Real Estate Down Under - What Can We Learn?

My sister, Laura, just visited for an entire month. Hooray!

She's been living in Australia for 22 years. During that time, she's also lived in Munich and Stuttgart Germany, Seoul Korea, Beijing China, Cordoba Argentina as well as Melbourne, Perth and Darwin Australia. At any rate, Sydney is her home.

We've been talking a lot of real estate, naturally, while she's been here. Things are VERY different Down Under.

For example, no mortgage or home equity interest deductions are given on their personal residences. That would be a bummer to lose here although the US is talking about taking that benefit away from us. Seems our government is looking for ways to increase tax revenues..

Because of their tax laws, it is better to buy a property and rent it out, but rent the property you live in. And, in Australia, the tax rate is almost 45% at the highest tax rate so this savings can make a significant difference in what they pay. The average house price in Sydney is $630,000. You can, like here, write off all expenses on a rental property including interest. It's written off against their W-2 income.

Open House - an entirely different animal. Their agents hold house open on Wednesdays and/or Saturdays for 30-40 minutes! Often a queue (line) forms which can lead to some enthusiastic bidding at auction! Wow, wouldn't we love that! Not enough houses there for the population, more buyers than sellers. In all desirable neighborhoods, they sell homes through auction.

Mortgage loans are 25-30 years and traditionally interest rates are not fixed. Lenders are just now offering fixed rates for up to 10 years but interest rates at this time are a minimum 2% higher to fix.

Their banks hold the loans, they don't sell them. The mortgage provider owns the mortgage for the life of the loan. Mortgage companies encourage you to pay twice per month to pay off faster, though paying once per month is common.

Most Australian loans are paid off in 7 years due to two motivating factors: increasing interest rates and the fact that you can't write any of the personal home loan or home expenses off on your taxes.

Average closing time is 6 weeks. They have only selling agents, not buying agents, and these agents get 3-4% commission. There is no Multiple Listing Service (MLS). To sell a property, you list with an agent. To buy properties, there are now online sites but, up until recently, the houses were only listed in the paper. Go to an agent? They only list properties they have for sale, none the other agents offer.

Average down payment is 10%. There is no mortgage insurance. At auction, you must be pre-approved before you bid and you must have the 10% down in cash on the day of the auction.

Australia offers a first homeowner grant, similar to the one ending here, but theirs is always offered. First time qualified buyers receive a $7000 refund when they make their purchase. Homes under $750,000 qualify. Remember, their average house price is $630,000 but, still, most homes qualify.

My sister and her husband have been traveling for over a year. They were both employed in the tech industry and they used their income to buy and pay off rental properties. They are now retired for life, both in their 40's.

Real estate investing works, and not just in the US.