Real Estate Bubble Pops??

I am of the opinion that this bubble will never pop…..why? because there are too many people like us who have done the research, and are now aware of how to access our existing equity to leverage to more and more properties.
AND we are growing in number!!Just be careful to not overcommit, so that if others have, then you can come to their rescue.
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Don’t wait to buy – there are always good deals around – a good deal is a good deal, right?
JUST DO IT[^][^]

I think that some markets will definitely see substantial falls – specifically the apartment marketing. The RBA has been airing some concerns about this and if Money magazine is also doing the same then I think this party is over.

Other areas will definitely see a slowdown or stagnation of prices.

I don’t hold to Hillary’s view that a lot of people buy how people on this site do. Many that I talk to say that it’s a good deal if you pay 300,000 and get 300/week rent. The deals that I do that qualify for the 11 second solution is considered amazing by them. I don’t think it’s amazing – just knowing your market.

I think where the cycle is in any investment deal is important, if i may quote several authors, you make your money when you buy not when you sell. Like all markets the property boom will bust (historically proven) and there will be people that will think like Hillary that they will clean up and buy out the market at any time (ie anywhere on the cycle). Good for her if she does but you have to make the numbers work like mitch says and you have to buy when supply is greater than demand i.e. at the bust period of the market. I believe the market will crash (some areas worse than other – inner city etc) and as for holding of well thats something you have to be comfortable with, that deal may be out there or could still be comming. Just remember noone can predict the future (including me – I may be wrong[8])

Hilery, Do you have any idea what you are talking about. You say that the property market will never pop! So what are you say that if you do your research you will have a property returning 20% a year? Well you did say the property market wouldnt burst. The property market on average in sydney has been going up on ave of 20% p/a for the last 3 years. So what you are say is that if i buy a house for 300k the next year it will be worth 360k and the next 432k next 566k next 616k next 740k next 890k next 1070k next 1285 next 1540 next 1850. So on your therory a house bought today going up on current trends will be worth 1.85 million in ten years time. I am sick of all you guys talking your self up between each other, hilery please do your self a favour and go and do the dishes and spend your time knitting, because people like you are the people that we see on current affairs who have lost their life savings, and they want to blame some one for them being so nieve. If you think that the property market will never burst then you can buy my properties of me in a couple of years time.
Please dont post unless you know what you are talking about.

Gday Paul T277,
so how are those diplomacy lessons going? MITCH

Hi Paul [!][] – do you wear ribbons in your hair?[8][8][8] I CAN’T KNIT, AND I HAVE A DISHWASHER [][]- much rather do the real estate investment full time. Won’t be appearing on any shows as I have made good decisions.
While I did say it won’t pop – it may level – which is quite a different thing.
Have u noticed how the experts can’t work out why the boom is lasting so long? It’s because of people like those on this forum who have in the main invested for income not cap gain. A mix of both is best, but for newbies with little capital, income is best.
Who cares if a $50k property is in a 5k town – if due diligence is done, and the renters are there, and it brings $50 pw that’s great.
What about a 5 unit lot for $169k bringing $425 pw in one of those towns, with 1% vacancy rate? or 3 x 2b/r brick units for $175, bringing $340pw? I do a lot of research and it pays off.
% ROI on these investments is massive, and so is their cap gain. Sure, if you can afford to buy into a great area at high entry, then do. But for those who can’t they start with income return.

7.7% fixed – haha – read Your Mortgage mag and it will tell you that over time, those on fixed will outpay those on variable – remember last year when the experts predicted a bust? where is it?
remember last year when the experts predicted interest rates in May to increase???

The war’s effect on the economy? Sure it’s a worrying time, so where are the funds managers putting their dough

And if you are smart, you will self manage your own super, and not ever lose – you may mark time for a while, but you won’t have losses for 2-3 years as has been happening with funds managers.

Salient points? You’ve got some too.[][]

Relax Hilary, [8D]
My point was that you must remember that people rent in a certain area because they are usually employed nearby. When the economy slows and people don’t spend as much, small towns will usually feel it first when local industries cut back and/or close down. This leads to a higher than normal vacancy rate with a transient population.

I believe you are better off investing in an area that has a history of strong cap gains and also show nil/minimal vacancies.
I’d rather have 2 tenants than 10 anyday in quality property that shows good growth.
You must also remember that the basis for real wealth in property is capital gains and not cashflow.

I was also suggesting that $50k IP’s in 5k towns were risky when the big picture is considered as these places don’t often show any cap gains, but rather cap losses. The only reason they’re doing better than normal is because they’re coming off a low base and are considered cheap compared to cities on the east coast.

Historically, capital cities in Australia will show strong growth first before this ripples out to country towns. This was seen once again with this boom as Melbourne & Sydney first kicked off followed by Brisbane and elsewhere in rural areas. Melbourne & Sydney have now slowed down but Brisbane has continued to show gains of 20%+ in the first quarter of this year.

I’m not really sure what you’re on about re:
“7.7% fixed – haha – read Your Mortgage mag and it will tell you that over time, those on fixed will outpay those on variable – remember last year when the experts predicted a bust? where is it? remember last year when the experts predicted interest rates in May to increase???”

I’m not sure you can take the word of one writer in one magazine about locking in % rates!
Of course this will happen if variable rates continue to fall, but when i locked in at 12% in 1992, I was glad i did as rates continued to climb towards 16%.
Most of the big 4 now have 3 & 5 year rates that are less than the standard variable. Surely that must tell you something about what the banks consider the RBA will do next?

Chill out and ponder these thoughts of mine with a glass of red wine while you unpack the dishwasher.
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Thanks Dot, I hope you’re gaining some knowledge through this forum. It’s important to be well informed when you decide to invest, especially in the current market.

If you’re keen to read a great forum with plenty of knowledgeable people that contribute regularly, check out Jan Somers forum at:
http://www.somersoft.com/forums/

It’s not as biased as this forum (too much focus on wraps) and isn’t continually trying to sell stuff to you.

Ciao,
Quentin

Here here quentin,I think you have hit the nail on the head say that this forum is way to bias. I offer a different point of view and i get my head ripped off. All i am doing is trying to offer some balance in this forum. Steve i would like you to reply to quentins post as i agree with all he has said, I think you are miss leading this forum as most people are going out and investing in any thing that fits in to the so called 11 sec rule. I cant see where u guys are going with your plan, Its short term cash flow, not long term capital growth. With cash positive properties you are limiting your self to places with lack of industry, population, growth, Ok lets do the sums.
You buy a property for 50 k in the middle of no where returning 100 per week = 5200 income p/a, Repayments of 3000p/a at 6.5% rates $700 P/A and because the house is old and in need of regular repair, lets say you need to spend 1000p/a. So that leaves you with $500 income P/A and lets say, being generous 5% capital growth p/a.
the first year the property is worth $52500 the 2nd $55125 after five years the property will be worth approx 65k. With income of $500 per year, So your 50k investment is is now worth $67500.
Now lets look at a property worth 500K in sydney on the northan beaches. sydney properties of the last ten years have been returning about 17 to 20% P/a over this time. We will work of say 15%,rental income of 500 p/w*52=$26000 500k at 6%= 30k p/a + rates and maitainance= $4000p/a
So the property is costing you $8000 p/a tax deductable. After the first year the place is worth 575k, second 661k third 760k, fourth 874k, fifth 1056k. I hear you say i would be able to afford 10 houses to one house that is worth 500k, lets times the amount made on one house by 10= 165k over ten years compaired with 556k -40k in lone only repayments $165 k compaired with 516k?
And you guys say capital growth isnt important!
Another thing is i would much rather controlling 1 or 2 properties that 10 dumps scttered across the country side. Please reply with any ideas or mistakes with my maths.

Scottie, it doesnt matter if you have a high income or not a tax deduction is a tax deduction, any way with out the tax deduction have a look at the difference in cash positive and capital growth. tell me scottie who is going to rent these places for 50k? You say i am making figures up then lets do a case study on one of your properties or all of them, their is to much genralising in this site i want some real case studies.

I’ve gone through this exercise myself and made up a spreadsheet with all the salient calculations. I reckon anyone considering any form of property investment should do it. If you haven’t you’re not ready to invest IMHO.

You should also be aware of what you want. Do you want to be a millionaire by age 45, or financially independent by then? Only you can answer that question, but for me financial independence is what I chose. Your answer to this question will determine what investing approach you should take.

My spreadsheet compares two properties costing $100 000. Both are assumed to return 9% pa, but the split between the cashflow positive one and the cashflow negative one varies. The positive property returns 9% income and no capital gain. I assumed that the growth oriented (neg geared) property returns 5% pa and grows by 4% pa.

To ensure both properties had the same impact on my pocket, I assumed that I could afford the extra mortgage payment for the negatively geared property. But in the case of the positive property, I used this as a voluntary payment to pay it off quicker.

With 7% interest, it took me 30 years to pay off the neg geared property. At that time it would be worth $324k. However the positive property would be paid off in 12 years. So a second positive property is bought. By year 24 you either own two positive properties outright (thus be worth $200 000 and get $18 000pa income) or are still paying off one negative property. However because its worth has increased, your net wealth is actually higher with the negative property, even with the unpaid loan. The difference is less though if you can manage to buy 3 cashflow positive properties in the time it takes to pay off one negative.

Summary: The analysis favours high yielding properties in the early years, but high growth in the latter years. If early financial independence is sought and subsequent properties are purchased, the high-yield approach is preferred. If you’re the opposite, ie if you don’t want to retire early, you’re in your 20s and you have heaps of money to buy a growth property in a choice area, and don’t mind big debts, then high-growth might be the better approach.

Me? Well I did not want to overcommit myself by getting big loans. I also wanted to maintain my existing investment portfolo (which is growth-oriented). I wanted early financial independence and a property that pays from day one. The property should be low maintenance, built post 1985, near town, so easy to let out. The thought of a 30 year loan scares me, but if I can pay it off in 10 I’m happy.

This points to a cashflow positive property. The one I’m buying meets the criteria. The price ($92 000) was also within my budget. Comparable properties in this city (pop 30 000) rent at $170-180pw, so it almost makes the 11 sec rule. However it’s already got tenants (who’ve been there 2 years) and they look after the place, so I’m happy with the $160pw they’re paying.

But you might be different and have different objectives to me, so for you that property might not be suitable.