Below is an article written by John McGrath on what could be the future of real estate ownership in Australia. It is something I have been suggesting for a long time and is only now starting to be thought about by other ‘experts’ in the industry. Buying a property as an investment as your first property purchase in the Australian market while renting the home where you live is a much easier purchase than having to try and save for a large deposit and pay down the principal and interest repayments over the duration of the loan. The tax benefits achieved from buying an investment property coupled with the additional income paid by the tenant makes owning an investment property a pleasure! See below what John McGrath has to say. We are happy to step you through the numbers in more detail should you wish to discuss this further.

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The rise of renter-investors

There is a rising number of young buyers who are choosing to purchase an investment property instead of their first home so they can get a foot in the door of the property market while continuing to live in the lifestyle locations they like. They’re dubbed ‘renter-investors’ and it’s a growing trend. In fact, one academic estimates 11 per cent of all residential properties are purchased by people who rent their own homes*.

There are two reasons for this. Firstly, we’ve known for some time that many young Australians are valuing lifestyle over the traditional dream of home ownership. They’re renting in beachside or cityside suburbs where there’s a café culture, restaurants, nightlife, entertainment, recreational facilities and fast CBD access to work. They can’t afford to buy in these locations but they don’t want to move to the outer ring where properties are cheaper. So they’re left with two options. They either rent for life or they buy for investment.

This choice means they don’t qualify for the First Home Owners Grant, which is only available to first homebuyers who have never purchased property before. But they do enjoy the significant tax benefits of negative gearing and with rental returns so strong right now they have greater ability to manage the repayments on an investment loan.

I have long advocated home ownership as a cornerstone investment in people’s financial future. However, I would rather see young Australians buying an investment property than doing nothing at all.

Property has proven itself to be one of the best asset classes for wealth generation and as long as these young buyers are sensible about their ability to pay high rents themselves as well as the repayments on their investment loans, then good luck to them.

Renting-investing is entirely do-able if you’re on a good income. Here’s the numbers, using Sydney as an example.

One of the suburbs I like for apartment buying right now is North Parramatta, where the median apartment price is $345,000.

With a 10 per cent deposit, the monthly repayment is $2087.

Rents in this area are an average $360 per week for a two-bedder and $420 per week for a three-bedder. This represents a very strong rental yield of between 5.4 and 6.3 per cent.

Say you buy an apartment for $345,000 and get the minimum rental return of $360 per week. That’s an average $1560 per month, leaving a $527 gap or an average $120 per week gap over the year.

Although this gap doesn’t take into account costs such as strata levies and council rates, this out-of-pocket expense is tax deductible – as are the strata levies, council rates and other costs too!

So, these young executives can live in a rental by the beach and close to work while still owning property to secure their future wealth. And there’s one thing I haven’t mentioned… capital gains. Their investment property will keep growing in value – in our example here, North Parramatta apartments appreciated a respectable 4.55 per cent or $15,000 in 2010. Not bad!

Source: Switzer.com.au | Written by John McGrath | Posted 11th April 2011

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Last night I spent the evening with John Symond. What an amazing story!

John starts off by telling us that he went to 11 different schools and 2 universities. His education was not about learning what was taught in the class room but about learning to change….something we all seem to fear doing. He spent his childhood either at school or working for his parents in their fruit shops. He never went on holidays. John and his 6 siblings had a very simple upbringing.

After school, John studied law and went on to set up his own consultancy firm specialising in property and finance. He had about 10 staff and was living the good life. A joint venture with the State bank of South Australia was what John thought was going to propel him to the next stage of his business career. At this time John was happily married with 2 kids and he couldn’t ask for anything more.

By the early 90’s, the joint venture had collapsed and John was left with nothing. He was left with massive debt and the stress of business crept over into his family life which ultimately ended in a divorce with his wife.

With millions of dollars in debt and a strong will to not call himself bankrupt, John made it his mission to create Australia’s largest non-bank lender… and so Aussie Home Loans was born.

John spoke about doing business when times were tough. Back in 1992 Interest rates were up at 18%. Banks were making huge profits and he saw an opportunity. And this he says is what we should all take away from tonight… the fact than when the economy is doing it tough, opportunities are created… it’s just a matter of seeing them and more importantly acting on them.

Johns interest rate tips for the night were that there was too big a gap between fixed and variable rates so he was more inclined to stick with variable. He also stated he has never been a huge fan of fixed interest rates and mentioned not so long ago people were locking themselves into 8% + fixed rates for 5 years… and thus were now paying 2% about market rates. He thinks that the economy may get worse before it gets better and that interest rates should remain fairly stable or even possible drop. Another point he made was that everyone always talks about the high unemployment of say 8-10%… but more importantly we will still have 90% employed. He states though that the problem is not the issue of unemployment but it is the lack of confidence within the market and the fact that people are worried about their job security. This lack of job security leads to many saving rather than spending just encase they lose their job.

So there you have it – straight from Aussie John himself… a fascinating person who has definitely had many ups and downs in both his personal and business life and many lessons can be learnt from this.

For those that are interested in learning more about John Symond, I suggest you go buy his book “Aussie John: John Symond” . The book is all about how John Symond lost everything, built Aussie Home Loans, took on the banks – and won! It is the story of John Symond’s life, from his happy childhood in Brisbane and Sydney’s west and his financial failure after the 1987 crash, to his emergence as one of Australia’s inspiring businessmen. Bit more than this, this book is a manual for how to succeed in business.

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