Thanks for the new chapter.
At the risk of being hard on you. You have convered a couple of the topics well, and I had inferred a good deal of this from the actual book.
However, it doesn’t deal with the issues about buying in a rapidly rising market, a basic rule of the stock market, i.e., buy low sell high. The media and other property analysts are indicating that we may be close to the property price peak, i.e. is this a good time to buy, or should we wait for the market to turn downward, assuming it is close?
Secondly it doesn’t deal with a potential property market crash. With the latter, as our approach is passive income, then it is far less significant than those who are in property for capital gain, however, banks will also react to their security situation, i.e., lowering prices, increases their risks. In your book you have recommended a conservative approach to doing the numbers, eg, use 8%. But will this be enough for these scenarios.Hi Long: I can’t speak for Steve, but my answer to your questions would be:
1. Buying in rapidly rising market
Getting a 10.4% yield on good quality property is tough when the market is hot. In most areas to do it you’d have to do something special, eg make it a boarding house. If you refuse to buy under a particular (fairly high) yield level (Steve says 10.4%, Neil Jenman says 7%) that should protect you from paying too much. It’s analogous to only buying shares with low P/E ratios (ie value stocks).
2. Dealing with a market crash.
If you’re buying purely for income and deemed 7, 10 or whatever % yield as acceptable when you bought it, a crash might not be too much of a concern. Assuming you’ve got something in reserve, the main problem is that you’ve got less to borrow against when planning future acquisitions. If you’re still worried, why not set a max LVR across your portfolio of (say) 50% rather than 80%, so there’s a bit of leeway? You don’t need to have all that as equity in the properties; it could be in shares, etc instead.
Peter
Thanks Peter,
I think the crash scenario is more complex.How long will it last and how far will it fall are hard to determine. If the home value falls, then bank anxiety increases, , like banks calling in their shares options.What happens to rent in a falling house market? As the philosophy requires buying poor property in poor streets, selling becomes more difficult.
I am initiating this rather cautious debate, as I left the UK 6 months before their property slump hit in the late 80s. Prices halved, and mortgages were hence greater than the actual value, hence selling wasn’t even an option.
Shares in that financial climate are more liquid.
Hi Long: I can’t speak for Steve, but my answer to your questions would be:1. Buying in rapidly rising market
Getting a 10.4% yield on good quality property is tough when the market is hot. In most areas to do it you’d have to do something special, eg make it a boarding house. If you refuse to buy under a particular (fairly high) yield level (Steve says 10.4%, Neil Jenman says 7%) that should protect you from paying too much. It’s analogous to only buying shares with low P/E ratios (ie value stocks).
2. Dealing with a market crash.
If you’re buying purely for income and deemed 7, 10 or whatever % yield as acceptable when you bought it, a crash might not be too much of a concern. Assuming you’ve got something in reserve, the main problem is that you’ve got less to borrow against when planning future acquisitions. If you’re still worried, why not set a max LVR across your portfolio of (say) 50% rather than 80%, so there’s a bit of leeway? You don’t need to have all that as equity in the properties; it could be in shares, etc instead.
Peter
[/quote]..there is a spelling/typo on page #3.
I havent got the print out in front of me.. its home..
But there was a bit about “out budgie” instead of “our budgie”.
[
]Regards,
Arty.[
]
“Why work to the age where you cant enjoy
what you have worked for !.” (Author: Me)Why woukd Steve want to ‘out’ Budgie?
Poor Budgie [|)]e-kiwi
hehehe
hee heee heeeeeehahahahahahahh!!!!!!
keep it up!!!
hoooo hoo ho ho ho!!
]
]
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