- Originally posted by SteveMcKnight:
Yesterday we looked at buying a Video Ezy, we’ve also been looking into sale and leaseback of car washes, and we have an eye out for self storage places too (although these seem to be a bit pricy).
I find it interesting that you are looking at car washes.
Here in Sydney, car washes seem to be springing up like mushrooms – especially those with a coffee shop attached (is this the pick-up joint of the 00’s?)
Do you think this popularity is a good or bad thing? I’d be reluctant to invest in something I think is a passing phase but I have been wrong before [
] and I’m sure you’ll do your due diligence.My prediction is that the Reserve Bank will leave the interest rate at its current level. It appears to have the desired effect of slowing the property bubble.
The headline in Feb 2004 Personal Investor is
“Don’t Miss Out
Shares are taking off as property prices peak”The message appears to be – get out of the property market & buy shares.
In addition, this is the year of the feral election and rising interest rates make very bad press.
I’m hoping that property prices do stabilise as I see leading to the availabilty of more +ve cash flow properties.
[
]Shushar
“All our dreams can come true, if we have the courage to pursue them.” – Walt Disney
If you examine the source of the commentary in the media about the share v property debate, most of the quoted who are advocating equities are from large financial conglomerates whose activity is primarily out of the sharmarket. Not saying they are wrong, but self-interest is a great motivator.
Shushar, didn’t think of the car wash down the road as a pick up place! Time to get my car washed.
James
I’ve done some sniffing around and obtained some figures from my old man who has been buying his own real estate since before i was born… Here’s a few interesting facts he told me:
In 1981 he bought a place in Valentine NSW (Newcastle area) which he paid 48k for. That same house is now worth about 420k.
In 1985 he bought two properties in Sydney – One at Green Valley for 40k (now worth 330k) and another at Liverpool for 59k (now worth 440k).
In 1987 he bought a property at Cecil Hills (Sydney) for 177k. This is his current PPOR and would comfortably fetch 650k…
Why did i find these figures so interesting ?? Because i’m always hearing “house prices double on average every 8 to 10 years.”
Can anyway really see current prices doubling again in the next 8 to 10 years ?? Affordability is at an all time low, many of the guys i work with NEED to work 6 days a week (ie, 2 o/t shifts per pay period) just to keep their heads above water…
I for one honestly belive real estate is a great investment, after all people will always need somewhere to live right ?? But what worries me is that a correction may be needed to bring the market back to some sort of sanity. We have seen the inner city unit market cop a hiding lately, but blind freddy could have seen that coming. I just wonder will it reach out and hit harder than most of us think ??
I’m in it for long term, and even a 20% correction wouldn’t sink me. Unfortunately a lot of others aren’t in the same position. The next 12 months will be interesting for sure. I’m paying as much as possible off my PPOR (aim to own it outright within 3 years) and the others should take care of themselves…
But i also think some real good purchases may be available in the next 12 to 18 months. After every boom we have had a “bust” or a “levelling out”.
This one will be no different… []Ok, sorry for exceeding my 2 cents worth… [:p]
Cheers,
Paul…“I want to be rich, and stupidly happy – so far i’ve only managed to achieve the stupid part…”
to add about prices
in 1968 my parents bought their only home here for $6k, today it is valued at 650k
In 1980 I bought my first home- for 29k, nearly an acre of land, prestigious place up mts, I sold it in 82 for 67k I dont want to consider the price now!
in 82 I bought a home in QLD for I think 35k, I sold that for I think 69k, those ones are fuzzy, a time I rather forget….marraige split not long after.
In 85 WE bought a house back in the mts and rented, rent came off purchase price $57k I sold that when we did finally separate for $93k, not long time frames either Im talking 1987.
I then got in the rental trap. Single female, one child…ahhhhhhhh no hope.
I worked, got a block of land up the mts for $35k, it is valued at $150k
In 1980’s we did buy a block of land one of these qld investment scams..I got burnt, at 21, 17K didnt seem so bad, and the inlaws financed it, until we spilt then I completed the deals. It is now for sale at a modest price of 49k, so I dont loose much.lol
In 2001 I bought a home, for 181k, it is valued at $420k now in two years.
Other buys were 145k, now 210k in less than 12 months
157k also around 220k ditto
132k again now 220k just 12 monthsso for me doubling every 10 years is not the case….
As a kid I wanted to buy…but had no means and neither did my folks. The block I wanted was near a golf club, $2k, now 300k
so, even though interest rates reached up to those dizzying heights around 18%, my first mortgage was 9%! the rpices still went up adn people still bought.
cheers
Elves
FatBoy said:
“We have seen the inner city unit market cop a hiding lately, but blind freddy could have seen that coming. I just wonder will it reach out and hit harder than most of us think ??”
Fatboy- it’s interesting about innercity pads… on the one hand, we are told not to buy into them and the banks are reflecting this by having higher deposits/LVR required… and on the other hand, it really has been a rule of thumb to buy only 6-10 km radius from the major cities.
I personally think the inner-city market will hold up, particularly for established or gentrified areas. As for the newer areas- docklands etc in melby, well, i kind of think the reps of those places have been wrecked to a degree. The properties were probably too exxy anyway, and therefore unsustainable.
But who wouldn’t want to have a (decently priced) IP in sydney in the next few years as immigration (even if temporary or “visitor”) is so secure (international student market etc).
I still have a feeling the innercity- up to 10km’s around the city- will be exceptional investments- in terms of CG if not return got the next up cycle.
kay henry
I have this feeling that the property craze is going to fade. We’ve had a time of low interest rates, FHOG, even musos, taxi drivers and their parents doing property investing seminars, renovation shows on TV resulting in a frenzy of renos-for-capital-gain, unstable world times where people are scared of currency fluctuations and the sharemarket and want the security of a tangible asset with an actual intrinsic value, rather than a ledger entry – so you’ve had people pulling money out of other asset classes that haven’t been working for them, and into property.
I think the interest rates/inflation rate/our currency rate compared to other countries’ currencies are all linked, and something the government controls, looking at what’s happening elsewhere in the world, to keep our economy in check. Because if the Aus dollar (or the Kiwi dollar) is too high, exports suffer.
I think that in the present economy, if the government think that too much of people’s money is in property, and therefor that not enough is going to go into businesses/the stock exchange/other ventures, they will continue to raise interest rates, slowly-ish over time so as not to do too much harm or cause panic all at once. A kind of softly-softly bit by bit thing.
I think the governments basically just weigh up the economy in general, and decide if they want to slow it down or speed it up. So they’ll do what they do, and as a consequence (because I think interest rates might go up more) every time they do that, a portion of people will get out of the property market. Or decide to put off getting in to the property market.
The other side of the coin when interest rates rise to borrow is that you earn more just keeping it in the bank.
So let’s say they rise, not only only does it now mean that it’s less likely you can afford to buy another property (let alone find a cashflow positive property) but why would you take that risk, if you can make the same amount if you leave it in the bank and whistle a happy tune?
It will make property look like an even worse investment. But I think what will happen is that banks will have all this money to lend out, and less people wanting to borrow at a higher rate, so it will be easier to get finance. They’ll be throwing finance at you!
So I reckon, it makes it a great time to get ready to buy. Right at the point where everyone is running screaming from property. (which will happen in waves, a wave every time there is an interest rate increase.)
The reason that there aren’t many CF+ve properties around is because ‘everyone’ has been looking for them. When ‘nobody’ is looking any more, there will be millions of them around again. And less buyers… so, bargains.
Let’s say that in Sydney the yields are around 2-3 percent at the moment, where you could rent an 800K house in Paddington for $400 per week, or a $300K unit in the burbs for $170 per week.
Actually, i think you will be able to pick up the 800K house for 700K pretty soon. And the 300K apartment for $250K. So what does that do to the yields? Especially if we hike the rents a bit, seeing as there seem to be less rental properties available these days (funny that…)
So you now will start to get (as prices ‘soften’, I think the ‘dont-panic’ term for it is – ) yields rising right up again. And pretty soon, another year, another interest rate rise a percent or two, you will get loads of 15 percent yielding properties again in country towns and maybe some 8-9 percenters in the cities. (kind of like Auckland a year ago.) And not as many people buying because they’ve all gone off property, and besides ‘interest rates are too high at the moment, we’re going to rent for a bit longer’ causing further demand for rental properties.
I think that the cycle of property makes perfect sense, and if you can see all the ways of making money from property, you might dig that now is not the time to do a reno for capital gain, but it might be a good time to start looking for buy and hold cashflow positive yields again, that you can hold for 7 years
or whatever, when we’ll see another wave of property shooting up 20 or 30 percent a year.That’s my kind of understanding of where we might be in the cycle.
cheers-
MiniPS And I still didn’t answer the question… how am I gonna “harvest opportunities” and also “mitigate risks” – by continuing to buy CF+ve properties yielding a minimum of 15 percent. (I recently helped a ‘client’ (yay, my first) find three properties, two with sitting tenants yielding 16 and 17 percent, and another vacant but with an expected 19 percent return. not bad eh.) Today, I just missed out – by one day – on getting a property for potential client number two, (drat!) that had a 30 percent yield. (four flats.) As for myself, I’m debt free property-wise, and as soon as I can clear that annoying credit card debt that’s lingering, I am going to present my squeaky-clean taxes-paid self to the lenders and go looking for my next property.
“I note with interest that the US economy is picking up and not even the Mad Cow scare has caused it to change course from its current bull run (in fact I read that Americans are now eating more beef!)”
There are many political objectives sustaining the US economy at this time, brought on by the up-coming election. An example being the “Mad Cow” scare which the media quickly discounted – which is very unlike the US media.
The adverse effect this issue could have had on the US [and potentially global] economy is significant, and could have compromied the current President’s chances of re-election.
Aside from this speculation, I do not specialize in SFH’s, however the economic influences and investment principles apply [to real estate investment] across the board.
It would appear Australia is closely following trends in the United States. I do not feel currency will play a significant factor in where the SFH sector is heading – from an investors perspective. And with interest rates likely to rise [subject to inflation], this in itself can lead to opportunities.
Although attractive interest rates have increased sales trends/valuations, these rates have also resulted in an increase in borrowing and home equity loans – personal debt that many will not sustain.
As a result, an adjustment is expected which will likely see valuations decrease for a period of time – due to people being forced to sell/downgrade their homes in order to meet debt obligations.
Those who currently own SFH’s and have factored in a rise in interest rates should not feel the impact. Capital gains may decrease in some instances, but this should be short-term.
This “predicted” adjustment should soon enable those with equity, or available funds, to acquire holdings at considerably less than today’s valuations – and benefit accordingly in the next 3-5 years.
In summary, I would recommend holding for the next couple of years [don’t follow expected “doom and gloom” trends] and prepare to capitalize on the opportunities that should soon present themselves.
— Michael
“make the same amount if you leave it in the bank and whistle a happy tune?”
Real estate offers the potential for capital gains, where money sitting in a bank is confined to capital reduction i.e. inflation, fees and adjustments – and opportunity cost.
If a bank offers ~4.5% per annum, you must then discount inflation i.e. ~2.5% + fees and adjustments ~0.5% – resulting in a possible return of ~1.5%.
This scenario will vary upon the amount invested in savings and the savings plan, but taking into account the fiscal benefits of real estate investment versus holding in a bank, real estate should be the preferred option – given sufficient due diligence and access to capital.
— Michael
Went into a second hand bookstore the other day – to brush up on some Browning.
Bought a book for eight quid. In the 70s, it sold new for 1.95. That’s a quadruple increase.
What’s a new paperback these days? They always go up.
They had no Browning so the one I bought was called The Moon’s a Balloon. As Wayne Dyer says, maybe it’s a sign.
Bec
I had two houses with a lot of equity which I sold and in hindsight could have waited a little longer and made better profit, but I remember the Gold Coast boom and bust of the 80`s, so I got out with huge gains and purchased a ten acre block of land in an area I wanted to live which has shown very little to this point as far as growth compared to other areas of brisbane.
Traditionally areas not hit by the boom tend to go up after the boom, this area has gone up maybe 50% in three years, whereas everywhere else has gone up 150%.
I also bought to +CF regional houses very cheaply in great locations.
I expect interest rates to slowly but surely climb and areas in Melbourne/Sydney to be hit biggest by the bust, this is no surprise but I believe many investors who bought in the last 6 months in these areas could be in for a hit if they don`t have the cash flow.[8D]i think there are so many variables it hard to know.
Melbear and myself have been looking outside the square and invested in other business opportunities hopefully giving us some great cashflow. 12 months from now we will be buying property again. at the moment i am using the sit and watch approach when it comes to property. this doesnt mean i’m not looking…its just there’s other ways to make money using the equity in my IP’s… ready to strick when the time is right []
cheers
shaunLead, Follow or get out of the bloody way
hi Michael,
(me: “make the same amount if you leave it in the bank and whistle a happy tune?”)
>Real estate offers the potential for capital gains(yes, but haven’t we agreed that you might not get any in the short term?)
>where money sitting in a bank is confined to capital reduction i.e. inflation, fees and adjustments – and opportunity cost.
I totally agree with that, but I think I am one of the people that
‘gets it’. A year or two ago I was one of the people that didn’t ‘get it’, like most of my friends.Most of those people would say, OK, I can get 6 percent with UDC finance in a term deposit, (if not 6 percent yet, it’ll get there -) or I can borrow at seven, eight percent to buy a 5, 6 percent yielding property that might be overpriced if I buy it now, and then go down in value. I mean, duh, who’d do that?
>If a bank offers ~4.5% per annum, you must then discount inflation i.e. ~2.5% + >fees and adjustments ~0.5% – resulting in a possible return of ~1.5%.
I don’t get the squiggly lines. but I get the sum, OK you really only make 1.5 percent. But for your 4.5 percent that you *think* you’re making (because you’re not us. you’re the average person) which might even go to 5, or 6 percent soon, the average person doesn’t *get* how that’s not better than a property, especially because it’s ‘safe’ – (won’t go down in value like a property might – this is what the media has conditioned them to believe might happen – ) and they don’t have to put any effort into it (like you do finding a deal, buying an IP, dealing with everything to do with it -even if it’s managed, I find it a hell of a time-consuming thing to set up) – it’s a no-brainer to leave it in the bank.
>real estate should be the preferred option – given sufficient due diligence and >access to capital.
Michael, I totally totally agree, but if you tried to ring up A Current Affair and Today Tonight and convince them that was a fabulous story,
I just don’t think they would go for it. Because it blows against the ‘prevailing wind’.cheers-
MiniMini,
I get the feeling that the current affairs shows don’t really want to sit down with joe blow and hear his/her ideas on why it’s good to invest in RE- I am not quite sure where the “story” is in that.
Mini- ring them up and tell them your own tale of CG and CF+ and they’ll probably be interested. But general discussions on why we might put money into property and not a term deposit- sheesh, the audience would be sleeping.
Those shows want stories about *events* that occurring. If you are a property investor *and* you have a cochlear implant, you’ll probably get on there for sure! :o))
kay henryG’day once more…
It never ceases to amaze me that people “into” Property think that this time it may be different.
Pigs might fly…
A little story on the Share Mkt,will give you an indication that you can compare to the latest Real Estate Boom. 1986 the “smart” money got out of the Share Mkt.. and placed funds into Cash Mngt.
By early 1997 they could not stand it any longer… all those people still making money in the “game” they just left. So convinced were they, that they got back into the Market and were still there Oct. 20th
They lost a fortune and went straight into the R/E Mkt…creating a boom. A lot has happened since then.
But people are the same the world over… Fear of losing,greed, complacency, ignorance, fear of missing out and downright unskilled.Let me assure you that the Unit oversupply in Sydney and Melbourne will have a ripple effect. Domino theory… Properties will lose value by 25% over the next few months as we head into winter.
But, you know better, your situation/City/Town/ and our pooor cousins in NZ is different. Don’t you realise that all punters say that,they feel that they are immune from reality. A cheap property may be cash flow + in a booming market…. but as your tenants vacate and buy the el-cheapos from you at “their” price
you have a vacancy that is now 100% negative.Predictions I have made since September have been :
(a) Aussie $ to go to US$77… done that & more to come
(b) Interest rate… I expected .5%… we got .25%
(c) I expected the Dow Jones to exceed 10,000 by Xmas
it did that plus…. as the Stock Mkts. pull back a bit over the next month.. expect complacency to take hold again in the R/E Mkt… especially with a likely hold on interest rates in Feb, Why? The Aussie is strong and getting stronger as the US$ crumbles.The US will jack up their rates to try & support their Dollar.. it won’t work… and Aussie will too… and that is the nail in the coffin for our Exporters as the Aussie$$ climbs towards US$.90
As our rates peak in say, April… they will be high enough to create bedlam with typical borrowers… mass sales as the overgeared, and those that got on board far too late will lose tens of Thousands even $100,000 or more on inner city “I’m gunner flip em”, as they can’t withstand the pressure from lenders and the bigger loan payments… especially with a 1% yield.
The final straw was when I read of folk selling the family home to finance country town/regional/ NZ investments.The locals who sold out to the “city slickers” will be your buyers… at your expense.
Buyers that now rush in thinking “it’s a bargain” will wish they had waited until late 2005. Properties have been on the market unsold for months. Last weeks Sydney Auctions were a non- event. What do the “flippers” do? They walk away, get sold up and may have to sell the family home to cover the shortfall.
If you think a handfull of IP’s over a few years is experience… it has been… but only in a booming Mkt.
Your education begins over the next few months as complacency… due to lack of R/E headlines takes it’s toll.I tried to “educate” you on the dangers and immorality of wrapping in a falling market… thank God I convinced a few…. but the “crowd” is generally inexperienced but “knows better?”.Wait another few months and you will see what I meant.
One thing I have noticed since my return is that PI is a revolving door. Those that can’t read a market stay on in a never give up attitude…. that’s commendable,
but fruitless and heartbreaking when you realise you should have known that the R/E Market will fall when you least expect.Experience counts…… Steve sold out a “swag” of properties, as I did… maybe a little soon, others have sold in the nick of time… but cashed up to take advantage of the bargains in 2005. What do you do in the meantime?
The R/E and Stock Mkt. is not the only game in town!
Maybe you have to experience a loss to learn.
Best of luck… and thanks for the request Steve.
Bill O’Mara
I wish it was going to be different for many of you.
Bill O’Mara
Apologies..
4th para above should read early 1987 not ’97.
Bill
ps. No edit???Hi all,
Enjoyed reading that thread, it’s allway’s interesting to read other’s perspectives on the future of the economy and the Property market.. It gives an indication of thier strategies as well. And it’s allways good to compare..
as a matter of interest our companies of to China to evaluate some business dealings and ‘have a look around’, there’s a large U.S business prescence in parts of China also.
Predictions I have made since September have been :
(a) Aussie $ to go to US$77… done that & more to come
(b) Interest rate… I expected .5%… we got .25%
(c) I expected the Dow Jones to exceed 10,000 by Xmas
it did that plus…. as the Stock Mkts. pull back a bit over the next month.. expect complacency to take hold again in the R/E Mkt… especially with a likely hold on interest rates in Feb, Why? The Aussie is strong and getting stronger as the US$ crumbles.I Remember that Bill [
] you’d make a good secondary income in the fortune telling game !As far as the strategy of getting rid of some of your properties as you lose the cash flow benefits etc as interest rates rise… Well, it’s the old story of “Buy when everyone is selling and Sell when everyone is buying trick” ( In a Maxwell Smart voice : )[
] It depends on your strategy ( Do you “have” a strategy other than buy and pray )You KNOW you should’ve fixed your rates before those last two rises ( depending on your personal strategy ), things weren’t going to stay that low forever.
Remember – The main aim of property investing is to find and acquire properties that have the ability to generate long term capital growth ‘and’ consistent rental demand and income, you should always be on the lookout for properties at a discount to thier real value…
One thing this site has taught me is “Researching your purchases is paramount”.. it’s no good buying a + Geared property in a one horse town if the horse then leaves
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Bill and all
Redwing thats exactly right buy ones that will appreciate and put cash in your pocket.
Gee Bill you are very negative. Property is a long term play not in and out in a few months. where will prices be in 10 years? the cost of selling (agents fees, capital gains tax etc and then getting back in Stamp duty), even if prices do drop (my guess slightly apart from the CBD units) people will in effect be worse off. It’s not the stock market where its easy to move in and out as entry and exit costs are minimal. So your advise to everyone to get out of property is quite silly really.
While we are at it with predictions you weren’t the only one saying that rates and would go up, nearly every economist in the country was tipping the same thing. the same thing with the dollar.
I know you like to warn people, well so do i so this is my warning
The real risk is with those people who are handing over control of their money (sometimes $145,000) to people they have never met. These poeple are making incredibly dangerous claims that they can make 40-60% per annum by writing options. These people will be the ones that will truely be the biggest losers.
regards westan
I find +ve cashflow deals in New Zealand which I sell to other investors. To be on my database send an e-mail to [email protected]
WOW westan, where would I find such a guru who can get me these returns??? [
]Richo
Maybe if you post here you might find yourself a great mentor. LMOA [
]Cheers
Leigh K[:p]Carve your own path and lead the way …
WOW westan, where would I find such a guru who can get me these returns???I know one person who can help you out!! lol [
][:o)][]Cheers
[]
PropertyGuRu
I want to be billionaire! []
] and I’m sure you’ll do your due diligence.
]
]
] It depends on your strategy ( Do you “have” a strategy other than buy and pray )
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