Property Drops 70% In Value – Really?

One of the things that really makes my blood boil is the throw-away comments from certain media “experts” and other media outlets, which simply regurgitate a story and perhaps even manipulate or omit facts, to try to prove up a sensational headline.

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It was reported last week by dozens of newspapers and online outlets around Australia, and even reprinted by the Daily Mail in the UK, that the property market in the Pilbara had dropped 70%. These reports were based on a 1960’s fibro-iron home, which last sold in 2011 for $1.3 million, failing to sell at an auction for $360,000 last weekend. One report even said the property had sold for that amount – not so. A sensational headline that only served to “prove up” what some ignorant commentators and sections of the media have been saying about the Pilbara.

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Will Interest Rates Be Used To Stomp On Property Investors?

The national campaign in the media to slow down the property market continues.Now it’s the evil investors who are responsible for the hard climb in prices in Sydney, which some recent reports say has a median price of over $1million. Excluding refinancing, investors now account for 50% of the mortgage market, with that number closer to 60% in Sydney.

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The Reserve Bank can’t increase interest rates to slow housing without slowing the rest of the economy, so the next best thing they can do to haul back on the reins, is to try to target sections of the market. The financial regulator APRA, is indicating that they will bring out a report with recommendations which would set the banks new regulations under which they can lend to investors.

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Booms & Statistics – What does it mean for you?

I am continuing to see, hear and read more terror stories about the housing boom turning in to a bubble, followed by a humongous bust.

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Lots of these comments come from overseas writers and gurus who maintain that our prices are too expensive and therefore must come down. Other comments are from our own Federal Reserve Bank, which is clearly trying to cool down the market, without resorting to increasing interest rates. They don’t want to do this because it would slow the rest of the economy as well and increase the value of our dollar – bad for our exporters.

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What is a “Macro Prudential Measure” & Why Should I Be Worried?

There has been another wave of scary chat out there in the media this week, this time about the “housing boom” that is threatening us all – so much negativity, it makes me want to cover my ears and yell “memememememememememe” just so I can block it all out!

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The Reserve Bank is in a bit of a bind – their best tool to “control” the economy is adjusting the price of money through interest rates. If it is cheaper to borrow, they assume people will do so and businesses can get funding and the economy will move along all the better.

The challenge is, cheaper interest rates brings out the borrowers for housing, which kicks along the house prices – something that has the Reserve and all the media experts really worried. The Reserve doesn’t want to raise rates, as it will further slow an already sluggish economy and it will increase the value of the Aussie dollar – they prefer it lower than higher to keep our exports cheaper. So what can they do?

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Will Your Children Be Able To Own A Home?

With the Australian median house price recorded at over $600,000 (as at March 2014 Source REIA) it’s no wonder that people are struggling to buy a home.

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While it’s not fair to cast a one size fits all price across the Australian market – as the chart below show you clearly demonstrates, even the cheapest of Australian cities looks expensive by most world standards. Sydney looks completely overblown, with Melbourne not far behind, while Darwin looks very toppish for a city of not much more than 200,000 people.

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It’s The Economy Stupid!?!?

Every day in every way we are bombarded with statistics and figures, flight and fancy, opinions and thoughts, about what is happening with “the economy.” And not just ours. Now we have to contend with what is happening all over the world. Much like the theory of “the butterfly effect” where a flap of a butterfly’s wings in South America can cause a tidal wave in Japan.

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Lifting of interest rates in the US can have markets fall all over the world, concerned about slowing world growth – and all this happening before the interest rates have lifted. An airliner shot down, rockets fired over a border, retaliatory strikes – all these things and more we are flooded with every day – all things we need to be aware of? Because in our global world, they can and do affect each of us and our financial future.

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Are You a 1 Percenter?

Why is it that so few people actually achieve their financial goals?

It’s because so few are prepared to do what it takes.

Oh, many think they do and they go through the motions, thinking, dreaming, maybe even proper planning – but never really committing and taking action. And not just action to start something. Continued sustained actions over a period of time, until such that the goal is achieved.

How many times have you known someone who started a diet, an exercise program, resolved to stop smoking, and then fell back in to the old pattern within days of commencing the new way of life?

Recently, a friend of mine took part in a healthy exercise program set up by his insurance company, which naturally wanted healthy policy holders. Five hundred and eighty people registered for the free six week program. One hundred and forty of those people, so just 24% actually showed up for the first session. Numbers dwindled over the following weeks until only ten people were left. And my friend, his wife and their three children made up five of those ten. So really, just seven adult people, or 1.2% of the original participants, completed the whole program.

I find that extraordinary.

Why bother to make a commitment and sign up for the program, if you really never intended to follow through? Why show up and start the program if you never were really committed to seeing it through to the end?

There may be many reasons but there are no excuses.

What meant for the 76% of people who had registered, and never showed up even once, was that they weren’t really committed to shift their lives. They were not in enough real pain to actually do something about their health or weight or whatever it was that had them sign on for the health program in the first place. It was just an idea – a thought without any action.

If nothing changes, nothing changes.

Those people are not likely to have any shift in their health anytime soon. Nor in the rest of the way they do their lives. Because how you do anything is how you do everything.

Are you starting and not finishing in your life? Or even worse, thinking, daydreaming and not even starting?

What are you doing – really doing – on a committed consistent basis, to have a better life? Be it health, relationship, education or financial?

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If Money Makes The World Go Around, How Can You Get Some?

Last week I shared with you the truth about what really moves property prices – and that’s money. If you have it, that’s great, you are in the game. If you don’t – then you need to get some.

It’s a good thing there are very profitable businesses out there that cater for that exact need – they are called banks. To accelerate your chance to gain wealth through real estate you simply must be able to borrow money, at least until the point you can sell down what property you have to pay off the debt and still have plenty of income for your lifestyle from the property you still own.

To give yourself the best chance of getting some of that cash, there are six important steps you need to take before applying for a loan – and all of these need to be done well before you get out in to the market place looking for property. Some of these are self-evident, but nevertheless important.

1. Have a steady job – the banks like it better the longer you are in your job. If they see job-hopping on your application, they assume you are not stable in your work and therefore your income is at risk, therefore you are not a good person to lend to. If you are running your own business, you need a minimum of two solid years of profitable, up to date tax returns to submit as evidence of your income. Minimising your profit (legally) through a business might save you some tax, but it won’t help your borrowing capacity.

2. Savings – Your friendly lender will want at least 5% of your purchase price in savings over a 6 month period. They prefer 10%, but really start to warm up to you if you can put down 20% as a deposit – if you can do that, you can avoid the real gods of money – the mortgage insurers. Every loan that has less than 20% deposit must have insurance to cover the bank if there is a loss, and of course you have the pleasure of paying for that insurance. If you aren’t saving yet, start now. I’ll talk a bit more about how to take charge of your finances next week.

3. Get your debts under control – the first step to dealing with those evil pieces of plastic in your wallet is to cut all but two of them up and limit your use of the remaining two. Do what you can to pay them off each month. Start a debt reduction plan, focusing on one card at a time. If you have many credit cards, the bank will assume that you could go out and do cash advances on all of them at once. They will reduce the amount you can borrow for your investment property because of that.

4. Check your credit report – your credit report will contain any loans you have applied for or been approved for and any outstanding debts, even over a number of years. This is more important than ever as recent law changes mean that even for the most trivial of debts or late bill payments, creditors like electric companies for example, can report your debts after just 30 days late – so make sure you pay your bills on time. There are a number of agencies that offer a free initial credit report, which takes ten days or so, or you can pay for an instant report. Some will charge you for ongoing services or to help you clear your report if there is a problem or if you need other financial advice. Without making a recommendation, some of these are – www.creditrepairaustralia.com; www.checkmyfile.com.au; www.fixbaddebt.com.au. Getting a copy of your report can alert you to any issues you may not be aware of.

5. Determine Your Credit Score – the friendly banks also have a way of rating you to determine how credit worthy you are – they look at your age, postcode, length of job, banking type, how long at your address, whether or not you own or rent and so on. The average score out of a scale of 1000 is 750. Find out what yours is and do what you can to increase it. Don’t do anything to decrease it – for example, moving house can drop your score by 80 points, changing banks by 30, and getting divorced drops your score by 100! Some of the websites above can help you determine your score for free – though www.checkmyfile.com.au works well.

6. Set up a meeting with a competent finance broker – a finance broker has access to many different lenders and they can assess your situation and guide you towards the best solutions for the kind of loan/s that you need. A really good finance broker will do the best he/she can to ensure that the loan you get will be a springboard for your next property. A fantastic broker will sit with you and help you work out your long term plan for the number of properties that you want. If you don’t have one of these people on your investment team, I can proudly recommend my friend Margot Whittington, who has a strong financial counselling background and is a gun finance broker – you can reach her at Margot@wamoney.com.au.

And a last thought from Earl Wilson – Today, there are three kinds of people: the have’s, the have-not’s, and the have-not-paid-for-what-they-have’s.

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Will You Be Working Until You Are 70?

Maybe you heard about it, maybe you didn’t. But our Treasurer announced on Budget night 13th of May, that the pension age would increase from 67 to 70 by 2035. That means that anyone born after 1965, will have to work until age 70 before being able to qualify for the aged pittance – sorry – pension.

Does this affect you?

Part of the Government’s rationale was that increases in pension spending were way beyond the ability of the country to afford to keep paying, with the amount being paid out increasing by 6% each year and already surpassing the total of the defence budget. Future projections show that the pension wold be the biggest single item of national expenditure in the future – even more than defence, education and health combined. The previous Labor Government also saw the writing on the wall and had already legislated an increase in the pension age to 67 by 2023.

So many people work 40 or 50 years of their lives looking forward to the mystical place and utopian life that is retirement. The reality is that life in retirement is something that is changing quickly – people are living now for 20, 30, or even 40 years after they stop working. People have better health and are living lives that are more active – an active retirement may cost a lot more than the cost of a working life, since you have so much more time to spend your money!

Pensions were introduced only recently, with Germany the first country to introduce them in 1889, and quickly followed by many advanced Western nations. At that time, the age of retirement was set at 65 and the average life expectancy was 67. So the taxpayer did not have to support retirees for a long period of time. The idea that the Government owes us a pension after providing it a lifetime of taxes is now very much ingrained in to our thinking. We think it’s a right rather than a privilege.

That situation is very different now. And Governments all over the world are now spending a huge proportion of their tax revenue of social welfare and its increasing as more people live longer and join the retirement bandwagon. This can’t continue – we are mortgaging our children’s future and saddling them with tens, even hundreds of billions of dollars of national debt that they will have great difficulty in repaying in the future generations. As our population ages there will be fewer and fewer people of working age to support those on a retirement pension. Our children and our grand-children will pay the price of this continued largesse in the form of reduced living standards, higher taxes and a lower level of government services.

So what will you do about it? Will you grit your teeth and prepare to work for five more years before you can retire and live handsomely off the aged pittance – sorry, pension?

Or will you make a decision, right now, that you want more that, you deserve more than that and you will do something about it – immediately?

Your lifestyle will be determined by your choices and your decisions. If you want more than the pittance, you need to begin investing for your future right now. Taking charge of your life could mean you can send a message to your Government in your living years after you choose to finish work.

 

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Successful people are those that make the best choices

I am assuming if you are reading this that you are someone who knows that there is more to life than the blind existence that most people live – what I call the “rat corridor of life”. Getting up in the morning after being rudely awakened by an annoying alarm, hugging the spouse and yelling at the kids before racing off to work in the car to crawl along the freeway to a job you hate, with people you don’t really like, praying for five o’clock to arrive so you can inch back down the freeway at fifteen kilometres per hour to collapse on the couch in front of the tube, only to wake up in the morning and do it all over.

Maybe you are smiling now at the thought of this, maybe you are feeling a little uncomfortable or maybe you are even horrified, recognising elements of your own life. Well the good news is that you can change any part of your life at any time you choose. You design your life. You set the alarm. You choose your partner. You decide whether or not to have a family. You choose what kind of car you drive – or even whether to get the bus or the train. You accept or reject the job offer and you always retain the power to leave a job you don’t like. You elect what kind of TV to buy and you are also in charge of the remote, so you decide what kind of information gets fed into your brain.

Every day you make choices that will affect your life. Your success will depend on the cumulative effect of all of the decisions you make, meaning that success or failure usually won’t happen overnight. It will be the result of a series of choices you make and actions you take. They will add up over time to give you a result that you either are happy with or not. You can make a living or design a life – your choice. Whatever happens in your life, ultimately the responsibility is yours. You might be tempted to fall back on some of the old reasons or excuses for not achieving financial success like “I don’t earn enough” or “I haven’t got any money” or “my credit is awful” or “the economy is going bad” or “I’ll just wait until the real estate market comes down.” There are so many ways to talk yourself out of a fortune. You only need one reason to succeed – and that is your own.

Your “why?” That is the thing that will get you up early and keep you up late. The goal, the desire, the dream – something that really excites you and gives you something to aim for. Yet, without a sense of urgency, desire loses its value. It is completely possible to desire something though take no action toward it because there is no imperative – or timeline by which you will be, do or have your desire. You know the old saying “one day I’ll………” whatever it is. Though deep down you know that one day never comes and all you are expressing is a wish. And unless you have fairy godmother or keep a leprechaun in your back garden, your wishes are not likely to come true.

Successful people all have well defined goals and dreams. They have a crystal clear view of what their lives will be like and hold this view as if it were already real.

Next week I am going to share with you the top ten things you can do to be successful in your life. It will surprise you how easy it really is. In the meantime, successful people all need a steady incoming cashflow – check details for the special event below.

Dream Large.

Craig Turnbull

CEO, Hillsfar

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