I have read 0-130 properties and I have read a lot of messsages on this site over the past few days.
I have to say I am concerned that a lot of people are being motivated to purchase large numbers of propertie, financed by loans, at a time when we are entering a period of rising interest rates and at best, price stagnation and at worst severe correction.
I am not clear how well SM’s business model would work in a climate of rising interest rates and falling values. Indeed, I get the impression that he has already modified the model and is trimming his holdings and banking some profits. Surely you need to build into the purchase decision adverse movement in the variables, such as say, an increase of 3% in interest rates? Of course, rising interest rates has not really been a concern for the past few years.
Maybe I am old fashioned, but when evrybody is doing something that is the time not to so it – tech. boom/bust.
My alarm bell has gone off – anyone else worried?
Jerry,
I too have not long ago finished 0-130 and have only frequented the forums for about a week. I get the feeling most people are in a wait and see holding pattern at the moment, although they seem reluctant to admit it.
Interesting point you make.
Matt
jerry if the only lesson you get from the book is that cashflow is central to building wealth then thats enuf. finding +ve cashflow properties is not as easy as it once was. understand the principals and use them when the market is ripe to use them. ive had a few wines for lunch but i hope this makes sense…
Originally posted by jerry123:Maybe I am old fashioned, but when evrybody is doing something that is the time not to so it – tech. boom/bust.
My alarm bell has gone off – anyone else worried?
Who said it’s not the time????? IMO it is currently a “buyer’s” market, and people SHOULD be buying property, HOWEVER they SHOULD NOT be OVER-EXTENDING themselves financially in doing this, regardless of whether these properties are positively or negatively geared. This is not exclusively advice from one who adhere’s to Steve McKnight’s teachings (on the contrary) it is merely good “old-fashioned” COMMON SENSE.
Nope sorry Jerry 123, I can’t hear those bells, but I appreciate you alerting me to them!
Jo
jerry,
I agree that any strategy ought be viewed in a current political climate. For example, if someone wrote a book about using deposit bonds and flipping OTP apartments before settlement… well, that book would now be no more useful than a betacord video player. The deposit bonds/flip strategy was so 4 years ago.
However, I guess the main premise of Steve’s book was about positive geared properties, as opposed to negative geared ones, and that’s been something new in the real estate discourse. For what it’s worth, I think it’s a decent strategy in most economic conditions. As to the IP’s one might be able to buyt for cheap prices now though… well, it isn’t for me, but it is for many. Also, as you’ve correctly identified, Steve got in before the boom, and in purchasing in a flat market, most of us made much CG.
jerry, I think some people will be in serious financial difficulty with 100% or 105% loans in this flattening market. I think some people have probably also bought up too much, without the reserves to assist them if IR’s rise. But those same people would have done so in shares at the tail end of a bull market too- high-risk takers looking to spend money, despite economic conditions.
jerry, the “not doing it because everyone else is” approach might work for you. For me, I am going to keep buying RE whether it’s fashionable or unfashionable, because for me it’s the preferred (only) vehicle for another stream of income (my job).
I think you’ll find everyone on here is different. It’s the same as somersoft- you find people on there buying exxy properties and cheap ones- same on this board. Often, it’s a matter of affordability.
kay henry
Hi Jerry,
I think it is best to spread your wealth across a range of investment classes, and change these allocation depending on market conditions. Eg., data from Capegemini/Merrill Lynch shows that in 2003, high net worth investors (ie, millionaires) had twice as much of their wealth in equities as they did in real estate.
[thumbsupanim]
Ding a ling ! Ding a Ling !
Yep Gerry, I hear them bells ringing.Need to add a new word for the dictionary..
How about HERDISM, something to do with herds and frenzys.
There is a fear and greed aspect to all this too.To just rely on rental property income as the only alternate source of income also beggars belief.
How about this for an alternate source of income:
A friend of mine owns two sets of Taxi Number plates (plates only, for 2 taxis, not the cars))
He leases them out for $350 per week per set of plates.
So thats no rates, taxes, insurance, outgoings, etc. for a gross(and nett) return of $350 pw. each.
Maybe the plates are worth $120k to trade, so thats a yield of 15%+KP
Originally posted by kp:Ding a ling ! Ding a Ling !
Yep Gerry, I hear them bells ringing.Need to add a new word for the dictionary..
How about HERDISM, something to do with herds and frenzys.
There is a fear and greed aspect to all this too.To just rely on rental property income as the only alternate source of income also beggars belief.
How about this for an alternate source of income:
A friend of mine owns two sets of Taxi Number plates (plates only, for 2 taxis, not the cars))
He leases them out for $350 per week per set of plates.
So thats no rates, taxes, insurance, outgoings, etc. for a gross(and nett) return of $350 pw. each.
Maybe the plates are worth $120k to trade, so thats a yield of 15%+KP
I imagine the plates will increase in value over time also. Good stuff!
Jerry,
If you negative gear properties and bought pureley for capital gain, then you would definateley be at the mercy of market fluctuations. DING DING DING DANGER.[smash]However, If they are cashflow positive, the properties are bought because they are good value, and return cashflow.So buy as many as you can, whatever the market.
If you were geared to the eyeballs, you could lock in fixed interest rates and be safer.
During a boom, when houses are expensive, interest rates are low.
During a bust, when houses are cheap, interest rates go up.
Win/Loose either way.
If every property you buy makes money, why would you stop? [smart]
lifexperience
I would have thought that the booming nature of real estate was a function of the low interest rates, same as the busting scenario when interest rates rise.
Interest rates coupled with the greed/fear psyche determine the state of the market, not the other way round…..Who said it’s not the time????? IMO it is currently a “buyer’s” market, and people SHOULD be buying property, HOWEVER they SHOULD NOT be OVER-EXTENDING themselves financially in doing this, regardless of whether these properties are positively or negatively geared.I don’t know what area you are located in but this is not a “Buyers Market” by any means on the Sunshine Coast residential market.
We are however in a flat market and very price sensitive. We have a great number of new (last year or so) agents that are “buying” listings at present to keep their stocks up and their principals happy. When you get a long term agent putting a realistic figure of lets say for eg $290-300 on a property and another “been in the industry 5 mins” agent telling the seller their property is worth $350+ there are bound to be problems.
From what I have read so far the members here have their heads screwed on right and do their due diligence on their targeted properties so they are unlikely to get caught paying above market price but some will. In general these “overpriced” listings will sit and sit ….. until the sellers get tired and realise their error so prices are reduce. To the general public this appears to be the property values dropping but in essence its not the case.
The Sunshine Coast Qld market stopped dead almost over night in Feb 1995 (I had my own office from 1992 and we went from 8-10 sales per month to ones and twos) and didn’t start up again for real until mid to late 2002. Thats the common 7 year cycle. It has been happening since time began I expect and will continue, there is no better thing to invest your dollars in than land. Its been that way for as long as there is documented history.
Having said that by no means take that as me just after sales, this area is no good at the present time for investors generally in the short term. For the long term players with the ability to look outside the square at times there are still deals to be had but they are not easy.
There are towns where there are greater opportunities as just using the net you can locate them. http://www.domain.com.au or http://www.realestate.com.au are but two.
take care
David J
Licenced Agent/Sales ManagerHi kp,
I looked at this, returns excellent to date, however taxi number plates risky now, government have been looking at deregulating this which could flood the market.Dont want to put a downer on it but I believe only a matter of time. If I owned taxi plates I would be looking at selling before the inevitable……[biggrin]
Hi David J,
I am familiar with the Sunshine Coast, having recently (April this year) sold an IP in Caloundra at a very substantial profit. I realise that the market has cooled Australia wide, but some areas have seen bigger house price drops than others who have either stablised or been slightly reduced. Indeed, what you’re saying is very true, it is not about prices dropping at all, but a realisation by vendors, that the inflated prices once achieved in boom times are no longer the norm, and hence they (vendors) are being forced into asking more “realistic” asking prices; and yes, these reductions are seen by the general public as “bargains”.
I am in Melbourne, and prices have nose-dived quite considerably, providing great opportunities for investors and first-home buyers, but that does not mean that sellers are being crucified as a result, there are still profits being achieved, but certainly nowhere near the ridiculous prices of boom days gone by!! Clearance rates are at their lowest for years!!
If REAs are over-inflating/quoting unrealistic prices to their clients, they are doing so, plain and simply to gain the sellers’ business!! Please do not misunderstand me, I appreciate the difficult situation many REAs are in, especially property shortages (for sale) combined with many disgruntled or over-ambitious vendors who are unhappy about the market’s state of affairs. Call it what you will; a realisation of actual property value or a bargain, it is still a property being sold at a reduced cost is it not?????
7 year cycle??? It’s inevitable….the market has cooled, will continue to do so, and bargains are out there HOWEVER as I have said many times, these “bargains” come at a price, and if buyers are OVER-EXTENDING themselves to purchase property at a time when prices are low, they are FOOLS (to say the least) as the financial burden will far outweigh any long term benefits. Due diligence is a MUST and anyone who does not exercise same is acting on impulse and could be making the mistake of his/her life!!!!
I hope that has clarified my earlier post to your satisfaction, and I am sorry if it caused you any confusion. I am not a REA, but I can tell you from experience, I know more about the business than do many of them!!!!! How else do you think I have managed to secure my PPOR and 4 IPs (outright), certainly not on any REAs or the “herds” heresay!!!
Cheers,
JO
Excellent reply Jo, I was pleased to see many thinkers here and that is the ONLY reason I joined and post.
Sheep are sheep and many just follow the herd, sometimes to their advantage but usually a step behind so they ultimately lose.
You said ” it is still a property being sold at a reduced cost is it not?” I say “at a reduced profit! ” for it is being purchased at “a reduced cost”
As you know, its called “the market price” but you are all the market so what you consider is “the current” price is in fact “the market price”
So what if there is not the 100% + (yes many properties here have doubled in approx 12mths) gains per year we have seen of late, there are still gains with property over the longer period.
Anywho I enjoy it here, hope I can add something meaningful as time permits.
ps any Ulysses members out there, ride safe
David J
Licenced Agent/Sales ManagerThanks David,
My theory is that we all have something to learn from and teach each other, and what better way to do this, than through mutual sharing, particularly when the vehicle of opportunity is an open forum such as this. So welcome, and happy sharing!!!
Anyway, just one question for you, if I may???? What/who are Ulysses members???? [blink]
Cheers, [tongue]
Jo
The Ulysses Club is a bike club (motor bike) for over 40′ and has over 23,000 members Australia wide. I mentioned it as I find they/we are everywhere [offtopic]
Motto is Grow Old Disgracefullyand that suits me just fine
David J
Licenced Agent/Sales ManagerOriginally posted by David e-noosa:Motto is Grow Old Disgracefullyand that suits me just fine
AMEN!!!!! [angel]Oh yes, I can relate only too well David [lmao]
Oh, and thanks for the clarification. My best wishes to you all, please do ride safe, but if a daft blonde in a blue proton comes screaming passed and sends you flying, try and remember forgiveness is a virtue!!![wacko] [laugh4][laugh4]
David, there definitely are some Ulysses members on here – or there have been in the past cos I remember a post dedicated to them, but I cannot for the life of me remember who it was now….
Cheers
Mel
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