Any building envelope should be listed on the title (if it's not, it probably doesn't exist), and shown on the plan. I'd ask the estate agent to provide a copy of the plan first (can't see why they wouldn't have copies from the subdivision at least, otherwise go for a copy of the title and certified plan. In my council there is some scope for moving or amending the envelope, but this requires an application for dispensation. There has to be a decent reason for the application, and even then it can be summarily dismissed by the council planning department.
Well… if we're going to get into a p_ssing contest…. ;-P
Mine's a 61cm 4:3 Lucky Goldstar cathode ray tube with a curved glass front!
Yuh, okay. You win. I guess I spend too much time reading (learning) and outdoors to make the 'investment' in a bigger tele worthwhile. I might change my mind someday. Until then, I'll keep the dollars invested. And if I buy something in 3 years it ought, on current trends, to be dramatically better quality that what's available today.
BTW, is the money invested by your delayed expenditure going to return better than the 70%+ depreciation on the teev over the 3 years? Just asking.
No actually there is a point. I'm thinking about myself again.
Option 1) I buy a $6k (just an example) tele today, but (thanks Harvey Norman!) still get to invest the money for 3 years: at the end of 3 years I'll have just the investment return and a tele worth $1.5k if I'm lucky.
Option 2) I keep the existing tele, invest $6k for 3 years then buy a $6k tele. I'll then have the investment return and a tele worth $6k (and much better than the 3yo model).
Option 3) Keep the existing tele, invest $6k for 3 years then buy a 3yo $6k RRP tele for $1.5k. I'll have the investment return, a tele worth $3k (but everything I could possibly want in a tele and more), and $4.5k in cash.
I take option 3. I know, the argument will become circular and I'll never end up buying! In fact that's what's happened over the last 5 years or so. But I've not once missed the big screen tele I didn't buy! And if I look at option 2 versus option 1, I realise that 3 years interest free, from an economics point of view is exactly equivalent to renting the tele for $1,500 per year! Given your example of the economics of a car lease, do you think I'd be better off looking at a Radio Rental?*
Just a different approach to life. Yours works for you but not me, mine works for me but not you. That's cool. I'd really love to hear your explanation of how leasing a car works under ordinary circumstances (say 10,000 to 15,000 km/yr) though…
F. [cowboy2]
* Note, hypothetical for illustrative purposes. I'll never rent an appliance. Nor buy on interest-free terms.
On the idea of 'the bank owns your house' … Yes legally they do,
Referring to my post of April 2006? That was written a while back, I've since changed my stance on ownership, having read opposing legal opinions. It's hardly a relevant distinction to most owners, but worth noting that ownership apparently does indeed stay with the mortgagor. Only the deeds stay with the bank!
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why participate in a property investing forum
Primarily to learn from others. The wealth of knowledge and experience held collectively by forum members is frequently staggering. When I have a unique view or perspective on a topic I try to contribute something back. Also I view this forum as a way to directly gauge investor sentiment and motivation.
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when you are in essense idealogically opposed to the idea?
Not at all! My start in investing and capital accumulation came directly from property in its most basic form, land.
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You say you don't advocate anything for others, I find that quite a comical statement given your quite prolific promotion of anti-debt theories here.
Anti-debt theories? You mean the possibility of a debt deflation scenario? Or my belief that the cost of holding debt over the coming decade will generally be higher than the price inflation of held assets? Or just my explanation (above) of my personal situation?
In the case of the first two, I don’t see how exposure to either of these is likely to adversely impact anybody here, so given that they are real theories spoken in polite company by people with an understanding of economics, why should they not be aired here? The last was simply a direct answer to your question, so I don’t see how it can be (mis)construed as "prolific promotion"!
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If you are trully happy with your own life and choices, I don't think you would feel the need to come here and tell people they are wrong.
I don’t think I do this… except for when they are clearly wrong. I come here for the reasons noted above. When I have something to contribute, even if it goes along the lines of “I don’t think that’s correct” or “why do you believe that? I think it might be an error to do so”, I do. I don’t frequently go out of my way to put people down or tell them that their strategy is wrong.
Even the strategy of constantly keeping maximum leverage (which I do truly dispute the wisdom of as it seems to be exactly the opposite of dollar cost averaging and more like doubling down in poker) will work well for some, perhaps many, people. So I don’t tell them it’s wrong. Only point out occasionally that the cost of servicing the debt might exceed their returns as it frequently has in the past (and in a low inflation environment is far more likely to do).
My previous post might seem at a careless glance to be my most anti-debt sermonising to date… but it was about me and my strategy (as requested by yourself). It was very personal and not intended to show in any way that all other people are wrong. That is why I wrote “To me, Freedom = Zero debt”, not “Freedom always and only can be achieved through the absence of debt”. This was a deliberate distinction. One you might have missed.
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To me your situation sounds much the same as the indebted masses you deride.
Deride? Deride? No, least not intentionally. ‘Indebted masses’ should have been interpreted literally rather than as an intended slur. We (collectively ‘the masses’) hold far more debt than ever before, thus are relatively indebted.
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Most people would have the same if they sold their assets tomorrow, as is their option
Really? I’d be surprised if even 10% of people with a job (including investors) would last 6 months, let alone 2 years without a Just-Over-Broke.
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What happens if you're injured and can't work?
The same as anyone else, but with a much larger buffer (measured in days, not $$$).
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What happens if you wish to start a family and provide for a wife and child?
Do you want the full biological description of how I’d go about it? ;-P
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How is your 1-2 years cash looking now?
Same as ever. Actually, probably a fair bit bigger by then!
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And good thing you like your job – you would want to, given you have to keep working at it (or one similar) for the rest of your natural life, to survive.
I think you’ve missed something here. We’re not communicating effectively. I said that I don’t need it (or one similar), I could live comfortably though modestly on a very low wage. I couldn’t do so on (the now average) $500pw mortgage…
As for ‘the rest of your natural life’, my property (with no mortgage) should (as I’ve already noted) see me comfortably able to retire (if the doubles every seven to ten years as per various spruiker promises and the common meme* found on this forum) by 45. Or more modestly retire yesterday on somewhere between $38k and $55 per annum. By 45, my capital gains alone should exceed $99k per year at 7% average return or $210k per year at 10% average return. So my bases are pretty well covered I reckon!
Not that I intend to retire then. I’ve got much left to do, things that only my J-O-B allows me access and freedom to do! Meanwhile, if I keep saving, not only do I have ready cash to throw at the right investment opportunity when it comes along, but even if it never did, every 2 to 2.5 years I work equals around 2 years (after compounding returns) fewer that I need to work!
I guess it’s really a different mindset, mine to yours. Yours (not being judgemental here) was illustrated perfectly when you said the following:
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Same goes for other items – cars, TVs etc… I would suggest most of the satisfaction is in the USE not the OWNING. If I was driving around in nice car I think I would prefer to know that it was leased, and my capital was invested somewhere else with a better prospect for growth.
This is exactly opposite to the way I think and behave. Sure, I understand Ricardo's theory of comparative advantage (which applies here), however, I can’t get away from the fact that borrowed money is much more expensive than saved money. I also believe that the recent experience of almost any asset appreciating in value faster than the an equivalent debt is unstable and unlikely to continuously be the case between now and whenever I wish to retire (or access my capital).
If I was driving around in a nice car I would prefer to know it was fully owned and paid for, but that my purchase had not greatly diminished the freedom that living debt-free with a sizeable cash buffer enables me to feel. I guess the comparative advantage is a diminishing one?
Every post I see from you just makes me more hungry to know, what strategy do you advocate to acheive financial freedom, and how is it going?
I don't advocate anything for others, save for something along the lines of “choose your own path, tread carefully, make sure you know where you’re going and question the motives and advice of anybody who proffers directions”. Which makes for kind of a circular argument… Hmm, maybe “question everything and be sure you’re always learning something new…” instead?
As for my own situation, I’m really in a win-win situation. Asset-satisfied with two homes (town home and beach shack), cash-sufficient (well over a years worth), and debt-poor. And a stimulating ‘Just-Over-Broke’ that pays well (above average), provides enormous scope for personal, educational and intellectual development, involves serious adventure and travel while being as stable and guaranteed as can be (dare I say recession-proof?)! Lucky? I think so. Or perhaps it’s just my mindset? I’ve known several others who hated this job! Shrug.
If house prices double over the coming years or decade (or as some promise, every seven to ten years forever), I’m laughing. If not, I’m laughing. Should they fall, I’m laughing. If interest rates rise over the next few years, ditto. Should they fall… I don’t care. If share prices ramp up dramatically (I’m 100% sidelined currently), don’t care. If they fall, I’ll look for bargains. Precious metals shoot for the moon, I’ll be minted, if they don’t, I’ve got a bunch of pretty, shiny, trinkets.
This is what financial freedom means to me. The freedom to choose whether to continue doing what I’m doing or chase a different goal. The freedom that comes from knowing there isn’t a big bad bank waiting to snatch everything I’ve worked for if I miss a loan payment. The freedom to only give a damn if I feel like it. Sure, others may consider me dependent on continuous income; after all, I’ll starve if I don’t work for a year and a half (two at a pinch). I’d argue that the slavish pursuit of leverage in the hope of ‘financial freedom’ at some dreamy point in the distant future actually leaves them less independent during the best years of their life!
The indebted masses (generalisation – apologies) can’t afford to rock the boat. Gotta keep on going. I can walk away to pursue a dream any time I like. If it doesn’t work out in a year or two, I can come back. Meanwhile, until I find or need that dream I’ll keep socking away 1 additional year’s worth of what I call ‘financial freedom’ every 2 to 2.5 years I work at my J-O-B. And if it comes to the crunch, my financial requirements are so slim (thanks to my debt-free philosophy) that I could survive quite comfortably on a couple of days a week farmhand or labourer’s wages.
To me, Freedom = Zero debt.
Cheers, F. [cowboy2]
Plenty to be said for downsizing living requirements, from a personal wellbeing, financial wellbeing and environmental wellbeing perspective too. That’s another topic though.
Hi F my experience is not extensive. I only do renos on my PPOR so tax is not an issue. I do however watch every stinkin real estate show on the lifestyle channel which helps a lot.
I have to reluctantly (embarassment factor) agree with you there. Watching how the professionals tackle tasks can be pretty helpful, particularly for carpentry – so much time can be saved by using tradie's shortcuts and helpers.
For any bigger jobs, I recommend Allan Stains books The Australian House Building Manual and The Australian Renovators Manual. Decks and Pergolas Construction Manual is good too if that's what you're after. Brilliantly simple with detailed illustrations showing how to tackle almost any task.
thought I'd test it out buying some 2001 coastal property, hit the loud pedal………….and……… it cost me $350 and 3 points! Maybe it should be a Delorian….
<foundations smacks own forehead> Sorry v8ghia. I missed a word. It has to be built over the chassis of a flying De Lorean. See the cosmic vacuum system and jets in the below picture for details…
Let's see the white commodore with flashing lights catch THAT!!!
Save your money. There is no secret. Everything that can be known about property investing is public knowledge, most of which can be found on this forum for free.
People think you can just throw $50k at a property and it will automaticly go up by $100k.
Hi Crashy, with this in mind, I wonder if your experience might provide insight to some questions I have about this particular project:
What about the array of improvements Jase & Flic have detailed above – would you expect these $25k of improvements to add $75k to the sale price?
Because with a margin of $16,000, if they only got $2 back for every $1 spent, they’d be well upside down.
I notice that the $16,000 expected profit is before paying CGT on the expected $50k (?) capital gain. Is this likely to be problematic? They’re planning to hold for less than 12 months…
When you do much of the reno work (labour) yourself, surely that means you can’t include it as a capital cost for calculating CGT? In other words, you’re adding value that will be taxed, whereas bills from a regular tradesman could be added to the capital cost base and the resulting gains would be CGT free. How cost effective is it therefore to provide much of your own labour?
Thanks in advance for any insight.
Good luck Flic & Jase, this is really interesting to see you in action. Almost worthy of your own blog!
Case Study – Max and Penelope (not their real names) Age: Mid 50s Income: 60k + 15k
Investments: PPOR – valued at 350k in 2003, based on uniqueness. Unfortunately it is so unique, they would be very lucky to now find a buyer at 220-240k. IPS – 120k (70k 2001), 110k (70k 2002), 100k (98k 2004), 175k (180k 2006) Super – 120k!!
Thanks to the generous valuation of their PPOR mid-boom, they were able to not only borrow 100%, but also capitalised some costs. The IP vals are from mid 2005. Their situation as of today is:
Total realistic value: 680-720k Total Debt: 445k Income: 105k Expenses: 35k
Their portfolio is 'cashflow neutral'… or so they believe. The interest-only payments are almost covered by rent minus PM costs, but they are paying insurance and rates and property tax out of their income. The country town they have bought in currently has a rental shortage, and all properties have been fully tenanted. Max and Penelope are committed to funding their retirement through these property investments, and adding another 2 or 3 over the next 5 years before leaving full-time work. Their faith in their process is so strong that they are not saving cash (outside of super) despite living quite frugally (except for the drain of their leech-children).
So how are things going to look in 5 years?
Scenario 1) Best case – House prices appreciate 7% pa, steady interest rates, fully tenanted, rents increase 4% pa Value: 950 – 1000k Debt: 445k Income: 37k Expenses: 35k (plus any increases in rates, insurance, tax etc)
Scenario 2) Worst case (?) – House prices appreciate -4% pa, interest rates rise to 7.5%, 20% vacancy, rents steady. Value: 555 – 587k Debt: 445k Income: 24k Expenses: 45k (plus any increases in rates, insurance, tax etc)
Scenario 3) Half Way – House prices appreciate 1.5% pa, interest rates rise to 6.5%, 2% vacancy, rents increase 2% pa Value: 732 – 775k Debt: 445k Income: 32k Expenses: 41k (plus any increases in rates, insurance, tax etc)
Entirely simplistic, I know. I did not even bother to mention a recession, or a credit tightening.
Ok, so here's where I'll put my credibility on the line and I know and accept that many of you will laugh out loud. I think that in 5 years time Max and Penelope will realise that they would have been better off selling their first 2 IPs in 2004, paying CGT, and investing the 55k odd they had left in a 6% no-frills saving account. It will by 2011 be reaping a massive $4400 per year in interest. Sure, in the 'Best case' scenario they have half a million dollars of equity to draw from, but more than half of this is their PPOR, and another large chunk will be untouchable without a huge mortgage insurance bill. Oh, and of course this is a PIE IN THE SKY scenario. The likelihood of this occurring as opposed to not occurring is minute, and certainly not worth the risk premium. In fact, if you go through the figures, they would only be marginally better off!
Obviously, Scenario 2 sees this couple in financial ruin. 'Nuff said…
Scenario 3 (which I see as quite plausible) doesn't look like a rosy retirement to me. There's a bit of equity there, but what bank will let them 'withdraw it'… as in TAKE ON ADDITIONAL DEBT when they're retiring? Perhaps, but they're also now CF-. They could sell their portfolio, but of course that would trigger CGT, and sales costs and… oh dear, they'd come out with around about… zip, zilch, nada, nothing. A bit of creative accounting may net them a positive return, but it will not be anywhere near what that cash in the bank has compounded to! Not to mention all the money they will have wasted on rates, insurance and property taxes over those 7 years…
Sure, there are plenty of other ways to invest in property, just as there are other ways to make, store, invest and compound money, but the above scenario is real and it has and is being replicated around the country.
Rant over. F.[cowboy2] * I reserve the right to amend any dodgy numbers from this post[mellow]
Just thought I'd post an update on 'Max and Penelope's' situation. IP2 which was valued at $110k at the time of writing has now been on the market (and vacant) for 10 months at a lower price. It has been 'sold' but the sale fell through. No offers for months, now priced at $95,000. They can't go lower because they'll only just break-even at that price (having used $25k to fund subsequent purchases). 'Max' told me recently that the house purchased for $180k last year is still "worth less than we paid for it… much less".
Both Max and Penelope are trying to make extra dollars to turn their situation around. One is considering a higher-paid job. They still hope to retire "in a few years". They still hope that house prices really do double every seven to ten years. No, that's not quite right. They still believe it, but sound a little less certain and a little more hopeful.
So far, they're sinking below what I called the "worst case scenario" on an annualised basis. Prices have declined, interest rates increased, council rates increased, the rental void has removed some of their income and 'cashflow neutral' has turned heavily negative (by $480 f/n).
A couple of thoughts: * 'Good debt' can cause every bit as much harm as 'bad' debt. Debt is, after all… debt. * Even properties that 'cashflow' aren't always good buys. * 'Max and Penelope' did everything right, made very good capital gains, but then kept doubling down and doubling down until stagnation (which in hindsight was inevitable) hit their buying areas. Like taking all their winnings from a lucky streak in poker and 'investing' them until they were dealt an inevitable bad hand.
Is there any particularly creative ideas people have out there to source these ellusive properties?
Yep. It's a four step process: 1) Build Time Machine (preferably based over a Delorian chassis) 2) Travel to the year 1999 or thereabouts 3) Drive Time Machine (See, the Delorian is useful as well as stylish! > 50 kms from any capital city center. 4) Throw a stone in any direction.
Voila. You've found a CF+ property!
Cheers, F. [cowboy2]
PS – Consider this 'bird-dogging'. Please send $5k per property puchased to myself, circa 2007.
This question doesn't have a simple answer. Business cycles are pretty much inescapable, but the causes (and therefore the remedies) are debatable. Some economists believe that the boom/bust cycle can be managed through reserve bank intervention and governments running budget surpluses during the boom then deficits during the downturn. They believe that consumers can always be encouraged to spend the nation out of a recession. Our RBA governor Glenn Stevens appears to be one of these people, and the US Federal Reserve's Ben Bernanke certainly is (see his comments about dropping money from helicopters – he's not called 'Helicopter Ben' for nothing)!
Other economists, such as those who follow the Austrian school, believe exactly the opposite. That so long as governments and their proxies interfere with interest rates rather than letting the market set the price of money as would happen where money is fully backed by a limited commodity such as gold, the boom-bust cycle is unavoidable. And given that the cycle is unavoidable under today's fiat based system, the prescription is for recession is to do nothing. To let the excesses of debt and malinvestment be liquidated in the most efficient way, then get on with life.
I don't know. I certainly think that when you give people too much control (ie th RBA) they will eventually undoubtedly screw up. And I think human nature has a tendency to malinvest – the whole greed/fear motivation. I don't know how else I can explain people thinking that capital gains on assets will always exceed holding costs (eg. the "leverage is good, leverage is always good, and more leverage is even better than good" meme). That very expectation is likely to lead to malinvestment of the worst kind – investing large proportions of a nation's wealth in assets that don't produce a material, salable good. Worse would be borrowing from overseas to bid up the price of such assets within our own borders! This would increase our debt to the rest of the world and although making us feel richer give us absolutely no increased capacity to repay the foreign debt! I think you've probably guessed what I'm getting at here…
Phew! No offence intended. It was just the combination of… * Californian * Articulate * Recent arrival * Living (visiting?) in Sydney * Familiarity with credit scoring, trust deeds, “going stated”, ARMS, foreclosure, US RE in general * Interested in “no doc” * Mis-spelling “liens” as “leans” … that made my Casey-rader misfire I’m afraid.
Serin handed the haterz even more ammunition this week by disclosing that he had left his wife, Galina, behind in West Sacramento, Calif., with only about $300 in the bank and had set up operations in an undisclosed location in Australia.
June 11th, 2007 7:44 pm Australia and Idiot Haterz
In Australia
Yes, I’m here in Australia. The rumors are true. But a lot of people are slanting the story to make it seem worse than it is. These people are spreading crap about me to ruin anything left of my name and ruining the reputation of everybody who is associated with me.
No, I did not leave my wife penny-less and run away to Australia! It’s amazing how some people are trying so hard to sabotage my efforts to make an honest buck through my story/publicity. More on that below.
For now… why in the WORLD am I in Australia?
I have been thinking of getting away and doing some massive action in business for a while. I wanted to focus on getting the foreclosure book done and get a lot of other stuff done in a distraction-free environment.
In recent years there have been a few media reports of massive drops in house prices in isolated incidents, but the argument could be raised that there were a lot of idiots with a lot of expendable cash, equity or finance who paid too much for their properties during the boom, who got caught financially, had to sell and took a big loss. This happens all the time.
Turns out at least one of the high profile examples was almost certainly (is that ass-covering enough?) fraud related…
Still, bit of a bugger for anybody who pulled equity out of or bought a nearby house where the appraisal was based around fraudulently inflated comparable(s).
Solon's warning to Croesus: Croesus, a very wealthy man indeed was perturbed that upon visiting and touring his palace, Solon appeared completely unimpressed by his wealth. "Who is the happiest man alive?" he asked Solon, clearly expecting Solon to pronounce him the wealthiest and happiest. "For thyself, O Croesus," replied Solon, " I see that thou art wonderfully rich, and art the lord of many nations; but in respect to that whereon thou questionest me, I have no answer to give until I hear that thou hast closed thy life happily."
And therein lies the rub. I’ll be made many times a fool by my proclamation (no matter how right or wrong) that the recent rate of house price growth is unsustainable. I can accept this. I cannot put a precise date to my estimate that the long-term growth rate of house prices will trend towards the rate of general inflation (best possible case scenario). Between now and then, perhaps many millionaires will be made through nothing more strenuous than the buying and selling of houses. This I can accept.
What I can’t accept is that I should make a short-term dire prediction on which others might act and become ‘fools’ themselves, nor to stay silent while people build 10, 20 and 30 year plans around false beliefs. Certainly, I have estimates and ideas of dates and growth rates, but that is not the point of my contribution here. I just like to see people thinking and planning realistically and taking responsibility for their own decisions, actions and outcomes. But remember when making 10, 20 or 30 year plans, that the outcomes aren’t judged at the 2nd or 3rd year, but the 10th, 20th or 30th. That is the message of Solon’s warning. Incidentally, I stole the warning from a superb book I read earlier this year, Fooled by Randomness: The Hidden Role of Chance in the Markets and Life by Nassim Nicholas Taleb. A ripper of a read. I’m looking forward to picking up his new book The Black Swan soon.
Cheers, F. [cowboy2]
PS – Please look to history. When did we last see such price growth in assets like art and Aussie muscle cars? And what happened next? Be very careful (not scared, just careful).
– – – – –
News roundup for the week: * ANZ’s Saul Eslake told the Property Council of Australia that “Residential housing prices are likely to do no more than match CPI inflation, on average”, though I didn’t attend the luncheon, so cannot specify the period of which he spoke. * “Louis Christopher, head of property research at Advisor Edge … predicts long-term property growth going forward of between 6.5 and 8 per cent.” * “BIS Shrapnel director of building and construction Rob Mellor … forecasts long-term gains for three bedroom houses to be capped at between 5 and 6 per cent, or around 3 percentage points above the inflation rate” * “Mr Matusik expects capital growth of between 5 and 8 per cent per annum over the next four to five years for houses and units.”
"what are brand new similar houses selling for in the immediate area?" – I have not actually seen any new ones
It still pays to assess your projected sale price against others in that price range. Ultimately, your house will be competing for buyers against properties such as these:
So the worst scenario is that the money you are putting towards an investment only makes a small profit. Does that explain it?
Not really… I'd have thought that a scenario where you make a small loss would be worse than that, and that a scenario where you make a large loss would be the worst scenario?
Anybody who'd listened to my argument 2 or 3 years ago would have missed out on a massive windfall if they'd planned to buy in Perth or various mining towns. If they'd planned to buy in W Sydney or regional Victoria they might have saved themselves a lot of pain already (yet the situation is now even more critical than before).
Follow your own mind, but be mindful not to blinker it by filtering out evidence or argument that doesn't conform to existing beliefs. Take it all in, then spit out the pips. I'd suggest to many propertyinvesting forum members 'it' should include books on finance and economics that don't contain 5/7/10 steps/ecrets/lessons on anything. And of course, any advice that includes predictions of house prices doubling every seven to ten years in perpetuity without qualification is a pip. Pfftooey!
F. [cowboy2]
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