Thursday, 30 July 2015

Why did investment loan interest rates just rise?

Recently I wrote about how this was the golden age for mortgages, how the current rate environment couldn't last and how you should think about refinancing your home loan to save you thousands of dollars.  I thought interest rates would increase at some point but I certainly didn't predict it would happen this fast.

If you're an Australian investor you may (or may not) have noticed that the interest rates on your mortgage jumped significantly last week.  That's because most of the major banks (led by ANZ and CBA) increased their investor loan variable interest rates by 0.27%.

Unlike most rate rises and falls this was not driven by a change in the Reserve Bank's cash rate nor was it driven by external costs of funding.  It was caused by the financial regulator (APRA) deciding to slow down the growth in lending to investors which have been driving a bubble in Australia.

Who does the rate change affect?

Monday, 27 July 2015

Why I gave up my Investment Property and moved into it as my own home

A few years ago I asked the question: 'Should move into my investment property?'.  It didn't make the greatest financial sense and in fact it didn't grant me the lifestyle I was looking for as a young, single bachelor.

Fast forward 3 years and all that has changed.  I'm now married and my wife and I we made the decision to move into my investment was the right thing for us to do at this time.

So what changed?

When my wife and I sat down to work out where we wanted to live when we got married we actually decided to keep the investment property as an investment and to move into another rental as we saved for our own place.

This is not what my wife wanted.  Unlike my outlook on life her every decision is not dictated or influenced by financial considerations.  She wanted to live in her own home with a garden.  She didn't mind where it was either.

I was far more picky.  I couldn't be more that 45 minutes from the city, I wanted it to be in a decent area, close to public transport and to amenities. Unfortunately most of the houses which combined decent land size and good areas were well out of our price range...hence the decision to rent.

One concession I did have to make was that we would be in our own home by the time we were looking to have kids.  The property market is so hot in Australia at the moment and buying another property in this kind of environment is definitely not what I was looking to do! 

That being said I made that concession because my wife really doesn't push me all that much in terms of financial issues and this was one thing she was adamant about.

Fate intervened unexpectedly

You may remember that last year I had a mild panic attack when I raised my rent on my tenants and they never responded...had I just lost amazing tenants by being too greedy?  All was well though because on the date the rent increase came into effect they just started transferring the new rent amount.

This year I knew something was up when they didn't sign a new lease even though I offered them the ability to sign a one year lease at exactly the same rent they were on last year.  Sure enough a few weeks before my wedding they gave their notice of intention to vacate and their due date to move out was 4 days after my wedding.

Deciding whether to move in became purely a financial decision

My rental property is great and I've always been glad that I bought a suburban family home however it is not a 10 year house either for my wife or myself.  I'm not the biggest fan of the area and my wife wants more land to garden.

What it is though is a perfect interim place to live.  Somewhere we could live for 3 or 4 years while we save and look for our next place.

So the decision it worth getting another tenant in and us find another place to rent for a shorter period of time or do we give up the rental income and tax deductions and move into our own place?

Pros of moving into the rental

  1. I needed to do quite a bit of work on the property and doing this while tenants are in there is quite difficult
    • Things like repainting and carpeting as well as replacing a fence have all been on the things to do list for years and being there myself will help me get this done

  2. Putting off buying another property for a few years
    • Earlier I mentioned that I was incredibly wary about the current state of the Australian property market.  If we hadn't moved in the pressure to buy a place from my other half would have been intense!  I have managed to push this inevitability back 2 to 3 years
  3. The rent I was receiving on the property was approximately $40 a week less than what we were looking to spend on a rental
    • Normally the interest deductibility of your investment loan would needed to be counted in this valuation however my property was positively geared so I wasn't actually getting any benefit from this.

Cons of moving into the investment property

  1. It was an area that I wasn't too keen on living in.  
    • The area the investment property is in is great if you are raising a family but it is useless if you want things like convenience to the CBD, cafes etc.  However given my wife and I are looking to start a family soon the family aspect of it suddenly becomes far more compelling
  2. It reduced the imperative to save hard for our own home.  
    • I think people save for a variety of reasons.  My wife is brilliant at saving if she has something to save for.  My major concern was thay by living in our own home already thay she would not have the same motivation to save.  If I'm going to honest this is still a concern and I'm testing ways to keep us on track
  3. All the repairs and expenses that are part of home ownership are no longer tax deductible.  
    • This is a very real downside and it bit me in the backside almost as soon as I moved into the house
    • I suddenly had to paint, fix fences and repair burst water pipes all without the benefit of being able to claim the expenses back on tax.  Some of the bigger jobs I will keep receipts for and add it to the capital value of the property (and depreciate it later when it goes back to being a rental) however smaller jobs I will no longer be able to deduct.

After weighing up all these pros and cons we decided to move into the what swayed it for us?

So why did we decide to move into the Investment Property?

Although we came to the same conclusion my wife and I reached the decision to move into the investment property for quite different reasons:
  • I saw it as a financially neutral decision which allowed me to put off buying into a hot property market for a few years.  The risk to this approach is that we take our foot off the wealth building accelerator because we are comfortable.
  • My wife saw it as an ability to get into our own home ahead of children which provided stability.  The risk from her point of view is that we don't actually move after a few years and she doesn't get her garden.

I'm learning that relationship finances is as much about finding common ground even if they are for completely different reasons rather than always compromising what you you both want.

So what do you think about my decision to move into my investment property? Would you have done something different?

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Wednesday, 22 July 2015

June 2015 Annual Report

The last year saw so many changes in my life and as I look at the financial impact of these changes it really struck me once more that you can't look at your financial life without examining your whole life.

Your financial life and position is a direct reflection of the whole life that you choose to lead.  As a very simple example if I had not been preparing for a wedding this year I probably would have had significantly more saved towards my house.  That being said if I wasn't looking at getting married in the short term I probably wouldn't be looking at saving for a house.

This was a transition year for me.  It was a year where things other than finances took centre stage and I didn't mind that...the work I had done over the past 4 or 5 years had put me in a position that a bunch of life changes were not going to significantly impact my life.

For those of you who read my blog regularly you may have noticed that I plan my financial goals with a December year end but I do my annual review on a June year basis.  This is purely a matter of history.  I started this blog in June 2010 and the logical time to do an annual review seemed to be a year after that point.  I have thought about changing that several times however it always provided a useful midpoint review of both my goals and my progress.

Goals: Achievements and progress

Thursday, 16 July 2015

June 2015 Net Worth: $561,000 (-0.9%)

After an incredibly strong performance last month, this month saw my net worth slip by almost 1% driven almost entirely by an incredibly weak Australian share market.  In this post I'm going to highlight what happened to my net worth this month, what drove most of the chances and where I am heading in the future.

In the coming week I will also upload my annual performance review which tends to give far more detail about how my portfolio is structured.  My apologies for the late posting of this month's net worth.  I was on leave from work (and my computer) for a few weeks as I was getting married and moving home...I will also post more about what is happening on the personal front soon.

Before I take a deep dive into my performance this month let's have a look at the headline numbers.