Dear Steve and all savvy followers.
What is your strategy for real estate investing over the next decade? It has been predicted by some respectable world dominant investors that inflation and the downfall of currencies backed by the US dollar is imminent. This is a result of aggressive economic stimulus actions that have been executed by all dominant nations, basically printing paper currency in an attempt to spark growth. Economies around the world are printing money, they are printing the world into not only an economic recession, but an economic crisis. And this crisis is expected to hit this decade! In a few years! It appears that the Aussie real estate bubble is still alive, or I may be incorrect? All I'm certain about is that rough times are ahead, historically interest rates drop during recession which is a good thing for investors, however the biggest worry is that even if interest rates are low our currency (a paper USD backed currency) will be so devalued that people may struggle to afford to invest in real estate. I'm sorry if this seems bleak but it is the harsh reality and I would like to spread the word if some people are not already aware of this. So, what is your strategy? How will you protect yourself? knowledge is power and now is an extremely important time to be educated! it is quite obvious from the advice given by the worlds most prominent investors that commodities such as physical gold and silver are expected to perform well, very well, in such a crises and are an instant way to protect wealth. For this reason I am investing heavily in physical gold and silver bullion. Thats physical, not ETF's! Like-wise the agriculture sector will do well so I am also keen on investments from this sector. I am just interested to learn from yourself, and those out there, are you positioned in these areas also?or are you preparing your real estate portfolio in another way?
A little about me:
I am 25 years old and currently traveling the world (while the AUD is still strong enough to do so!). From many of the places I've visited it is quite obvious that there is a high degree of global economic uncertainty at present. It is just sad to see how many people don't understand it or how to prepare and protect themselves in such a time. Europe is quite unstable at present, everyone realises it, but I think people don't realise what the true experts have been predicting for years. That is europe's no 1 supplier (China) also feeling the pressure. When China slows, so does Australia hence the AUD slides and I would imagine puts pressure on a real estate bubble. Finally if both Europe and China collapse than so does the US and when the US slides, everyone slides as the global economy is now backed by the US dollar!
My strategy is to invest in as much gold, silver and agriculture as possible over the coming years and then move to real estate after the turmoil when values have re adjusted, what do you think? And once again do you have a strategy?
Regards
Chris
On my way of finishing one of my developments after 2 long years and now heading towards a few sites in Newcastle way to develop. It's becoming harder and harder to find development sites due to competition from builders and the increase in knowledge of every day investors.
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When I was much younger in the 1980's I watched a silly movie called "Gremlins". It had several funny lines and one sticks with me. If you added water to these Gremlins they re-produced like crazy. So picture all these nasty Gremlins running around the place. One Gremlin was particularly smart and pretended to be a stock broker on the phone. He speaks on the phone in the most serious voice: "I'm advising all my clients to invest in guns and canned food".
Well I thought it was funny.
"When China slows, so does Australia hence the AUD slides and I would imagine puts pressure on a real estate bubble"
Just so I'm clear. Your saying that the Australian $ has dropped below parity because China's economy has slowed and this will create a real estate bubble.
In the famous words of Pauline Hanson: "Please explain".
Chris, I just don't share your pessimism in the world economy.
Unfortunately when the currency weakens, the property strengthens.
Property (read land) is an asset. As inflation runs off, so does the price of the property, as it holds its value.
Hi Chris,
I agree with you that the current "money printing" that is so prevalent throughout the world is going to drive inflation in those countries. However, we are not pegged to the US dollar or any other currency so there is no reason that will lead to inflation here, more likely it will have a -ve effect on inflation as our dollar will rise against those currencies. Inflation here will be largely due to the actions of our own Government. However, the actions of the last few years are quite likely to lead to inflation down the track, although i am by no means 100% confident this will happen or when, but if it does it will be to the advantage of borrowers and owners of assets such as land, as well as owners of commodities.
My comments on your post are that you will probably do well with the strategy you have chosen, but the reasoning behind your strategy is not completely sound.
I think in any climate you must be prepared for a change in circumstances.
Regardless of your race, religion, political views or position in society, events can occur which can occur which either negate your existing wealth position and may force you to change your strategy or approach to maintain a reasonable situation.
So, on that marker .. does gold and silver hoarding stack up as a backstop against the 'eventual' fall of property?
Out of that line .. I will address the inevitability of the fall of property.
Dont think that Australia is immune to all the plusses and minuses of an active property market.
It has all the strengths and weaknesses of ANY market. And as an overall governing strategy .. the legislation surrounding property has failed both landlords and tenants many times, before we came to the current regulation and implementation of what we now use.
And its not a bad system.
As stated in previous posts .. I've had tenancies who are literally scared of me and my possible capabilities as a landlord, simply because they have come from systems where the landlord is favoured in the legal parameters. They just want to rent and live in their homes. Not feel pressured or terrorised by the landlord.
And our overall system of rules and regulations largely prevents a landlord from effective terrorism of a tenant.
On the other side of the coin .. there is the system that favours the tenancy.
And in that system the landlord is played by the tenant who knows what he can and cant get away with and exploits it to the maximum capability. Ever seen a house stripped back to bare framework and the copper wiring and piping stripped out by the tenant? I hadnt until i started owning US property.
We have relatively decent means of protecting the tenant from doing stuff like this here. And thats a good thing too.
So, the 'inevitablity' of a property crash on the same merits as the US downturn are largely unfounded. We have tighter controls on lending, better co-operative laws on property cohabitation and leasing, and extend liability of loans to the owner of the property via a mortgage on title held by the bank.
So now to whether gold and silver is a good 'backstop' in hard times.
Answer : Its just another commodity. Treat it with all the merits and respect that a commodity should.
There is a Twilight Zone (1960s) episode where some criminals steal some gold bars and transport themselves into the distant future. However .. in the future .. gold is near worthless and WATER is the really desirable commodity. They have nothing to trade.
When cash (fiat) money becomes difficult as a means of conducting commerce, people will find other substitutes. We've used things like buttons, shells, rum, cigarettes, postage stamps, tokens and finally cattle to trade when money fails.
The answer is :- In difficult times, make sure you own commodities that other people will READILY purchase from you in fair trade. If starving you may find a tin of beans buys a lot more than a gold bar. And clothing that keeps you warm is worth more than silver.
To sum up a multi paragraph previous statement nicely,
Dont panic on circumstance ever ! Learn whats going on, be aware of what affects your existing situation and what will change it.
Thats a trendline.
Trends can change. Fast and without much forward notice, unless you are keeping track of them.
Dont get too caught up in a single commodity, be a holder of a lot of different commodities.
Buy sizes OTHER people can deal with. For gold I wouldnt go bigger than a single ounce PER UNIT, for silver no bigger than a kilo. And a diamond .. no bigger than a carat.
Your commodities (just like your properties) must be desirable and readily available and affordable to other people. READY FOR TRADING.
And finally .. don't assume you are the first 25 year old in history to encounter the end of finance, history and current circumstance. Learn whats coming, what you'll be a part of and what the NEWER trends will be.
And finally, profit from that knowledge and knowhow.
Hi,
I’m sorry to be coming off as pessimistic, by all means I look at life and the world in which we live, in a very optimistic way. Every one is entitled to an opinion, and my post relates to my opinion only. If you believe that the global economy is in healthy shape than the best of luck to you and the investments you choose to pursue in the future.
I guess my angle on the state of the global economy is derived from advice given by the big names in the investment world. I am really just broadcasting what I have learnt from them and what they believe is going to happen. I have researched this by reading their books, by following their websites, by listening to their advice. I trust these people and their advice. They are experts and the most sophisticated investors in the world. They are the same people who accurately predicted the 2008 global financial crises. They are in fact the same people that inspired Steve McKnight to go from 0-130 properties, publish a book about it, open this website and campaign to educate people about the most responsible ways to invest in real estate and protect their wealth. If you read the first few chapters of his first book, he even mentions the very basic financial concepts that these top notch investors have been preaching for decades!
And now, in 2013 these same top notch investors are all warning people of another global financial crisis this decade, and one far worse than the last. I would rather not ignore these people, I respect what they have to say, and yes they could be wrong, but the more I research the more I doubt that they are wrong.
To clear you up on predictions for the Aussie dollar. All I’m saying is that it is obvious that China’s growth has provided a lot of growth for Australia. Look at our Coal and Iron Ore exports. For quite some time our economy has prospered on the benefits of this relationship. But we are now experiencing a slowing Chinese market, so if China reduces purchases of Coal and Iron Ore, the Australian economy would surely feel some pressure. it could be one of the many causes of potential slowed growth in the real estate market or contribute to a pop of a real estate bubble. Again, this may be wrong, I’m only going off my research, but this is what the experts are predicting. Not long ago an article in the Sydney Morning Herald was titled “buckle up-dollar exits safe haven” and discussed how the Aussie Dollar is facing sharp losses in the next 12 months as it rediscovers its historic link to commodity prices. Commodity prices have dropped over the past two years, could be a sign of a slowing Chinese economy.
As for the world economy at present, perhaps you should divert your attention from “gremlins” (yer i remember watching it as a kid) and rather focus on the news. The economic situation in Cyprus, unemployment in Europe, Rioting in Egypt, the monetary policy of the US, threats from other nations to the US, the list goes on! I wish it did sound optimistic, as i said I’m traveling the world, I’ve seen some of these places first hand and if I could change it so everything was looking up I would! but unfortunately it’s out of my control and everybody else’s for that matter.
I hope this clears things up and thank you very much for your comment, every comment I receive helps me learn more about the economy and inspires me to continue to research about where it could be heading.
Kind regards
Chris
Hi Chris,
I don’t think you should apologise for expressing an opinion, that’s what forums like this are for. I also think your analysis of the world economy is pretty good, where I think you have things wrong are the conclusions you have drawn in terms of the effect on property prices and whether property is a good investment at the moment. Lets start with the comments about the $A and what is going to effect its value going forward, this is going to be effected by supply and demand from overseas and demand for commodities will be a big factor in demand, so I think you are correct in your analysis that there will be some downward pressure on the dollar in this respect. However, the $A will also move in relation to it’s relative buying power against other currencies, and the “money printing” you have mentioned will likely cause inflation in those countries and have a downward influence on buying power of those currencies.
For those who have not been exposed to monetary theory, a summary is that the value of money is determined by the relationship between the amount of money in a system and the amount of goods and services that it is used to transact, if the amount of money in the system increases without a similar increases in the amount of goods and services being transacted then there is a reduction in the value of money (excess supply over demand). Quantitative easing, money printing or whatever you want to call it pushes money into the economy without a direct effect on the amount of goods and services being transacted (it is a purely monetary transaction) and is therefore likely to cause inflation.
My take on the effects of “money printing” is that it will lead to further appreciation of the $A in the long term, vs the $US. However, this is by no means certain as it probably should have happened already and, as the GFC proved, financial markets are not always rational. If it does happen then there will be a sharp increase in commodity prices, in terms of $US, regardless of what happens in China. In any case, inflation in the US would have a downward influence on the value of the $A and a downward influence on inflation in Australia, as imports would become cheaper. This is where I think you make the largest mistake in your analysis, because our dollar floats, we don’t import inflation from other countries, quite the opposite.
China differs from us here, their currency does not float freely and as such they can and will import inflation. It is therefore possible that even if demand for our resources drops, the international price could still rise if there is further devaluing of the $US.
In Australia there has been a large increase in the volume of money compared to the growth of the economy, and an increase in the percentage of private to public debt. These are all pointers to inflation within Australia, though not to the same extent as in some other countries, which would reward property owners and borrowers. But this has nothing to do with international factors, they are purely domestic. Property prices here are high, but they are supported by a tax system which rewards property ownership and investment to a greater extent compared to other countries, not to mention a national psyche that promotes property ownership to a greater extent than in most other countries, if these factors are taken into account I think it is hard to see prices going down too much.
Hi, xdrew, great post.
The only point of contention that I have is in your separation of gold, silver and other commodities with property. Property is just as valuable if not more so, since not only is it finite, but it is also of USE.
The same can be said of silver and gold in electronics, but land has a use for creating food, and providing shelter. Two of the basic needs required by humans. In times of economic trouble, and runaway inflation you will see the borrowers and land owners benfiting.
This is because as inflation rises, so does the price of the property. That being said, you don't want to be forced to sell in times of inflation, since cost of living is rising and there will not be as many buyers.
Also, as inflation rises, it eats at the value of the home loan. This is because the home loan is provided in dollars (which is being destroyed).
So over time you have a property that is worth 400k. If you borrow 100% and pay interest only, based on what has happened in the past, the property will be priced at 800k in ten years.
You will have paid zero principal but yet you have 50% of your home as equity! That is the beauty of inflation, and why savers will never be able to get ahead in this economic situation, as inflation works against them in the exact same way.
The same thing can happen for gold, silver ect. They are not all too different. The trick is buying in the right time in the cycle, Typically the time to buy is when the share market has reached or is coming up to the peak of the previous cycle, or two years after a share market crash. If you buy property in that window you should be alright. I haven't studied gold/silver to figure out when to buy so you may be able to shed some light on that.
hi Xdrew very interesting view- a good read. on the subject of Diamonds i happened too read this sometime ago and i think it is a interesting theory on diamonds. http://au.businessinsider.com/why-diamonds-are-a-sham-2013-3http://au.businessinsider.com/why-diamonds-are-a-sham-2013-3
Thanks for everyone’s comments above.
Coolharry67 – A fascinating read. Cheers.
With regard to the “Property Bubble”, regardless of what happens in the rest of the world, the demand still exists in Australia for property. The only thing I can see (in my limited viewpoint) with regard to property price drops would be the removal of all home buyer assistance packages (Federal/State) and an increase in stamp duty.
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