Are those buying investment properties for the first time in todays market lemmings?
They have read a few books now that they have noticed that property prices have doubled in the last 5 years. They now read about people like Mcknight who bought positive geared property back in 1997 and think they can replicate things now. They think they can buy properties in regional and rural areas, that are just paying for themselves while interest rates are at 6.5%. They think that these properties will also double in the next 5 years.
Sure you may say if its positive geared you never need to sell that’s why they are best. Yeah – sure at 6.5% they are fine but what if interest rates hit 9% which is a historical average. Why have people like McKnight and Westan sold some of their positive geared properties?
As the property market has hit a high mark, should we not be better off looking at other opportunities? I recall over hearing a lady speak about 5 units she inherited. She sold them many years ago as the property market was doing nothing. Prices were stagnant. The stockmarket was roaring along.
Do people realise its not fun owning properties and the price does not move. Its not fun making those repayments and the rents don’t go up. Do people realise you still need to make arrangements for repairs. You still need to find tenants. All the while the property value is stagnant and you receive a miserly few thousand a year in positive cash flow.
The key to property investing is;
1. Time in the market
2. Buy when you can afford it. Don’t overstretch.Don’t get me wrong. I am a big believer in property investing. I just want to sound the warning bells to a few newbies. Now is the time to consolidate your portfolio and sell the non performers. Now is the time to save a substantial deposit to make a property investment maintainable in the long term.
As always your opinions appreciated.
Originally posted by yack:Are those buying investment properties for the first time in todays market lemmings?
No more than when you bought your first property I guess.
Your first investment is always your worst – and you have to enter the market sometime Yack. Get in line and stay in line.
Good on them for taking their first steps and taking action – they’ll find a way just like we all did.skippygirl
Good morning Yack,
a timely warning, I agree. Most of the newbies (myself included) are looking at things way too ‘best case scenario’. I have the benefit of being able to speak to a person that is investment savvy and I use his skill (yes he is successfull) and knowledge to bounce ideas of. My last project was very CFP and I got so excited that I double checked all my info before I went to see him. He pulled it all to bits and then gave me advice on why he did that. Basically, as you’ve pointed out above, if the interest rates go up to 9% I’d be cactus! So I have revisited my plan (and got a second one from TerryW) and nutted it out, based on the high interest rate!
For me, I’d like to see more of an evaluation of individual ideas with What if the mudd hits the fan disections!
Newbies are getting the idea too easily that PropertyInvesting is like going to the supermarket, just use the 11 second rule and choose something off the shelf!my two bobb.
Cheers
C@34
its easier at the moment to find good deals (as opposed to 12 mos ago). if a newbie goes to 10 auctions – at the moment 5 are getting passed in. give a post auction offer on thos 5, 10-20 pct under the reserve and see what happens.
but yack your overall point is taken. if youre buying at market levels without much creativity – you would be facing an uphill battle – investment wise.
Yack,
Its a valid point you make to sound the warning bells…
But I have to add that this is Steve’s site, and it supposedly is dedicated towards positive cashflow investing.Maybe a comment from Steve giving an update on his opinion of what to do in the current market would help.
The suggestion that newbies buying for the first time are lemmings is a bit cynical, at best.
The opposite to this would be’ analysis paralysis.
Don’t do anything out of fear that you are going to make a mistake.All these conflicting messages for a first time investor causes confusion and in the end, inaction…they just give up as it becomes too hard.
I say, buy when you can afford to buy.
I always have…and continue to do so, for better or for worse.
Its the best way to learn.My experience is that no self appointed expert has been able to tell me definitively, when the market was booming, when the boom would end,or when it was stagnant and for how long it would remain so.
I did my most property transactions when the rates were around 18% in the early 90’s and survived.
The first and hardest step is to get into the market……and build from there….
KP
Hi,
Yack – I started in 1999 mate, not 1997.
In any event, why am I selling some properties? Because I can make more money elsewhere on a comparable basis to the ‘real’ return on my money (allowing for the equity tied up in the asset).
My opinion is that the market is poised to redistribute wealth away from those who rely on chance to make a profit, towards those who have a degree of skill and a system behind their methodology.
In this regard, I agree with Yack – in particular:
Do people realise its not fun owning properties and the price does not move. Its not fun making those repayments and the rents don’t go up. Do people realise you still need to make arrangements for repairs. You still need to find tenants. All the while the property value is stagnant and you receive a miserly few thousand a year in positive cash flow.The key to property investing is;
1. Time in the market
2. Buy when you can afford it. Don’t overstretch.Well said!
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Yack
i agree, be careful in the market.
just to clarify it was actually me who started investing in 1997.
actually i was telling people on this forum that they should be selling back in july 2003 and reinvesting in NZ which was well before steve first book came out in August 2003. Those who did have made a great profit.
Today, for those wishing to buy large potfolios, i think that the time has come to look for new markets, as NZ is getting harder and harder to find great deals.
Sadly Australia is not the place to do it either.as a side matter Yack, if your having a go at regional areas (as we know you have in the past) just remember if rates go to 9% people with bigger mortgages in the big cities will be hurt more than those with high returning properties with smaller mortgages. So i wouldn’t be going out and buying a $500,000 IP in Melbourne today either.
Yack i must catch up with you to compare some notes after you O/S holiday.
regards westanI live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
Westan
yack is right in many respects and most people with IP in citys fix intrest and intrest only, now is still good time to fix rate.
In steves book he put 20% deposits and use P&I loans.
Yacks warning is as KP says, be prepared if the market moves and do reasearch.
Y
I am surprised no one else has an opinion on this!!!!!
Come On!!!
Hi yack, I actually watched some of those kinds of deals that people like steve and westan bought in os for 26k and sold for 90k. have they gone down in value since then? No, they’ve held. Now, in those markets where 26k used to be the bottom of the market, the new bottom of the market is 90. I’ve observed that there is ALWAYS demand at the bottom of the market, even when the median and tops come off the boil. That demand comes not just from CF+ve investors (that’s where the deals seem to be) but also from first home owners.) Basically every up and coming area zooming up in value today was yesterday’s bottom of the market area.
The reno kings spoke of it, and sammy davis jnr’s advice was ‘buy on the edge of town’. It’s my theory in different words – the cheapest stuff is the stuff that’s going to go up in value the most, not the (overcapitalised) brand new stuff built in today’s dollars.
In some towns in NZ where I bought for around 20 the bottom of the market is now 50. Agents tell me that anything under 50 or even around 50 is just being snapped up – that’s the deal that everyone wants – that price-range. So there are more people who want a house or a deal for 50, and less that want a deal for 60, still less at 70, and so on.
Interesting eh. So I reckon that the bottom of the market out-performs the market. Even in Sydney you can compare what the highest priced properties and suburbs doing with what the lowest priced properties in those suburbs are doing, and you’ll see it there.
yes, CG can fast-track your wealth but CF is the way you can afford to buy in the first place. And I believe that buying a CF+ve property priced below the median price (not necessarily saying buy the absolute cheapest thing on the market, but something in that ‘layer’) – is always going to be a good investment because that’s where most of the demand is always going to be.
Unfortunately, until we have more wealthy people than ‘poor’ or average, that’s the way it’s going to be for the next while.
Any opinions from new investors. I know I am frustrated that I have learnt about property investing but not is not a good time to expand the protfolio.
Any other opinions.
Hi yack,
I am a “new” invester
Currently have 0 deals to my name, looking to expand my portfolio LOL!I believe you have some valid points. We should all be cautious and invest wisely, but I am not going to let that deter me from taking the plunge. I think there is always a good deal out there somewhere, regardless of the market conditions. We just need to be mindful of the risks and do our best to mitigate them.
Regards,
OziLike the last boom Yack those who went in too late and too hard were burnt the most.
I suspect this time around it will be no different…….
Yak,
As a new investor about to begin in the new market, I can only be thankful of the recent boom which has delivered me 300k in equity to play with moving forward as opposed to the 5k I have managed to save. (Until I saw the light & started my AIP)Still pretty hard to find +c/flow in capital growth potential areas
Cheers
MattAnd here’s the trick Matt you’ll be faced with, working towards NOT losing it through poor investments!
Tread carefully at this time in the current RE market.
I agree with qwerty which is totally waht I have been getting at.
I too have increased equity. But my income and rents have not gone up too much in the last 3-5 years while interest rates have gone down over that time to fuel the equity and boom.
Interest rates will slowly rise as the US economy recovers. This is where it will be tough to hold these equity investments. So be careful and dont over extend.
Hi Yack,
We have stopped buying longterm “buy and hold” cashflow properties due to the changed market. We have begun to sell a few to take advantange of capital gains and to lower our LVR.
We will still buy a property if it is a “problem”, that can be turned into a “solution” and make some money doing it. i.e. subdivisional property, or reno etc..
Yes you are right in a lot of what you are saying about people jumping in for the first time buying in this market. You should only do it, if you REALLY have done your homework on prices. Now is not the time to be paying “above market” prices for any type of property (cashflow or capital gain type)
Regards,
Del
Hi Guys,
actually i have been doing the total opposite, right now im buying up big again, and today, just signed a contract for another property, but im honestly just buying property at there market values, im not worrying about negotiating, but taking profits from the share market and putting those profits down as cash deposits…
it might seem a bit strange to do this, but its also knocking out other buyers bids, but the share market is crazy at the moment, and profits being made from the market can quickly and easily fund property purchases.
in the area, of which i live, ive noticed a mixed reaction, between buyers and a sellers market…
good deals, arent being negotiated, but instead being bought at market… and knocking out buyers/bidders buyers… are trying to chase properties that are being snatched up for a song.
Cheers,
sisGood points by all. Probably as I am in SEQ, property is remaining a reasonable option for me.
Any other alternatives to CF+ or CF neutral property anyone would like to put forward based on YAKs comments.
Currently have 0 deals to my name, looking to expand my portfolio 
LOL!
You must be logged in to reply to this topic. If you don't have an account, you can register here.
