Double Your Money

Some people manage to trade their way to greater profits coming in and out.

You know I have been through three booms since I bought my first property. Looking back my single biggest regret is that I didn’t adopt a buy and hold strategy, rather I took profits as I went but didn’t buy back in until the booms were well and truly established.

Unless an investor is particularly active and astute I would recommend the buy and hold strategy.

This is quite a topical issue and I would like to see other people’s ideas.

Cheers,

Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

I think if you purchase a fairly substantial property or three, it will knock your ability to borrow further funds no matter what your pay level is.

If you have a high paying job, it helps the DSR, but not the LVR. Pumping free cash into either large deposits or reducing tax deductible (good) debt to reduce your LVR literally feels like a waste of money.

The LVR limit simply takes time to overcome. This is where the buy and hold strategy comes into it’s own, IMO.

Although, I can see others point of view of churning. With fees and duties, it appears to be 2 steps forward one step back…you are moving forward at perhaps a more rapid rate, but the ATO and State Govt’s are sharing your successes way too much.

Craig the WA so-called guru admitted he churns too much, and his one regret was not keeping more of his properties…but then some people need to be ‘busy’ to feel they are striving forward.

The grumpy ol’ chap up the end of the road who I admire enormously has done more than OK with a vacant block at the end of the street he’s held for the last 55 years…not a lot of activity there, but lotsa equity being made every year.

Mortgage (I have been through three booms) Hunter.
did thou not heed the sentiment about property through the bust cycles?
was property not on the nose?
where the papers not ripe with mortgagee auctions?

ahhh how quickly one forgets…..

i remember well a property investor hocking himself for over 1 mil only to find no buyers over 360k….
and he couldn’t do the “buy and hold” theory, after all 0% equity doesn’t go down well with the banks, when times are tuff

banks
those cruel heartless banks……
after all its only money
and according to the theory property will always go up….
and it did
15 years later its value is $ 1.3 mil
see i told ya
property always goes up
a cool 200k…. how good is that for the original investor
still
much better for the second investor

now we might not get “the recession we had to have”, but do you think the government wants house prices to keep doubling while it screws the workers?
and do you think real wages going up only 14% and house prices doubling, over the last 8 years, is substainable?

i doubt it

so like any good gambler i’ll take a punt
sell 50%, cashed up
hold 50%
let the good times roll

how about you Mortgage Hunter

you’ve also seen the busts
isn’t that the time to buy?

harry

I can’t be bothered springing for the mag. Anybody help me out with 2 questions?
1) Who is “O’Rourke”?
2) Is there any mention of R. Schiller’s opposing views as a matter of balance? I’m yet to read a more compelling analysis of actual very-long-term price movements and cycles .

And a couple of questions for those who believe that house prices have grown at a compounding 12% here in Australia.
1) With current lending restrictions (ie serviceability), how long would it take for house prices to hit the ‘serviceability ceiling’ (ie the point where banks can no longer lend enough to sustain the ‘growth factor’) if they grew by 12%pa?
2) If your answer contains a reference to wages growth, what proportion of Australian wage earners do you believe have averaged 12%pa wage increases over the last 100 years?
3) If GDP growth is <12%, for how many years do you think wage growth could support house price growth before the Australian economy would implode on it’s own bulldust?

A hint for the answers to the above 3 questions – every single answer is far, far less than 100.

For a bit of a reality reference, I draw your attention again to This Chart on page 13 of David Rees’ Commsec presentation dated Thursday 1 August 2002. It shows clearly the actual 100 year ‘growth’ rate of house prices in Sydney.

Regards, F.[cowboy2]

Yes it is the time to buy.

I was actually talking about my mistake being selling and not buying. If I had not sold I would be better of now was the gist of my post.

Those who sell at the peak and buy in the trough are cleverer than I. Picking the right times is very very easy looking back.

Looking forward is a whole different kettle of fish. I will leave that to those who are smarter than me or less risk averse.

There is a huge difference between investing and speculating. As you have indicated you are a gambler I guess speculating is your forte. I have made the conscious decision to be an investor.

All the best,

Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

Sorry Dazzling, I’ve only got Melbourne residential data from back when I could access ABS for free. Plus some I was sent claimint to be official REIV stuff.

Don & Liz,
There is something very fishy about those numbers. Here’s why:

Year _ API Mag _ ABS Data_ REIV Data
1970 _ 11,800 __ ~12,000 _ ~17,000
1980 _ 40,800 ___ 39,500 __ 55,000
1990 _ 140,000 _ 131,000 _ 182,000
2000 _ 241,000 _ 191,000 _ 266,000
2005 _ 363,000 _*309,000 _ 363,000

* March quarter – June not yet available.

Now I can’t absolutely vouch that either the ABS or the REIV will back my figures, but what appears to have happened is that whoever did the API report has crossed from one set of data to the other at some point. This exagerates the ‘growth factor’. Let’s see how they compare:

API Mag_ – 10.3%pa
ABS Data – 9.7%pa
REIV Dat – 9.2%pa

Ok, so it doesn’t look like a lot of difference, but compounded over 35 years that’s nearly a 50% difference in equity between 1st and 3rd place. It also puts a bit of a question mark against my ‘REIV’ data because there’s no way in hell they’d endorse figures that looked worse than the official ABS ones… although I guess it’s just the final number that counts, and $363k looks a lot richer than $309k.

Anyway, this is all nit-picking and rambling.
Yes, if you’d bought 10 houses back in 1970 and not lost the lot when interest rates hit the high teens in ’82, 86 & ’89 (Ok, so I don’t remember the first two, but I’m told it happened, yet was so dwarfed by ’89/’90 that everyone’s forgotten about them), you’d be doing pretty nicely for yourself about now. Of course the banks wouldn’t have let you buy 10 houses in 1970 unless you brought an enormous chunk of real cash to secure the loan. Think 30 or 40%, and ‘equity’ didn’t count the way it does now.

Anyway, I wouldn’t want to have my shirt riding on the ‘good bit’ of the last 30 years, because you can’t have the sugar without the medicine. The reason house prices rose considerably during the 70s and 80s was one and the same with wage increases and high interest rates – inflation. You can’t have the one without the other. The last few years, of course have been something different altogether – namely, madness.
Oh, and inflation.

So, by all means, if Mr(?) O’Rourke wants us all to go out and buy a house now, hold it until 2020 and have an asset worth $2 Million if in Melb or $2.7 Million in Sydney, he should at least tell us to expect interest rates to average above 10% and to hit the high teens (an extra $600 to $700pw) at least 3 or 4 times before then. And he should be advising us to budget for $7.00+ petrol. And the average wage earner will be earning over $250,000 a year (nearly $150/hr). He should tell us all this just to put things into perspective.

But he won’t. He’ll only use the numbers that appeal to the ‘greed’ factor. Fear and reality have no place when you’re ramping something this hard!

Cheers, F.[cowboy2]