Investment Related Issues

[OnTheGo]

Sorry, don't want to deflect from the topic of OC selectees in this thread, but found your statements quite interesting...

I'm fourth generation Sydney. Parents, grandparents, great-grandparents all from the East, Inner-West and North. I actually owned and lived in an apartment in the inner city at one stage, but sold it a couple of years back because I'm so bearish on the future of the place. If I didn't have parental help (the better term is 'inherited bourgeois privilege'), there's no way I could have done it. As it is, my wife and I are share-housing to keep a lid on costs (ha!) and sending all our investment money offshore.

When you say offshore you mean investing in stocks listed on overseas exchanges and bought through a local brokerage account or something else? I need ideas for a new place to invest our Aussie Cash...we sold out in 2011 before we had left and I don't trust the ever increasing price bubbles in AU, especially the completely out of this world ratio of house prices-to-income. Add the state of the economy, lower interest rates (only 'helping' further inflate the property market), falling Aussie Dollar, planned GST hike, the latter two will result in further consumer price hikes.

...
Most of my peers from university and high school have moved to NYC, SF or London. Those that stayed in Sydney are servicing gigantic ($1.5M+) mortgages and have popped out a few kids, so they might as well live on Mars. Getting kinda lonely, to be honest.

Then again, of course mortgages would be similar in those cities...but more opportunities and closer to other hubs than Sydney.

A 3% mortgage on say $1.2Mio (minus the 20% cash payment when they bought the place) means $40,000 p.a. in interest alone, add some more to pay it off (say $20,000) and you are looking at couples where both will need to keep working despite having kids and where one salary or more goes completely into the mortgage, hoping the asset will keep going up in value. 1% hike in interest rates would require a 20% increase in that person's salary to make up for it. ($1.2Mio * 1% = $12,000 extra interest p.a. Unless people have started to actually fix interest rates now. But in all honesty, what does that help if there is the crash that's actually needed to bring this Nation back to sustainable levels? The standard shoe box or outer suburban brick home, bought on a $1.2 Mio mortgage might be 'worth' $500k or $600k or even half that down the road despite all media hype to the contrary, so all they will have achieved is massive negative equity, just like their neighbours. Then I want to see them sustaining their incomes to support this dead horse.
ohh, that's some bearish talk ... lol.

 

[connectedspace]

Sorry, don't want to deflect from the topic of OC selectees in this thread, but found your statements quite interesting...


When you say offshore you mean investing in stocks listed on overseas exchanges and bought through a local brokerage account or something else? I need ideas for a new place to invest our Aussie Cash...we sold out in 2011 before we had left and I don't trust the ever increasing price bubbles in AU, especially the completely out of this world ratio of house prices-to-income. Add the state of the economy, lower interest rates (only 'helping' further inflate the property market), falling Aussie Dollar, planned GST hike, the latter two will result in further consumer price hikes.

Yes, the real estate prices in Sydney are far above where they should be. The only reason they're so high is a chronic lack of supply and market distortion from a silly tax regime. People take on terrifying mortgages w/r/t incomes because they believe capital gains will continue for ever, outpacing both the interest they're paying and the ROI they'd make in other investments. Australia's obsession with real estate is destroying the country. Spending every increasing amounts on extant housing is the opposite of productive investment.

As for investment ideas, you should certainly take whatever I say with a few grains of salt. I'm not a financial expert or a pro. I'm the financial equivalent of the guy who does his own electrics to save a few bucks and winds up burning his house down. I probably make highly suboptimal decisions. It's not even a hobby for me: just a chore! There are far better sources of information than me!

So, with that disclaimer, here's what I've done. I exchange out of Australian dollars in bulk through a broker. (I'm not a trader so exchanging currency pairs it outside my capability.) The larger the transfer the better, because it minimises the spread. I found if I exchange >200K, I can get less than a 0.6c spread.

Once it was transferred out, I put it into a combination of ETFs, bonds and rent-earning residential real estate. I use a US Vanguard account for the former two and had to buy the latter stuff in cash. I also had to organise an ITIN and jump through some bureaucratic hoops to make it happen. Now, as I accrue large enough parcels of $AU, I exchange them out and spread them across ETFs and bonds. Every so often, I tinker around with what goes where depending on gains I make in one thing vis-a-vis the others.

I was considering investing in European markets, but it's a whole new set of things to learn and I'm not ready yet. And I have a large bundle of useless, unshift-able compulsory superannuation here in Australia that is being gouged with fees and institutional incompetence. C'est la vie.

The key is keeping a lid on costs here in Sydney. We manage to keep our total expenses -- rent, health insurance, fares, utilities, food, the lot -- down below $AU900 per week for the pair of us. When you do that, it's easier to squirrel whatever you make into something productive. It also keeps you focussed on what matters instead of letting Sydney eat your money.

Then again, of course mortgages would be similar in those cities...but more opportunities and closer to other hubs than Sydney.

Yes and no. London is a crazy complicated market beyond this bear of little brain.

But in Manhattan, most of the housing stock is co-operative buildings and they often require large down-payments which keeps a lid on both mortgages and prices. If you can pay cash and have a lowish income, there are nice 1br HDFC ('affordable') coops in the upper west side for ~$400K. Condos, of course, start around 1M unless you're way uptown, but as you say, wages and city amenities match the prices. Unlike Sydney. (Although as I get older, Chicago seems to be a far better price/amenity mix for my wife and I.)

Also unlike Sydney, NYC isn't the 'only game in town'. If you're looking for investment ROI, there are far better cities to buy in, where employment is strong, capital gains will still track inflation and capital outlays will be far lower. So small-time, highly geared investors aren't skewing the market.

And you're onto something regarding interest rate moves and housing loans. Remember, though, that the interest is both reducible and compounded, which complicates those calculations a little.

I have no idea if any of that helped or made any semblance of sense. And remember that following my example could leave you begging on the street. But it was fun to write.

 

[SusieQQQ]

But in Manhattan, most of the housing stock is co-operative buildings and they often require large down-payments which keeps a lid on both mortgages and prices. If you can pay cash and have a lowish income, there are nice 1br HDFC ('affordable') coops in the upper west side for ~$400K. Condos, of course, start around 1M unless you're way uptown, but as you say, wages and city amenities match the prices.

Many of the co-ops don't allow someone to own the apartment without living in it - so you can't rent it out or even use it as a pied-a-terre. The purchaser and financial statements have to be vetted by the board before the purchase is approved and they can refuse you without having to state any reason whatsoever. They can also block a sale if they think the price is too low to try set a floor under the property values... It's these reasons that co-ops usually sell at a discount to condos. It's not universal and some co-ops are more flexible, but generally if you're looking for an investment property in NYC, or even just to buy an apartment for a family member to live in, you probably need a condo.

 

[connectedspace]

Many of the co-ops don't allow someone to own the apartment without living in it - so you can't rent it out or even use it as a pied-a-terre. The purchaser and financial statements have to be vetted by the board before the purchase is approved and they can refuse you without having to state any reason whatsoever. They can also block a sale if they think the price is too low to try set a floor under the property values... It's these reasons that co-ops usually sell at a discount to condos. It's not universal and some co-ops are more flexible, but generally if you're looking for an investment property in NYC, or even just to buy an apartment for a family member to live in, you probably need a condo.

Absolutely true. An 'investor friendly' board might allow renting out your unit for one year out of three, but only after you've been in it a year.

And some boards are known for arbitrarily denying purchasors because they don't like the look of them. (Not racist, of course .) Even more hilariously, some boards require putchasors have five times the purchase price, in cash, before they'll even consider them.

 

[Sm1smom]

~ Guys, I've had to move your discussion off the OC Thread as it was beginning to get clogged up. We don't want people wadding through tonnes of unrelated issues to get through to what they need. ~