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Hi Damon,
I saw a financial planner today – he was frank enough to say if you know what you want to invest in, then a FP’s value is greatly diminished. He also said that FP’s are for those who don’t know how to invest or don’t have time to invest on their own. Funny, a comment he made was that I was light on shares as well, however I took that with a grain of salt because he revealed he was a shares man and was previously a stockbroker. For him he was operating within his circle of conpetence.
Speaking of circle of competence, I heard this phrase reading about Warren Buffett – trust you’ve heard of this great share investor. If you do you’ll know his views on diversification HINT he invests billions in companies/shares, and doesn’t seem to contemplate real estate directly at all.
Your rationale for preferring RE is a very powerful one. This alone was enough to make up my mind when I was making my own mind up. Remember, it is a blessing you can stomach real estate because a lot of people are restricted to shares thinking they don’t have the fortitude for real estate.
Though I am of the same age as you and have made less in RE than you, I will confidently say “focus will outperform diversification in the long-run”, whichever field you may choose to pursue.
Last word – if you feel you’ve been lucky vs astute, then a future bad investment will do wonders for your education! Take it from me, I’ve had it the other way around
)Scarecrow7
“To be forewarned is to be forearmed” – yes?!
I am an eternal optimist when it comes to Australian RE in the long-run, but I am grateful for the passionate views of Bill etc forewarning the inevitable slide. I am 30 and came to Aust in 1988 – too young to take notice of 87 property boom anyway, but of significance I have experienced the dot-com boom/bust and realise all things do ebb & flow like the tides of the ocean. Oh, I paid to learn the hard way.
With caution I continue to work on my first commercial property acquisition in Perth…with the doom & gloom I’ll just ask for crazy things
I’m having fun devising the deal.I also have the luxury of considering property in Malaysia where the devaluation of US$ is bringing tremendous buying opportunities, so again with calculated risks, there is a selfish silver lining in the A$’s momentum for me.
As China was mentioned, Re: China article below from Feb 2003, it’s long but interesting story of rentals boom…we may never experience it here, but hence always better to be the landlord, not the tenant.
__________________The High Cost of Living
Shanghai’s real estate boom means that finding a dream house is a nightmare
BY HANNAH BEECH/SHANGHAIMonday, Feb. 10, 2003
We began with lots of smiles. Our landlord, with trousers still tucked into his socks from having ridden his rickety bicycle over to our house, flashed a big grin and wished my husband and me a happy new year. We smiled back and wished him the same.Then he leaned in for the killer: he was raising our monthly rent, flouting our contract with the confidence that he, like so many other landlords in Shanghai, would pull off the price hike. My husband and I were astonished. To us, the rent we had been forking over was already far too high, considering the spotty electricity, gas and water.
The place was so poorly heated that I, TIME’s Shanghai correspondent, would take coffee breaks from typing in order to warm my hands on a hot mug. Last month I was just about to check into a hotel to write a story—when the electricity finally flickered back on. We thought we were the only people gullible enough to pay such an outrageous amount for our little house. Turns out that there are plenty of others in Shanghai able and willing to pay a lot more, forcing us to seek a new home.
So life goes in the world’s only remaining boomtown. Shanghai is reveling in a Gatsbyesque race to spend, spend, spend, and I, like many Shanghai residents who can’t quite keep up with the Wangs, am finding myself quickly priced out of the market. When I told our real estate agent our housing budget—more than an average Shanghainese’s yearly income—she shook her head and said it might be tough to find something suitable for such a paltry sum. Nevertheless, she offered up some extravagant options, hopeful that extra cash would somehow materialize in our pockets.
First up was The Emerald, a pristine, gated community where a giant billboard invited us to “Live a Fortune 500 life.” Sadly, we couldn’t come up with the $9,000 per month Fortune 500 budget. Next was Le Château, a bargain at $13,000 for tennis courts, heated bathroom floors and—this being a château, after all—refrigerated wine cabinets. If that didn’t suit us, we could live in Contemporary Spirit Villas, Drama House Historic Villa or the intriguingly named Celebrity in Shanghai.
Touring these swank digs, it’s hard to remember that this is the same city where 15 years ago the richest folks found delight simply in a new icebox. The pace of change in Shanghai (double-digit growth rates for the past decade) is so rapid that my real estate agent had upgraded her Nokia cell phone between our first and second meetings—the third mobile she’d got in as many months. Sure, most people aren’t living in the châteaus of Shanghai, but incomes have increased so fast that 60% of the city’s households now own their own homes, up from practically zero a decade before. Demand is so voracious that housing prices have doubled in three years in parts of central Shanghai. Dusty villas in the fashionable French Concession are selling for millions of dollars, even if they have rotting floorboards and cracking foundations. In December a 1,110-sq-m penthouse complete with an indoor pool and a 21-inch LCD TV in the bathroom made headlines when it sold for a record $4.3 million. Just the right to tour the lavish apartment in Shimao Riviera Garden cost $600 per VIP ticket.
Even the giddiest high-riders are beginning to question how much real estate speculation Shanghai can take. Yes, luxury-residential rents increased 15% last year, but in the next three years the number of new apartments in the city will double due to frenzied construction, leading to a surefire property glut.
Shanghai officials aver that there is no property bubble. But such assurances meant little for me as my husband and I struggled to find a new home. We decided to downgrade from a house to an apartment, but even that didn’t help much. An almost-done deal fell through because a South Korean diplomat as well as a banker at Standard Chartered suddenly outbid us by at least $1,000—the agent delicately informed me that we were “too small potatoes” to be pinning our hopes on such a nice apartment. Another potential flat, which had cost $3,000 last June, was listed at $4,500 when I visited it. By the time I’d got home, the agent called to announce a teeny change: the price was actually $5,000. By the time I called back to tell her we might still be interested, the price had risen to $5,500. Not even the Turkish lira inflates as quickly as rent for a Shanghai apartment. In the end, we finally settled on a unit in a 1930s apartment building built during Shanghai’s last great boom. Once, the Grosvenor House was one of the most prestigious buildings in town, known for its sweeping garden and Art Deco touches. Today it’s been eclipsed by the behemoth modern villas that dot the city. But for us, it’s home—until it, too, becomes too rich for us.
Hi Mini & Michael,
I love this debate! As to who’s more accurate or more successful under each strategy I think is relatively irrelevant – both will work if you are good at it. With the diff in opinion, could it be that:
1) In Aust, capital gains is imposed on each sale of investment property, while in US CGT is deferred if you roll over sale of one property into purchase of another? Hence US investors don’t have to think twice about selling.
I’m not a fencesitter nor have I made a fortune, but I don’t mind saying I have decided that “buy & hold” is the way for me. My time horizon is my whole lifetime & perhaps my future childrens’, and I will only sell if something becomes non-core and hopeless in future. As Mini said, it’s better to use equity refinancing than sell here in Australia – the price to pay is some in-built conservatism by banks on your leveraging powers.
One last word on this – if it works for Warren Buffett with shares (well he actually buys into great businesses at the right price and never sell), then it’s good enough for me.
As for the topic of why people invest overseas, personally I am keeping an eye on o’seas because it offers diversification and opportunities brought about by different cycles in property elsewhere, and also currency play. The Aussie dollar can buy more bricks & mortar right now in the right places.
Mini, I’ll have to get some NZ property lessons from you one day
Regards
)
