At the moment, +ive cashflow houses are not the place to go. The market is at an all time high which means rentals are beginning to decline – ask your agents and see what they say. During a time of great uncertainty you would be silly to purchase more than 2-3 +ive cashflow houses. REMEBER, steve bought his houses in Ballarat and Bendigo( only 1hr from main cities) not in outer towns such as Nhill (victoria), which by the way has a declining population…and empty houses begging.
Be cautious, i have no doubt that people buying 3+ houses in deep rural towns will loose in the long run. Think capital…its been my ultimate success.
My thoughts on this +ive cashflow housing boom – [
] beware.G’day Fields…
My sentiments exactly.
My concerns used to be for those buying into regional areas that, traditionally go nowhere for ten or more years. In a bubble like this, anything anywhere will rise in price.
But, look out when the music stops.
A bit like “pass the parcel”….many will be hurt.However the real worry is that I have had a number of emails requesting that 4 Bus Stop Shelters ( BSS) be reserved.
You think I’m kidding?
Did you ever read a book, first published in 1841..”Extraordinary Popular Delusions and the madness of crowds”?…. Nothing’s changed. In the 16th Century Holland….Tulip Mania…Today BSS.
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]No Bill, Its not the same … You cannot confuse a bus stop with an onion and eat it.
[those who have read the book you would understand]
G’day xyzzy…
Very much the same:
16th Century Holland they sold R/E to speculate in tulip bulbs. Tpday their “own homes” are being flogged off/ or put at risk to speculate in “off the Plan”, Regional/Country properties, commercial, NZ, car parks and as of tonight BSS’s.
At the end of the day…No tulip bulbs..no housetoday No BSS”s, inner city units, country props and No house…. end result always the same.
Didn’t expect to come across anyone that read that Book.
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]Hi Feilds & Bill[
]
Another good read is “The Land Boomers” by Michael Cannon about speculation and the resultant bust it caused in Pre Fedaration Victoria.
Saul Eslake,Chief Economist,ANZ Bank has stated recently that “this is a dangerous time for investment.”
To incorporate only one philosophy as an investment strategy and to not pay heed to changing circumstances is courting disaster.
Areas that meet the 11 second soulutions should not be acted on without taking into consideration all other aspects of making sound investment decisions and common sense.
If proper due dillegance is applied then an overpriced market becomes a scource of opertunity as the best deals are often found in a sellers market.
Regards
Bryce Inglis
[email protected]
http://www.ipal.com.auBill,
Have you the originial book with all the extras about witches, demons and south sea bubbles or just the delusion bit?
By the way have you seen the post in the bus shelter thread from Mr Villiam. Looks a deal?
Guys,
It doesnt matter how many books you read, the basic facts are simple. you dont have to be Einstein to realise people will suffer. Before people know it, interest rates will rise and positive cashflow houses will become negatively geared. This will lead to people trying to sell thier rural houses, and to no prevail. Tell me, whos going to buy a house 5-6 hrs away from the city when houses will be falling in the CDB??And i havnt even mentioned capital growth – thats if there is any, rural towns are left behind when its comes to capital growth…
Sometimes ROI isnt what its all about. Success comes through consistant and stable planning – something +ive housing isnt…..
Goodluck to Steve, he has done extremely well for himself in an innovative time, the right time 3yrs ago. Lets see how positively geared his houses are in 2-3yrs when interest rates rise in excess of 10%…..i beg to wonder.G’day xyy…
I have the 1980 edition by Charles Mackay, with all the original John Law stuff of 1841.
Complete with feproductions of original illustrations from 1841-1852 Edition. 724 Pages
Harmony Books NY, ISBN 0-517-54123-8
and paperback: ISBN 0-517-53919-5Cheers
BillBill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]Wow Fields
You are fairly not positive. Why do people always forget that rents go up too? You say rentals are beginning to decline. Is that in actual dollar terms, or in % of purchase price?
Steve pays P&I, therefore his loans are reducing, therefore his interest is reducing, therefore there is more profit to him each week. He’s written a bonus chapter regarding interest rate risk. I think if rates increase, so may payments, but if you do things right, you have that buffer to cover you.
A further point – not everybody wants to live in the CBD. I know I don’t – ever! Why would our tenants who live 6 hrs away suddenly want to shift because houses are cheaper in the cities? It takes a lot more than that.
Cheers
MelMel,
Rentals are declining – that means fewer people are renting because most now own a house. And, with regards to the p&i loans it takes some time (normally 1-3yrs) before the laon starts to decline due to interest rates. Try doubling interest rates now and see how your repayments look….
im not totally against +ive cashflows (I’ve seen some work) i just believe too many people have been taken for a ride after reading steves new book. its an historical book narrating the past which is totally irrelevant in todays real estate world. its a story already 3yrs old…
think about that…
hi Fields
You are making an assumption that we all have buy and hold +cf properties. Many of us do wraps which doesn’t come into the same scrunty that you are suggesting.
not in outer towns such as Nhill (victoria), which by the way has a declining population…and empty houses begging.
I was in NHILL yesterday and dig not see any begging houses[]there’s neither for sale or for lease properties in abundance. As for a declining population, it is neither declining nor growing they have a stable economy with 3 main sustainable industries in the town.Each to their own strategy and learning process I say!
I was also wondering who else thinks interest rates are going to be 10% in 3 years?
Cheers
Leigh K[]Carve your own path and lead the way …
mate with POS+ geared at least you can ride it out
get rid of the FEAR & the half empty glass attitudeHi Fields,
You wrote “At the moment, +ive cashflow houses are not the place to go …. Think capital…its been my ultimate success”. I think -ive cashflow IPs are worse off at the moment. I have one and just thinking of 2% increase in interest rate has made me worried. It means $9000/yr more we have to pay to the bank on $450,000 loan.
I agree with you that rentals in some innert city areas are declining because of over-supply. Ours is coming down from an estimate of $420/wk to $390 & now $380. We’ve made a reasonable good capital gain for it but we also have to add back any money we’ve claimed for depreciations to the capital gain for tax purposes when we sell the IP as well.
Anyway, thanks for the warning.
Regards
Huey
Fields,
Your comment fewer people are renting because most now own a house.
What stats have you seen to back this up?
Cheers
rInteresting reads guys.
It is true that rising interest rates can get many people into trouble.
All the more reason for only buying bargains so you have a bit of advantage (and a cushion) right from the start.
Just buying a house because, to us coming from another area, it sounds cheap is crazy.
Pisces133
Having read a few posts and a few more books, I am starting to question + cf IPs. I think like everything else there is a time a place for it but it’s not the only solution, you just have to find the method that works for tomorrow.
Josh
I’m sorry. I really don’t understand people saying now is not the time for +cf IPs. why the heck not? I’m surely more than happy to be making money than having to pay it out each week!!
Fair enough, at the moment be wary, and do your research so that everything stacks up, but just saying +cf is not the way to go is INSANE!
Cheers
MelHi everyone,
I am with fields, i mean, sure the more positively geared the house is the better, but you know, more important things should come to mind such as location etc.
There is no point owning a property that would be cash flow if you could find a tenant, and as i have quite sternly announced my strategy is one of caution rather than huge capital gains or even huge passive income. All i know is that if my plans run as i have planned i will be able to retire at 41 with 110k passive income a year to live off, and it takes all factors into account, not just positive cash flows, but demand for tenants and places with good growth. It is hard to find the best of everything, but a good balance should ensure success if you make a goal and stick to it, well that’s my 2 cents anyway.
Fudge111[
]Hi everyone,
This is a very interesting discussion. My two cents worth is this. Yes, the rental market is declining (although not everywhere) BUT!! When interest rates rise and people who are on the borderline with their finances have to sell, there will be an increase in demands for rentals. The key to everybody’s strategy, no matter what your philosophy is, is to have a buffer and not be one of those who are sailing so close to the edge that you go down with everyone else. If you invest wisely, you will be able to buy when others are bailing out.Steve
fields,
I found something I wrote a while back, it’s from the NZ thread in the treasure trove, and I’m copying it here.
The first bit is by KtKiwi (who is saying much the same as you) and the second bit is me.
“Be wary of small towns… I say this ONLY because I have seen several property cycles in NZ and I know what happens when we are in a property boom. It goes something like this… Big city investors get tempted to invest in small centres when good returns in big cities get harder to achieve due to increased values. This drives up prices in those small centres and drives down returns (as rental growth will not match value growth (i.e. just because more investors invest this doesn’t mean that there is more rental demand!)
I’m not saying don’t invest in small towns, I’m just saying be wary
When the boom is over (and in NZ it typically is short lived i.e. 2 years or so) then rents drop and values in small centres can be decimated!
After all who wants to own a property in a small centre with high vacancy rates.And be wary of those promoting towns like Tokoroa as wise investments!!! Tokoroa was a ghost town in the slump of 1992! I know people who lived there that were buying properties for $5,000 (in 1992 i.e THE BOTTOM OF A PROPERTY SLUMP) and renting them out for $20 / week. Those properties are now apparently worth $50,000 + with rents of @$140/week (in 2003 i.e. NEAR THE TOP OF A PROPERTY BOOM)”
and now my reply –
“Hm,,,,,,,, when is a 20 percent return not a wise investment?
(at the time of purchase). Especially one which is indexed for inflation (hence the rise from 20 per week to 140 per week over time) and in 11 years becomes a 140 percent return? Tell me if I’ve done something wrong but let’s say they managed to pay off their $5000 house by 1999 and so they have a freehold house. Let’s also assume they got 140 per week this year, 130 the year before, and 100 the year before that.
That makes about 20 K cash over the last three years. Add to that 45K capital gain and you get 65 K for your initial 5 K investment. Oh no, it was less than that, because you only put in 20 percent of your 5000 way back in 1992, and you had a mortgage. So really you only put in 1000 and a bit more for closing costs back in 1992. And now you have 65 K, 65 times your money back. what kind of cash on cash return is that? How much better does it have to be make/risk before you would consider an investment ‘wise’???
Man, if I can make 65 times my initial investment in 11 years I’ll be laughing.”to conclude, I am expecting that my humble 25K houses will show similar returns if you check back in 11 years… I see property as a long term investment and as such, i am not really worried about price slumps here and there. it’s only a worry if you have to cash out at the wrong time. And i’m not planning on that happening because I have a ginormous buffer built in to my investments due to their large returns (even at the time of purchase.)
cheers-
mini
] beware.
]
]
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