Steve McKnightKeymaster@stevemcknightJoin Date: 2001Post Count: 1,750
The doom and gloom of property does not seem to be present in the news, but neither is talk of the boom times returning.
I note with interest that the US economy is pcking up and not even the Mad Cow scare has caused it to change course from its current bull run (in fact I read that Americans are now eating more beef!)
The Federal Reserve Bank meets next week (3rd Feb) and will discuss what to do with interest rates… maybe up, maybe leave as is…???…
So, let’s have a chat about what we’re all doing in the marketplace to harvest opportunities and also mitigate risks.
Your thoughts please…[?]
Remember that success comes from doing things differently.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
Success comes from doing things differentlywestanMember@westanJoin Date: 2002Post Count: 1,950
hi steve and everyone
what a good question to start the day with.
i’ve been saying this for months, i feel the market is topping out in Australia so i’ve been sold half my portfolio over the past 6 months (sold about 14 properties). So i’m cashing up to make the most of other opportunities. while i believe interest rates will not go much higher i have fixed a lot of loans (fixed them about 1 yr ago) about 40% of my debt is now fixed.
while i’ve been selling in Australia i’ve been buying in New Zealand, the entry price is way cheaper than what i’m selling for in OZ and the rent is actually higher than what i was getting, so i feel i’m on a real winner. Property has been kind to me so i’ve relocated (don’t need to work anymore) to NZ to make the most of this market (which has also showning large capital growth recently).
so to sum up to harvest opportunities i’ve been cashing up, buying higher yeilding properties and fixing some rates.
steve i’d love to hear what you have been doing.
I find +ve cashflow deals in New Zealand which I sell to other investors. To be on my database send an e-mail to [email protected]peterpMember@peterpJoin Date: 2003Post Count: 307
Forecasting is a mugs game, but I’ll be one today!
My tip is that those markets likely to do worst in the next couple of years are those where there has been a mismatch between investor activity and future supply needs in an area.
For me two areas stand out as being ripe for a fall:
1. CBD apartments (vacancy and comparatively high rents expected)
This could right itself in time, with flats being eventually being filled (at lower rents) but I can’t see capital growth ever being as good as low-rise houses or units in good inner suburbs. Also the high strata and amenities fees of big apartments worry me.
2. Small rural towns with poor population and employment findamentals where many investors bought cashflow positive properties and there’s been high capital growth in the last few years solely due to an investor frenzy (eg Latrobe Valley, Tasmania and very small farming towns)
But rural areas relatively close to major cities will hold up (eg Drouin, Warragul) as will those that have sound industrial and population bases. Some coastal areas that were underpriced a few years ago will also hold up or even grow.
The next few years will also see diverging prospects between 1. cf+ investors who’ve done proper research on their towns and 2. cf+ investors who did no research but bought in tiny towns with no future on the strength of a high yield.
Regional centres and established suburbs should be alright – maybe level out for a while – as these markets are dominated by owner occupiers who tend to hold.
As for risk management, a lot of this was done with due diligence before purchase (buying the property that will be the last to fall vacant and the first to get tenants in a downturn), but maintaining (and putting more) funds in other investments (to provide growth prospects and a slush fund for emergencies) will be important.
Regards, PeterThe DIY Dog WashMember@the-diy-dog-washJoin Date: 2003Post Count: 696
Hi Steve & Westan & Others
Well not having a long history in the market place I feel less confident with my speculation but I feel as Westan has said that we have peaked and the price burn has deinately began to subside. I have noticed approximately a 6% decrease in sellers asking prices in the Sydney market as I am looking for a PPOR there. Properties are on the market longer also. Sellers are starting to get a reality check making it time for a buying cycle.
I don’t see the bottom falling out of the market but certainly a period of better negotiations between buyers and sellers. Hence I don’t see house prices falling drastically.
Our strategy is to sell off the property that may have us over committed or a liability and to free up some important capital to use to buy more property in a few months time.
As for interest rates we have fixed all of our loans except for the ones we are selling, not fearing a huge hike, but we are sitting on some of the lowest rates in years so why not lock that in for a bit longer as I don’t see it going lower.
Carve your own path and lead the way …Steve McKnightKeymaster@stevemcknightJoin Date: 2001Post Count: 1,750
Wow – three fantastic replies!
Westan – great to see you back on the forums and I hope the move went OK. Where are you based – North or South Island?
Dave and I sold a significant chunk of our property portfolio last year – the deals that only serious investors would buy such as blocks of units. We did this because:
1. The price we got was nothing short of insane given the yields.
2. We thought the market of possible buyers would dry up quickly if rates increased and some of the hype went of the market.
In hindsight, we could probably have held on a bit longer and maybe eeked out a further $10,000 – but I was happy to be out of the market.
We are sitting atop a small pile of cash at the moment, pausing for breath to see what the market does and looking for the next opportunity. Yesterday we looked at buying a Video Ezy, we’ve also been looking into sale and leaseback of car washes, and we have an eye out for self storage places too (although these seem to be a bit pricy).
We still own about 130 or so properties though – mainly single family buy and hold houses and wrapped properties.
Remember that success comes from doing things differently.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
Success comes from doing things differently
my thoughts are
usa economy – could be on the improve but the debt is massive so still alot of questions
interest rates – only a 50 pct chance they will go up in the short term.
still reckon risk managment the way to go – evenly spread across my portfolio. must admit havent seen the drop in the re market that was expecting. people feel rich at the moment – houses have appreciated to such an extent that if the worse thing that happens to you is that you have to downsize then life is pretty good!
as steve has drummed into us though cashflow is the key. what i want to know is how does one have a big mortgage, nice car and pay 15 k per year per child to send them to a private school. ouch!!!!!!!
ive bought a few stocks on margin with good dividends fully franked. need a few more properties and then might be partially on the way…
whats interesting is these new mortgage products for baby boomers – the reverse mortgage. so the baby boomers are gonna have there cake and eat it too…
hehehe!! all good fun
Although I normally lean towards the “doom and gloom” movement with respect to the current state of the property market, I do however think that property is the best investment by far in terms of safety and sleeping well at night. With the right properties one can make a huge CG and get a reasonable return with very little downside risk.
My strategy is to move some of my less desirable IP’s and get into better quality IP’s. These will almost certainly never drop in value even with a “crash” and at worst will show zero or very low increases in yield and capital value. This is a lot better than some of the other class of investment, including businesses which although can generate bigger yields normally need much more hands on effort by the investor that property does.
Of course, when one has a sizable portfolio one must not put all ones eggs in one basket (investment class), so which other classes does one consider right now. Well, if I had a pile of cash and a huge portfolio of IP’s I probably would do what you are doing Steve and look at franchise businesses. These are by far the easiest to run as they provide a proven system. They are also the most successful types of small/medium business out there with very low failure rates.
with ref to houses only and steves interest in franchises. just beware they dont all work…my family used to own a pizza haven. some less than scrupulous franchisors make their money from selling the franchise. therefore if one doesnt work they will happily buy it back and onsell it to someone else. the problem i have is that as an investor you lack control and you lose the ability to diffentiate yr product. having said that im sure alot of people have made heaps of money.
area for realestate growth – my tip is industrial warehouses – especially catering for import companies. with the high aussie dollar here to stay we will see imports rise and thus the need to store the inward goods. warehouse space near airports/ shipping ports etc should be good and the yield should be healthy..
I dont agree that the aussie dollar strength is here to stay. I feel that the reason it is high at present is because the US dollar is weak. When the US dollar gains strength it will push our dollar and other currencies lower. When this will happen is unknown but I am sure it will happen. The US economy is far too large for this not to happen.
Also, I feel that interest rates will rise gradually over the next few years – nowhere else to go. This will mean that the yield from cash become more attractive and one should consider allocating a portion of ones portfolio to cash or near cash investments (probably around 10-15%) when rates start exceeding 5%pa.AUSPROPParticipant@auspropJoin Date: 2003Post Count: 953
There is much debate about the future of the US$, however many commentators see huge downward corrections for it. Since WWII the US has been able to fund its gigantic deficits by selling dollars to central banks around the world. The global stage is changing now and China looks as though it really is becoming a player. It all depends how long they will be willing to swap goods for US notes!
I am noticing a resurgence in property enquiries and its almost like people have forgotten about recent interest rate rises (which is a little disturbing really).
Never a bad time to buy quality property at the right price!
Extensive list of new Perth property available for sale.
Alternatively, become a joint venture partner in one of our property development partnerships – contact me to find out why our developments are unique. John – 0419 198 856BillfromozParticipant@billfromozJoin Date: 2003Post Count: 381
I will put in my 2 Bob’s worth at the weekend. Just about to leave town for a couple of days.
Cheers for now
AusProp, I do agree that China are a player but think they will be willing to continue to swap goods for US dollars for quite some time. Someone from Aus. can hardly comprehend the extent of their population and the fact that even if only 20% of their population were poor (probably more like 90%) then 300 million would be poor which is bigger than the US population. The scale of their problem cannot be fixed in a few good years but more like decades. I dont believe that a system which is based on ridiculously cheap labour is sustainable in the long term anyway.
As far as the US$ being bought by central banks is concerned. This has happened as these banks have moved away from holding huge piles of gold as backing for their own currencies. Until there is an alternative to gold or US$ this is not going to change no matter how large the US deficit becomes. I think the whole system is very sick but dont expect it to break anytime soon.
housesonly – dont be too dogmatic. ausproperty is right there is strong sentiment the usd has some way to go. the aud was massively undervalued.
i remember a few months ago you also said that china had a long way to go before being a powerhouse…..
look whats happened…..
i agree with most of the stuff you say but sometimes you think a little too locally…
im a trader and my job is to see world trends as they happen. not big noting just my 2 cents
Sorry if I come across as being too dogmatic, inflexible or too locally focused but I am always aware of the fact that we (Aus.) are not really a significant force in the world economy and thus cannot really justify strength against other currencies often even though our economy has performed very well over the last few years. This is due to other countries not really having a compelling reason to want to hold our currency. In the past this desire may have been driven by our much higher interest rates in comparison to other major markets but as our rates have converged this has become less incentive. What other major factors could there be, competitive labour (not likely), cheap resources (used to be but dont know anymore), highly technological industries….?
China may be a manufacturing powerhouse because of their cheap labour but their business systems, financial markets and society as a whole have a lot of catching up to do. If their labour continues to accept being exploited remains to be seen but one would expect that the communist history would suggest not. Dont get me wrong, I dont think it will change soon. It would surprise me if unions and the like would really come to the fore over the next 20 years, but one never knows.
hi houses only – i was in china a few months ago on business. whilst some of what you say is right plse be careful thinking china is the same china that we have seen portrayed in the media over the years. china has huge cash reserves, standards of living have increased dramantically – big middle class, and wages are on the way up. and yes it has happened incredibly quickly. people are comparing this progress to the industrial revolution in europe and what happened in japan during the 70’s. remeber when ‘made in japan’ was a dirty word. chances are you dont! which is my point. things can happen quickly.
having said that there are no guarantees but what is happening over there is huge!!!!!
cheersAUSPROPParticipant@auspropJoin Date: 2003Post Count: 953
it is with dismay that I admit we hold little power in the world. what happened to the foresight of our forefathers? why are we so content to amble along as we are? we need a population of 200 to 300 million to throw some weight around. irrigate the deserts and tame this country!
anyways my point in replying – I think it is important not to confuse the value of your currency with the size of the economy. It is GDP per capita that will (theoretically) determine this, not GDP in total. Take a look at the strenghth of the british pound as an example – not bad for a country of what, 55 or 60 million people?
Extensive list of new Perth property available for sale.
Alternatively, become a joint venture partner in one of our property development partnerships – contact me to find out why our developments are unique. John – 0419 198 856AdministratorKeymaster@piadminJoin Date: 2013Post Count: 3,225
Hi Bill, I see you are back.
PisceselvesMember@elvesJoin Date: 2003Post Count: 507
well I have no idea!
I go to buy shares, they go up, I want to sell, they are down, maybe its a strategy to keep my portfolio?
I balance asset classes
I think we will see another rise in rates.
I think there has been a plateauing effect and we might see some dips in areas (property) but it will come again…it is just knowing when
I locked in rates before the first rise took place, my bank manager said not too, it wont happen…LOL but it did.
Who has a crystal ball>?
I’m holding on property, building some cash reserves to start again or barter later.
just my thoughts.
ElvesBuzz LightyearParticipant@buzz-lightyearJoin Date: 2003Post Count: 43
Whilst China as an economy is growing at a fast pace (around 8-10% per annum), what sustainable comparative advantage do they currently posses? Outside of cheap labour (which is transitory eg Taiwan, Japan) and a significant population, most of the investment is coming from large global firms. Japan had their own firms, technology & innovation. In time China may have this, but it is still a developing country with massive inequalities between Shanghai etc and its regional areas.
JamesBuzz LightyearParticipant@buzz-lightyearJoin Date: 2003Post Count: 43
On the actual subject of property, two queries about everyone’s comments.
1. Property is such hetergeneous asset class, to make generalisations about the market will go up or vice-versa I think misses the point. Townhouses, apartments, houses in different georgraphical and demographic areas will respond differently to a market of rising interest rates and the psychological effect of what most people tend to think is the’cooling of the market’. Moreso than ever, individual skills to source & finance property are critical to your future success.
2. +cf properties – a large enough deposit will make any property a +cf. What % deposit does everyone assume in determining what is a +cf property?