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  • Profile photo of Don NicolussiDon Nicolussi
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    @don
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    O’Rourke believes property has a constant growth factor – 9 percent compounded over 1200 yrs in Britain, and 12 percent compounded over 100 years in Australia

    Thanks API mag.

    So well located desirable property will double in value every 6-7-8 years or so.

    Does this mean we should slowly and diligently acquire good properties over time or jump in and out of the market taking profits as we go.

    What do the forumites think.

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    Profile photo of Mortgage HunterMortgage Hunter
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    Some people manage to trade their way to greater profits coming in and out.

    You know I have been through three booms since I bought my first property. Looking back my single biggest regret is that I didn’t adopt a buy and hold strategy, rather I took profits as I went but didn’t buy back in until the booms were well and truly established.

    Unless an investor is particularly active and astute I would recommend the buy and hold strategy.

    This is quite a topical issue and I would like to see other people’s ideas.

    Cheers,

    Simon Macks
    Residential and Commercial Finance Broker
    ***NODOC @ 7.15% to 70% LVR***
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of kerwynkerwyn
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    Hi Don and Liz
    I think it boils down to what stage your investment career is at. Buy and hold is probably the best long term strategy, but it depends on how financial you are. It does not take long to hit the LVR and DSR wall; unless you have a job that pays zillions. Unfortunately most people are not in this category; a couple of properties will see them finished. If you are in your 20 to 30s than that is fine you have the time to wait for the capital growth to kick in, but that can take 7 to 10 years depending on the property cycle.
    I do a lot of quick buys and on sells for good profits, a few renos and creative marketing. I like cash flow and quick cash as I don’t have 20 years to wait to make money with buy and holds. I don’t want to wait until the nurse at the nursing home wheels me outside to sit in the sun, I want to chase the sun now and have a good time.
    So as I said it depends on where you are at and how old you are.
    Kerwyn

    Profile photo of DazzlingDazzling
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    It does not take long to hit the LVR and DSR wall; unless you have a job that pays zillions. Unfortunately most people are not in this category; a couple of properties will see them finished.

    I think if you purchase a fairly substantial property or three, it will knock your ability to borrow further funds no matter what your pay level is.

    If you have a high paying job, it helps the DSR, but not the LVR. Pumping free cash into either large deposits or reducing tax deductible (good) debt to reduce your LVR literally feels like a waste of money.

    The LVR limit simply takes time to overcome. This is where the buy and hold strategy comes into it’s own, IMO.

    Although, I can see others point of view of churning. With fees and duties, it appears to be 2 steps forward one step back…you are moving forward at perhaps a more rapid rate, but the ATO and State Govt’s are sharing your successes way too much.

    Craig the WA so-called guru admitted he churns too much, and his one regret was not keeping more of his properties…but then some people need to be ‘busy’ to feel they are striving forward.

    The grumpy ol’ chap up the end of the road who I admire enormously has done more than OK with a vacant block at the end of the street he’s held for the last 55 years…not a lot of activity there, but lotsa equity being made every year.

    Profile photo of catacata
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    I like to but and hold, untill something better comes along. At which time I will consider the options.

    CATA
    Asset Protection Specialist
    [email protected]

    Profile photo of Don NicolussiDon Nicolussi
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    Hi Kerwyn,

    I agree it is a very personal thing BUT I just can’t get past the leader story in the article about the guy who bought in bondi for 6k and sold for 800k ish.

    cheers

    [email protected]
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    Profile photo of calvin_thirty4calvin_thirty4
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    My preference, too, is buy and hold! Although perhaps I will make a leap of faith into the development arena – depending on how well I learn!

    I simply don’t see the sense in cashing-up when, at some point down the track you have to buy back into the market, but this time the prices are higher than when you sold – so where do your profits go then?

    Cheers
    C@34

    Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
    – Thomas Edison

    Profile photo of hbhb
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    Mortgage (I have been through three booms) Hunter.
    did thou not heed the sentiment about property through the bust cycles?
    was property not on the nose?
    where the papers not ripe with mortgagee auctions?

    ahhh how quickly one forgets…..

    i remember well a property investor hocking himself for over 1 mil only to find no buyers over 360k….
    and he couldn’t do the “buy and hold” theory, after all 0% equity doesn’t go down well with the banks, when times are tuff

    banks
    those cruel heartless banks……
    after all its only money
    and according to the theory property will always go up….
    and it did
    15 years later its value is $ 1.3 mil
    see i told ya
    property always goes up
    a cool 200k…. how good is that for the original investor
    still
    much better for the second investor

    now we might not get “the recession we had to have”, but do you think the government wants house prices to keep doubling while it screws the workers?
    and do you think real wages going up only 14% and house prices doubling, over the last 8 years, is substainable?

    i doubt it

    so like any good gambler i’ll take a punt
    sell 50%, cashed up
    hold 50%
    let the good times roll

    how about you Mortgage Hunter

    you’ve also seen the busts
    isn’t that the time to buy?

    harry

    Profile photo of coastymikecoastymike
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    Cata,

    You like to “but and hold”. Sounds like some sort of kinky sexual fetish to me.

    Profile photo of Don NicolussiDon Nicolussi
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    be nice coasty mike

    [email protected]
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    We are active in this market and buy Properties directly from the public. Maybe you want to sell?
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    Profile photo of redwingredwing
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    Originally posted by coastymike:

    Cata,

    You like to “but and hold”. Sounds like some sort of kinky sexual fetish to me.

    [biggrin][biggrin]

    Thanks for the laugh to start the day..

    I prefer to ‘Buy’ and Hold as well and found Peter Spanns story interesting, wherein he one day sat down and worked out how he would’ve done with his properties if he held them; or at least one every now and again rather than “tricking n flicking” them (Reno and Sell- thereby giving him realised profits to move onto the next)…the end result was that he would’ve been better off holding them or at least one every now and again.

    Agree with Dazzlings post of two steps forward one step back and I’m sure we all know people who regret selling a certain property as they now look at its value, or a property they ‘could’ve bought’ but didn’t years ago.

    However, I’m sure many people have used Momentum of the Market to buy and sell a few properties and rapidly move forward, then change their strategy as the Market changes…

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of foundationfoundation
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    I can’t be bothered springing for the mag. Anybody help me out with 2 questions?
    1) Who is “O’Rourke”?
    2) Is there any mention of R. Schiller’s opposing views as a matter of balance? I’m yet to read a more compelling analysis of actual very-long-term price movements and cycles .

    And a couple of questions for those who believe that house prices have grown at a compounding 12% here in Australia.
    1) With current lending restrictions (ie serviceability), how long would it take for house prices to hit the ‘serviceability ceiling’ (ie the point where banks can no longer lend enough to sustain the ‘growth factor’) if they grew by 12%pa?
    2) If your answer contains a reference to wages growth, what proportion of Australian wage earners do you believe have averaged 12%pa wage increases over the last 100 years?
    3) If GDP growth is <12%, for how many years do you think wage growth could support house price growth before the Australian economy would implode on it’s own bulldust?

    A hint for the answers to the above 3 questions – every single answer is far, far less than 100.

    For a bit of a reality reference, I draw your attention again to This Chart on page 13 of David Rees’ Commsec presentation dated Thursday 1 August 2002. It shows clearly the actual 100 year ‘growth’ rate of house prices in Sydney.

    Regards, F.[cowboy2]

    Profile photo of foundationfoundation
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    …and a second point on this matter, for those of you who believe that buying at or near the peak of a bubble is irrelevant in the face of “O’Rourke”‘s 12 percent growth factor, here are some facts.
    – The Melbourne housing market hit a previous peak in 1990 with a median price of $182k (source REIV). If this value is compounded at 12%pa, current median prices in Melbourne should be $998,000.
    – Prior to 1990, the Melbourne housing market hit a peak in 1974 with a median price of $35.5k (source REIV). If this value is compounded at 12%pa, current median prices in Melbourne should be $1,190,000.

    Obviously, neither situation is even close to the mark.
    From the 1974 peak to the 2004 peak, the actual rate of compounding appreciation was close to 8%. Inflation during this time averaged 6.7%pa, so the real rate of housing ‘growth factor’ is a little over 1% for the period.
    From the 1990 peak to the 2004 peak, the actual rate of compounding appreciation was almost exactly 5%. Inflation during this time averaged 3.2%pa, so the real rate of housing ‘growth factor’ is under 2% for the period.

    Now we need to remember another couple of important points:
    1) Prior to the boom of the late 1980s, house prices always returned to their trend in relation to wages (Around 4.2x annual wage in Sydney, 3.9x in Melbourne).
    2) House prices in most parts of Australia have peaked for this cycle and are falling either in nominal prices, real prices (ie rising slower than inflation) or both. If you were to do the above calculations from the peak of one boom to the trough of a future cycle, things get decidedly ugly.

    Hope this has provided some lunchtime food for thought.
    Cheers, F.[cowboy2]

    Profile photo of Mortgage HunterMortgage Hunter
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    Originally posted by hb:

    Mortgage (I have been through three booms) Hunter.
    did thou not heed the sentiment about property through the bust cycles?
    was property not on the nose?
    where the papers not ripe with mortgagee auctions?

    ahhh how quickly one forgets…..

    i remember well a property investor hocking himself for over 1 mil only to find no buyers over 360k….
    and he couldn’t do the “buy and hold” theory, after all 0% equity doesn’t go down well with the banks, when times are tuff

    banks
    those cruel heartless banks……
    after all its only money
    and according to the theory property will always go up….
    and it did
    15 years later its value is $ 1.3 mil
    see i told ya
    property always goes up
    a cool 200k…. how good is that for the original investor
    still
    much better for the second investor

    now we might not get “the recession we had to have”, but do you think the government wants house prices to keep doubling while it screws the workers?
    and do you think real wages going up only 14% and house prices doubling, over the last 8 years, is substainable?

    i doubt it

    so like any good gambler i’ll take a punt
    sell 50%, cashed up
    hold 50%
    let the good times roll

    how about you Mortgage Hunter

    you’ve also seen the busts
    isn’t that the time to buy?

    harry

    Yes it is the time to buy.

    I was actually talking about my mistake being selling and not buying. If I had not sold I would be better of now was the gist of my post.

    Those who sell at the peak and buy in the trough are cleverer than I. Picking the right times is very very easy looking back.

    Looking forward is a whole different kettle of fish. I will leave that to those who are smarter than me or less risk averse.

    There is a huge difference between investing and speculating. As you have indicated you are a gambler I guess speculating is your forte. I have made the conscious decision to be an investor.

    All the best,

    Simon Macks
    Residential and Commercial Finance Broker
    ***NODOC @ 7.15% to 70% LVR***
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of DazzlingDazzling
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    for those of you who believe

    Heya F,

    Nice post with well supported data.

    I think you’ve hit the nail on the head there. If you have a look at most of the posts on this and other forums, ‘most people’ will included the phrases “I believe” or “we feel” to substantiate their point, which of course has no bearing on the subject matter to hand…these two phrases were developed by the religious folk way back when so as people didn’t question what was being dished out. The same pervades today.

    By questioning people’s beliefs, no matter what evidence you put forward, you will seldom – if ever – change their belief.

    Once again, excellent post.

    BTW, do you have excellent detailed data on other forms of R/E other than just houses and units ??

    Profile photo of Don NicolussiDon Nicolussi
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    Hi Foundation,

    The article says that O’rouke is the vice president of the FIABCI – world federation of real estate – or maybe the australian chapter. who knows what the peopl do.

    Anyway – can you check these figures from the article. It reckons the source is BIS shrapnel. reia.

    Melbourne

    1970 $11,800

    1980. $40,800

    1990. $140,000

    2000, $241,000

    2005, $363,000

    I am not from melbourne (although) there are numbers for each major capital city.

    The point the article also makes is that “most people don’t benefit from the growth in property prices because they only own one home.”

    Who knows what they mean but I will use that comment to inspire the next question.

    If in 1970 you bought 10 or 15 median priced 1970 melbourne properties geared to a ratio that was sustainable at your current 1970 wage.You then stopped buying property or any other investment at that point. Would you today wish:

    A) You sold them?

    B) You kept them?

    c) B + laughing all the way to the bank as your gain is CGT exempt as it is pre the act/amendment?

    D) Wish you had brought 10 Leyland P76 motor vehicle instead.

    Feel free to add an option or change the city or any of the variables. Lets have some fun!!

    [email protected]
    Property Finders living in NZ .

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    If you have joined the list since 16 Oct Please re send information.

    Don Nicolussi | Property Fan
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    Learning, having fun and doing it!

    Profile photo of Don NicolussiDon Nicolussi
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    There is a huge difference between investing and speculating. As you have indicated you are a gambler I guess speculating is your forte. I have made the conscious decision to be an investor.

    Could not agree more.

    It is very tempting to become a speculator. There is a degree of risk in every investment.

    But – are there any others who may or may not have read the article find themselves in this position. Sold a property 10 or 20 years ago that if they held it could have changed their lives? If you sold what did you do with the money.

    Cheers

    [email protected]
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    Profile photo of foundationfoundation
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    Sorry Dazzling, I’ve only got Melbourne residential data from back when I could access ABS for free. Plus some I was sent claimint to be official REIV stuff.

    Don & Liz,
    There is something very fishy about those numbers. Here’s why:

    Year _ API Mag _ ABS Data_ REIV Data
    1970 _ 11,800 __ ~12,000 _ ~17,000
    1980 _ 40,800 ___ 39,500 __ 55,000
    1990 _ 140,000 _ 131,000 _ 182,000
    2000 _ 241,000 _ 191,000 _ 266,000
    2005 _ 363,000 _*309,000 _ 363,000

    * March quarter – June not yet available.

    Now I can’t absolutely vouch that either the ABS or the REIV will back my figures, but what appears to have happened is that whoever did the API report has crossed from one set of data to the other at some point. This exagerates the ‘growth factor’. Let’s see how they compare:

    API Mag_ – 10.3%pa
    ABS Data – 9.7%pa
    REIV Dat – 9.2%pa

    Ok, so it doesn’t look like a lot of difference, but compounded over 35 years that’s nearly a 50% difference in equity between 1st and 3rd place. It also puts a bit of a question mark against my ‘REIV’ data because there’s no way in hell they’d endorse figures that looked worse than the official ABS ones… although I guess it’s just the final number that counts, and $363k looks a lot richer than $309k.

    Anyway, this is all nit-picking and rambling.
    Yes, if you’d bought 10 houses back in 1970 and not lost the lot when interest rates hit the high teens in ’82, 86 & ’89 (Ok, so I don’t remember the first two, but I’m told it happened, yet was so dwarfed by ’89/’90 that everyone’s forgotten about them), you’d be doing pretty nicely for yourself about now. Of course the banks wouldn’t have let you buy 10 houses in 1970 unless you brought an enormous chunk of real cash to secure the loan. Think 30 or 40%, and ‘equity’ didn’t count the way it does now.

    Anyway, I wouldn’t want to have my shirt riding on the ‘good bit’ of the last 30 years, because you can’t have the sugar without the medicine. The reason house prices rose considerably during the 70s and 80s was one and the same with wage increases and high interest rates – inflation. You can’t have the one without the other. The last few years, of course have been something different altogether – namely, madness.
    Oh, and inflation.

    So, by all means, if Mr(?) O’Rourke wants us all to go out and buy a house now, hold it until 2020 and have an asset worth $2 Million if in Melb or $2.7 Million in Sydney, he should at least tell us to expect interest rates to average above 10% and to hit the high teens (an extra $600 to $700pw) at least 3 or 4 times before then. And he should be advising us to budget for $7.00+ petrol. And the average wage earner will be earning over $250,000 a year (nearly $150/hr). He should tell us all this just to put things into perspective.

    But he won’t. He’ll only use the numbers that appeal to the ‘greed’ factor. Fear and reality have no place when you’re ramping something this hard!

    Cheers, F.[cowboy2]

    Profile photo of DazzlingDazzling
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    I think the mystery Mr O’Rourke to whom you refer is the one and only Rory O’Rourke, a bit of a wheel over here in Perth flogging inner city stuff and running a seminar and book or two…don’t they all ??

    I think he’s also dragged his son Jayson into the “dog and pony” show. At around 25 he’s an expert as well, advising 50 and 60 year olds how to spend their money for retirement when they get a bit older.

    Profile photo of Don NicolussiDon Nicolussi
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    So, by all means, if Mr(?) O’Rourke wants us all to go out and buy a house now, hold it until 2020 and have an asset worth $2 Million if in Melb or $2.7 Million in Sydney, he should at least tell us to expect interest rates to average above 10% and to hit the high teens (an extra $600 to $700pw) at least 3 or 4 times before then. And he should be advising us to budget for $7.00+ petrol. And the average wage earner will be earning over $250,000 a year (nearly $150/hr).

    S0 you own 10 properties today that will be worth 27 Million dollars in 2020. Average wage is $250k.

    You have a portfolio worth 108 years wages. That would be a nice retirement nest egg. That would probably set up a few generations.

    [email protected]
    Property Finders living in NZ .

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    Don Nicolussi | Property Fan
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    Learning, having fun and doing it!

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