Any advice would be welcome.
We have been a bit lazy when it comes to doing something with our hard earned cash (we should have invested years ago as situation was exactly the same as it is today). We own our home (recently valued at $760K) have $70 lazy 000’s sitting in a credit union doing absolutely nothing and we are both working.
We’ve read Steve’s books, listened to tapes, been reading PI magazines, talking with like-minded people and the list goes on. Just when we thought – “Lets Do It Now” (invest that is!) the market changes and now we are not sure what direction to move. We have had trusts etc. set up in our company’s name, had pre-approval for line of credit and are able to borrow for property. That was the easy part. Now the property market has changed and slowed a little we are wondering should we be purchasing now, or should be be waiting? The impending interest rate rise is also a concern. Steve is suggesting to off-load any low performing property, before the rates rise too high and selling will be difficult. Having read that tip, I am not feeling like “jumping in boots and all”.
Det
Hi Det,
I’d think you have little to lose by waiting and watching. Speculating on capital gains today is for fools (IMO). If it’s CF+ you’re after, make sure you factor in a couple of extra percentage points for interest rate rises. Whilst some will buy a property yielding 7% (after subtracting a 20% deposit!) and try to pass it off as a safe positively geared investment, I wouldn’t touch anything yielding less than 12% (note – this leaves me sitting on the sidelines for now).
Cheers, F.[cowboy2]Det,
Interest rate rises will be a problem for you if:
– Your loan payments rise beyond your means forcing you to sell, or
– High interest payments erode the profitability of your investment, or
– High interest rates lower the value of your property when you want to sell.
One way to manage the first two points would be to fix your interest rate.
Regarding the third point, your investment time-frame is probably considerably longer than that of any currently expected interest rate rise. If you’re looking at holding the properties for 10 years or more no-one can forecast what interest rates will be doing at that time. So the only effect of short-term rate changes is that there might be an opportunity cost, meaning that you could have bought your investment at an even better price. With the equity you have one option would be to make an investment now and keep enough available to make another, better, investment later if the opportunity arises. What you learn with the initial investment may help you to spot that opportunity!?I don’t think you’ll get any argument that the market sentiment has changed. Going back a few years making a bad investment might have resulted in only making a small profit, now it could result in a large loss. That doesn’t mean that profitable deals don’t exist right now, but evaluate each opportunity on its own merits and don’t rush in unless the numbers look good to you.
That’s how I would look at it anyway!
Thanks Foundation and Smethem
Maybe it’s wise to just sit and watch (and use the time doing a bit extra due diligence). We would really like to buy an IP (we feel like we have learnt so much already, perhaps have a lot of things ‘doing’ but haven’t actually ‘done’ anything. I’ve sent my husband all over the countryside and we’ve recently put offers in on a few places and had one accepted (total cost would come to approx. $650). This was before the interest rate rise. Personally I thought that it would be putting all our eggs in one basket and if we really needed to sell something, then we would have to sell our entire portfolio! We have decided not to go through with this one.
I agree with all three points. Personally, I like the idea of buying and holding (probably because it’s easy!) so that is a criteria that we’ve been looking for too.
We are also nervous about using our beautiful home that we have worked so hard on as security. We know that is the way to move ahead, and I think we have to acquire the courage to get past that.
Foundation, we might join you on the sideline for a bit. Sounds a bit more relaxing anyway.
Det.
Foundation, we might join you on the sideline for a bit. Sounds a bit more relaxing anyway.Sure it’s relaxing, but not boring! There are plenty of ways to speculatively invest smaller amounts of money – you don’t have to go the whole ($650k[blink]) hog! Precious metals, art, collectables, call options… done well , any of these could have provided good growth since the peak of the property boom with much lower capital requirements than a house.
Cheers, F.[cowboy2]Hi Det
Let me put it this way: if you want to buy property is it better to wait until it is at the top of the property cycle then buy: or is it more of an advantage to buy when property is moving sideways or has dropped a little? If you get into the property cycle now you can put offers to the vendor much lower that you could have 12 months ago. It is a fact that vendors are not being knocked over by a rush of people wanting to buy their property at any price.
What Steve is talking about are people who have bought property when things were going up and who had the false impression that property would continue to go up without them doing anything forever and profit was assured.
This is not how it is, the last few years is really only an apparition and a short lived phenomenon. The property cycle works over a 10 year period on average and most of the time it is either going sideways or retreating. Then you have a boom period over a couple of years and everything doubles in price.
I would say with your financial situation that now is the time to position yourself in the market. As long as you buy well and below the asking price of the vendor, then add value in someway to the property you can make a good profit.
Indecision is the reason why most people fail.
KerwynYes, there are more ways to invest than just property. I suppose it’s about educating yourself and choosing the one you are most comfortable with at the time. Thanks for the thought.
Det[suave2]
I would say with your financial situation that now is the time to position yourself in the market. As long as you buy well and below the asking price of the vendorI agree. 35-40% below in most cases![biggrin]
I reckon that ‘buying and holding’ something for some stupendous CF+ve yield like I was able to do in NZ a couple of years ago is ‘old school’ in the current market and people that are waiting for that deal even in NZ either have to look at 200 to find it (cause you do occasionally find them, if you are always looking) or else DO a bit more to MAKE the deal happen.
subdivide. develop. renovate. add a bedroom. all that sort of thing. DO something. This is how you can carry on building your equity AND your cashflow without waiting for time and capital gains to do it for you, you can create it.
my two cents. cheers-
MiniHi Det
while your watching from the sidelines, it cant hurt to check out City Pacific http://www.citypac.com.au , they offer 9% for 12 months fixed.BigJobs, that is a high risk investment apparently posing as something else altogether. There is nothing wrong with risk, providing investors are fully informed.
they offer 9% for 12 months fixed.No, that is not what they are offering at all. That is the current return for people who are/have been invested in the 12 month option.
If you were to currently invest in this option there is no guarantee that your return will be 9%, in fact it could quite possibly be a negative return! I wouldn’t touch anything relying 47% on the success of private residential developments at this point in time… and I’d have to question why those developers are prepared to borrow money at 11%![confused2]
Cheers, F.[cowboy2]Thanks everyone for their input. Yes, indecision doesn’t get you too far and mostly I am a very decisive person. Knowledge is power, so thanks for your “expertise”. Much appreciated.
Det. [evo]
HI Det,
There are a couple of points that I would make here.
Firstly – you haven’t told us what it is you want to achieve and as such giving comments about now or later is a little flawed.
If haven’t already done so. you need to work out what it is you want to achieve, what you timeframe is, what your current cashflow is, are there any ‘seachanges’ on your horizon, how property will fill your financial needs/goals in the future, how risk adverse you are etc.
All of these will then help you determine whether or not the time is right.
Secondly – the Australian property market is not a single entity.
Different cities and localities have their own cycle, and properties within each of these can still be good investments – the challenge for you is to be able to do the research, know the local market so that you can spot the ‘right property’
Having said that if you want the gains of the last two years repeated you are too late.
Derek
[email protected]
0409 882 958
Property investment advice and researched property in quality locations available.Derek
Our Goal: We are in our early 40’s and don’t really want to work until 60, if we don’t have to, so passive income and early retirement is a goal. If not early retirement, then we would like to be able to travel and enjoy retirement without relying on super only). We both enjoy (but not love!) our jobs, so we are not looking for a quick escape by investing. We are also very interested, and always have been, in the property market. We’ve subdivided before and bought and sold over the years to put us into the situation we are currently.
Timeframe: We would like to achieve this in approx. 10 years, although would like ongoing investment returns when we have retired.
Risk: We are both not big risk takers, but not totally adverse to a little risk – as long as it is calculated and well-researched.
Cashflow: Own home, cars etc. and have no debt (inc. credit cards) so any cash coming is either saved or spent. We’ve got two boys with expensive interests which manages to take care of any surplush cash flying around.
Since paying off our home, we said we would have a few years off without a mortgage – enjoying what we earn and taking it easy. Surplus money made through subidivision was put in bank – looking back now, we should have put it straight back into property.
Det.
Hi Det
I think (from what little I know) you are in quite an enviable position. If you paid off your home, have no other debts, have two jobs, two lovely kids – what are you waiting for?
Did you realise with the equity in your home, you can buy atleast 10 average 250K properties around australia. with a bit of research, they could be both +Cf and CG.
OR
You could put the 70K in super, borrow of your equity to live and one of you can give up your job – NOW
There is NO right time to invest in property – NOW is the only time, provided you do your due diligence.
Looks to me fear is holding you back in the name of conservatism.
Look deeply within – what is holding you?
Hope you didn’t take offence to this. Would love to hear progress from you.
Regards
PadmaPadmaa:
borrow of your equity to live and one of you can give up your job – NOWDo you honestly believe that to be a good strategy? That ‘equity’ is not money in the bank, it is simply collateral against which money can be borrowed. Is it a good idea to suggest that det & family use DEBT to fund their living expenses at the (likely) halfway point of their lives? Is this not exactly the opposite of a wealth building strategy, given that they would then be making interest payments on unproductive debt?
There is NO right time to invest in propertyErr, how about 1997? Not the right time? 1985? Not the right time? When houses are fairly valued / undervalued according to fundamentals, I would suggest these are the times to buy property.
1990 or 2005 on the other hand – perhaps not so good.NOW is the only time, provided you do your due diligence.No, tomorrow / next month / next year are also options.
Out of curiosity, what do you see as a reasonable interest rate buffer to factor into your DD? What about the probability and magnitude of capital loss?Looks to me fear is holding you back in the name of conservatism.Or could it be foresight? Common sense? Reading Steve’s latest newsletter? That BIS report? Uncertainty over interest rates?
Look Padmaa, I apologise if it seems I’m ‘having a go’, but as you said, det is ‘in quite an enviable position’, and you are suggesting she/he gambles the lot. Not the best advice.
Cheers, F.[cowboy2]I think Paddmaa’s reply was a good one. It’s always a good time to buy property, afterall, you’re not buying the entire Australian propety market. You’re only looking for one and there are plenty of exceptions to the national trend. It’s always the right time to buy. It’s finding the right location that’s the challenge at the moment. If you don’t want to buy, you’ll always find people to tell you that it’s not a good time. Just do your own research and trust yourself. There is risk in every investment. Property is pretty low risk if you have the resources to hold long term, which you obviously do.
From the latest Property Investing Newsletter:
if you’re using a buy and hold strategy on the basis that your profits will be derived from the property market returning to the boom times of a few years ago then you’re making a fundamental error of judgement because you’re investing for a market that doesn’t exist at the moment.I agree. In the long term, the very best return you can expect from residential real estate investment is a little less than 2% above inflation. Given that HPI is currently 30-40% above this long term trend in most parts of Aus, a correction of some sort is inevitable before boom times can return.
Given the recent unheralded price boom, it is not unreasonable to have a period of 7 to 10 years of flat property values prices while affordability catches up and sentiment changes again. This is a long time to hold loss making or marginal real estate.Even flat house prices in a high inflation environment result in a loss of real capital. What about a moderate drop in value followed by 5 or more years of zero growth? How would negative equity affect your peace of mind, your relationships, ability to take advantage of investment opportunities, ability to accept a lucrative job offer requiring a move…
it would make sense to evaluate your real estate portfolio on the basis that interest rates were (say) 2% higher. If, at this higher rate, it is no longer affordable for you to own the property then perhaps you should consider selling it in today’s lower interest rate market where it will be easier to sell compared with down the track when rates are higher.It’s almost as if Steve’s been listening in to advice I’ve been giving my friends & family for the last 18 months. Unfortunately, to sell now will require vendors in most areas to accept lower offers than they could have expected a year or two ago. To begin a property investing career now, particularly of the magnitude suggested by Padmaa is utterly reckless.
To those who will inevitably jump up and down crying ‘it’s different in SEQ/WA!’, I’d suggest you lock away at least some of your gains while you can, otherwise you’ll find that rather than being 18 months ahead, you’re actually just 18 months behind the rest of the country.
Oh, and heaven help the ‘investors’ who are still buying remote or regional houses.
Cheers, F.[cowboy2]I am taking all this in, so thanks for your comments.
As “luck” and I emphasise “luck” would have it, we bought our first home in 1985 and second in 1997.
I think at this stage we will use the time wisely and really take our time looking for the best deal(s). We are certainly not considering using debt to live off (I’d rather use an income derived from working to do that). Also 10 properties in this market seems a bit unwise IMO, too.
BTW, we have also looked at commercial properties. I suppose the same principles apply to commercial as they do for residential?
I agree, of course, that interest rate rise is a huge factor as it can turn a CF+ into a CF-+ instantly. We are using an extra 2 percent in our financial analyses of properties.
Comments over the regional areas scare me a bit as these are places that we’ve been looking. Does the same apply for coastal/coastal fringes?
BTW, as I am very new to the forums, how do you add the “blue quotes” to your postings. Is it a cut and paste thing?
BTW I am a she and hubby is a he.
Det. [snitch]
Thanks for proving my point Foundation.
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