All Topics / General Property / What Will YOU Do When The Bubble Bursts?

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  • Profile photo of EdgysquidEdgysquid
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    Just want peoples opinion on what will happen when the bubble bursts. What are peoples back up plans, tactitcs to try and survive through the downturn etc…

    Profile photo of Luke TaylorLuke Taylor
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    @world-changer
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    Pray Hard!!

    We’ve got 70 yrs on planet earth,Lets make the most of every day!

    Luke Taylor | Hope Property Investing
    http://hopepropertyinvesting.com
    Email Me

    Property Support,Strategist and Buyers Agent

    Profile photo of camdercamder
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    Well, here we go again with another doomsday post!!!!
    And watch all the doomsdayers jump on this one –they will love it to tell us how so very bad things will become and woe is me!!!

    Have not you people heard of the “self fulfilling “effect???
    I know that it was just a question and hey I did open the topic to read , but GEEZ Lousie —How can suggestions from posters be of any help to others when we are all unique , both in our selves and in our investing lives.

    Why is it that people always see the negative in everything they look at in their lives.

    Can we not just know that it may come and may affect a lot of people,— but for heaven sake , has there not been enough warning that here may be a shake-up and did we not arrange our affirs –to cover the “just in fact “factor, for our unique situation.

    Just keep working for that little bit longer and ride it out.

    Sorry—I am finished now and will by pass this topic in the future.

    Cheers Len

    I bet people will jump on me too but –hey– thems the breaks!

    Profile photo of AUSPROPAUSPROP
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    what bubble are you referring to? and what will YOU do if there is no bubble?

    Profile photo of Mortgage HunterMortgage Hunter
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    The title of this thread is sensationalist and offers no alternative but to state the there is a bubble and it will burst.

    Not really much point arguing someone who sets a question like this.

    Is like me asking my mate if he has stopped beating his wife yet [blink]

    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.

    Profile photo of MichaelYardneyMichaelYardney
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    I will just keep buying more properties while some others will be wondering what is going on around them.

    I’ve done this for 33 years and what seemed to be a bursting bubble for some turned out to be a great opportunity for others with a big picture view and an abundance mentality.

    Michael Yardney
    METROPOLE PROPERTIES
    Author of Australia’s leading property e-magazine.
    Join over 15,000 readers each month.
    FREE subscription http://www.PropertyUpdate.com.au

    Profile photo of TerrywTerryw
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    Hasn’t it already burst?

    Terryw
    Discover Home Loans
    Parramatta
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    Just send me a blank email, with “subscribe” in subject line.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of flashflash
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    Not yet in WA Terry

    Profile photo of DazzlingDazzling
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    I normally just blow the remnants up in the air and have a bit of a laugh.

    Then I just reach down in the bathtub, grab a whole handful of more bubbles and start the process all over again. Kids love it !!!

    As for tactics, it’s like a bloomin’ commando session in there once all of us get in on the action.

    The only downside is the when the wife discovers what a huge mess we’ve made all over the bathroom floor. The bubbles don’t last but….

    Wasn’t that the question ?? [eh]

    Profile photo of flashflash
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    I guess what Michael and Dazzling are trying to say is you can continue to invest in any market provided using the right strategies.

    Property just doesn’t burst overnight like shares.
    You have plenty of time to prepare.

    Profile photo of alexleealexlee
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    What will I do when the bubble bursts? BUY! Experienced investors would be prepared for the bursting of the bubble anyway with LOCs locked in near the top of the market and cash reserves.

    In a bust (probably due to a recession) sellers get desperate and are flexible on terms.

    People go bankrupt in property when they buy at the top of the boom on terms favourable to the seller (usually stupidly high prices). They do NOT go bankrupt when they buy on their own terms (cheap vendor financing, high yields because prices go down and rents, if population remains the same, don’t go down) during a bust.
    Alex

    Profile photo of foundationfoundation
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    Originally posted by alexlee:

    What will I do when the bubble bursts? BUY! Experienced investors would be prepared for the bursting of the bubble anyway with LOCs locked in near the top of the market and cash reserves.

    But surely ‘locking in’ values near the top of the market won’t be much use if the value of current holdings falls, will it? Lenders will still want to see balance sheets where total loans outstanding < total current market value. Unless their LOCs are sufficient to buy outright (no loan), these ‘experienced investors’* would be LESS able to borrow money than people with less or no outstanding debt.

    I’ve heard tales from the early 90s where people in negative equity were knocked back on small loans to repair their cars or purchase washing machines… let alone multiple properties.

    In addition, were things to turn sour (increased loans in arrears, valuations below loan values etc), the banks and lenders mortgage insurers would be very quick to tighten their lending criteria. Loans for multiple property holdings where the borrowers had no realistic plan in place to repay capital would be seen as high-risk, rather than ‘safe as houses’.

    Furthermore, in a global economic climate of rising interest rates, further foreign lending will come at a high cost… if at all, as the risk/reward ratio adjusts. Why would foreign investors ‘lend our banks’ money at <7% to be used essentially for the purchase of assets that have proven to be risky, when they can get similar returns by parking it cash?

    Cheers, F.[cowboy2]

    *IMHO truly experienced investors are likely to have actual cash reserves rather than debt-based (eg LOC) reserves, because they bought low and sold high.

    Profile photo of gmh454gmh454
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    To do well in a slump you need big equity, as the loan to equity ratios drop.

    Pre 91 you could borrow 95%, post 91 for the next few years 70% had 1% mortgage ins. and loans over 80% were very hard to find.(expensive)

    Properties were also valued at around 10% less then comparable sales as they factored in further slides.

    What will happen to the low doc loans will be interesting. Remember in 91 the amount of repos that Citibank did in the fashionable lower Nth shore was amazing. They were the creative lender of the 80’s.

    Profile photo of foundationfoundation
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    Originally posted by alexlee:

    high yields because prices go down and rents, if population remains the same, don’t go down) during a bust.
    Alex

    Reserve bank of Australia:

    In the early 1990s, high vacancy rates were associated with a decline in rents.

    Source: http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul02/bu_0702_1.pdf
    Graph 4 (p. 5) Illustrates the approximate doubling of the vacancy rate from the historically unremarkable rate of 2% to over 4%. This was the combined result of rapid house price appreciation and recession.

    Graph 5 (p. 5) Demonstrates a consistent decline in rental yield from the early to mid nineties, a time when house prices were flat to falling. This implies declining rents.

    Cheers, F.[cowboy2]

    Profile photo of EdgysquidEdgysquid
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    Wow [blink] with my last post acheiving fewer than 3 replies I didn’t bother to check this post. How wrong I was, I’ve obviously struck a nerve that worries/interests some people.

    Nice to see all you fellow boom-busters out there!

    AUSPROP Posted – 24/06/2006 : 13:42:45


    what bubble are you referring to? and what will YOU do if there is no bubble?

    The bubble I am referring to is the current housing bubble in Australia.

    And i do not need to worry about there being no bubble because there is a bubble and it is big, much like the bubbles you get out of those automatic bubble machines, or as Dazzling describes, the bubbles that occur in a bath after bubble concentrate has been added.

    [specool]

    Profile photo of alexleealexlee
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    Originally posted by foundation:But surely ‘locking in’ values near the top of the market won’t be much use if the value of current holdings falls, will it? Lenders will still want to see balance sheets where total loans outstanding < total current market value. Unless their LOCs are sufficient to buy outright (no loan), these ‘experienced investors’* would be LESS able to borrow money than people with less or no outstanding debt.

    I’ve heard tales from the early 90s where people in negative equity were knocked back on small loans to repair their cars or purchase washing machines… let alone multiple properties.

    In addition, were things to turn sour (increased loans in arrears, valuations below loan values etc), the banks and lenders mortgage insurers would be very quick to tighten their lending criteria. Loans for multiple property holdings where the borrowers had no realistic plan in place to repay capital would be seen as high-risk, rather than ‘safe as houses’.

    There are always ways around this. Vendor financing, say.

    On the contrary, have you ever done a refinancing on one loan out of many? The bank will revalue the property you are refinancing, but they never check the value of the exisitng properties: they assume that LVR is ok and look more a the income / interest payment side of things. I know that banks have never had to value any other properties of mine apart from the one I’m buying / refinancing.

    Cars and washing machines don’t generate income. Experienced investors would be able to buy properties at less than 10% below ‘market’, creating much higher yields. Would you rather lend money to a person to buy a car, or lend money to the same person to buy a property?

    You’re not thinking like a bank: banks DON’T want you to repay capital. They can get capital cheaply from deposits or borrowing in the money market. Of course credit will be tighter, but there will be ways of borrowing. Volumes fell during the last bust, of course, but there WERE still settlements. Meaning people got their money from SOMEWHERE.

    I’m not saying everyone will be able to take advantage of the bust. I just expect to be one of them. Partly because even in a recession I’ll still have a high-paying job (if not, I’ll run to Tokyo or London or Hong Kong and work THERE). In the early 90’s, for example, a lot of friends who had just graduated went to Hong Kong to work because HK had a good economy then. If Australia goes bust again, there’ll be somewhere that is still booming and I’ll go there.

    As long as one believes that a bust is followed by a boom (as I do), then just buy as much as you can during the bust and sit back. Even buying ONE property in the bust will result in greatly increased equity as the new boom takes old, creating equity you can then tap to buy into the rest of the boom.

    Or to put it another way, buying just one property in the bust is better than NOT buying in the bust!
    Alex

    Profile photo of KDTKDT
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    I think the bubble has burst. Time to change tactics. Cash up/sell down and not be highly leveraged. money can be made in any market I think that some of the profits might not be as high as previous. Loose the greed gland and invest with no emotion. If the numbers work carry on, if they dont walk away. I’m currently looking at 5 properties with no intention of stopping. Just make sure there’s a backup plan/exit strategy in place.
    Regards
    KDT

    Profile photo of Mortgage HunterMortgage Hunter
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    Originally posted by KDT:

    I think the bubble has burst. Time to change tactics. Cash up/sell down and not be highly leveraged. money can be made in any market I think that some of the profits might not be as high as previous. Loose the greed gland and invest with no emotion. If the numbers work carry on, if they dont walk away. I’m currently looking at 5 properties with no intention of stopping. Just make sure there’s a backup plan/exit strategy in place.
    Regards
    KDT

    There is a big difference between normal cyclic patterns and a burst bubble.

    Why do you think this is anything other than a slump after the boom which happens as surely as night follows day?

    or is it that this is your first slump and after such a big boom it looks like an unseen catastrophe rather than normal pattern?

    And i mean no disrespect with that.

    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.

    Profile photo of foundationfoundation
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    Originally posted by alexlee:

    On the contrary, have you ever done a refinancing on one loan out of many?

    Yes.

    The bank will revalue the property you are refinancing, but they never check the value of the exisitng properties: they assume that LVR is ok and look more a the income / interest payment side of things.

    I think you’ll find they require you to list each and every loan and mortgage you currently have, along with values for the assets secured against them and outstanding balance, monthly repayments… I’m fairly certain this is a consumer credit requirement. If you lie, that would be, well, bad.

    I know that banks have never had to value any other properties of mine apart from the one I’m buying / refinancing.

    They probably have no need to… in a boom market they can safely assume the other lender has followed the rules in establishing a valuation and barring dramatic market movements it is likely to remain fairly accurate.

    You’re not thinking like a bank: banks DON’T want you to repay capital. They can get capital cheaply from deposits or borrowing in the money market. Of course credit will be tighter, but there will be ways of borrowing. Volumes fell during the last bust, of course, but there WERE still settlements. Meaning people got their money from SOMEWHERE.

    I’d rather not think like a bank… during the last bust, State governments were forced to bail out many a bank. Banks found it difficult to get cheap capital, as their credit ratings declined and foreign ‘investment’ dried up. Mortgage defaults hit 6%. As you said, there was tightening – higher LVRs were demanded, more risky applications were denied. It pays to remember that multiple IPs were relatively rare, but I assure you they were not ignored in the banks risk assessments. This time around, everybody, not just property investors, has a high level of debt exposure, and the lenders would be forced to scrutinise every application,

    I’m not saying everyone will be able to take advantage of the bust. I just expect to be one of them.

    Good for you!
    F.[cowboy2]

    Profile photo of alexleealexlee
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    Foundation, I agree with you that credit will be harder to come by in a bust. However, credit doesn’t completely dry up. Properties still change hands. Those with strong balance sheets, cashflows and high salaries will still be able to get loans. Also vendor financing will be much more common in a bad market, which bypasses the banks altogether.

    As I said, people go bankrupt investing in property when they buy at the top of the market. At the same time, if you were conservative with your numbers, even buying at the top of the market doesn’t drive you to bankruptcy. Plenty of people hurt during the early 90’s but only a few actually went bust.

    Buying during a bust is much safer than buying at the top of the market.
    Alex

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