Hi everyone,
I am interested to hear the thoughts of those who attended Steve's market update in Sydney last night (or other ones he is conducting around the country). It would also be great if we could post any questions we didn't have an opportunity to ask on the night and if Steve could do his best to answer them.
I must say I was very pleased to hear Steve speak for only $50. Much more cost effective than any other seminars I have seen advertised.
I think that his thoughts on waiting for the market to bottom before buying in again was good advice, as well as anticipating interest rate increases.
There are a few parts of the presentation that I would appreciate Steve's thoughts on:
1. I was slightly concerned that there didn't seem to be any appreciation for how overvalued the market is today when compared with incomes to service the debts. Sites such as demographia.com clearly show how overvalued the Sydney market when compared with incomes, which wasn't such an issue a few years ago. Vacancy rates are only a small part of the equation, what people can actually afford to buy or pay for rent is at least as important.
2. I wasn't convinced by Steve's argument that the Sydney boom from around 1998-2004 was caused by a low interest rate environment. If you look at his graph on the bottom of page 3 of his handout you will see that prices in Sydney also doubled between 1987 and 1990, interest rates at the time were between 14% and 17%.
My own interpretation of the graph is that the gradual increase in house prices around 98 and 99 was then extended and skyrocketed through to 2004 because of the first home buyers grant being introduced at $14k and people taking advantage of their sudden government funded bonus, regardless of whether they would normally have considered buying a home under normal conditions. I understand that the FHBG was reduced from 14k to 7k after a while, can anyone confirm if this coincides with the timing of the sudden drop in 2004?
As an aside, the FHBG was the worst thing they could ever have done for home affordability. The people it has benefitted are those that couldn't save a deposit, so should never have been buying property in the first place.
3. Steve is comparing statistics for the past 20-30 years, but we are in the middle of a once in a century event, all bets are off on how bad this could get. The only comparison we should be using is the 1930s or prior to that the 1890s when by the accounts I have read, house prices dropped 50%.
4. The property example in Forster had a cashflow positive result of $5k. Based on a $450k purchase price and a 20% deposit, this would result in a very poor cash on cash return of under 6%. Could you please elaborate on this?
Your thoughts on these observations would be greatly appreciated thanks Steve.
Great idea Matt,
I'd like to ask a question in regards to focusing on positive cashflow while the window of opportunity is open (low interest rates).
If property prices drop as many suggest, then what happens when interest rates go back up? You'll have -ve equity and -ve cashflow. What's the exit strategy in this scenario?
Perhaps it's better to wait for the bottom of the market before looking at cashflow and growth.
I did enjoy the content of the seminar, and mean no disrespect. But this is concerning for me.
Cheers
What you are suggesting is actually what I heard Steve recommending.
He said don't try to pick the bottom of the market, wait for the bottom to be confirmed, (expecting we would only know 6 months after it has happened) and that would be the best time to enter, at the start of the next growth phase.
My concern is more how much potential growth is there, peoples incomes arent keeping up with asset prices, there is no growth potential without high inflation and wage growth.
Well, he is just a salesman… no one can predict whether the propety price is going to double or half in next 10 years…
Do you think Frank Lowy or Rupert Murdoch will give such a 'cheap' seminar?Well I'm going to his seminar tomorrow here in Brisbane, so perhaps I will jump online afterwards with some questions. I'm really looking forward to hearing his opinions, even if he is just a 'salesman'. He seems to know enough to be an authority in my eyes (although of course, I wouldn't trust him or anyone blindly without doing my own research).
Dave.
Matt,
Yeah, I remember that part clearly, which is why I'm confused in the first place.
If timing the market is key, then why invest in positive cashflow property now? Prices have great potential for a huge drop all the while interest rates are temporarily low – it's not going to last forever, so why is cashflow so worth it now?
I am under the impression the Forster example was to demonstrate good deals in the current market. That deal is good now, but for how long? When values decrease and interest rates increase – you're stuffed!
I do understand that it was to demonstrate the 1% rule, but was unsure whether or not it was a form of encouragement for present day investing.
In saying this, I've probably already answered my own question… the result of a Monday night seminar I 'spose
I'm pretty sure Steve prefaced the 1% rule by saying "when its time to buy, this is the rule you should use in a low interest rate environment".
Just sit it out for 6 months, the world economy could go a lot worse, it certainly will not suddenly improve to any significant amount. Keep your cash in your offset account, be patient, worse to come.
ps Didn't need to pay $50 to hear someone advise his guess, I can guess myself.
I just found a great article which supports my theory on the impact of the FHBG on the Sydney market.
http://www.debtdeflation.com/blogs/wp-content/uploads/2009/03/IMG0015_23249406.PNGYou will clearly see the impact of the FHBG from 2000 and the bottom of the cycle where FHBs are exiting the market was the peak in Sydney in 2004. It seems to be a great indicator of future market strength.
Any other comments / questions from those who attended the sessions in other centres?
Anybody seen Steve around the forums lately?
I'm interested to see his reply/comments on the questions posed in this thread.Also, does anybody know whether Steve ever did get around to writing a "lengthy answer" on the topic of how he financed his properties? He mentioned he may write a report/newsletter in the thread "how did Steve McNight finance his properties?"
https://www.propertyinvesting.com/forums/getting-technical/finance/4323334Happy Easter!
I am about to sign off for some family time, but will be sure to answer this post on the other side of Easter.
Regards,
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
SteveMcKnight wrote:Happy Easter!I am about to sign off for some family time, but will be sure to answer this post on the other side of Easter.
Regards,
– Steve McKnight
Same to you and your family Steve!
Hope you all have a relaxing break and return refreshed…
Be well
regards
NeilGreat thanks Steve, appreciate it.
Have a great Easter!
MattOkay… finally recovered from lots of hot crossed buns. Thanks for your patience.
Seems Qantas has jumped on the unemployment bandwagon. Interesting how these things build momentum… I wonder which major corporate will be next.
First up, please remember that my thoughts are just one of many opinions. You will need to take and leave what you feel makes sense.
1. Overvalued Property
By historical standards, based on times earnings, the property market in the US, UK and Australia appears overvalued against the long term trend. Certainly, prices in the US and UK have come off, but here in Australia we are yet to see a major fall.The major distinction economists believe is the reason for housing stability here are:
a. Government stimulus – in the form of the FHOG, savings accounts etc.
b. Housing shortageMy response to this, as I mentioned at the info night, is to avoid being a growth investor (as delivered by general market growth) as the downside of prices slipping is not worth the upside of potential price growth.
However, I remain a fan of positive cashflow investing, and for lump sum gains earned from developing and renovating property.
2. Yield
The purpose of the examples used is to show how the 1% rule works to quickly filter deals that might be positive cashflow from deals that are not. Deals that stack up need to be evaluated further to test the key assumptions.
Whether or not a return is 'good' depends on what other opportunities an investor has, as well as his/her skill or expertise.
Surely a 6% return (that will be +ve cashflow) is better than a negatively geared return in a low growth environment.
3. Sydney Property Prices
The death of Sydney property prices was proclaimed when the Carr government changed the land tax rules, and has failed to recover since. It was timed at the peak of the cycle, and by the time it was reversed, a new momentum had been established.
However, you simply can't argue that low interest rates fail to ignite the property market, as it is a question of if, rather than when.
Already yields are improving, however the problem now is being able to borrow money given credit has tightened.
I hope my answers have shed further light on some of the issues.
Thanks,
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks for your response Steve, much appreciated.
I am planning to take advantage of the current conditions. Working for a bank in a well paid job, I have access to credit that others don't, and at preferential interest rates. I see fantastic opportunities given my current situation and the overall environment, especially with large first home owners grants and many credit worthy people unable to access credit. I'm planning to do a number of wraps in the next couple of years.
Btw Steve, any plans to sell more copies of your wrap kit? Have a spare sitting anywhere?
Cheers,
MattI'm just looking into the Carr government land tax in 2004.
It's very interesting to note that the doubling of Sydney house prices from 1987-89 coincides with negative gearing against any income being reinstated in 1987.
Its quite scary to think that every major movement in price growth (and losses) of Sydney houses can be clearly linked to significant changes in government policy over the past 25 years.
Watch this space… if the additional first home buyers grant eventually becomes entrenched, or stamp duty is decreased, this could have a huge effect in a short period of time.
They have already recently provided huge benefits ($8k per annum per property) for large scale purchasers of property who are willing to lease at 20% below market value (detailed in the thread below). Apparently 4000 homes have already been purchased under this scheme.
The time to invest in property again will be when incomes are high, or at least normal relative to house prices. At the moment, the best capital result you could hope for is a flat one (ie no capital loss). This is why Steve recommends cash flow positive investing. -If you're unlucky, you'll start losing capital, but at least you won't be losing capital AND income.
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