If you are investing for cashflow, then yes.

If you are investing for cap growth – no-one knows. Look at the area; infrastructure, employment opportunities, amenities etc.

Rhys_Roberts wrote:

House prices tipped to jump sharply in the next three years

Monday 15 June 2009 11:45
Patrick Stafford

Housing prices could increase by up to 22% during the next three years, according to a new survey, while the weekend's auction results continue to signal increasing confidence in the property market.

The new BIS Shrapnel Residential Property Prospects 2009 to 2012 report says that "the conditions are ripe for a sustained recovery in residential property prices".

"Low interest rates, solid growth in rents and housing shortages are evident in most markets. However, the current economic malaise will mean confidence will only recover slowly during 2009/10."

The report claims Sydney, Melbourne and Adelaide will record the largest price increases over the next three years at 19%. Growth in Brisbane, Hobart and Canberra is also expected, but Perth and Darwin are expected to experience weaker conditions due to lower spending in the natural resources market.

The report estimates Sydney's median house price will rise from it current level of $530,000 to $630,000 by mid-2012. Melbourne's median will rise from $425,000 to $507,000, with Adelaide's to rise from $360,000 to $430,000.

Brisbane's prices will rise from $391,000 to $455,000, Perth's will grow from $425,000 to $475,000 and prices in the Gold Coast, the Sunshine Coast and Cairns should rise by 14%.

The report claims that most of the growth in the property market is occurring because of first home owners, but that as the economy recovers more investors will enter the market over the next 12 months.

Meanwhile, auction results have recorded more gains over the weekend, giving weight to claims that the property market is beginning to see some recovery.

In Melbourne, clearance rates rose above 80% again, leading Real Estate Institute of Victoria chief executive Enzo Raimondo to comment that "the recent succession of clearance rates in excess of 80% indicates improved confidence levels in the overall economy". The city recorded 448 sales totaling $263.83 million.

In Sydney, the nation's largest property market, clearance rates reached 76%, with 191 properties selling at a total of $121.29 million.

Brisbane clearance rates reached 71%, with 17 properties selling at a total of $8.5 million, while Adelaide saw just seven properties sold at a total of $2.6 million.

God I hope so; all we do is keep buying. Haven't sold a single thing during all the D&G.

The bigger the footprint, the bigger the gain. Yay!

This is the only way we've ever done it with our IP's.

It'll get you into IP sooner than saving for a cash deposit, but the only problem with it is you will be using 100% or more borrowings to fund the purchase.

This will probably make the cashflow negative, and moreso than if you injected cash for the deposit.

If you can support the neg cashflow this is ok, but the neg cashflow will have a drain on your servicability for the next one. In other words, you may need to wait longer to buy the next one than if you had injected cash as a deposit, and created a pos cashflow with which to decrease debt and improve both the equity and the cashflow/servicability.

The other "con" is that you have no equity with 100% loans, and if somethinbg goes wrong at the start and you need to sell, you may have to sell at a significant loss.

So, do it – but make sure you are in a position to be able to minimise debt quickly and get the LVR down to increase your safety margin.

Update;

we still own the 1998 Musso and the 2000 Hyundai Accent.

getting closer to buying something newer, but these two are still running well.

Tough one; new(er) car(s), or new investment??

Our mindset is the R.K one; use the pos cashflow from the ivestment to fund the doodad. Our cars would be tax deductible these days as we have a business now, but cars – it's another expense.

That all sounds great in theory, but think about how many people who can afford the time in their remaining lives who can pay off not only their PPoR (which is not an asset unless used to create more wealth) and ONE IP.

Not many.

It is seriously doubtful that you would own 10 properties and have none go up in value, or rents go up. They will all go up at different rates, but still up eventually, and so will rents.

If you only have one IP worth $200k, and it doubles in value over 10 years and you pay nothing off the principle, you have a nett worth of $200k not including any cashflows (rents) and tax returns from it.

But, if you have five $200k properties all running together simultaneously, and pay nothing off the principle, after 10 years your debt is still the same, but your nett worth is $1 mill.

This is the power of leverage and how much exposure you can have to the market.

For example; we own our PPoR, which came about through a previous PPoR going up in value very quickly, which we sold and the profit from it payed for our current one, but we have a number of IP's that are all still in debt. But our exposure to the market is such now that if the market goes up by even a couple of percent each year, the cap growth is more than our two average incomes combined. The debt is high, but our LVR is low  (54%) and the portfolio is pos cashflow, so the ratios are very solid.

Of course, it's a double-edged sword; the more debt the more wealth, but you can lose more too.

This is where cashflow management, property selection and LVR monitoring are critical to be successful.

I'm not concerned by investment debt. I manage it closely, but I'm happy to take on millions of dollars of it because it will leverage the cap growth and the income over time.

Many people want to get out of ALL debt. That is a saver mentality. Nothing wrong with that, but it is a very slow way to get rich.

You want to clear away any consumer debt for sure, but learn to take on investment debt in a safe, secure manner.

It depends where your financial position is, and what you are invested in, and what your level of experience and education is.

Warren Buffet only invests in businesses. Some of these businesses have shares though, and he also owns a very successful stock fund. But the stock market crash of late is of little concern to him really, as his businesses are all solid performers and earn good incomes.

And stock markets are not property markets, and there are many different types of property to buy. A cheaper-end property is way less affected by downturns as there are many more renters and buyers for them. Higher-end properties are more likely to be bought by higher income earners who often don't have the financial intelligence to match their income, therefore these properties are more prone to larger price fluctuations when their lack of financial intelligence gets them into trouble during times like this. They pay too much when the booms are on, and sell low when their world crashes. Sad, but very common.

Most stock market investors are not investors, but people who buy managed funds or mutual funds. They hand over their cash to fund managers, hoping for the values to go up. If the stock market drops, they are creamed. Any D&G in the market is bad news for these people – the majority of stock market investors. It's sad.

But I pay no attention to their situation and the reporting on it by the wider media; which is geared towards the wider market of "investors" who are getting slaughtered.

if you are new to property, and are highly geared and neg cashflowed; this is a dangerous time should something go wrong such as injury, job loss etc. I wouldn't be selling, but I'd be a bit concerned and reducing debt like crazy, and don't buy higher-end and/or marginal speculative properties like Off The Plan deals.

If you are more established, have lower LVR's and good cashflows, then it is a great buying window about to open up.

Add to that dropping rates and rising rents, and you have a lovely situation – even when the media is screaming death to all. It's actually in our favour the more they scream.

This is me right now, so my mindset is a happy one in this climate; I can buy low and still not have LVR or cashflow problems.

I'm dusting off the cheque book.

So, get yourselves more educated, see the opportunity in this climate rather than everyone elses' fear, go out and make some money.

The most important factor is cashflow.

If I had $50mill worth of property right now, and it was cashflow positive, I wouldn't care if it dropped in value by half as the income keeps it afloat until the values return – as they always do.

Someone who is highly geared and neg cashflowed with this level of portfolio would have cause for concern, however the latest rate drops with more to come, plus the increasing rents eases the bottom line a bit.

The only prob with dropping values is it slows down further acquisitions in the near future.

Off topic, but had to add my observation on Harb's comment about rising water levels.

I have been visiting the Mornington Peninsula since I was about 7 years old (I'm now 47).

We now live in Dromana, not far from the pier.

The water level has not risen 1mm on the pier pylons in all that time, and the water is as cold as ever. It does get slightly warm in summer for a short time though – about Feb.

Think about this; the earth's surface is 80% covered by water. That's just the area it covers; it doesn't factor in the volume and depth.

Or, put another way; only 20% of the earth's surface is land.

Part of that 20% is the two poles – north and south, and over their respective summers, they each lose about 1/3rd of their ice.

It'd take a very, very big ice melt to even nudge the water level.

Can't see how this strategy will get you far and soon?

It sounds like you are using cash, to buy silver coins?

The cash is either earned, or it is the result of liquidating other assets. So now you have silver coins that have no income, using unleveraged funds to buy them, therefore your exposure to them would be lower, and with no income from them. That sounds painfully slow, albeit a very safe place to park money.

What do you call a "real asset"?

My interpretation of this is something that pays you an income, and increases in value, and has tax advantages as well.

It doesn't necessarily need to have all three, but it needs to have two out of three – it needs to have income, and tax advantages.

For example; a business can have income, tax advantages and not go up in value at all. If the income is good enough, then it is a solid asset that puts money in your pocket; it is a "real asset".

We all know (if you've been alive long enough) that in the longer term property will always go up, it has an income, and it is tax advantaged.

So, to me, this is a real asset, and even if the funds used to buy it are borrowed (as is the case with a business) then as long as the income is greater than the outgoings, it puts money in your pocket and is therefore a real asset, even though it's value might be stagnant for a few years.

The excess funds, if reinvested back into the property or business in the short and medium term, will increase leverage, profit, nett returns and cashflow. This accelerates the process to do it all again, snowballing the result.

Of course, the prudent investor monitors LVR's and cashflows constantly for safety.

This surely has to be better than raiding the piggy bank to buy a few silver coins to stick in the drawer for 20 years, and budget priced shares, using very little leverage?

Or are your precious metal stocks via some sort of share package? So, basically; you are pretty much only in shares, with no leverage at all?

Not saying it's wrong, but jeez, it's a snail crawl and can be done much better and quite safely – even in this climate – with some borrowed funds.

Your strategy sounds like that of a "saver" – level 2 investing. I think all of us here are a bit above this level by now F.