What Will YOU Do When The Bubble Bursts?

Pray Hard!!

We’ve got 70 yrs on planet earth,Lets make the most of every day!

what bubble are you referring to? and what will YOU do if there is no bubble?

I will just keep buying more properties while some others will be wondering what is going on around them.

I’ve done this for 33 years and what seemed to be a bursting bubble for some turned out to be a great opportunity for others with a big picture view and an abundance mentality.

Michael Yardney
METROPOLE PROPERTIES
Author of Australia’s leading property e-magazine.
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Not yet in WA Terry

I guess what Michael and Dazzling are trying to say is you can continue to invest in any market provided using the right strategies.

Property just doesn’t burst overnight like shares.
You have plenty of time to prepare.

But surely ‘locking in’ values near the top of the market won’t be much use if the value of current holdings falls, will it? Lenders will still want to see balance sheets where total loans outstanding < total current market value. Unless their LOCs are sufficient to buy outright (no loan), these ‘experienced investors’* would be LESS able to borrow money than people with less or no outstanding debt.

I’ve heard tales from the early 90s where people in negative equity were knocked back on small loans to repair their cars or purchase washing machines… let alone multiple properties.

In addition, were things to turn sour (increased loans in arrears, valuations below loan values etc), the banks and lenders mortgage insurers would be very quick to tighten their lending criteria. Loans for multiple property holdings where the borrowers had no realistic plan in place to repay capital would be seen as high-risk, rather than ‘safe as houses’.

Furthermore, in a global economic climate of rising interest rates, further foreign lending will come at a high cost… if at all, as the risk/reward ratio adjusts. Why would foreign investors ‘lend our banks’ money at <7% to be used essentially for the purchase of assets that have proven to be risky, when they can get similar returns by parking it cash?

Cheers, F.[cowboy2]

*IMHO truly experienced investors are likely to have actual cash reserves rather than debt-based (eg LOC) reserves, because they bought low and sold high.

Source: http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul02/bu_0702_1.pdf
Graph 4 (p. 5) Illustrates the approximate doubling of the vacancy rate from the historically unremarkable rate of 2% to over 4%. This was the combined result of rapid house price appreciation and recession.

Graph 5 (p. 5) Demonstrates a consistent decline in rental yield from the early to mid nineties, a time when house prices were flat to falling. This implies declining rents.

Cheers, F.[cowboy2]

There are always ways around this. Vendor financing, say.

On the contrary, have you ever done a refinancing on one loan out of many? The bank will revalue the property you are refinancing, but they never check the value of the exisitng properties: they assume that LVR is ok and look more a the income / interest payment side of things. I know that banks have never had to value any other properties of mine apart from the one I’m buying / refinancing.

Cars and washing machines don’t generate income. Experienced investors would be able to buy properties at less than 10% below ‘market’, creating much higher yields. Would you rather lend money to a person to buy a car, or lend money to the same person to buy a property?

You’re not thinking like a bank: banks DON’T want you to repay capital. They can get capital cheaply from deposits or borrowing in the money market. Of course credit will be tighter, but there will be ways of borrowing. Volumes fell during the last bust, of course, but there WERE still settlements. Meaning people got their money from SOMEWHERE.

I’m not saying everyone will be able to take advantage of the bust. I just expect to be one of them. Partly because even in a recession I’ll still have a high-paying job (if not, I’ll run to Tokyo or London or Hong Kong and work THERE). In the early 90’s, for example, a lot of friends who had just graduated went to Hong Kong to work because HK had a good economy then. If Australia goes bust again, there’ll be somewhere that is still booming and I’ll go there.

As long as one believes that a bust is followed by a boom (as I do), then just buy as much as you can during the bust and sit back. Even buying ONE property in the bust will result in greatly increased equity as the new boom takes old, creating equity you can then tap to buy into the rest of the boom.

Or to put it another way, buying just one property in the bust is better than NOT buying in the bust!
Alex

There is a big difference between normal cyclic patterns and a burst bubble.

Why do you think this is anything other than a slump after the boom which happens as surely as night follows day?

or is it that this is your first slump and after such a big boom it looks like an unseen catastrophe rather than normal pattern?

And i mean no disrespect with that.

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.

Foundation, I agree with you that credit will be harder to come by in a bust. However, credit doesn’t completely dry up. Properties still change hands. Those with strong balance sheets, cashflows and high salaries will still be able to get loans. Also vendor financing will be much more common in a bad market, which bypasses the banks altogether.

As I said, people go bankrupt investing in property when they buy at the top of the market. At the same time, if you were conservative with your numbers, even buying at the top of the market doesn’t drive you to bankruptcy. Plenty of people hurt during the early 90’s but only a few actually went bust.

Buying during a bust is much safer than buying at the top of the market.
Alex