Aussies barely inspecting homes before they buy

Post to Facebook on 12/11/2018 at 5:00 PM
Commenting on “Housing slump set to be the largest in nearly 40 years”
https://www.domain.com.au/news/more-than-half-of-australians-spend-less-than-an-hour-inspecting-a-house-before-they-buy-it-20180226-h0wnv8/

If you are not a commercial property investor or a big time investor, it is important to keep in mind whether you are buying the first property or the 10th one, you must not just rely on your gut feel, or take the advice of someone that you know including a professional buyer's advocate, to buy the property WITHOUT inspecting it by yourself personally. It is more critical if you are going to live in it.

I have said many times that I am a pessimistic optimist. When inspecting a potential investment property, I look for all the telltale signs of expensive maintenance and restoration, and then analyse the worst case scenario. What I mean is that how much money I have to spend to fix up the existing problems, and any tangible and intangible items that can burn a big hole in the wallet, before I can declare it a viable investment proposition.

If I spend a lot of my preciously time to inspect a property, I do have an intention to invest in it. I do go through the property with a fine tooth comb, and estimate the cost of maintenance, repair and extension.

Whenever I go for an inspection, I make sure I am in a reasonably good mood. Indeed, I either treat it as a shopping day, or like going to an art exhibition. To be honest, I only go to art galleries when I travel overseas. It is difficult to detect good and bad vibes if I am not in the right frame of mind.

Investing in real estate requires a lot of money, and a wrong decision can result in financial setback and affect health wellbeing lasting for years.

This blog is going to be a very valuable guide to property inspection. This is just for superficial inspection and has nothing to do with structural inspection which requires a professional to carry out. I highlight numerous negatives below for you to take note of:

1. Streetscape - uncomfortable with or don't like the street? Forget about inspecting the property
2. Front/rear garden/yard - too messy, or too nice, too big to maintain? Too much headache and waste of time and money
3. Too many big tall trees, too close to building - Roots can damage underground pipes, Leaves drop in gutter and block water flow

At the front door

1. Turn around to view the front - unpleasant view, blocked by tree or other object? Big minus
2. Turn back to face the interior - back door directly open to the other end - good airflow, but bad Feng Shui according to expert
3. Lighting of entrance - dim, dark and unwelcoming - bad vibes
4. Long passage way - dungeon, close-in - long road to success feeling

Interior

1. Plenty of natural light - a feel good factor
2. Rotten timber floors, window frames, skirting - may be very costly to replace
3. Creaky noisy floor - may require re-stumping
4. Floor board - may require re-polish, replace with floating floor
5. Carpet - require steam clean, re-carpet, remove to polish, or cover by other materials
6. Mold and mildew on walls near ceiling - bad ventilation, require new exhaust fan, can be difficult to remove mildew permanently, may be blocked gutter
7. Mold and mildew on walls near floor level - rising damp, water rises from ground
8. Bathroom - may require update, tapware
9. Kitchen - check conditions / existence of kitchen cabinets, stove, oven, exhaust, wall, smoke detector, not enough space for modern fridge
10. Laundry - laundry trough, not enough room for washing machine
11. Heating system / cooling systems - new installation cost a lot 
12. Unusual, unpleasant smell - occupiers consumed or prepared drugs
13. Yellow spots on wall near ceiling - occupiers used building as a drug lab

Go round the block

1. Rotten timber fascia board, weather board - costly to repair or replace
2. Aged gutter, downpipe - costly to replace
3. Big crack in walls - may be very costly to fix, may not be able to fix
4. Big crack in concrete driveway - may require repair or rebuild
5. Fence - costly to replace. Unlikely neighbours want to replace instead of repair
6. Swimming pool - unless it is used frequently, a costly feature to have
7. Empty swimming pool - a possible cracked or leaky pool

No matter how much you like the property, if there are too many defects require out-of-pocket expenses beyond your anticipated budget, you have to walk away from it, UNLESS you have enough backup money you can utilise.

Once you have decided to walk away from a property, do not regret in future even if the capital growth is substantial.

Knowledge is POWER. I hope I have empowered you to make better informed decisions. I welcome your comments.

Thank you for reading.

Financial stress on the rise

Post to Facebook on 12/11/2018 at 5:00 PM
Commenting on “Housing slump set to be the largest in nearly 40 years”
http://www.theage.com.au/money/saving/financial-stress-on-the-rise-20180202-h0sqgy.html

The biggest financial stress for most householders is mortgage stress. Mortgage stress refers to when a home owner is paying over 30% of their income towards repayments on their home loan.

• I summarise the statistics from the linked article
• 7% of householders could not always pay their mortgage on time
• 7% could not pay their rent on time
• 70% or more of renters are spending 30% or more of their disposable income on rent
• 46% of mortgagees put 30% or more of their disposable income towards mortgage repayment
• 32,000 Australians went bankrupt in 2017

Unless you have were born with a silver spoon, inherited huge sum or have a big windfall, you are likely to borrow money to buy your own home or invest in real estate.

Benjamin Franklin supposedly once said, “If you fail to plan, you are planning to fail." Do people, including you, know how to plan to avoid mortgage stress?

I apologise if you have to hear this again. I am a pessimistic optimist. I also have declared that I am a problem solver / solution seeker. I look for the worst case scenario in a situation, find all probable and feasible solutions, and then move forward with confidence. I cannot be sure that that is no additional twist and turn after I started working on the problem, but then I know from my earlier preparation and planning, I can work out a way to overcome the hurdles.

It is obvious important to treat every mortgage as a business concern - you cannot afford to make losses, so much so that you have to default and lose all you hard earned money. In addition, you may also lose your marriage and family, and worst of all, your health.

Basic accounting equation on Profit and Loss is (Income minus Cost minus Expenses), giving either profit or loss. From the equation, if you can increase your income, and reduce the Cost and Expenses, then you should be making a profit. This is to be ploughed back to increase your mortgage repayment.

How much are you going to borrow? How much deposit or initial amount you are contributing? I tend to borrow more than I need, and ask for the longest repayment term. It is important to know the penalty that may incur if you repay your loan earlier; if the amount is substantial, then the loan amount needs to be adjusted down.

The logic behind such strategy is that I prepare for any initial surprise outlay that required immediate attention, and stretching the repayment term reduces the monthly repayment.

Despite all the precautions taken, surprises do tend to pop up when you first bought the property. If you have not owned a property before, you soon realise you have to pay building insurance, Council rates, water rates, maintenance, lawn mowing, etc. You may need another car, because you or your spouse cannot take public transport to the usual places - work, school, children after school activities, shops, church, etc. The cost of owning and running another car reduce your bottom line figure.

What are the chances you get retrenched? The economy is not going gang busting at present, despite all the make-belief employment data from ABS. You need to keep in mind that "a person is considered employed if he/she is employed for 1 hour during the surveyed period." There are many under-employed people out there who like to work more hours, but the hours are not there.

Loss of employment and fluctuation employed hours affects the income in the equation. It is important and a good habit to build up the finance from early days. My wife and I did work more than one job during the early days. Besides her full time job, she also worked in a hospital kitchen on weekends. We also sold fried rice at Council neighbourhood Sunday market.

As for cutting the expenses, I learned the various skills in maintaining and renovating the house, including landscaping and making the kitchen cabinets from scratch. We used secondhand, pass-me-down household items, until such time we could "afford" to buy new one. We also shared one car, and learned to cook. Dining out was a luxury, and holiday travel was on our wish list only.

Did we suffer from mortgage stress? I can honestly tell you, we did not. We bought within our means, we increased our income, and reduced our expenses. The cost remained static during the course of the loan. We also made sure we kept 2 months of reserved months as emergency fund.

In order to avoid financial / mortgage stress, you must expect the unexpected such as:

• A hike in interest rates
• Losing your job
• Experiencing health problems
• Having a child
• Any other major expenditure

To reduce financial stress, I suggest the following:

• Cut out eating out or takeaways
• Opt for groceries in bulk, or shop for discount items
• Quit smoking
• Quit coffee or make / brew your own
• Reduce utility bill, wear warm clothing instead of relaying on heating

What do you need to do if you are in mortgage stress now?

• Do not miss any repayment - No lender will extend credit, try borrowing from family and friends
• Discuss with the lender for assistance
• Request to reconfigure your payment or lengthen the loan period
• Look at refinancing - Talk to another lender for better deal
• Move your loan over to an interest-only loan. This may be not viable because he interest is much higher that principal and interest loan

Thank you for reading.

Hobart home prices grow 173 percent over the year to December

Post to SinFongChanRE.wix on 4/2/2018 at 4:13 PM
Commenting on “Hobart home prices grow 173 percent over the year to December”
https://www.domain.com.au/news/hobarts-house-prices-grow-173-per-cent-over-the-year-to-december-domain-group-20180201-h0ream/

Before I discuss about Hobart real estate market, I would like to tell you something about Western Australia mining boom that led to property boom for almost three quarters of a decade since mid-2005.

In May 2017, an article in The Guardian reported that "Home repossessions and calls to financial counsellors soared in Western Australia as prices crashed.".

A property bought "for $750,000 in 2012, when the market was near its peak, the property was now worth $300,000 and falling." I recall a real estate guru talked about her property investments in Western Australia, and how much she made from her smart investment strategy.

Before 2012, Western Australia was experiencing mining boom. What caused the mining boom? It had been, to a large degree, driven by demand for resources by emerging economies, with China being the most significant. The boom centred on the large expansion in the iron ore, coal and gas industries. Looking back, the boom began in 2005.

Many people from the eastern border, including as far away as Queensland, sought employment there. The boom created a great shortage of housing. The building industry in these areas struggled to build enough houses for those who did want to live there, so large temporary accommodation centres had sprung up to house the workers. Shipping containers were converted and sold as temporary accommodations.

The early adopters did make a good wicket. For those who could afford, they became the fly-in-fly-out (FIFO) workers. With the massive expansion of mining in many remote areas, these workers showed a preference not to live in the areas that the mining was actually happening, but to live in metropolitan areas and flew in for a shift lasting 1-2 weeks, then flew home again at the end. In fact, some even chose to live overseas in Bali.

Between 2013 and 2015, the mining industry shed 46,000 full-time jobs. The property mentioned previously that worth $750,000, which had a rental return of $1,600 a week in 2012, had fallen to $370. It has not only negative capital growth, but also negative monthly return which is not enough to cover repayments.

Few years ago, I visited Launceston and Hobart in Tasmania. Both were too quiet for my liking, more suited as home-away-from-home holiday spots. Hobart was a potential city to expand my investment portfolio, but it would take a fairly long time to give me the desired return. After given some serious consideration, I abandoned the idea in investing in Hobart.

In February 2017, Tasmania's unemployment rate dipped below 6 for the first time in more than five years. Since then the rate fluctuated erratically, but in July 2017 it rose to 6.3%. In December 2017, it rate was recorded as 6.1%. These figures are higher than the Australian average of 5.6%.

According to CoreLogic, the last real estate boom in Hobart was in 2011, but it was short-lived. Prices fell to the lowest $425,000 in 2013 and then resumed on a slow upward climb until 2015. The growth in prices accelerated when property prices in the eastern border cities soared immensely and became unaffordable. This resulted in first-home buyers and investors turning their attention to Tasmania, particularly Hobart.

On the surface, Tasmania is a good target for real estate investment. It must be mindful that real estate investment is for long term, and those trying to have a quick return may get burnt if they follow the Jones's without understanding the underlying trend.

Tasmania is becoming more and more reliant on tourism and hospitality sectors. Hobart serves as the focal point of tourism for Tasmania. During 2017, house prices continued to rise gradually since January, but In November a sudden upswing occurred. It is an unprecedented surge from $685,000 in November 2017 to $806,250 in end of December 2017. Such a jump is likely be attributed to the first-home buyers coming Hobart to seek opportunities, and some downsizers looking for a sea-change.

It is important to recognise that sea change may be a fad, and when the novelty wears off, one is likely to return to where they came from. The trend of moving to Hobart is no difference from Victorians moving t Queensland, the state that was once promoted as "beautiful one day, perfect the next" with sunny days and great surf beaches.

Do people sunbake everyday? Are ordinary mums and dads surfers? Do they eat out everyday, in the same few restaurants close by? Life is more than what I have described. Leaving behind those fond memories, the laughter of close circles of relative and friends, familiar sight and sound, the streets that once travelled on regularly without the use of a GPS, are more than enough to make one "homesick", and in fact, many do return to the home city. Statistically, the net interstate migration of Queensland declines more than other states.

Hobart is a smaller city, has an estimated population of over 220,000 people, which accounts for 0.93% of Australian population. In comparison, Melbourne has over 4.8 million which accounts for 19.05% of national population. For those still in the workforce or in business, Melbourne is without doubt a much better place for networking. In addition, there are more schools, hospitals and sports in Melbourne that one can choose from.

No doubt, Tasmania is closer than Queensland from Melbourne, but it is more troublesome to cross the sea from Hobart than to drive on well sealed road linking Melbourne and Queensland. The other option is to travel by air, but getting in and out of airport is just inconvenient.

At present, Hobart has less than 10% of dwellings are apartments. The skyline will not be the same soon, as many developers have already moved in constructing high rise apartments. An investor must take a page from Melbourne and Sydney, that investing in apartments may not be the best option, although the initial outlay is much smaller.

Besides tourism, Tasmania's major industries are mining, agriculture, aquaculture, fishing, and forestry. However, the greatest employer is the public sector. Lack of private sector providing employment, is this viable and sustainable to keep the unemployment rate down?

Given that the cost of housing in Tasmania is considerably lower than on the mainland, the current surge in median price is not a good sign. It indicates that the newly constructed properties sold in the real estate market are highly inflated in price causing such big distortion. Investors who buy overpriced properties will not be able to achieve the desired rate of return (ROI), especially in a city with lower income and smaller population.

If you have not been to Hobart or other Tasmanian cities, go there to check out these places, and have a feel whether they are your investment targets.

Thank you for reading.