Is it starting to Hit the Fan!!!

Hi John

Merry Christmas to you. Yes there have been some challenges this year, but two interest rate cuts in a row and a solid base we're in overall good shape. Sometimes when looking at our own situation, we can't see the "wood for the trees".

I got this article through a friend in the US and it helps to get an idea of what others think about the situation we find ourselves in.
It's another point of view worth looking at.

In short, the U.S. government is in hock to its eyeballs… And Europe is in worse shape than the U.S. But according to the IMF, Australia will be net debt free by 2020.

While the U.S. government will stay busy printing money, the Australian government will stay busy cashing mining royalty checks with no end in sight…

You see, the Australian government owns the mineral and petroleum resources of Australia. (That's different from the U.S., where mineral rights can be privately owned.) And that makes Australia rich…

Australia is chock-full of commodities that are in demand all around the globe…

I remember standing in Iceland a couple years ago, staring at a massive aluminum smelter that was a few city blocks long. The raw bauxite was shipped in from Australia – as far across the planet as you could get. In short, the far corners of the world need bauxite… and Australia has it.

Aluminum is only a tiny part of the big story of Australia's commodity reserves…

Australia leads the world in "economically recoverable reserves" in many commodities… lead, zinc, uranium, nickel, and more. It ranks second in the world in economically recoverable reserves in gold, silver, copper, and more, according to the Australian Bureau of Statistics.

And then there's "China's Gold" – iron ore… the raw material in steel making. China needs it… Australia's got it.

"Where on earth is your money safe these days?" That is THE question. When you look at the debt trends, it's NOT safe in America. And it's NOT safe in Europe.

But the fact that the Australian government owns its resources, and it will be net debt free by 2020, makes Australia a safe country for your money. In a way, the nation's currency – the Australian dollar issued by the government – is solidly "backed" by the country's vast natural resources, owned by the government.

The major risk here is what happens to Australia if China crashes?

There's no mistaking the fact that the Australian dollar is highly correlated to commodity prices. Exports of iron and coal alone make up 39% of Australia's total merchandise exports. If China stops buying, Australia will take a big hit.

However, I think the Australian government is in better shape to handle a crisis than any country in the world. The typical government "tools" to fight back a crisis are to 1) borrow money and 2) cut interest rates.

With no debt and a very high (4.25%) deposit rate, Australia has plenty of room to do both today.

I could go on. But you get the idea…

For the long run, Australia's dollar is safe. And with high interest rates, it's good for the short-run, too.

Australia might just be the last safe country on earth for your money.

After that, I'd then read these three articles (and see how you feel about it things after all this!)

http://www.investorsdirect.com.au/articles/what-lies-ahead.html
http://investorsdirect.com.au/exclusive/how-to-find-value-in-any-real-estate-market.html
http://investorsdirect.com.au/articles/big-australia-vs-small-australia.html

MC & HNY!

Mark

The last two years have also seen lending rules tighten signifciantly and property prices flatten (with a few exceptions)

Anyone with a simple buy and hold strategy would probably experienced a similar situation to you in the same time frame.

I would also add not increasing your wealth while it isn't as good as increasing your wealth is much better than reducing your wealth. On that note you should be reasonably happy – sometimes your situations causes teh handbrake to go on.

Being a small business owner also throws a curve ball into the overall picture – many small businesses are doing it pretty tough at the moment. Your comments lead me to believe you are a careful manager of your finances – this appraoch will put you in a good position over time.

Just remember 'A fool and his money are soon parted' – you don't seem to be foolish.

Stick to what you are doing and understand it is not always onwards and upwards – sometimes you need to take a breath.

Your comment about the lack of urgency finally hitting the market is spot on.

As long as the RE industry could create a "must buy now before it is too late", they actually always had a sellers market.
Factor in Gumnuts stimulating tradies, and developers and economics, rational thinking, history all could be overlooked as the sentiment fuelled a "property cannot fail" mentality.

A client who I had advised against buying an investment property in his SMSF 18 months ago, said to me last week … ït's only giving a 2.5% return !!!!, and has gone down 7.5% . !!!!!!

Right now why rush into property, until you can see factors that convince you of a turn around.

and as for you buddy "If you can just stand still while others are going backwards", you wind up in front

Good luck

Because then you've missed the boat.

You may be ahead of the ones going backwards but you are not any further ahead than where you originally were. You can only get ahead by moving forwards.

I would tend to agree with "taking a breath" comment.  Although there is nothing wrong with wanting to achieve and climbing the next mountain.  Sometimes you need to let the weather clear before you can reach the sumit.

I recently sold 7.5 arcres of land on the NE coast of Tassie (poor location) after trying to find a buyer sinse 2007.  The land sold under a lease option contract (vendor finance) and attracted no buyers for a straight forward sale.  The lengthy timeframe did not stop me from finding a solution, and in the meantime, I experienced first hand vendor financing.

The father in-law once told me "it will work out" commenting on a personal situation at a point in time.  His comments came through his life experiences.  The personal situation did work out and now I carry the confidence knowing that lifes journey is unique…what ever the situation with the right attitude, it will work out.

Enjoy.

I would be very cautious in buying properly over the next 6 months.

The market in the Western Suburbs of Melbourne has been very difficult. I just sold a property there, had it listed for over 6 months and had to chase the market down to clear it, by pricing it as the best buy in the suburb. I ended up selling for $100k less than my initial asking price, but it freed me up for my developments, which are far better investments.

I still walked away with a profit and learned so much through the experience. Never try to pick the top of the market, by the time you see it, it is on its way down and extremely difficult to sell into. You are much better off selling at what could be a bit off the top, but still on the rise, when there is plenty of buyer demand.

I think that Sydney in particular will experience similar to Melbourne in the low end markets coming up, when first home buyers have to start paying stamp duty. This will kill the sub $550k market, which is currently being held up by first homebuyers competing before the stamp duty kicks in.

I think that Liquidity will remain tight over the next 12 months especially with a declining Europe. However I also think that creates clear opportunities across Australia. We buy development sites and put investors into the deals to become developers. Because developers are struggling to get funding we will be able to fund projects. In many parts of Australia there are great deals to be done. So before you rush out to renovate or do a small project look at the options.

This is a common mistake Rory and one you have to learn from experience. If the deal is out there .. its usually where there is existing demand. In other words there's gotta be the possibility of a buyer at the other end.

Poor location DOES have a buyer. But at a poor location price. People just arent fighting over it like they might if it was CBD prime time location. And therefore it doesnt have the price.

I've got an agent in Albury who wants me to buy a 3br WB in a reasonable location under  200k and subdivide the backyard. Its a deal .. there is money to be made in it. But there is absolutely NO demand for subdivided backyards .. or new townhouses or even OTP in that area. So despite there being a definitive deal there .. i'm not purchasing. I'm a lot happier doing things in up and coming areas where if not immediate demand .. there is pressure for further demand in the near future.

For the record .. returns in Albury range from 6.5% to 7.8% gross on property. This does make them look attractive. But at the moment there are too few buyers and lots of property to choose from. In other words .. no pressure.

following on that same path of thought ….

CONGRATULATIONS ! You have just had a client who has won the booby prize for property investing ! Invest in a solid area with a return that goes nowhere near being able to pay the interest leaving at least a 4% margin coming out of the pocket GROSS (yes guys that doesnt include the actual expenses). Pay top dollar for the property at the height of the market so you've got at least 2 to 3 years for the market to recover to a point where you'll be able to just break even on the deal .. all that lovely equity sitting there like a bank paying 0.2% interest on an account .. kinda pointless .. huh? And finally .. you are DEPENDANT on capital growth to fix any or all of these situations for you to save you from a fate worse than bad investing !

I'm being harsh .. i'm being critical .. because at the end of the day its people who walk away burned from doing stupid deals like this that give property investing a bad name. They havent done their research .. they havent minimised their initial expenses and they certainly havent watched where the market actually was before they invested. Kinda like aiming for a dartboard blindfolded .. there remains a significant chance of you missing the dartboard entirely.