My NW increased by $33.6K during September (1.45%) mostly due to the gains in the local and global stock markets flowing through to my geared share portfolio and also our SMSF investment. Our house valuation was slightly lower, based on sales data for our suburb, whereas the overall Sydney market has shown a rebound in property values (likely due to the two interest rate cuts by the RBA in recent months).
My NW data for this month includes a $1m increase in 'other real estate' as an asset, and a corresponding increased liability of approx. $1m in 'other mortgages' - this is due to my purchase 'off-the-plan' of a one bedroom apartment in a high rise apartment development (88byJQZ) in St Leonards. I paid the initial $5K 'holding deposit' using my 'portfolio loan', so that debt has actually been reflected in the net value of my 'Stocks' position, leaving $995K liability. When the balance of the 10% deposit gets paid when I exchange contracts this month, the 'other mortgages' figure will reduce to $900K (that balance will fall due when the apartment construction is completed and 'settlement' occurs - currently scheduled for Q1 2023), and the full $100K deposit amount will be reflected in my 'portfolio loan' balance as I am using that to pay the deposit. This will reduce the net value of my 'Stocks' portfolio by $100K, which is a bit misleading, so I may do an ongoing adjustment to the portfolio loan figure and include the $100K 'deposit' amount as part of the 'other mortgages' figure.
I'll probably also add the stamp duty (payable 3 months after exchange of contracts) as part of the 'valuation' of my apartment, as this will probably be similar to the price differential for a completed unit compared to 'off-the-plan' pricing. In the unlikely event that the apartment development does not complete, I should get my deposit refunded and also be able to claim back the stamp duty payment.
Hopefully the property market 'correction' in Sydney is indeed over, and between now and settlement in 2023 the valuation of my apartment will have risen (so it shouldn't be a problem getting a mortgage for the balance due on settlement - I will have paid a 10% deposit, and banks usually prefer to only lend 80% of valuation).
* property prices may not appreciate, or may decline (as was the case during the recent property slump) - but historically St Leonards has enjoyed an average gain around 6% pa. I've calculated that I would make some gain as long as prices appreciate by at least 2%pa during my holding period (10-15+ years).
* I may not be able to arrange finance (a mortgage) when the development is completed in 2023 and I need to 'settle' the balance. This seems unlikely as I have another unencumbered property that could be used as collateral for the loan. But if I am no longer employed it may be more difficult to obtain a mortgage.
* Interest rates may increase substantially - currently investor mortgage rates are around 3.5%-4.0%, and interest rates are currently being reduced. On the other hand, interest rates are at historic lows, so a substantial rise in interest rates is a distinct possibility in the medium-long term.
* I may not be able to achieve typical rental returns ($560/wk for a one bedroom apartment), or may experience high vacancy rates. However, as a new, 'luxury' apartment on the 39th floor with views towards the city, harbour, and harbour bridge it should be relatively easy to rent out and obtain above average rent.
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