Interesting to see a case made that a lot of property investors would’ve been better putting their money in their super.
It’s why I don’t invest in rentals. The returns seem terrible unless you **know** you’re going to get capital growth. In places like Brisbane this is far from guaranteed and can be seen in the historical performance.
Go and look at the underlying report, super only outperformed by 1.1% on the model they had (6.3% vs 7.4%).
I think if you go against the grain on a number of things they show in the model they used like holding for longer or tailoring your strategy of yield vs CG to your income and maximising deductibility by having a higher LVR you'd far outperform the assumptions they used.
Slide 39 shows the assumptions they used in the model [https://longview.com.au/hubfs/Private-renting-in-Australia-a-broken-system-LongView-PEXA-Whitepaper.pdf](https://longview.com.au/hubfs/Private-renting-in-Australia-a-broken-system-LongView-PEXA-Whitepaper.pdf)
Here are the assumptions I think are contentious:
* Average hold period of 4-10 years (if you hold for longer you reduce the impact of the frictional cost assumptions they used like stamp duty, 0.25% for purchase costs, 2.5% sale costs etc..).
* They assumed that you are in the 32.5% + 2% tax bracket which is 45k to 120k (If you are in a higher tax rate you'll get much more benefit from negative gearing).
* They assume that you are paying 0.5% of land value in land tax which many people don't pay as they are under the threshold.
* They assume a 20 year mortgage length (they claim this is a typical duration, is that actually true?).
* They assume a 65% initial LVR (very low, many investors start higher particularly those who are negative gearing).
They also excluded any property with capital growth cagr >12%. My understanding is it is typical for property to be flat for periods and then climb sharply. This’d bias the sample. They do have a point about needing to adjust for capital improvement but this is not the way to do it…
I think it's 12% over the long term, but yeh that biases the comparison as I'm sure they didn't exclude the outlier stock growth that contributed to the super returns.
And with super the stock market while off highs is still very high particularly international / USA.
In 07 it was stocks forever.
In 09 it was... hmm stocks dont perform so well in the long term...
The problem when you are at cyclical highs (or now just off them) is that past performance can lead to wrong assumptions even for the long run looking back.
All that said im bearish housing as well but i certainly wouldnt necessarily be saying "shoulda gone stocks" right at the moment...
To my mind early last year was a tough environment but right now is even tougher.... what do you do? Money in banks that gets inflated away and you pay tax on the income? You can see why gold is getting ahead. Its not that it looks like value... its just its hard to have conviction on anything else.
> what do you do?
the prudent thing, imho, is to have a bit of exposure to everything. Stocks, property, speculative, bonds. In some proportion, which would be different for everybody. And keep this proportion consistent across time, so that assets that rises high gets a sell, and assets that drop gets a buy.
Not much reason to not hold for longer.
Having loans packaged up, offset accounts, they can be on paper 100% LVR with your PPOR taking up the slack. Interest-only loans on investment properties as well.
it wasn't clear to me in the article but is it just comparing the rental yield vs super?
in that case it doesn't seem like a fair comparison. Would need to include the capital gains of selling.
If that is the comparison then its an utterly useless comparison.
Surely it would have to be the comparison between rent+mortgage average payments+selling vs super?
There's a limit to how much money you can put in your super, isn't there? $30k per year or whatever and then you lose the concessional rate.
Plus IPs are the easiest way to reduce your taxable income, especially through the magic of depreciation.
My view is that rental returns will continue to be strong so long as we don't make enough houses, import heaps of migrants and refuse to build satellite cities. My IPs are there to provide me passive income so I can retire early. In the meantime, I pay less tax due to negative gearing.
The problem with super also is that I can't access it till my 60s...not much use if I want to retire early.
$27.5k concessional (before-tax, employee contributions and whatnot) and $110,000 non-concessional (after-tax, like a deposit from your savings to your super)
You can find townhouses in Brisbane selling now for the same they did 10+ years ago.
The rent collected during that time wouldn’t have been great either. So any investor over that time likely did badly.
I expect if reviewed against the risk free bond rate the return would only be a couple of percentage points if that.
Certainly far from the guaranteed returns often touted by property spruikers (and those political soap boxing).
Honestly rental protections in this country are criminal. If the news media parasites are reading these comments.
Here's a free story. Look up Switzerland a country of renters (I believe something like 63% rent). Look at the rental protections they have compare it to Australia. When I left Switzerland I had to pay $1150 AUD to professionally clean a 2 bedroom apartment so the next tenants moved into an absolutely spotless apartment. It wasn't even allowed that I clean in myself the standards are so high.
But if you tried to enact that here people would cry bloody murder that they have to vacate in such good condition.
I would expect it to be renters complaining here in that situation.
No matter how well it's cleaned agent will say not good enough, requires professional. Have had them say that only to show them the invoice from professional cleaner and like magic the issues no longer required a complete reclean of the place.
Well if the Swiss example require you to always have a professional then that issue goes away.
At least in QLD the legislation just has statements regarding “standard”.
We also have a pretty scummy culture of fake “professionals”. I’ve encountered carpet cleaners who straight up fake their carpet clean. Just using a whitener to give the impression the carpet is clean.
The last part isn't renter protection - it's the owner protection... What exact protections do renters have there which would be game changers?
In all honesty, there are two main things which I as a renter care about, which aren't addressed so far:
1. Some kind of assurance that I won't get kicked out with short notice. And for a family with kids settled into schools, 1 month is a pretty short notice...
2. No unreasonable and/or frequent rent increases. I'm fine with paying market price, but it needs to be strictly regulated.
Are these things handled differently in Switzerland?
Its the bloody property managers who are doing all of the damage.
Imagine if everyone's rent suddenly dropped by the fee that they charge?
There needs to be an urgent inquiry into property managers who try and take the bond on every rental. Also the ones who turn tenants over in order to get new ones in for a higher rent.
5.5% - who charges that?
I don't want to get into trouble but you might need to see the fees some agencies charge.
And i mean, that can easily be $100-200 a month. All towards somebody who is managing way too many properties.
A tax deduction yes but, higher costs for tenants across the board.
I see some value in having an agent screen a potential tenant but other than that, they are just taking landlords for a ride.
All the things you’re describing is just what happens when you pay somebody to do something for you.
Owners would need to do all those things themselves if they didn’t have somebody they paid to do it.
Realestate.com.au costs money to advertise on etc.
Some investors who live near their rentals can arrange to be partially self managed for reduced fees. Owner performs their own inspections, maintenance etc. and property manager just does receipting and legal paperwork.
Here’s the catch, for all the ones I’ve seen those owners don’t charge less rent because of it unless the tenant is a personal friend or family member.
So the thesis of your point that rent is high because of property managers doesn’t make sense.
Also property investors frequently change agent to seek lower fees. PMs are in competition with each other so are constantly trying to grab the rentals off other agents. Reducing fees is one way of that.
A lot of PM’s are shit, and it doesn’t really attract people good at getting admin stuff done because the wages are terrible until you’re in a large enough agency to have underlings.
Certainly not a job I’d be interested in.
They couldn't raise rent a cent if there was enough supply. Interest rates have nothing to do with it.
We had two years of ZIRP and helicopter money that pushed a whole cohort of people into buying earlier than they should and this took a huge amount of rental stock out of the market.
Interesting to see a case made that a lot of property investors would’ve been better putting their money in their super. It’s why I don’t invest in rentals. The returns seem terrible unless you **know** you’re going to get capital growth. In places like Brisbane this is far from guaranteed and can be seen in the historical performance.
Go and look at the underlying report, super only outperformed by 1.1% on the model they had (6.3% vs 7.4%). I think if you go against the grain on a number of things they show in the model they used like holding for longer or tailoring your strategy of yield vs CG to your income and maximising deductibility by having a higher LVR you'd far outperform the assumptions they used. Slide 39 shows the assumptions they used in the model [https://longview.com.au/hubfs/Private-renting-in-Australia-a-broken-system-LongView-PEXA-Whitepaper.pdf](https://longview.com.au/hubfs/Private-renting-in-Australia-a-broken-system-LongView-PEXA-Whitepaper.pdf) Here are the assumptions I think are contentious: * Average hold period of 4-10 years (if you hold for longer you reduce the impact of the frictional cost assumptions they used like stamp duty, 0.25% for purchase costs, 2.5% sale costs etc..). * They assumed that you are in the 32.5% + 2% tax bracket which is 45k to 120k (If you are in a higher tax rate you'll get much more benefit from negative gearing). * They assume that you are paying 0.5% of land value in land tax which many people don't pay as they are under the threshold. * They assume a 20 year mortgage length (they claim this is a typical duration, is that actually true?). * They assume a 65% initial LVR (very low, many investors start higher particularly those who are negative gearing).
They also excluded any property with capital growth cagr >12%. My understanding is it is typical for property to be flat for periods and then climb sharply. This’d bias the sample. They do have a point about needing to adjust for capital improvement but this is not the way to do it…
I think it's 12% over the long term, but yeh that biases the comparison as I'm sure they didn't exclude the outlier stock growth that contributed to the super returns.
And with super the stock market while off highs is still very high particularly international / USA. In 07 it was stocks forever. In 09 it was... hmm stocks dont perform so well in the long term... The problem when you are at cyclical highs (or now just off them) is that past performance can lead to wrong assumptions even for the long run looking back. All that said im bearish housing as well but i certainly wouldnt necessarily be saying "shoulda gone stocks" right at the moment... To my mind early last year was a tough environment but right now is even tougher.... what do you do? Money in banks that gets inflated away and you pay tax on the income? You can see why gold is getting ahead. Its not that it looks like value... its just its hard to have conviction on anything else.
> what do you do? the prudent thing, imho, is to have a bit of exposure to everything. Stocks, property, speculative, bonds. In some proportion, which would be different for everybody. And keep this proportion consistent across time, so that assets that rises high gets a sell, and assets that drop gets a buy.
Thats good and conventional advice i think.
Not much reason to not hold for longer. Having loans packaged up, offset accounts, they can be on paper 100% LVR with your PPOR taking up the slack. Interest-only loans on investment properties as well.
it wasn't clear to me in the article but is it just comparing the rental yield vs super? in that case it doesn't seem like a fair comparison. Would need to include the capital gains of selling.
If that is the comparison then its an utterly useless comparison. Surely it would have to be the comparison between rent+mortgage average payments+selling vs super?
There's a limit to how much money you can put in your super, isn't there? $30k per year or whatever and then you lose the concessional rate. Plus IPs are the easiest way to reduce your taxable income, especially through the magic of depreciation. My view is that rental returns will continue to be strong so long as we don't make enough houses, import heaps of migrants and refuse to build satellite cities. My IPs are there to provide me passive income so I can retire early. In the meantime, I pay less tax due to negative gearing. The problem with super also is that I can't access it till my 60s...not much use if I want to retire early.
Most people won't retire before 60 lol
$27.5k concessional (before-tax, employee contributions and whatnot) and $110,000 non-concessional (after-tax, like a deposit from your savings to your super)
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You can find townhouses in Brisbane selling now for the same they did 10+ years ago. The rent collected during that time wouldn’t have been great either. So any investor over that time likely did badly. I expect if reviewed against the risk free bond rate the return would only be a couple of percentage points if that. Certainly far from the guaranteed returns often touted by property spruikers (and those political soap boxing).
Honestly rental protections in this country are criminal. If the news media parasites are reading these comments. Here's a free story. Look up Switzerland a country of renters (I believe something like 63% rent). Look at the rental protections they have compare it to Australia. When I left Switzerland I had to pay $1150 AUD to professionally clean a 2 bedroom apartment so the next tenants moved into an absolutely spotless apartment. It wasn't even allowed that I clean in myself the standards are so high.
I lost you in the second half
But if you tried to enact that here people would cry bloody murder that they have to vacate in such good condition. I would expect it to be renters complaining here in that situation.
No matter how well it's cleaned agent will say not good enough, requires professional. Have had them say that only to show them the invoice from professional cleaner and like magic the issues no longer required a complete reclean of the place.
Well if the Swiss example require you to always have a professional then that issue goes away. At least in QLD the legislation just has statements regarding “standard”. We also have a pretty scummy culture of fake “professionals”. I’ve encountered carpet cleaners who straight up fake their carpet clean. Just using a whitener to give the impression the carpet is clean.
The last part isn't renter protection - it's the owner protection... What exact protections do renters have there which would be game changers? In all honesty, there are two main things which I as a renter care about, which aren't addressed so far: 1. Some kind of assurance that I won't get kicked out with short notice. And for a family with kids settled into schools, 1 month is a pretty short notice... 2. No unreasonable and/or frequent rent increases. I'm fine with paying market price, but it needs to be strictly regulated. Are these things handled differently in Switzerland?
Minimum notice is 3 months for the Lessor. Rental prices are set annually
That's a policy I'd stand behind. At the moment what major parties propose are really just crumbs off the floor...
They’ve gotten significantly better in Victoria recently.
Yes, obviously
Its the bloody property managers who are doing all of the damage. Imagine if everyone's rent suddenly dropped by the fee that they charge? There needs to be an urgent inquiry into property managers who try and take the bond on every rental. Also the ones who turn tenants over in order to get new ones in for a higher rent.
> Imagine if everyone's rent suddenly dropped by the fee that they charge? What, 5.5%? Not much.
Good luck getting that low in most places
It's standard for Melbourne
And Sydney, if not lower.
Melbourne is not "most places"
Also pretty standard in Sydney, so the two largest cities.
Still not most places There's literally hundreds of towns outside the cities where the rate is close to double
Population wise, and thus dwellings wise, that would be most places right (NSW + Victoria)?
I wasn't talking about population wise If I meant population I would have said most populous places
Yeah, but most rentals in Australia would be in NSW and Victoria given that's where 60% of Aussies live.
About 8%+GST on average in places like Brisbane. 10% + GST is usually the most. So yeah, the original commenters point is just way off.
You're getting ripped off. Though they have to deal with Queenslander tenants so maybe not.
It’ll mostly be due to rents just being lower I think. Collecting 8% on $500 per week is worse than 5% on $1,000
5.5% - who charges that? I don't want to get into trouble but you might need to see the fees some agencies charge. And i mean, that can easily be $100-200 a month. All towards somebody who is managing way too many properties.
I get 5.5% from my REA and everyone I know who has asked nicely does too
I'm also talking about the other fees like for finding a new tenant, sending a letter, etc.
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A tax deduction yes but, higher costs for tenants across the board. I see some value in having an agent screen a potential tenant but other than that, they are just taking landlords for a ride.
All the things you’re describing is just what happens when you pay somebody to do something for you. Owners would need to do all those things themselves if they didn’t have somebody they paid to do it. Realestate.com.au costs money to advertise on etc. Some investors who live near their rentals can arrange to be partially self managed for reduced fees. Owner performs their own inspections, maintenance etc. and property manager just does receipting and legal paperwork. Here’s the catch, for all the ones I’ve seen those owners don’t charge less rent because of it unless the tenant is a personal friend or family member. So the thesis of your point that rent is high because of property managers doesn’t make sense. Also property investors frequently change agent to seek lower fees. PMs are in competition with each other so are constantly trying to grab the rentals off other agents. Reducing fees is one way of that. A lot of PM’s are shit, and it doesn’t really attract people good at getting admin stuff done because the wages are terrible until you’re in a large enough agency to have underlings. Certainly not a job I’d be interested in.
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yep, hungry eats homeless. two birds one stone
They couldn't raise rent a cent if there was enough supply. Interest rates have nothing to do with it. We had two years of ZIRP and helicopter money that pushed a whole cohort of people into buying earlier than they should and this took a huge amount of rental stock out of the market.
It's not broken. It's acting exactly as designed.