(Disclaimer: This is going to be a controversial topic, and may upset readers)
Something that has been bugging me lately is the level of hypocrisy that the general public exhibits quite selectively. People get so wound up by a specific topic that any discussion around it become taboo, and handled so completely irrationally compared to other significant issues. What got me thinking about this is the vilification of Rolf Harris over an alleged set of incidents in the 1980's and his more recent accusation of creating "indecent images of minors". Now the charges from the 80's, if legitimate, are certainly serious and need to be resolved. However, I have a hard time believing this has been anything but a witch hunt. If these events happened some 30 years ago, why have the "victims" just come forward now? It's not like any obvious form of intimidation or relation that might explain the silence. In any case, light needs to be shone on Rolf's actions and the sincerity of the victims; Hopefully the courts resolve the issue fairly, but even if Rolf is acquitted, society has already judged and branded him. Looking at the more recent case brought against him over indecent images of minors, this is the topic I am writing about. Rolf is a painter. He is not the first artist to paint children in situations that can be interpreted as "indecent". However, this is a topic that has completely blinded modern society of late.
Pedophilia is a serious issue. It is wrong. It is illegal. In the strictest spirit of the law it is the exploitation of people that are considered vulnerable, are incapable of understanding the situations they are placed in, and powerless to defend themselves.
Murder is a serious issue. It is wrong. It is illegal. Rape is wrong. It is also illegal. There are lots of serious crimes that people commit that we certainly don't want to promote: And here lies the problem.
A studio can produce a film or TV series depicting mass murder, rape, drug use, domestic abuse or any other form of illegal/unlawful activity in virtually any level of realism. Game companies can build a game that immerses players in environments where they can quite graphically commit these crimes virtually. Grand Theft Auto is a commonly cited example, but one that sickened me was a game called Payday 2 which puts the players in a gang casing locations then committing extremely violent robberies. These movies and games are made, and continually press at the social limits of good taste, yet no matter how far they press there are no consequences for the people that create them.
Rolf, or any artist can paint a picture of a child in a provocative situation and he risks going to jail. A tourist returning from Japan with somewhat provocative models depicting young women in school uniforms narrowly avoided being arrested on child pornography charges. Can you see the disconnect here?
When some kid goes and shoots up a school after playing GTA 5 there are of course people advocating that violent games and movies are fueling violence. However the voices to the contrary always outweigh these. Laws don't change and the manufacture and distribution of this content continues. Parents generally don't promote violence in their children, encouraging them to go to school armed and ready for a knife fight, yet these things still happen.
When some pervert goes and abducts and rapes children gets caught with stacks of child images on their computer then the social war-cry goes out against any form of "sexualized" imagery of minors. Where are the voices that would so surely defend that exposure to violence doesn't make people violent, tout that exposure to sexualized children doesn't lead to sexual assault on children? Parents are guilty of sexualizing their own kids every day with what they let their kids wear and do. Forget child pageants, some have even gone so far as to teaching their young daughters pole dancing. Get real!
Compare these two situations:
Playing a video game where you walk up to a car, drag the driver out of a car and hit them repeatedly with a baseball bat and take their money does or does not influence someone to walk up and assault/rob someone?
Perving out at a picture of an attractive 15y.o. girl in a short skirt does or does not influence someone to go and rape a 15 year old girl?
Think about it for a minute. I'd imagine that most responses to the first scenario would range from "Probably not" to "possibly". I'd suspect that most people would respond to the second scenario as "probably" to "absolutely" An automatic reaction to those scenarios will be to justify how the two can surely not be compared, but really, why can't they? The second scenario is perverted, abnormal... So it's that much more "normal" if it's an 18y.o. girl? Someone that gets a thrill out of committing a virtual crime, do they go and commit a crime? Versus someone that gets a thrill out of an underage kid, do they go out and realise that fantasy? I cannot answer that question, but what I can see is the disconnect between the perception of the two scenarios. How can you rationalise that one is any more or less a risk than the other, and by how much?
Look at the legal/social reaction for the actual actions within the two scenarios. For the violent video game someone can play as much as they desire and there is absolutely no legal consequence. For the second scenario, that someone is possibly going to jail, and surely will be socially branded. In neither case did the individual actually DO anything.
Do I advocate that society is overreacting to underage depictions? Certainly not. I merely wish to try and expose the imbalance between very serious issues and how hypocritical we allow ourselves to be when looking at issues like this. Personally I'd like to live in a world where as a proud father I am allowed to photograph my child's public triumphs in life, and could do so without worrying other parents that have allowed themselves to be blinded and bound by irrational fears and preconceptions. Maybe things will finally change when this generation of parents realize the cost of paranoia was capturing memories and it just wasn't worth it.
Friday, September 27, 2013
Thursday, September 19, 2013
On fingers.
A recent news article which headlines: "Severed fingers won't work on iPhone 5S" which should probably be followed up with " so knock the bastard out and use his finger then disable the security."
Are people really so concerned that criminals would bother to chop a finger or two off to download some porn or T.V. series before hocking your colourful plastic wonder? Really now, the fingerprint works no different to PINs or gestures etc. It's just less likely to hack. But pickpockets & thugs don't bother with that as they'll either just toss a locked phone or factory reset it if they can. If they have access to your fingers they can just threaten you to unlock it, or use your finger while you're unconscious. On that merit the 5S is "easier" to steal for the buggers that ambush people with bricks.
Or on a funnier note, do people really believe Apple actually verified this claim that it wouldn't work with a severed finger? I'd bet money that marketing's claim that the scanner "doesn't" work on severed fingers actually meant the technical people said it "shouldn't" work. It may be fun reading the news when someone de-bunks that puff of smoke.
The real criminal threat with the iPhone 5S is that idiots will actually use the biometric features on the phone and other businesses and institutions start trusting Apple's algorithms. Allowing the scanner, more importantly the phone & technology the scanner is running on, to serve as security for real-world assets makes that phone a single point of failure (or success, depending on what side you're on) for fraud; Especially on a device where people have no real knowledge or control of how "Apps" behave on it. Unlike passwords and such, fingerprint biometric data cannot be changed when you get hacked. Criminals don't need to chop off your finger to drain your bank account or steal your identity, they just need to con you into downloading another "free" app. It's very easy to slip a malicious app through the app store. This has been demonstrated by building self-modifying apps. The initial version is harmless, but as it updates with more seemingly harmless versions, it actually modifies itself into something malicious. Once it fools you into running your finger scanner with an official looking alert, or mines your biometric hash, game over.
Criminals out there are certainly not afraid of consumers adopting the biometric features of the 5S, and they're not about to start lopping off fingers because of it. If anything they welcome the feature and they're just waiting for something worth stealing to become available. Contrary to popular belief, it isn't the colourful, over-hyped piece of plastic & glass in your pocket they're after, so your digits are safe. I can't say the same for your bank account however if you choose to start using that feature.
Are people really so concerned that criminals would bother to chop a finger or two off to download some porn or T.V. series before hocking your colourful plastic wonder? Really now, the fingerprint works no different to PINs or gestures etc. It's just less likely to hack. But pickpockets & thugs don't bother with that as they'll either just toss a locked phone or factory reset it if they can. If they have access to your fingers they can just threaten you to unlock it, or use your finger while you're unconscious. On that merit the 5S is "easier" to steal for the buggers that ambush people with bricks.
Or on a funnier note, do people really believe Apple actually verified this claim that it wouldn't work with a severed finger? I'd bet money that marketing's claim that the scanner "doesn't" work on severed fingers actually meant the technical people said it "shouldn't" work. It may be fun reading the news when someone de-bunks that puff of smoke.
The real criminal threat with the iPhone 5S is that idiots will actually use the biometric features on the phone and other businesses and institutions start trusting Apple's algorithms. Allowing the scanner, more importantly the phone & technology the scanner is running on, to serve as security for real-world assets makes that phone a single point of failure (or success, depending on what side you're on) for fraud; Especially on a device where people have no real knowledge or control of how "Apps" behave on it. Unlike passwords and such, fingerprint biometric data cannot be changed when you get hacked. Criminals don't need to chop off your finger to drain your bank account or steal your identity, they just need to con you into downloading another "free" app. It's very easy to slip a malicious app through the app store. This has been demonstrated by building self-modifying apps. The initial version is harmless, but as it updates with more seemingly harmless versions, it actually modifies itself into something malicious. Once it fools you into running your finger scanner with an official looking alert, or mines your biometric hash, game over.
Criminals out there are certainly not afraid of consumers adopting the biometric features of the 5S, and they're not about to start lopping off fingers because of it. If anything they welcome the feature and they're just waiting for something worth stealing to become available. Contrary to popular belief, it isn't the colourful, over-hyped piece of plastic & glass in your pocket they're after, so your digits are safe. I can't say the same for your bank account however if you choose to start using that feature.
Monday, September 16, 2013
On winning.
It is an interesting time now for my 4y.o. daughter. She's starting to show signs of being quite competitive. Competition is a healthy thing, but it can easily become destructive and disruptive. When I went through grade school the education system had a pretty strong focus on competition. There were plenty of sporting events where students would win ribbons and such for out-performing their classmates. Grades were given out as percentages so students could boast they were 2% smarter than someone else. Now it seems that schools have swung widely the other direction due to political correctness or something like that where competition is something to be scorned. I cannot imagine playing a game of soccer where they went out of their way not to keep score. This was a deal-breaker when I was considering Montessori education for my daughter. While I like the overall approach of self-discovery learning, they have a strict anti-competitive theme. (No sports teams etc.) Competition is an integral part of life, and something I strongly feel that it is something children need to experience to prepare them for independent life.
Growing up in an overtly competitive environment didn't do me any benefit. I was overly competitive and became quite irritated, even somewhat violent if I didn't win. It doesn't do well for making, and keeping friends. I'm not sure when precisely it happened but one day it all started making sense. It was such a simple thing, but so profoundly powerful when dealing with competition. I like to win, a lot. Who doesn't? Winning is fun. Or was it?
That was the profound bit. Winning = fun. But that is completely the wrong way to look at it. Fun isn't the result of winning. Winning is the result of having fun. It works in such a simple manner. When you play to win you get tunnel vision. You're focusing on the wrong thing and you completely miss opportunities that might have given you an advantage. This leads to mistakes or becoming predictable, and the further you fall behind the more it works against you. Your movements and muscles become tense, and you are completely distracted. However, when you play to have fun, your mind is open to new possibilities. You see more, and are more relaxed. There are opportunities to try things a bit different and often that is enough of an edge on your opponent to pull off something that they aren't expecting or capable of responding to.
It may not be enough to win, but it ensures you are open to learning something new from the experience instead of making excuses. Still, if you focus on trying to have fun then winning is merely icing on the cake. A loss is still a pretty good tasting cake when all things are considered. Being a sore loser means you become a target for ridicule, or people that can help you improve won't want to. Dealing with the bragging winners can be a challenge, but the thing to remember is that while they may act like they know it all, learn everything you can from them, then savour the day that you teach them how to lose. :)
This is something I constantly need to remind myself. Sometimes my vision starts tunneling in and I start to struggle and lose. That is the time that I have to stop for a moment, relax, and realise that I'm not having fun. More often than not that is enough for me to come back in freshly from a new angle. No excuses for the equipment or environment, just a renewed focus on doing what is fun, not what I think I need to win. Now I hope to impart this on the little one to hopefully help her cope with competitive situations.
Growing up in an overtly competitive environment didn't do me any benefit. I was overly competitive and became quite irritated, even somewhat violent if I didn't win. It doesn't do well for making, and keeping friends. I'm not sure when precisely it happened but one day it all started making sense. It was such a simple thing, but so profoundly powerful when dealing with competition. I like to win, a lot. Who doesn't? Winning is fun. Or was it?
That was the profound bit. Winning = fun. But that is completely the wrong way to look at it. Fun isn't the result of winning. Winning is the result of having fun. It works in such a simple manner. When you play to win you get tunnel vision. You're focusing on the wrong thing and you completely miss opportunities that might have given you an advantage. This leads to mistakes or becoming predictable, and the further you fall behind the more it works against you. Your movements and muscles become tense, and you are completely distracted. However, when you play to have fun, your mind is open to new possibilities. You see more, and are more relaxed. There are opportunities to try things a bit different and often that is enough of an edge on your opponent to pull off something that they aren't expecting or capable of responding to.
It may not be enough to win, but it ensures you are open to learning something new from the experience instead of making excuses. Still, if you focus on trying to have fun then winning is merely icing on the cake. A loss is still a pretty good tasting cake when all things are considered. Being a sore loser means you become a target for ridicule, or people that can help you improve won't want to. Dealing with the bragging winners can be a challenge, but the thing to remember is that while they may act like they know it all, learn everything you can from them, then savour the day that you teach them how to lose. :)
This is something I constantly need to remind myself. Sometimes my vision starts tunneling in and I start to struggle and lose. That is the time that I have to stop for a moment, relax, and realise that I'm not having fun. More often than not that is enough for me to come back in freshly from a new angle. No excuses for the equipment or environment, just a renewed focus on doing what is fun, not what I think I need to win. Now I hope to impart this on the little one to hopefully help her cope with competitive situations.
Sunday, September 1, 2013
On throwing money away.
With all of the talk in popular media about investing in property, etc. I was suprised to see this "gem" pop up. While it's a nice though to try and explain compound interest to people that don't understand it, it helps to cover all of the facts, that this article was missing two critical points: Inflation and Tax. Plus frankly it had some terrible advice tossed in for good measure.
Compound interest is great, and compounding should the first thing you look for in any "savings" account offering. Let's start off by what "compounding" actually is. Compound interest is where interest earned in a savings account is deposited automatically and regularly into that account to generate future interest. The important factors to consider about interest generation is how often it is calcuated (daily, weekly, monthly) and how often it is compounded. Typically the best you can expect is interest calculated daily and compounded monthly.
Now unfortunately the article was completely out of touch with inflation. Their example quotes an interest rate of 7% which in this market is very exceptional while the cash rate is so low. Looking at my current lenders the best compounding interest rate I can get is 4.1% Other lenders will offer higher but it's important to factor in whether or not that rate is compounded. As interest rates increase, these interest rates increase as well. Before getting excited about the 20 year figure you need to factor in that in 20 years, $1 won't be worth as much as it is today. Today you can buy 3L of milk for $3 at Coles. At an average inflation of 2.5% the cheapest you will find it will be around $5.05 in 20 years. That doesn't sound too bad, but when you start looking at $400,000 houses today, that's $671,833 20 years from now.
Depending on how much money you already earn, 4.1% may not be enough after tax to actually keep you ahead of inflation. Currently the inflation rate in Australia is 2.4%, if you're earning over $180k then 4.1% is only earning you 2.25% after tax. (45%) Sad days. :[ If you're under $180k it's 2.58% so it's keeping you ahead of inflation... barely. Looking at more realistic figures:
$10,000 earning 2.58% compounding monthly for 20 years: $16,702
$10,000 in 2033 dollars at 2.4%: $16,069
Congrats, you earned $633. Obviously, regular saving will dramatically increase the end figure but that is a byproduct of saving, not strictly compound interest.
Savings accounts are a useful tool, but really should only serve as a holding place for better yield investments or future necessary expenses. They are by no means any way to "get rich" and it is idiotic to see compound interest pitched as a wealth creation tool.
The terrible advice they mentioned was this:
" It means instead of diverting every spare dollar to debt, bills or lifestyle expenses like most people tend to do, you should squirrel away a few extra dollars today so they grow into a nice, big pile of money years from now."
Now it should be pretty obviously that you don't default on a bill payment to put extra money in savings. However, it is also terrible advice to think that money diverted into a savings account is going to be better for you than paying down debt. Every form of debt you will be facing will itself be a compounding form. Credit cards, home loans, etc. This means that *every* day you have an outstanding balance beyond any interest-free period they are calculating additional interest for you to pay that far, far out-paces any interest you could possibly earn from a savings account. Credit cards are typically charging 11-16%, home loans right now will be around 5%
So if you diverted $50 a week into a savings account while you were still paying down a mortgage then you might have $60k in your savings account after 20 years, but you would have paid $80k or more against your loan. If you want to save money and you have a mortgage, utilize an offset account. This gives you 100% savings against your loan interest tax free. What I mean by that is let's say you had a loan account for 5% and someone actually offered you a savings account for 5.5%. Seems like it would be better to use the savings account? Wrong. Assuming you were earning around $80,000 a year that 5.5% is only worth 3.47% after tax. The offset account is equivalent to 5% after tax. (You are taxed on interest earned, not interest saved.)
If you have outstanding credit card statements charging you interest then your priority has to be zeroing off these balances as quickly as possible. Credit card interest rates are head & shoulders higher than mortgage rates and savings accounts. If you can, get the balance transferred to your mortgage and cut up the credit card.
In summary, creating wealth while managing debt is only possible provided that the investment avenue out-paces the interest charges of your debt *after tax*.
Compound interest is great, and compounding should the first thing you look for in any "savings" account offering. Let's start off by what "compounding" actually is. Compound interest is where interest earned in a savings account is deposited automatically and regularly into that account to generate future interest. The important factors to consider about interest generation is how often it is calcuated (daily, weekly, monthly) and how often it is compounded. Typically the best you can expect is interest calculated daily and compounded monthly.
Now unfortunately the article was completely out of touch with inflation. Their example quotes an interest rate of 7% which in this market is very exceptional while the cash rate is so low. Looking at my current lenders the best compounding interest rate I can get is 4.1% Other lenders will offer higher but it's important to factor in whether or not that rate is compounded. As interest rates increase, these interest rates increase as well. Before getting excited about the 20 year figure you need to factor in that in 20 years, $1 won't be worth as much as it is today. Today you can buy 3L of milk for $3 at Coles. At an average inflation of 2.5% the cheapest you will find it will be around $5.05 in 20 years. That doesn't sound too bad, but when you start looking at $400,000 houses today, that's $671,833 20 years from now.
Depending on how much money you already earn, 4.1% may not be enough after tax to actually keep you ahead of inflation. Currently the inflation rate in Australia is 2.4%, if you're earning over $180k then 4.1% is only earning you 2.25% after tax. (45%) Sad days. :[ If you're under $180k it's 2.58% so it's keeping you ahead of inflation... barely. Looking at more realistic figures:
$10,000 earning 2.58% compounding monthly for 20 years: $16,702
$10,000 in 2033 dollars at 2.4%: $16,069
Congrats, you earned $633. Obviously, regular saving will dramatically increase the end figure but that is a byproduct of saving, not strictly compound interest.
Savings accounts are a useful tool, but really should only serve as a holding place for better yield investments or future necessary expenses. They are by no means any way to "get rich" and it is idiotic to see compound interest pitched as a wealth creation tool.
The terrible advice they mentioned was this:
" It means instead of diverting every spare dollar to debt, bills or lifestyle expenses like most people tend to do, you should squirrel away a few extra dollars today so they grow into a nice, big pile of money years from now."
Now it should be pretty obviously that you don't default on a bill payment to put extra money in savings. However, it is also terrible advice to think that money diverted into a savings account is going to be better for you than paying down debt. Every form of debt you will be facing will itself be a compounding form. Credit cards, home loans, etc. This means that *every* day you have an outstanding balance beyond any interest-free period they are calculating additional interest for you to pay that far, far out-paces any interest you could possibly earn from a savings account. Credit cards are typically charging 11-16%, home loans right now will be around 5%
So if you diverted $50 a week into a savings account while you were still paying down a mortgage then you might have $60k in your savings account after 20 years, but you would have paid $80k or more against your loan. If you want to save money and you have a mortgage, utilize an offset account. This gives you 100% savings against your loan interest tax free. What I mean by that is let's say you had a loan account for 5% and someone actually offered you a savings account for 5.5%. Seems like it would be better to use the savings account? Wrong. Assuming you were earning around $80,000 a year that 5.5% is only worth 3.47% after tax. The offset account is equivalent to 5% after tax. (You are taxed on interest earned, not interest saved.)
If you have outstanding credit card statements charging you interest then your priority has to be zeroing off these balances as quickly as possible. Credit card interest rates are head & shoulders higher than mortgage rates and savings accounts. If you can, get the balance transferred to your mortgage and cut up the credit card.
In summary, creating wealth while managing debt is only possible provided that the investment avenue out-paces the interest charges of your debt *after tax*.
Wednesday, August 28, 2013
Invest in property!
Followed by the sound of a head banging against a wall... Repeatedly.
This is a topic that comes to a head with my significant other every so often. We've worked very hard to pay off our substantial loan in Australia even faster than I was estimating, just over 6 years to be exact. But she looks at what others had done in the past, and are continuing to do, relating to investing in property, and she challenges me to explain why we aren't doing the same.
I run through the numbers, again and again, reading up on negative gearing, tax incentives, etc. expecting to convince myself that there is something there that I haven't seen and it *just* *doesn't* *add* *up*.
It seems everyone is into negative gearing. Deduct losses from your taxable income. This comes from your highest tax bracket, so if you made $200k, 20k of deductions would be $9000 worth of tax that would otherwise be given to the ATO, and now can be allocated to an investment property's capital growth. Got it! But wait a sec, I'm still out of pocket $11k for the year. The 9k isn't invested in the property, it merely lessened the amount I had to sink into it.
Having spent some time looking at the property market, none of it adds up unless you're willing to really gamble on new developments out in the middle of nowhere, or can secure a criminally sweet deal in today's market. The reality is that property prices in Australia are just too damned high, even if you look at areas that have been depressed as of late.
Lets take the Sunshine Coast for example. Lovely place, I like spending time up there and wouldn't mind retiring there some day. Property there has taken a savaging after booming through 2005-2009. It's taken a 20% loss since the peak. One area is an interest to us, Caloundra as it's big enough to have the amenities we desire, but not a glitter-strip attracting schoolies and hoons. There is a LOT for sale up there, even considering these are record low interest rates.
And there is the kicker. These are some of the lowest interest rates on record, and these properties are still incapable of being positive geared without significant investment.
An average 2 bedroom apartment in a relatively new building (2000's) will set you back $400-450k. Often these are in short-term stay sub-leasing arrangements. It doesn't look that bad from a price point of view, however there are other factors to consider:
Rental yield: Long-term rental rates for units like the above range from $410-440/week, and from what I can see, units are taking 4+weeks in-between tenants so you have to factor that cost in. Putting them in short term stay rental pools is an option if you find a good building, but even then the occupancy for last year was at best 85%, at worst 65%. Frankly, there is an oversupply of units.
Body Corp: I couldn't believe some of the body corp fees I was seeing in these units. $6000p.a. for effectively a studio apartment, with an additional $2000p.a. for rates. That is $153/wk off any rent return right there. Oddly enough I was receiving quotes in this ballpark for 2 bedroom apartments as well. Probably explains why 16 units within that single building were up for sale.
So lets work some numbers on a nice apartment: $430k after all sales fees etc. with body corp and rates adding up to $8000 and a rental rate of $430/wk. In an investment interest only loan at 5.2% that is a weekly repayment of $429. Add to that your rates/b.c. ($153) and management fees (9% of rent: $39) that comes to a total of $191/wk out of pocket. Ok, obviously we need some capital in the property to get that down. Most advice I've seen is to aim for a 70% loan. I mean that makes some sense because if the property was any easier to positive gear then why would people rent? (they can afford the mortgage provided they can be bothered to save the 20% deposit) 30% of that is $129k. Crap, well I don't have that kind of cash sitting around. (And *no* you cannot "use" equity against that, you can only borrow against it.) I've got $80k that I can put against it now, so what does that look like... It drops the interest charge to $349/wk for a total difference of $111 out of pocket. Let's work with that.
$111/wk is $5,772 a year. As I made more than $180k last year I can deduct the top tax bracket from that. So it would be $3,175 out of pocket provided that unit was rented 12 months. This doesn't include any cost for maintenance or other incidentals like contents insurance if it's furnished. (if that's even worth having or just absorbing those costs as well) Now I can probably deduct a bit more based on depreciation but let us use this as a bench mark.
$3,175 a year is certainly affordable, but is it a good investment? Right now my total investment in the property is sitting at $83,157. $80k is tied up in an offset account not even earning me interest. If I left 80k in my savings account I'd have approximately $81,225 after tax, if I invested it or put it in Superannuation that figure would be significantly higher, but for this example that brings our total investment for this year to $84,380. I'm still $111/wk out of pocket, and if I'm lucky and rent demand is strong I can expect to perhaps raise rents by $10/year, but at that rate it would take 10 years so each year I need to allocate more cash. By next year I should have enough savings easily for that 30% target. ($129k) That with the rent increase drops the out of pocket down to $54/wk.
So the next year's out of pocket is $1,544 after tax deductions. Moving in the right direction but my realized cost after the 2nd year is $129,000 + $1,225 (first years lost interest) + $3,175 (first year losses after tax) + ($3,590 2nd year lost interest) + $1,544 (2nd year losses after tax) A total of $138,534 tied up in this investment so far. And I'm still negative gearing it. Any improvement I get from rental yield is being negatively geared by the loss of earnings I should be making on funds I need to reserve for this investment. But I'm going to get that back when I sell the property, right?
Fast forward 20 years when we're ready to sell this investment gem. Oh wait! There was a time bomb lurking in that equation, did you see it? INTEREST RATES. We are sitting on record low rates right now, and probably will be for the next year. However, the average rate is closer to 8%. When they start to climb, they will climb back up to 8% in a matter of a few years. (.75% and 1% hits are not that uncommon) What does affordability look like going into a 3rd year at 8% instead of 5.2%.
Remember that $54/week out of pocket? at 8% that would be $215/week! To get that back to $54/week we need to find another $105,000 to put in our offset account. A total of $234,000 tied up in this property! To positive gear the property will take $270,000. Want to see 9%? $272/week out of pocket. Does that still look "affordable"?
Now fast forward 20 years, and let's sell that property. What kind of capital growth can we expect? Double every 10 years? You're simply kidding yourself. Property prices can only out-pace inflation for so long unless you truly believe in an Australian dream where two families combine their assets to afford that 4 bedroom home. All you need to look at is the ratio between median income to median house price to see that the balloon is fully stretched. If house price growth doesn't drop relative to inflation then people simple cannot - afford - to - live - here. So who exactly will be purchasing your unit? Why would you live in an Australian city if you could get a home in virtually any other city in the world for less? If inflation drives salaries up, interest rates will rise and that affordability crisis will set in. Nope, if you cross your fingers, the property market will be able to maintain close to inflation until you retire, and maybe you see a bit of a surge opportunity to sell. Inflation averages at around 3%. If house prices can keep pace, that would mean your $440,000 unit would be worth in the ballpark of $800,000 in 2034. If you believe in a figure closer to 6% (What property spruikers love to quote based on short-term annualized figures), you're dreaming. Why? If a person/family earning $80k today struggles to buy a $400k home, do you think in 2034 when they're earning $144,500 they're going to be able to afford a home worth $1.28M?? (That is $710k in today's dollars) You show me a family on $80k comfortably affording a $710k house, then I'll concede that 6% p.a. property growth is even remotely possible.
So you're selling a unit for around $800k. Hopefully capital gains tax laws haven't changed too much by then, deduct selling fees, your total realized investment in the property through its life, and don't forget any renovation costs incurred through the life of the property. (Depreciated) And what are you left with? Now convert that figure to a per annum figure. My own estimates say by time of sale I would have invested over $500,000 in my offset account, plus lost interest, plus cost of renovations. Making $300k over 20 years is pretty crap, given the amount of money invested.
Remember that $80,000 we started off with? Put in a meager savings account that alone would earn $36,000 after tax and we've sacrificed a lot more than that in the life of this mortgage. The irony is that as interest rates increase, the investment property costs us more, while savings earn more. (At 6% that figure is $102,000) Superannuation averages 5-7% long-term with considerable tax benefits, but there's no guarantee the government won't screw over retirees within the next 20 years, plus there's always the risk of super exposure to shares and property.
Lump sum, I think a *lot* of people are kidding themselves, or being completely conned into investing in property unless they are securing extremely good bargains that can be positive geared easily today. Unfortunately, quite a few I've talked to are currently negative gearing over $100/wk today. Affordable today, yes, but in two to three years as interest rates start to recover? Sorry, but if you're in that boat be prepared for the tooth & nail fight for the life rafts when it starts taking on water. The S.o.B's conning you into buying property today will be circling like sharks to buy off those properties at 2002 prices as mortagee possessions and distressed sales reach plague proportions.
This is a topic that comes to a head with my significant other every so often. We've worked very hard to pay off our substantial loan in Australia even faster than I was estimating, just over 6 years to be exact. But she looks at what others had done in the past, and are continuing to do, relating to investing in property, and she challenges me to explain why we aren't doing the same.
I run through the numbers, again and again, reading up on negative gearing, tax incentives, etc. expecting to convince myself that there is something there that I haven't seen and it *just* *doesn't* *add* *up*.
It seems everyone is into negative gearing. Deduct losses from your taxable income. This comes from your highest tax bracket, so if you made $200k, 20k of deductions would be $9000 worth of tax that would otherwise be given to the ATO, and now can be allocated to an investment property's capital growth. Got it! But wait a sec, I'm still out of pocket $11k for the year. The 9k isn't invested in the property, it merely lessened the amount I had to sink into it.
Having spent some time looking at the property market, none of it adds up unless you're willing to really gamble on new developments out in the middle of nowhere, or can secure a criminally sweet deal in today's market. The reality is that property prices in Australia are just too damned high, even if you look at areas that have been depressed as of late.
Lets take the Sunshine Coast for example. Lovely place, I like spending time up there and wouldn't mind retiring there some day. Property there has taken a savaging after booming through 2005-2009. It's taken a 20% loss since the peak. One area is an interest to us, Caloundra as it's big enough to have the amenities we desire, but not a glitter-strip attracting schoolies and hoons. There is a LOT for sale up there, even considering these are record low interest rates.
And there is the kicker. These are some of the lowest interest rates on record, and these properties are still incapable of being positive geared without significant investment.
An average 2 bedroom apartment in a relatively new building (2000's) will set you back $400-450k. Often these are in short-term stay sub-leasing arrangements. It doesn't look that bad from a price point of view, however there are other factors to consider:
Rental yield: Long-term rental rates for units like the above range from $410-440/week, and from what I can see, units are taking 4+weeks in-between tenants so you have to factor that cost in. Putting them in short term stay rental pools is an option if you find a good building, but even then the occupancy for last year was at best 85%, at worst 65%. Frankly, there is an oversupply of units.
Body Corp: I couldn't believe some of the body corp fees I was seeing in these units. $6000p.a. for effectively a studio apartment, with an additional $2000p.a. for rates. That is $153/wk off any rent return right there. Oddly enough I was receiving quotes in this ballpark for 2 bedroom apartments as well. Probably explains why 16 units within that single building were up for sale.
So lets work some numbers on a nice apartment: $430k after all sales fees etc. with body corp and rates adding up to $8000 and a rental rate of $430/wk. In an investment interest only loan at 5.2% that is a weekly repayment of $429. Add to that your rates/b.c. ($153) and management fees (9% of rent: $39) that comes to a total of $191/wk out of pocket. Ok, obviously we need some capital in the property to get that down. Most advice I've seen is to aim for a 70% loan. I mean that makes some sense because if the property was any easier to positive gear then why would people rent? (they can afford the mortgage provided they can be bothered to save the 20% deposit) 30% of that is $129k. Crap, well I don't have that kind of cash sitting around. (And *no* you cannot "use" equity against that, you can only borrow against it.) I've got $80k that I can put against it now, so what does that look like... It drops the interest charge to $349/wk for a total difference of $111 out of pocket. Let's work with that.
$111/wk is $5,772 a year. As I made more than $180k last year I can deduct the top tax bracket from that. So it would be $3,175 out of pocket provided that unit was rented 12 months. This doesn't include any cost for maintenance or other incidentals like contents insurance if it's furnished. (if that's even worth having or just absorbing those costs as well) Now I can probably deduct a bit more based on depreciation but let us use this as a bench mark.
$3,175 a year is certainly affordable, but is it a good investment? Right now my total investment in the property is sitting at $83,157. $80k is tied up in an offset account not even earning me interest. If I left 80k in my savings account I'd have approximately $81,225 after tax, if I invested it or put it in Superannuation that figure would be significantly higher, but for this example that brings our total investment for this year to $84,380. I'm still $111/wk out of pocket, and if I'm lucky and rent demand is strong I can expect to perhaps raise rents by $10/year, but at that rate it would take 10 years so each year I need to allocate more cash. By next year I should have enough savings easily for that 30% target. ($129k) That with the rent increase drops the out of pocket down to $54/wk.
So the next year's out of pocket is $1,544 after tax deductions. Moving in the right direction but my realized cost after the 2nd year is $129,000 + $1,225 (first years lost interest) + $3,175 (first year losses after tax) + ($3,590 2nd year lost interest) + $1,544 (2nd year losses after tax) A total of $138,534 tied up in this investment so far. And I'm still negative gearing it. Any improvement I get from rental yield is being negatively geared by the loss of earnings I should be making on funds I need to reserve for this investment. But I'm going to get that back when I sell the property, right?
Fast forward 20 years when we're ready to sell this investment gem. Oh wait! There was a time bomb lurking in that equation, did you see it? INTEREST RATES. We are sitting on record low rates right now, and probably will be for the next year. However, the average rate is closer to 8%. When they start to climb, they will climb back up to 8% in a matter of a few years. (.75% and 1% hits are not that uncommon) What does affordability look like going into a 3rd year at 8% instead of 5.2%.
Remember that $54/week out of pocket? at 8% that would be $215/week! To get that back to $54/week we need to find another $105,000 to put in our offset account. A total of $234,000 tied up in this property! To positive gear the property will take $270,000. Want to see 9%? $272/week out of pocket. Does that still look "affordable"?
Now fast forward 20 years, and let's sell that property. What kind of capital growth can we expect? Double every 10 years? You're simply kidding yourself. Property prices can only out-pace inflation for so long unless you truly believe in an Australian dream where two families combine their assets to afford that 4 bedroom home. All you need to look at is the ratio between median income to median house price to see that the balloon is fully stretched. If house price growth doesn't drop relative to inflation then people simple cannot - afford - to - live - here. So who exactly will be purchasing your unit? Why would you live in an Australian city if you could get a home in virtually any other city in the world for less? If inflation drives salaries up, interest rates will rise and that affordability crisis will set in. Nope, if you cross your fingers, the property market will be able to maintain close to inflation until you retire, and maybe you see a bit of a surge opportunity to sell. Inflation averages at around 3%. If house prices can keep pace, that would mean your $440,000 unit would be worth in the ballpark of $800,000 in 2034. If you believe in a figure closer to 6% (What property spruikers love to quote based on short-term annualized figures), you're dreaming. Why? If a person/family earning $80k today struggles to buy a $400k home, do you think in 2034 when they're earning $144,500 they're going to be able to afford a home worth $1.28M?? (That is $710k in today's dollars) You show me a family on $80k comfortably affording a $710k house, then I'll concede that 6% p.a. property growth is even remotely possible.
So you're selling a unit for around $800k. Hopefully capital gains tax laws haven't changed too much by then, deduct selling fees, your total realized investment in the property through its life, and don't forget any renovation costs incurred through the life of the property. (Depreciated) And what are you left with? Now convert that figure to a per annum figure. My own estimates say by time of sale I would have invested over $500,000 in my offset account, plus lost interest, plus cost of renovations. Making $300k over 20 years is pretty crap, given the amount of money invested.
Remember that $80,000 we started off with? Put in a meager savings account that alone would earn $36,000 after tax and we've sacrificed a lot more than that in the life of this mortgage. The irony is that as interest rates increase, the investment property costs us more, while savings earn more. (At 6% that figure is $102,000) Superannuation averages 5-7% long-term with considerable tax benefits, but there's no guarantee the government won't screw over retirees within the next 20 years, plus there's always the risk of super exposure to shares and property.
Lump sum, I think a *lot* of people are kidding themselves, or being completely conned into investing in property unless they are securing extremely good bargains that can be positive geared easily today. Unfortunately, quite a few I've talked to are currently negative gearing over $100/wk today. Affordable today, yes, but in two to three years as interest rates start to recover? Sorry, but if you're in that boat be prepared for the tooth & nail fight for the life rafts when it starts taking on water. The S.o.B's conning you into buying property today will be circling like sharks to buy off those properties at 2002 prices as mortagee possessions and distressed sales reach plague proportions.
Tuesday, May 28, 2013
What is my problem with man, you ask? No, I ask you, what was man's problem with me!
Finally, an answer to a question that has plagued me, and many others for many years. This is a sample used to start a great song, "You Don't Know Me" by Armand Van Helden.
Several people thought it was Charlton Heston from either Planet of the Apes or Omega Man... However, I had a hunch that it might be the voice of the actor that plays "The Brain" from "Pinky and the Brain"... Turns out I was right, though it's not from that series. It is from Dexter's Laboratory (Specifically "Dial M for Monkey" episode "Simion".) Played by Maurice LaMarche.
http://onlineplayer.eu/Season-1/dexter-s-rival-dial-m-for-monkey-simion-old-man-dexter-03.html
@10:31.
So, if you haven't come across an answer until now, please watch and enjoy. :)
Several people thought it was Charlton Heston from either Planet of the Apes or Omega Man... However, I had a hunch that it might be the voice of the actor that plays "The Brain" from "Pinky and the Brain"... Turns out I was right, though it's not from that series. It is from Dexter's Laboratory (Specifically "Dial M for Monkey" episode "Simion".) Played by Maurice LaMarche.
http://onlineplayer.eu/Season-1/dexter-s-rival-dial-m-for-monkey-simion-old-man-dexter-03.html
@10:31.
So, if you haven't come across an answer until now, please watch and enjoy. :)
Friday, January 25, 2013
Yahoo struck again...
Yeah, I have an old, defunct Yahoo Mail account. I abandoned it about a year ago in favour of another free-mail provider mainly because I was sick of the ads and the spam. Granted, Yahoo did a lot better with the later than Hotmail which I dropped in less than a year.
So today, basically anyone and everyone that I've ever sent an e-mail to from my yahoo account over the years has received at least one piece of malicious spam. The funny thing is that unlike the normal spam-crap that gets triggered by malicious links, this one didn't require it. I check my yahoo account every few months, but aside from checking to see if some long-ago contact as tried to get in touch with me, I don't open/read mail from this account, so no chance of a malicious link... The other thing that was curious is that many of the spam attacks use address books, which is one reason I keep my address books empty. It appears to have used e-mail addresses from my sent-items list. It wasn't my Inbox / folders because some of the addresses I saw listed from the auto-replies and responses from confused people were addresses I would have sent the odd inquiry to, but never received or kept any response from. I have always purged my sent folder periodically but there was still about 4 pages of e-mails in there. I wiped it all out before I checked, but at least one of the one-off e-mail addresses I saw in a response likely wouldn't have still been in my sent box since the last purge. There was no trace of the "sent" spam in my sent mail folder either, though I don't know if many mail hacks actually work through the mail client like that.
From what I can tell, and what I've been reading, it's quite possible that my Yahoo account wasn't compromised, it may have been the actual Yahoo service that was compromised. Either way I've taken the precaution to change the account password, plus purge all messages from the various folders in the account, and run a current malware scan to be safe.
So, if you've gotten a bit of crap from my yahoo mail account, I do apologize for not being diligent enough when I retired that e-mail address. Please delete it, and if you're on Yahoo in particular, clean out your folders/address book, change your password, and hold your breath...
So today, basically anyone and everyone that I've ever sent an e-mail to from my yahoo account over the years has received at least one piece of malicious spam. The funny thing is that unlike the normal spam-crap that gets triggered by malicious links, this one didn't require it. I check my yahoo account every few months, but aside from checking to see if some long-ago contact as tried to get in touch with me, I don't open/read mail from this account, so no chance of a malicious link... The other thing that was curious is that many of the spam attacks use address books, which is one reason I keep my address books empty. It appears to have used e-mail addresses from my sent-items list. It wasn't my Inbox / folders because some of the addresses I saw listed from the auto-replies and responses from confused people were addresses I would have sent the odd inquiry to, but never received or kept any response from. I have always purged my sent folder periodically but there was still about 4 pages of e-mails in there. I wiped it all out before I checked, but at least one of the one-off e-mail addresses I saw in a response likely wouldn't have still been in my sent box since the last purge. There was no trace of the "sent" spam in my sent mail folder either, though I don't know if many mail hacks actually work through the mail client like that.
From what I can tell, and what I've been reading, it's quite possible that my Yahoo account wasn't compromised, it may have been the actual Yahoo service that was compromised. Either way I've taken the precaution to change the account password, plus purge all messages from the various folders in the account, and run a current malware scan to be safe.
So, if you've gotten a bit of crap from my yahoo mail account, I do apologize for not being diligent enough when I retired that e-mail address. Please delete it, and if you're on Yahoo in particular, clean out your folders/address book, change your password, and hold your breath...
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