All Topics / Help Needed! / Follow the advice of Warren Buffett or not?

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  • Profile photo of kateej03kateej03
    Participant
    @kateej03
    Join Date: 2011
    Post Count: 112

    'Be fearful when others are greedy and greedy when others are fearful'

    Right now I'm getting quote nervous about the market in Perth and wanted to get peoples thoughts. My partner and I bought two properties at the start of last year when the market was starting to build and have renovated and subdivided with profits more than expected. We would love to do this over and over again and my partner is now working on renovations full time now, however we have noticed, especially in this last month people are starting to get greedy, snapping up properties at the first home open or before for developments and renovations where the numbers don't seem to stack up.

    I guess my main question is should we try and buy now which was our original intention or wait 6 months or so and see how everything is then? My gut feeling is it won't be long until something will change and prices will steady or fall. But, if we find a good deal and we allow for lower selling prices and higher interest rates should this be enough to cover us?

    Thanks,

    Kate

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    Ok here is where logic and strategy feed into the situation.

    When I was a 14yo kid (many years ago) the developers started paying 150k for a 700m2 block in Ormond when we knew it was realisticly only about 110k to market. Yes I know these figures now will seem like the right reason to jump into a DeLorean with timetravel features and zoom back to the year 19XX, but the price paid is not really the point.

    You see .. the developers knew two things that we didnt as regular non-strategic run-of-the-mill investors. The council was about to introduce a schema that finally freed up a block of land with a house on it for medium density single level development (now practically known as villa units). The land had been under restrictive building covenants since the late 1970s due to the overflow of apartment building in the area. So for about 8-10 years .. not much land redevelopment took place.

    The result? (please take these figures in context as they are now so archaic its painful)

    The average price for a full sized block of land rose to nearly 200k !!! As the utility value of the land had changed, so had the market. Up to 100k per unit site was now achieveable.

    Well, to bring this back to whats happening now. In this month (Jan 2014) we have seen the market in both Sydney and Melbourne start to take off since the midway point of last year (June 2013). Sydney prices moved with high auction sales results (80%) .. Melbourne prices recovered a lot of the ground of what they had lost in the previous 3 years, and QLD went from stagnation into overdrive.

    I apologise for not having enough Perth information but my portfolio only extends as far as South Australia and as far north as Cairns.

    Being within the region .. YOU will be the best person to define whether a movement in WA is going to happen, and the reason for its movement.

    Is there going to be a change in client in the market?

    Will the forces that led the market through the mining boom still be prevalent in 2014?

    What is going on in the Eastern States that might be moving the market in the sudden push that is visible now? Is it a good move or a warning of things to come?

    I see a period of inflation that I've been predicting, and I'm sure if you have been shopping recently you'll have been seeing movement in regular items that you are familiar with. The query is, how that will feed across into the Perth market .. and whether the mining downturn has longer to play out in the Perth markets.

    You have to learn to ask the right questions with the people who know the areas you wish to invest in. Locals and Real Estate Agents will be the first to pickup on the 'buzz' when it happens, and the first to tell you if the market's needs and requirements have slowed.

    There is no such thing as a dead market totally. There is a quiet market .. and a live market. And usually where one is quiet .. another may just be coming onboard with some live action.

    With rapid inflation .. ALL markets turn quickly as everything comes into demand at once. The low interest rate environment we have been in will breach .. and all of a sudden all the people who have been sitting on the sidelines waiting for something to happen will PANIC … and basically rush in to get whatever they can get their hands on.

    As a result .. there will be very little actually available to market. People who have an asset will be holding onto it, and people with deflating cash will be willing to pay more to get their hands on what they need.

    I can almost guarantee .. barring an absolute failiure of the stockmarkets (still a distinct possibility) that you should profit well on anything you purchase in the first half of this year .. or the previous year. Make sure your loans are fixed and greater than 3 years. Historically a period of high inflation takes a little over 3-4 years to wean itself out.

    Bringing it back to Warren Buffet .. by the time Warren Buffet makes his strategic investment he has done his homework on the company .. knows what his market timing is like .. and has a rough idea of expectations and outcome REGARDLESS OF MARKET SENTIMENT.

    This is a guy who still uses plain paper and pen to work out the figures he needs (he doesn't use a computer in his office)

    If you know your market and its demands and timing, you can make money in any market. Never quite the same way .. but there is always a way to do it.

    Profile photo of BoughtWithEquityBoughtWithEquity
    Participant
    @boughtwithequity
    Join Date: 2013
    Post Count: 68

    Very well put!  Knowing your market is key to success and not knowing it is the path to failure.  I too expect rate to move north here in the states and abroad.  A lot of investors are signing into ARMs which just make me nervous.  I would rather pay a higher rate and lock it now as rates are certainly going north.  Kate, you might want to look at plowing your profits into other markets, even foreign ones like the US.  Just look at the returns and weight the options.  Happy Investing!

    Profile photo of opinderopinder
    Participant
    @opinder
    Join Date: 2012
    Post Count: 61

    Excellent response Xdrew.

    Can I please ask your thoughts on Melbourne Market. I have got my Loans fixed until next yr Mid. Can I be able to extend them now or not possible Or I have to wait until fixed rate time period is finished.

    Thanks!!

    Profile photo of mattstamattsta
    Participant
    @mattsta
    Join Date: 2011
    Post Count: 604

    Hey Kate. I think Warren Buffett's quote is a good overall philosophy – and your timing certainly is a factor.

    Though For me personally, if the numbers still add up for a certain deal, and the projected return on investment is still worthwhile, then I would go ahead.

    BUT if market conditions are making it so that greed in the market is making it difficult to get a satisfactory ROI, then I would wait.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Hi Opinder

    You have asked whether you can extend your current fixed loan to which the answer is NO but that does not mean you cannot access equity and borrow again even though the existing loan is on a fixed rate basis.

    What is it you are trying to achieve ?

    If you are merely looking to go again with another purchase then subject to a couple of factors this could well be possible.

    Let us know what you need to do and we can comment further.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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