10 News yesterday: Interest rates could jump 0.5% in this quarter, banks are warning that lending is going to be tightend up, they are also warning that with a 0.5% interest rate rise there will be many who will not be able to afford this as they have been sailing to close to the edge of the world.
So now it looks like the buying will dry up conciderably and I am putting 1 of my properties on the market today.
Unfortunatly I have just discovered Steve’s strategies and perchased 1 mil in prop in 1 year before 0 to 130 in 3.5 years.
I am now still only 1/2 way through 0 to 130 in 3.5 years, but read 1 mil in 1 year in 2 days.
Until reading $1,000,000 in 1 year I had no idea weather to hold / sell either of my properties, “I find it funny that the answer can be directly in front of you and you still fail to see it!” (Just didnt know how to think about it?)
Anyway , my point is! Until reading Steve/Dave’s MAP stories I had no idea what to do with these investment properties, “wich have been good on paper but now need to turn these paper profits into real profits”
But maybe I have just been a little late out of the gate and with interest rates forcast to rise and some bad press immenent, might find it very challenging to get a buyer for the property.
Anyway it will be going on the market today and I am thinking of lowering my price a little further than the rest to move it quickly and leave some puddin for the next bloke.Brad,
You are missing 2 things here:
1. If the news even HINTS at a possible IR rise, and it is bandied about enough, people will tend to hold off from buying because it means they will have to pay more. On the other hand, another reason they will consider holding off from purchasing, is because they anticipate that an IR rise will force more sales, hence give them more opportunities as well as greater negotiating power for their money.
2. An IR rise will not see less properties on the market, but in fact, it will see MORE properties being put up for sale, mainly from people who (as you said) are living on the edge with the current rates.
Cheers,
Jo
Hi Brad,
Before you go jumping at shadows – do the maths.
Calculate the effect of an interest rate rise – 0.25% on every $100K is only $250/annum or $4.80/week.
Of these increased costs there are increased deductions of $117.50 (assuming top tax rate) meaning that your net shortfall is only $2.54/week per $100K.
This can easily be covered by increasing rent by $5/week and/or considering the growth that this property will have in the long term.
On balance judgement (and without knowing where the property is) would I be selling ‘no’
Bear in mind that sucessful investors are long term players.
Derek
[email protected]Property investment advice and researched property in quality locations available.
Originally posted by Derek:
Bear in mind that sucessful investors are long term players.And in addition, the longer you play the better your chances of winning!!! [biggrin]
Originally posted by Monopoly:Originally posted by Derek:
Bear in mind that sucessful investors are long term players.And in addition, the longer you play the better your chances of winning!!! [biggrin]
Huh? [worried] I would have said that mildly successful investors are long term players, highly successful investors take profits when the hold numbers don’t add up and that the longer you play the closer you’ll sail to the mean…
And Jo, yes a rate rise will see more property on the market, but more property does not equate to more sales – in fact history shows a negative correllation, which fits the economy 101 law of supply and demand. Incidentally this has an interesting effect on prices too.
Brad1m, if you are going to need to sell within the next 10+ years, I would very strongly advise you to do so sooner rather than later. I notice you astutely mention the chance that a lower asking price might help “move it quickly” – the average time on on the market is around 3 months at present, not because there are no buyers, but those who are buying are only prepared to pay todays price, not yesterdays, and certainly not 03’s.
[thumbsupanim]Brad1m can you add value to these properties through reno’s or sub-division…A more proactive approach is needed today to add value in a more balanced market…
Originally posted by foundation:Originally posted by Monopoly:Originally posted by Derek:
Bear in mind that sucessful investors are long term players.And in addition, the longer you play the better your chances of winning!!! [biggrin]
Huh? [worried] I would have said that mildly successful investors are long term players, highly successful investors take profits when the hold numbers don’t add up and that the longer you play the closer you’ll sail to the mean…
Is that where I went wrong??? [eh] Hell wish I had know that 24 years ago!!! [tongue]Foundation,
Property investing is a LONG TERM game, and the longer one holds the better, HOWEVER…..if an investment property (regardless of length of ownership) is not PERFORMING or as you put it “the numbers don’t add up” common sense would tell you that it should be disposed off (ie. SOLD). What Derek and I were saying was that the longer you hold the better…PROVIDING the property is performing well.
And Jo, yes a rate rise will see more property on the market, but more property does not equate to more sales
Who said it did??? I said “they (meaning buyers) will anticipate that an IR rise will force more sales, hence give them more opportunities as well as greater negotiating power for their money.” That is, buyers will hold off because they know that the market will squeeze those who are already flying by the seat of their pants, and as such they (the buyers) THINK (rightly or wrongly) that they will get a better shot at a bargain!!! More properties being put up for sale as the result of an IR rise is a reflection of financial hardship which may necessitate a sale of one’s property, however no where in my post did I say that more “for sales” signs equates to more “sold” stickers being slapped on it’s boards!!! [glum]Please READ WHAT I WROTE, and not what you conjured up in your own mind.in fact history shows a negative correllation, which fits the economy 101 law of supply and demand. Incidentally this has an interesting effect on prices too.
Who the hell is referring to the Economy 101 theory??? You want to operate under that notion, fine I don’t dispute it’s validity or application to historical and/or current market movements, but it is not (as in any theory) set in stone!!! Of course supply and demand will affect prices; you don’t need to be Einstein to figure that one out!!! [rolleyesanim]Thanks all:
I went with the take the money and run theory.
Now all I have to do is make this profit make more profit.Cheers
im with jo on this one. what the hell is wrong with buying and holding??????? youre such a pessimist foundation !!! and you needn’t be some smart arse by harping on about economics 101. again what the hell has this got to do with the current forum subject???? get a grip foundation. everyone is entitled to their opinion
youre such a pessimist foundation !!!No, I’m quite optomistic about my future, just a little concerned for those either entering or recently entered the market with particularly poor timing.
and you needn’t be some smart arse by harping on about economics 101. again what the hell has this got to do with the current forum subject????Brad’s question was directly related to current market conditions with regard to interest rates and therefore my point was entirely valid and related to the thread.
get a grip foundation. everyone is entitled to their opinionWhat are you, the king of hypocrisy? Please re-read your own sentence and consider how it may relate to yourself and to itself.
Why get so hot under the collar? Do you have much at stake if I turn out to be correct? Does my voicing an opinion change that risk?Property investing is a LONG TERM gameIt can be. It doesn’t have to be! If somebody, somewhere can time the market well, buying low and selling high, they will absolutely outperform a buy and hold investor.
And before anybody else jumps down my goat, I would like to make the point that this website is here (as are many posters) because of Steve – and he himself is currently betting on a market fall to make larger profits than simply buying and holding.
Cheers, F.[cowboy2]If somebody, somewhere can time the market well, buying low and selling high, they will absolutely outperform a buy and hold investor.Have done a scenario based on what you have outlined and unfortunately we cannot upload files here.
Two people purchase IP for $200k with 20% deposit as the property boom picked up momentum. Interest rates I have assumed at 7.07% and it is a P&I loan.
Robert decides to sell and achieves $350k price after costs & CGT (assuming top tax rate) you clear $141,187.
Delta decides to keep but revlaues (to $350k) at the same time as Robert. She has a redraw facility which allows her to borrow up to 80% of 350k, being $280k.
Over the next two years, Robert decides to place his money in a ING type account and earns 5.25% interest and after tax,this is $148,696.
Delta continues to pay her loan down, $6400 over the next two years (so says Excel anyway). This leaves her with a loan of $147,199 outstanding.
But the market has dropped significantly, and
now her property falls by 20% and is now a realistic $280k. I assume that because she is an excellent customer the bank does not call in her loan nor cancels her redraw facility.For the next 6 years, I assume all property values increase by 2% pa. Where did I get this? It is a conservative number for such a prolonged period of time.
At the end of the 2nd year after Robert sold his property, he decides to buy another property. Coincidentally so does Delta! As prices have come back significantly since the property boom, prices are much more realistic.
Based on the initial 20% drop in the Delta’s property and ensuing 2% pa growth over the next 2 years a $291,312 is a realistic valuation for her property. Both D & R purchase identical properties next to where Delta currently resides, for that amount.
Delta uses her redraw facility which allows her to put a deposit of $132,801 against her $291,312 property. Robert uses his $148,696 and does the same thing.
As indicated above, property grows for the next 4 years (6 years in total) at 2%, then for 3 years at 10%. Of course Delta has two properties who get the benefit of this growth whilst Robert just one.
Their second loans are interest only (only because it is sunny outside and I want to go to the beach & would take too long to work out P&I).
Net result after 9 years from initial sale of Roberts & Delta’s re-valuation.
Delta’s net assets: $582,388
Robert’s net assets: $293,785Of course, it would be interesting to see the analysis (assuming serviceability is no issue) on 20% deposits for future multiple property purchases as opposed to just one.
Going swimming now.[thumbsupanim]
Nice work Woodsman, and thanks for the effort in illustrating your point! I believe your numbers look good, but you must admit in your scenario it is timing the that works in Delta’s favour, must you not? In your example she has bought at each trough – how do the numbers stack up if she buys as prices cross their long term trend? What if she buys above that trend?
The other factor Delta is relying upon is higher gearing… why doesn’t Robert gear into 2 properties when Delta buys her second? At this point his savings is greater than Delta’s equity, no?
I’ll illustrate my point with a similar scenario analysis later, meanwhile, I concede that my point
If somebody, somewhere can time the market well, buying low and selling high, they will absolutely outperform a buy and hold investor.should have read
If somebody, somewhere can time the market well, buying low and selling high, they have the opportunity to outperform a buy and hold investor, unless that b&h investor also applies the principles of timing the market (as opposed to simply time in the market).or similar!
Cheers, F.[cowboy2]but you must admit in your scenario it is timing the that works in Delta’s favour, must you not? In your example she has bought at each trough – how do the numbers stack up if she buys as prices cross their long term trend? What if she buys above that trend?I didn’t start with the premise to favour Delta. Just simply to illustrate the point, that all factors being equal, cashing out at the height of the market even in anticipation of a down turn, is not necessarily the intuitive or best path to take long term.
A simple example like this was not meant to illustrate and factor in all the variables. How do you model or factor the skill/knowledge of the purchaser who may have purchased as well as Delta.
You make a valid point if she purchases at the height of the market or overbids when she purchases to the extent of 20% as the example outlined, it is the eigth year before Delta’s purchase price is surpassed by its market value.
And of course, they both could leverage into the market with multiple properties over a period of time based on their equity, which depending on what they and how well they purchase respectively, would change the future scenario.
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