged”, rather than required, and the guidelines also clearly state at the outset that “prescriptive” measures will be avoided.
Affordable Housing Targets – Development incentives (DCP exemption) to deliver community diversity.
The state government could be forced to spend up to $340 million buying private land to turn into public parks at vastly inflated prices in light of a major planning blunder in the new inner city suburb of Fishermans Bend.
The Sunday Age can reveal the government’s decision to re-zone 250 hectares of industrial land in Port Melbourne and South Melbourne before creating parks and open spaces has doubled or tripled its value virtually overnight, raising the spectre of a blow-out in costs for taxpayers.
This will cost us $340 million to buy the land at inflated prices. Then the billions of dollars required to build the infrastructure in the area will further add to land values, leaking from the public purse into the deep pockets of the property development industry. For this we will receive some $44m from developer charges. The stamp duty revenues will be considerable but will be passed on to the buyer, in effect exempting those who benefit most from paying much back to the community.
Our guest Rowan Groves stated 10% of the $44m in developer charges will be paid upfront. We will await the Fisherman’s Bend Network Committee Freedom of Information request for more clarity. With total development costs estimated at $738m, the $4.4m won’t pay for much infrastrucure, meaning that budgets for health and education will be squeezed. We do agree there needs to be a fairer method of funding infrastructure. Developer charges are inefficient. It would be far fairer to spread that cost over the 20 year lifecycle of the asset and recoup them with value capture.
New research released today by the Housing Industry Association (HIA) confirms that
restricting access to negative gearing for residential property would reduce investment in
housing, erode housing affordability and put upward pressure on rents.
This assertion is actually not true. If the abolition of ‘negative gearing’ had led to a ‘landlord’s strike’, as proponents of ‘negative gearing’ repeatedly assert, then rents should have risen everywhere (since ‘negative gearing’ had been available everywhere). In fact, rents (as measured in the consumer price index) only rose rapidly (at double-digit rates) in Sydney and Perth – and that was because in those two cities, rental vacancy rates were unusually low (in Sydney’s case, barely above 1%) before negative gearing was abolished. In other State capitals (where vacancy rates were higher), growth in rentals was either unchanged or, in Melbourne, actually slowed (see Chart 9).
336 Burnley St, Richmond. High profile, high profits, $900K in 2 years – nice work if you can get it. Obviously been vacant for years. 1971 calendar covered in cobwebs. View the news story. Summed up in this facebook poster:
Have u ever wondered why renters get pushed out of a property when a property goes to auction?
Its essentially an admission that the new rental price demanded to meet the auction price paid will be above and beyond what the current renter has paid in the past.
Take the case of our colleague, Mr X, who has been living innner melbourne house for a decade. He started off paying $1000 p/m. For the last few years that increased to $1300. Remember the formula for valuing a house:
Monthly rent x 12 months x 20 years
$1300 x 12 months x 20 years = $312,000
Mr X has paid about $150 k over the last 10 years, about half what the place was bought for.
Recent sales in the area indicate this run down property will sell for $700K.
$2916 p/m v $1300 p/m = more than double in rents required to justify the expected price.
Investors have the ability to rent at a discount to this $2,916 because of negative gearing. The more investors lose on the property, the less they pay in tax. Nice incentives eh? They also understand they will enjoy a capital gain in years to come, making up for any short term losses. Read Philip Soos on just how much these negative gearing losses add up to.
Conservative commentators talking bubbles:
Peter Costell – running out of luck
However, if you exclude refinance of existing loans, then a staggering 50% (rounded up) were for investment purposes. This is an absolute record, and represents a 4% uplift from last month. …. The attraction of lifting house prices and low interest rates make property investment for many compelling.
are debt securities backed by cash flows from mortgages or public sector loans. They are similar in many ways to asset-backed securities created in securitization, but covered bond assets remain on the issuer’s consolidated balance sheet (usually with an appropriate capital charge). The covered bonds continue as obligations of the issuer (often a bank); in essence, the investor has recourse against the issuer and the collateral, sometimes known as “dual recourse.” However, there exist other variable types where assets come off balance sheet. As of 2012 volume of outstanding covered bonds worldwide was euro2,813 billion, while largest markets were Germany (€525 bil.), Spain (€440 bil.), Denmark (€366 bil.) and France (€362 bil.).
ABS rank Covered bonds as ‘Other’ according to the relevant statistical department. These were listed at $22bn Mar 08 down to $1.3bn June 2013. The last few months they were not reported as volumes were so low. But then we come across this article.