Real Estate, Person Finance and Start Ups

Blue Gum Podcast S1E6: Why you should buy the house next door

In this episode of 'Blue Gum Podcast S1E6: Why you should buy the house next door' we talk about why you should buy the house next door. I dare you to buy the house next door, there are several reasons for this. Imagine building your property portfolio from houses on your street. Monitoring your properties would be as simple as walking outside. You’d save time on inspections and as a busy property magnate, time is money. 

 website: http://blugm.com

 Article: http://blugm.com/real-estate/buying/buy-the-house-next-door/ 

Twitter: https://twitter.com/bluegumsite 

Blue Gum Podcast S1E5: Calculating Stamp Duty on your first home in NSW

In this episode of the 'Blue Gum Podcast S1E5: Calculating Stamp Duty on your first home in NSW' we talk about the two stamp duty schemes which first home buyers are benefiting from in NSW. A special guide for first home buyers on how they can calculate stamp duty. 

Website: blugm.com 

Article Link: http://blugm.com/real-estate/first-ti... 

What is CAPM?

Capital Asset Pricing Model is rationalized by modern portfolio theory to determine the fair value of an asset. Due to it’s reliance on assumptions on an investors behaviours, the distributions of risk and returns it’s measurements are open to scrutiny from independent analysis. Therefore, when using the CAPM to evaluate your portfolio model, you should have a third party evaluate your analysis. The principles of CAPM and the efficient frontier allows you to set expectations when you place assets in your portfolio, in particular correlations between the return on investment for high risk assets.

CAPM

What is the CAPM?

Poses to explain the correlation between identifiable risk and expected return of an asset or particular-kind of assets within the sector or wider market. It is an attractive method of pricing assets and attributing return on investment to riskers assets within the market.

So as ER = expected return on investment and

Rf = the risk-free rate Bi = Beta of the investment (ERM – RF) = market risk premium

The first assumption that you should present is that you are to be compensated for TVM of a minimum and secondly that you will be rewarded for taking on the risk since the risk-free rate accounts for TVM.

Why home ownership doesn’t need to be out of reach

For young Australians, housing ownership does not need to be out of reach, this isn’t going to be a condescending article with ‘the hottest regurgitated tips to save’ but will hopefully ignite some self-reflection which is overdue for many people, not just young Australians who are saving for their first home.

Home-Ownership-does-not-need-to-be-out-of-reach

Many Australians are experiencing a slowdown in wage growth and as a result of job competition are less likely to negotiate a significant raise. As a result, many Australians spending less wherever they can.

Is this a bad thing? Not for the individual, on a macro-economic scale it might be, although some Australians may be counting on a recession to take advantage of lower house prices. Spending less, may be a good thing. Australian’s are slowly learning to save.

One view may be that Australian’s want to be less reliant on debt to purchase their new home and therefore see no reason to save for the minimum deposit. Perhaps, Australians are going to keep on saving, giving the banks the wake up call they need after the ‘slap on the writ commission’.

Simply, housing doesn’t need to be out of reach as we know that Australian’s are investing in education and building their second income, becoming less reliant on their traditional wages.

The young people’s frugal movement driven by Australian dream

Young people are upskilling in their personal time like you wouldn’t believe. Ask a young person about online shopping and they could write a sophisticated book on it or anything else that is being sold online.

Less young people are finishing university in pursuit of their own financial ambitions. Many are working to invest, instead of working to save and it may work in their advantage.

The-young-people’s-frugal-movement-driven-by-Australian-dream

In the past five years you will have noticed an increase in the entrepreneurial spirit, it has swept across social media platforms like Instagram and LinkedIn.  You probably know someone who has given it a crack.

More young people now are investing in the stock market or these online based businesses taking advantage of social trends and leveraging their social networks. The barriers to entry for starting an online based business are fairly-low and decent returns on investments can be achieved from investment’s as low as $5000.

Many young people are seeing profitable results in a matter of month’s after investing in online education provided by online provides like Udemy or Brilliant. These platforms provide courses for a nominal fee and can be completed online from your smart phone or computer.

Young people continue to work in their jobs which may not pay the ideal wage, nonetheless the economic activity does ‘pave-the-way’ for reaching that ultimate goal of owning a home.

Young people understand that rent goes into someone else pocket compared to paying off a mortgage or investment property. This money sense wasn’t taught by their parents or in school most of the time but participating online.

It’s a new time in Australia, where young people are able to maintain a reasonable standard of living by investing in second income streams whilst using social media.

Young people now have access to a variety of retailors online which are shipping based, offering hygiene, clothing and other essentials for lower costs as they do not have to pass on the all the costs that traditional retailers have.

There are also apps available on smartphone which allow you to save when you spend. For example, if you make a purchase of $3.80 it will automatically round up $0.20 to be placed into a managed fund allowing you to passively save over time without hassle.

With more options for young people to save or invest for their first home, housing market participants can expect a disruption in the housing market in the next 10 years with more houses being bought with second -income rather than the traditional wage.

The question is, will young people use this income to purchase an investment property and continue to rent or would they rather purchase their first home to build equity and then purchase their investment property.

Young People will likely never own a home – it’s not their fault either.

Young people are more in touch with their surrounding’s than ever before with their access to social media, instant news and from massive search engines like google it’s no wonder why many are giving up on the Australian dream.

Reality-is-Looming 

It’s obvious that young people have inherited a stewing lemon and they do not have to look far online to find criticisms of their lifestyles and comments minimizing their concerns. Let’s face it, the older folks in Australia have had an easier ride.

We all agree, the older population in Australia (Majority voters in favor of negative gearing, which inflates demand for rental and sparks costs which are likely to impact young people) worked for their lifestyle. In fact, many did so without finishing high school and ‘got on with the job’.

With all that being said, older folks also benefited from lower barriers to entry into their chosen career, lower house prices. Older folks have a monopoly on the housing market and due to the dichotomy of rental demand and negative gearing for their investment properties.

There is more pressure on young people than ever as most careers require a university degree and industry experience to be considered for these ‘career-launching’ graduate programs. This is the same for trades as young people are required to earn below minimum wage for several years before becoming qualified.

Expectations are simply too high as young people often choosing between their rent and textbooks with their tradesperson counterparts struggling to meet the costs of vehicle expenses and rent.

The facts are laid out, young people will not be able to afford to purchase a house. Wages are being chewed up by inflation, rent and base living costs which makes it near impossible to save for a home. Any concerns brought forward by young people are swiftly cut down with post-truth criticism.

Looking to the people who are steering the country, they are heading towards retirement age and many of them benefit directly and indirectly from the legislation which is being passed. There appears to be little concern for the young people who cannot afford to purchase homes.

Three questions should be asked, respectfully of course:

What is the average age of a parliamentarian?

How many investment properties do they have now, compared to when they first sat in parliament?

What is the current retirement age?

Clearly, not many journalists or voters will be brave enough to ask these questions, but we do know the answer. Now, when I talk to the older generation about career, money and etc and always ask them. “You are very good at telling me what I am doing wrong, could you tell me something that I am good at?”

That question really stops them in their tracks and show’s that there is a lot of misdirected animosity placed towards young people. That being that “all of them are lazy” or “they do not work hard enough”.

Concededly, that may be partly true but surely, in this country which toots its own horn on ‘financial success’ and ‘jobs and growth’ there isn’t an expectation of young people to simultaneously commit to a four-year bachelor’s degree and full-time work, whilst maintaining rent and car expenses and save for a home?

And that’s in the best-case scenario. Most people would struggle with part-time work and full-time study, because if we young people do not meet that golden 70% Credit Average from their degree, they are immediately excluded from graduate programs by HR software.

Yes, this article is personal. It’s personal because young people are trying to get ahead. They are trying to work hard so they can eventually work smarter, but this economy isn’t substantiable for the sole reason that it isn’t working.

The Beta Coefficient

What is Beta?

The beta coefficient is a form of measurement for volatile movement in an individual stock, as well as systematic risk in comparison to comparable stocks or the wider market. Beta is a representation of the trajectory output of the slop calculated through regression analysis of a particular stock vs sector vs wider market.

The-Beta-Coefficient

The-Beta-Coefficient

Beta Formula (How to calculate Beta)

Re

 = Return on individual stock

Rm

 = Return on the Market.

Covariance

 = how changes in a stock’s returns are related to changes in the market’s returns.

Variance

 = how far the market’s data points spread out from their average value.

Applying (B) Beta

When a security experiences price movement ‘rubber banding’ or ‘swings’, beta justifies this activity.

You can measure 

Beta

 in three steps:

Identify the target of the covariance;

Divide the covariance against the variance of the market;

Over defined period;

This calculation is used to measure if there was any movement of the stock against the wider market, including the volatility-risk in comparison to its sector or wider market.

Blue Gum Podcast S1E4: How to choose insurance for your first home

In this episode of the 'Blue Gum Podcast S1E4: How to choose insurance for your first home', we talk about how you can get insurance on your home. What you need to do for preparation before applying for a policy and how you can avoid the worst of situations. The contents of your home are 2/3rds of the policy. Be prepared and you'll have no surprises. Not Financial or legal advice, speak to a professional in your jurisdiction. 

 Website: http://blugm.com 

Blue Gum Podcast S1E3: How to choose a mortgage broker

Blue Gum Podcast S1E2: Your First Apartment

Blue Gum Podcast S1E1: Your First Bathroom Renovation

The value of a duplex

If you’re an investor you are probably searching for ways to maximize the value of your investment, especially when it comes to money. Building a duplex is one of those options and see’s a better return on investment compared to other options like a traditional home, townhouse or apartment.

The-value-of-a-duplex

Whether you are building on new land as a package or rebuilding your home you are making a good investment decision. Instead of having rental income from a single property, you can cash in on income from two separate residencies, anyone can see the appeal.

Of course, you will need to get development approval, using preexisting building plans which are common amongst land packages can help make the process easier, but the costs associated with the approval process can add up quickly, so be sure you budget for that.

Once the development approval has been successful, you will now need to get building approval, this can be challenging especially with neighbors. You can expect neighbors will add their $0.2 cents, but this is one of the tradeoffs you as an investor should be prepared for.

The building approval process is just as long and is conducted in stages. Each stage of approval has its own expectations and timeline. This process is may be managed by the building company, so make sure you choose a company who is reputable. At the beginning of the build, you will likely need to take fences on all sides of the property down.

Neighbors won’t be happy to see their gardens getting damaged, so make sure you monitor the building activity on your land as much as possible, document and take photos and communicate with the builders and contractors so that you can minimize the impact of your investment on your neighbors.

Remember, the relationship with your neighbors is important, especially if you are planning to rent these properties out. They can offer insightful information about your tenants which may be helpful in considering the renewal of their leases.

Once the build is progressing, materials are going to be approved and the structure of the house is going to start being setup. It is not uncommon for materials on your site to go missing or stolen, so having a relationship with your neighbors may go along to way avoid unnecessary delay in your build.

Upon completion of the build, your duplex will need to be assessed for fire safety and receive its occupational certificate before anyone can move in. Once you receive the occupational certificate you will need to get landlords insurance on your duplexes.

Now you are ready to contact a real estate agent to manage the marketing process of your property. In metropolitan areas this process should not take any longer than two months. Make sure you research your real estate agents to find someone who you can trust and rely on.

The value of investing in an Apartment

Investing in an apartment offers value for real estate investors in several ways, this article delves into the obvious and not so obvious benefits of purchasing an apartment over a house. Apartments are great for building a wealth focused portfolio which you can rely on, to grow in value and create cash-flow.  But what are the advantages compared to a house?

The-value-of-investing-in-an-apartment

Apartments are cheaper to acquire but have comparable rental yields, this means you can build a portfolio faster, compared if you’d be purchasing a house. If you’d rather have more money in your pocket overall, this may be the choice for you.

You will earn less rental income but have less expenses associated with upkeep and damage. Your insurance will also be cheaper and many of the costs can be shared with the tenant.

Apartments have lower maintenance costs this cuts less into your income budget, because they are smaller any improvements you make will typically be cheaper than a house. These lower maintenance costs will more or less be isolated and could be shared with the tenant depending on who the maintenance issues arise. These costs will not eat into your budget as you would have allocated a safety net in the form of equity in the first place.

Apartments are typically rented by people who are less than 35 years old, the same age group who are exposed convenience craze. If your apartment or prospect is located near public transport and or a supermarket, you are going to have an easier time finding tenants.

Young tenants tend to move around less, if your apartment is located near a hospital or a large shopping precinct it is likely that they are going to be working close by, you may be able to negotiate a longer lease with the tenant by offering them a competitive rate.

Your first investment property

If you are making the choice to purchase your first investment property, there two things which you need to consider before making the purchase.

Your-first-investment-property

The first is the location equation, the kind of investment property you should be buying will depend on the immediate amenities of the immediate area surrounding properties.

The second is parking or access to parking, this is just as valuable as having the property itself. Everyone needs access to reliable parking as it’s a necessary convenience that helps us get by. We need it, it’s that simple.

The location equation has several variables, the prime variable being the immediate facilities available.

An apartment would be a stronger performing investment where:

A Hospital within 2 km distance;

Train station within 2 km distance;

Shopping centers within 3km distance.

Workers in the health profession are ideal renters because they are not likely to move for a few years and in the event of them sub-letting, will only do so to other health employees. Consider adding a sub-letting clause to the lease limiting to those working in the health profession.

Would you rather get $550 Per week in rent for 12 months and then spend 2 months trying to get the lease signed or let it go for $525 for 24 months for health employees?

A house or duplex would be a stronger performing investment where:

You are located within 5Km of a University or School;

You are located within 3Km of park or other recreational facilities;

Has an existing granny flat or has space for a granny flat;

Public transport within 2Km;

Have many rooms;

There a two options for the house or duplex: You can manage everything yourself which may be preferable if you are renting to students, in which case you will have high maintenance and electricity costs or you can have a real estate agent manage it, in which case you will have lower maintenance and electricity costs and a lower income.

Having a three- or four-bedroom house with an attached granny flat will bring you up to 5 or 6 rooms. You should budget to have each room rented out for $160 – 180 per week. Conservative estimate should be $800 per week in rental income before maintenance and electricity expenses in an ideal situation.

The goal of your first investment property depends on your financial goals therefore you should seek this kind of advice from your accountant. That being said, you should focus on generating equity in these investment properties, whether you stash the rental payments in a savings account or shares; you should focus on buying as many investment properties as you can.

When you rental income compounds over time, you’ll hopefully have generated sufficient equity to begin diverting receipts from your investment properties into the loans, eventually paying all of them off.

That perfect house and land package

Your house and land package include a construction package of your choice and land, this is usually described as one transaction but is effectively two separate transactions executed by separate contracts.

Your-house-and-land-package

A house and land package are attractive as you know the land costs and build costs from the start, you can use market metrics to compare plausible rental yields. Existing market data is rather reliable, so choosing a house and land package in a good area is crucial.

Just as important is choosing a reputable builder if the choice is not given to you it is likely the agent is representing a developer rather than you. Choosing a build through a developer isn’t an issue most of the time (in terms of quality).

Houses in the same area end up looking eerily similar as developers pay architects for a hand full of plans and do not budget of unique houses as that would defeat the purpose of a suburb bulk build project.

You will need to consider your incidental costs of owning a property such as stamp duty and registration fees, costs on interest, conveyancing fees and other legal fees. Getting a good lawyer when undergoing this process is crucial as they can protect your rights and help you avoid any unnecessary delays.

You’ve got to be careful as you can run into council fees right from the start of when you move in if you do not keep your front yard clean. Make sure that you remove all debris and rubbish from the front of your place as soon as possible to prevent unnecessary council fees or fines.

Why Index Funds Out Perform Active Funds

The efficient market hypothesis originated from an empirical observation on the activity within the stock market, in particular the consistency of individual stocks out performing active managers.

Why-index-funds-out-perform-active-funds

This observation documented the obvious data points on the price movement of these stocks’ vs active managers. Hence why in 1965, everything changed within financial securities market and not just for Eugene Fama.

Investors were instilled with a new sense of confidence having been told by their accountants, financial advisors, friends, family, colleagues and radio that they could have success in the stock market because the efficiency of a particular firms pricing is not necessarily determined on the basis of a company’s fundamental indictors but on the assumption that:

Because all market participants have the same access to the same information, the prediction of price movement is not a necessary exercise. Instead, investors should diversify their investments, taking advantage of market anomalies (anomalies in price movement are often attributed to legal, political and economic risks).

It is on this basis that any investor who diversifies their portfolio and makes purchases in stocks with the intention of long-term investment would outperform active managers.

What about the capital asset pricing model contradiction?

The expectation of anomalies within the EPH is consistent with prediction of price movement with stocks identified as “under-valued” in activities known as value investing.

An example of value investing would be identifying stocks within the ASX 200 and ASX 300. These stocks would then be subject to fundamental analysis and using the relative valuation models which is done by comparing the profit to equity ratio of companies within the same sector to ascertain the perceived value of the company vs the “actual value”.

Absolute valuation is an analysis based of the fundamental indicator of that particular stock and comparing companies with similar activities.

The obvious criticism of value investing is that because every stock is different many, its not possible to have success by following the same strategy for analysis when attempting to make a prediction.

The partial defense to this criticism is that because it has been identified as undervalued the question changes from “if there is a price movement” to “when there will be a price movement”, this question then becomes further scrutinized through volatility analysis, which makes semi-accurate prediction within the immediate short-term but is not as useful in the long term.