I am a firm believer in Investing during the Recession, if One has unconditional finance (permanent / residual income) and is looking for a medium to long-term investment, however I am in search of like-minded Comments to encourage my Partner who is the more skeptical of us both…
I will be purchasing primarily 1 bedroom apartments, to renovate into streamlined and well furnished Studios (inner city subs of Melbourne and SEQ). Typically 1 bedroom apartments offer larger floor space, more windows and natural light and once refurbished (my Partner is a Builder) and furnished, will provide compfortable short to long-term accommodation for those who are now liquidating assets in their preparation for the Recession. Combined with Rental Rises of up to 55% in SEQ in the last 12 months, could there be a better strategy??
I will be Investing for the long haul, so am not much phased if equity takes a year or two to regain market strength. Now is definitely the time to get the best negotiations with the Seller / Agent and secure a lower Fixed Interest. I'm honestly looking forward to some Positive Gearing and stoked that we have been given an opportunity to ride this wave that saw a lot of people very wealthy 20 odd years ago!
If I can have a ratio of 20:1 positive Comments to this Post, you'll please me and have my Partner a whole lot more confident about Investing + Renovating during the Recession! Honest opinions…
Happy Investing,
Beth Ashtonseveral times you said "please tell me I'm right" which should be a good indication that you are in denial. you are trying to manipulate the outcome by specifying what proportion of responses are allowed, then conflict this by asking for "honest opinions" as if to say "I'm gonna prove I'm right even if it means I have to manipulate people to do it, but I might fool them with the last bit haha" .
how about actually listening to your partner whos job gives him a pretty good feel for the property market and economic conditions? the poor guy……"Now is definitely the time to get the best negotiations with the Seller / Agent and secure a lower Fixed Interest."
it is?
prices havent stopped falling yet, neither have interest rates.
"….and furnished, will provide compfortable short to long-term accommodation for those who are now liquidating assets in their preparation for the Recession"
so you assume there will be a lot of people who lose not only their house but all of their possesions as well, and will want to rent your furnished units in the city & pay the rent with the money they dont have, and go to the jobs they cant get due to the recession?
"….am not much phased if equity takes a year or two to regain market strength"
so……….your great investment idea is to buy, then watch prices fall, and wait a few years to get your money back? what if it's 8 or 9 yrs?
you clearly havent thought this through AT ALL.
sorry Beth but you are WRONG WRONG WRONG.
you dont invest before the recession hits. you wait until it has already hit and looks like breaking. would you buy shares a week before the 87 stockmarket crash?
you dont lock in interest rates when they are certainly going to fall a lot further.
I could go on as there are a lot of other issues with your post……….
however, you are right in that investing during a recession is smart. the problem is we are not in a recession YET, and once in one it could last many years.
Thanks for your "honest" opinion Crashy and congratulations on being the lesser ratio I was expecting
Firstly, in no way was I manipulating anyone – I don't particularly require a tick of approval for my strategy (we're all in control of our own destiny) purely some information for my partner (which was mentioned in the Post). I did propose the question "could there be a better strategy" as well as include some facts I have found through research. I'm not a downer of a person, so if you do have a better strategy for Investing at this time, I'd love to hear it!
"The Poor Guy" you refer to as my partner, is a Builder, not an economic watch-dog, not a property researcher, valuer or architect. I work in Property Development as a Pjct Manager (currently residential construction) and have worked in Architectural, Real Estate (sales + leasing) and Property Development firms and unlike my partner, invested in property before. So before you give yourself a wedgee and make me out to be a crude biatch on the internet for all to see, how about you request all of the facts first
Correct, I am watching property prices topple like everyone else and I'm also noticing high Rental Yeilds in the areas of my investment. As my strategy is to invest for 'the long haul' as already mentioned, it is not a major concern. If the Reserve Bank decides to slash Interest Rates by another 1 to 2 % or more, property owners aren't going to have such a need to sell and prices won't be as negotiable
Due to the Supply and Demand of property in Australia's Eastern Cost, with a strong skilled migration particularly from Asia (China's economy may be feeling the brunt of the Recession, however Professor Angus Maddison uses PPP (purchasing power parity) to forecast China's 23% share of the world's GDP by 2030 – and will quite possibly be the world's strongest economy) so I don't have many quarms about renters, expatriets or skilled migrants paying their lease or requiring fully furnished accommodation
I am in my twenties and haven't had the opportunity to experience a Recession first hand, which is why I am here and asking if there is a better strategy or to gain confirmation that I might be on the right track. I do, however have the experience of renovating and leasing property and some market knowledge gained through the internet and other reading material
Your Comments are important to me – let's just try and keep this a happy place : )
you claimed your job was super-secure, then you say you are in residential construction, which will most certainly be a job first at risk in a recession. same goes for the builder partner of course.
"If the Reserve Bank decides to slash Interest Rates by another 1 to 2 % or more, property owners aren't going to have such a need to sell and prices won't be as negotiable"
why would you assume that? people didnt sell when rates went up so why would they have "less of a need to sell" when rates fall? people will sell because they dont have a job to pay the mortgage or expect prices to keep falling. secondly, the RBA cuts rates because thing are bad. the rate cut is medicine for a disease, it is not a windfall for all.
skilled chinese migrants need a job to go to by the way. if there isnt enough jobs for aussies why would we let in migrants?
I actually agree with your "strategy" however incomplete & based on flawed logic, however you said NOW was the time to implement it, that I strongly dissagree with.
I also strongly dissagree with the way you structured the post to ensure you were told what you wanted to hear, instead of the truth. furthermore, once again you totally dismiss the opinion of your partner. nuff said there.
99% of this forums members are preaching the end of days, while I have been suggesting that we need to keep our eyes open for opportunites. I dont think we are near that point yet however.
1. I have a residual income from a Business in food + bev (consumables) My Client in Property Construction, should his work diminish from the economic crisis approaching, provides me an opportunity for the time being. I am however, prepared for a kick in the pants if it occurs. At no time did I refer to or imply that my 'job' was "super secure"
2. Your third paragraph is good information, thank you. Instead of a slap in the face, I can digest constructive critisism with some reasoning
3. My Partners' opinion is always welcomed and I'm glad he voices it! I have a seperate Business Plan and goal objective and I believe as individuals we should, however it would be brilliant to create a property portfolio of rentals with him for our future enjoyment4. Glad to hear you are positive about opportunities during Recession
Thanks Crashy
Hi Beth
Well done for being in control of your own destiny through what sounds like research, knowledge, positive thinking and thinking outside the square. No one ever got great by doing nothing. We are still investing and so are many others. Negative spins on everything helps nothing. Facts and figures, research, numbers, education, goals, vision, count for so much more. We are still investing happily as are many others. Yes it is different today than yesterday and it will be different next week and next year. To be good at something only when things are easy is not that difficult! I have sent you my contact details. Happy investing.
Michelle
Hate to admit i am old enough to remember the 1987 crash and was working in the finance / stock market industry then also.
I am happy that the properties and stock assets I acquired after 87 I still hold to this very day have increased in value very nicely thank you.
I am still buying today and will continue to do so until such time as i curl my feet up and my kids can look after the portfolio.
As long as you are selective in your due diligence and asset criteria you will do well in any market.
Good luck…..
Richard Taylor | Australia's leading private lender
Hi Beth,
Maybe I'm thinking against the grain too, but I think it sounds like the right time to buy now too.
My thoughts are:
- Increase to the first home owners grant should make it easier for people to buy and hence help drift house prices up
- There are a lot of people out there with money in shares that are now feeling very insecure about they're investments. I think they will start looking for the safe investment choice into bricks and mortar putting further upward preasure on house prices
- Interest rates are dropping very quickly at the moment putting upward preasure on housing prices
- Sydney population is increasing putting upward preasure on house prices
- Yes, I realise that unemployment is increasing. But we are looking at a forcast change of an exceptionally good unemployment rate of around 4% to somewhere meadiocre in world standards of around 5-6%.
- Inflation is expected to decline which will put downward preassure on houses
So four forces pushing up against two forces pushing down indicates to me that house prices are on the rise, and with so many people in a state of panic, you might get some bargains now too. I do realise however that I am not an economist and don't actually know the weighted impact of each of the forces so do not profess to know prices will rise as a certainty.
Im about to put my money where my mouth is though, and am currently looking to purchase in Sydney. My stratagy will be to purchase quality property as close to CBD as possible or near the beach. I want to purchase property that has rarity as I feel it will be more secure than those in the outer suburbs belt that could be more volatile (because there would be a higher proportion of first home buyers and greater proportion of reposetions).
Good luck with everything, I'm sure you will do great!!!
Thanks for your Comments guys!
Aphex, totally agree with inner subs + bayside areas to invest – there are some gorgeous (heritage) apartment buildings in Elizabeth Bay, although most are small studios they are marketed at incredibly affordable prices! And the concept of purchasing property with rarity is great – Art Deco and Edwardian property is hard to find in Elwood and other bayside subs in Melbourne atm, very desirable (not to mention structurally solid + locally iconic for the past 5 decades!)
Just an update:
My partner and I have visited the Bank's Mortgage Consultant who has confirmed our borrowing 'strategy' with some really helpful info including a Variable Interest Rate… I guess at this moment in time VI is a good idea. What do you all think? I know typically long-term investment properties should be a Fixed Interest but I'll have to find out if we can swap should Rates start to rise in the future (have emailed Consultant for his advise also)
I'm looking at a handful of 1 beddas this week inner subs + bayside Melbourne, all under 200K + my partner will be keeping an eye out for any structural defects next week when he flies down
I have also researched local Property Management groups + the fully furnished apartments on their books are certainly exceeding my expectations by means of weekly Letting prices
I will be sticking to my "worst case" scenario however, where any extra $$$'s will be an added bonus!
………………………………………………………………………………………………………………………………………………………………………….
Hopefully we'll all continue to build wise portfolios… with only potential minor hiccups – but remember our greatest glory is not in never falling but rising in every time we fall and we can only look to learn from our mistakes!
Ps, Richard you might be able to help with long-term investment options ie. Fixed or Variable Interest??
Beth
That is a hard one to predict.
With a fixed rate circa 6.99% you can sleep at night but could kick yourself if we see considerable fall in the VR.
To me a balance between the too at least puts a lid on your monthly expenditure.
Bigger issue will be whether the mortgage insurers will accept the security not the Bank.
Richard Taylor | Australia's leading private lender
Hi Beth et al
Bear in mind that house prices in Australia are at an extreme in terms of income to cost ratios. It is (or at least was) up there with the US, Spain and Britain. Not so many years ago you could buy a house in Australia for 2.5 times the level of income and these days you pay more like 7.5 times income. In the earlier days you could not borrow from equity so I guess it kept the lid on prices. Once this changed then more investors entered the market which was good as it created jobs and boosted the economy. In my view things started to deteriorate when it became ok for investors to take on more and more debt relying on escalating prices to cover their debt and provide them with more oportunities to buy additional properties. On top of that it became fuelled by the opportunity to borrow even beyond the price of the property (includes money for new car). They were happy days (for some) but it left in its wake for the people behind who had to borrow more and more for the same property that someone a few years before bought for a song.
So the above path we were on was on the basis that house prices would still keep rising notwithstanding the high price/income ratio we had reached. The bubble had to burst and it will burst a lot more than it has today….although unlike the US it will more subtle (won't go to $0 price tags). In some ways the credit crunch in the US (excess house debt and oversupply of houses) has no doubt put the world into a financial spin and perhaps Australia will be spared less the drama of worse off countries but at least in terms of house prices it has brought us down to earth perhaps softer than it would've been had more years gone by when the burst would not have been so subtle). Regardless of the economic woes coming towards us to be sure there will always be a property market available to astute investors. Houses at the lower end of the market will always be in demand wherever there is employment and a shortage of housing. Likewise, in urban areas in good locations where demand exceeds supply and of course in pristine/elite areas and areas where land itself is short in supply for future developments. The capital growth of properties in general is going to be off the boil for a long time but for long term investors the bargains are still there and always will be. Good investors try to keep the level of debt to a sensible level ……for me (and I have done very well based on simply land and location) never let overall debt become higher than overall equity ie no less than 50% total equity in your property portfolio.
Regardless of the prevailing world financial crisis, the bubble on house prices had to change re the points I made earlier on income/price ratio hikes. House prices are already spiralling downwards in the other countries like Britain and will probably get worse now that it is in recession and we know Australia house prices will be impacted further as we approach the door of recession regardless of our more secure economy (based on China).
Any investment has risks (our stock market!) but if the property is good and in a good location that at least provides a guaranteed rental yield then it could make for an excellent long term investment. Not a time now for the short term capital growth hunters in my view.
Cheers CarpeJust an update – we have chosen a Variable Interest Rate now, however the CBA, smart kids, haven't reduced the Rate as much as I was hoping, following the Reserve Banks decisions over the last two weeks! And if Interest starts to hike up in the future, I've been advised it will only be a $300 fee to secure a Fixed Interest
Hi beth
Im not an experienced investor yet with only one investment property and another a couple of weeks away, but i personally believe you need to take a look at the big picture..
At the end of the day if you not too concerned about immediate cashlflow and income from property then just keep buying in nearly any market. Property has and always will double in value every ten years give or take a bit.
Alot of people are predicting really bad things and yeah it could get bad, but the underlyng fundementals of australia are good, banks are in good positions, migration is still good, vacancy rates are still low in the right areas, interest rates currently very manageable, australia is in a good position overall and i personally think that it will not be as bad as some are predicting
I am buying property now and will keep buying in nearly any market, if your worried about where the market is going then keep you LVR ratio lower to absorb some of the markets bumps, but at the end of the day prices will double in years to come and will keep doing so.
In the mean time look for bargains, and keep you investments in areas with low vacany rates to minimise risk. Fix rates soon to keep comfortable.
There are many many doomsdayers that are up and selling property in the possible wake of the US crunch but in 10 years or even less they will be crying themselves to sleep wondering why they did not just modify their stragegy to cope during these times.
property is and always will be a no brainer in nearly any market.
It does sound like you are asking us to convince yourself a little also, if youve done research and have a safety buffer setup for the what if's then you are heading down a good path
personally im going to stick to SE QLDcheers
paulBeth Ashton wrote:…we have chosen a Variable Interest Rate now…ahhh, so……you are admitting you were wrong then?
Beth Ashton wrote:….it will only be a $300 fee to secure a Fixed Interestshoot your advisor. it may only be a $300 fee, but the rate you get offered may make you wonder why you bothered. you cant just switch teams & expect the other side not to complain! banks arent stupid, neither are bond traders…….if there is any hint of rates going UP in the future, fixed rates will be much higher than variable quicker than you can say "where do I sign, suckers?"
Hi
The good days of property investments are over (unless you have plenty of real, not inflated, equity). Despite all the doom and gloom of the credit crisis putting everyone in a spin on what to invest in one thing is certain. The gap between income and house prices has widened in Australia so much so it is up there with the US and Britain ….it's probably the worst at the moment as prices have already crashed in the latter two countries as they head into recession. Prices in Australia have gone from 2.5 times income to 7.5 times which means people investing have to borrow more and more to purchase something. I've been a winner from property investment but I think it's time to change grounds for a few years and invest in good blue chip stock……prices are so low at the moment and one thing is certain they will outdo property investments over the next say 7 years.
CarpeI agree, shares are the way to go. Im sure they will drop a bit further and go up and down for a bit but (earnings per share/share price) is quite good across many sectors.
Having said that property could still be a good option. I think it will be. there is good buys around and they will be pretty close to positively geared.
Another property boom will occur. each % point drop in interest rates combined with a flat/dropping market will entice increasing numbers of people as they can see investment opportunities that arent overly negative geared. People get use to what they think house prices should be and considering there isnt a huge percentage of australia with mortgage stress huge drops are unlikely in my opinion.thinking philosophically do we have population growth and a growing number of people wanting to live comfortably ?
are people capitalistic and consumers by nature ?
people have to stop sitting on their hands eventually and spend some money.(im sure someone will shoot this post down in flames since its quite optimistic ?!?)
It's doomsday and probably the last time I make a Post – this site used to be a way to communicate with fellow Investors to get the best advise – it just seems that some people like to make it a personal-issue on one anothers intelligence – let's all complain and go to hell : )
Yep, I have gone with a Variable Interest following constructive advise from Richard. As I already told you, I originally Posted my opinion with questions about the strategy – I put my hand up to erroness cos' I'm not Jesus : )
Any one ever heard of 'a glass half full' ?
used to be a utopia……and you know this because you have a massive total of 11 posts and joined 5 weeks ago……but hey, feel free to pass judgement, it only confirms my original theory.
People can only be told what they want to hear
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