Missed Opportunity?

[Jamie]

Hi all,

Just a quick observation. Just noticed recently my childhood home sold for the first time in a while. Eastern suburbs in Syd, my father paid $34k cash for it in 1975 (before I was born), but sold it 4 years later for $134k to move his young family to a regional town. (He spent 40k in renos).

Same property sold not long ago for around $1.3 million. :mad: Previous owners (2) spent less than 100k between them on it.

Have just recently got my father into prop. investing, and he is kicking himself he didnt hold onto it!

Has anyone got a similar story? Sold a house for a pittance, then seen it resold for a lot?

Jamie. :p

[Jas]

According to my family history, we owed a large part of melbourne city waaaaay back. All we have now is a bridge named after us for it... and we don't get to toll the bridge or anything. *sigh*


Jas

[Elizabeth L]

Similar thing happened to our family too Jas. Owned quite a bit of land up the Sunshine Coast and now all we have are some bridges named after us and some roads!:(

Cheers
EL:)

[geoffw]

Originally posted by Jas
According to my family history, we owed a large part of melbourne city waaaaay back. All we have now is a bridge named after us for it... and we don't get to toll the bridge or anything. *sigh*


Jas


Jas,

Is your surname Westgate, or Flinders Street, or something?

But you're lucky. There's a street in my home town named after my grandfather.

It's a dead-end street. :D

Geoff

[july]

My partner's family owned the building on the corner of Collins and Swanston street in Melbourne over 100 years ago. The funny thing is they still don't buy and hold???????

[Ross Sneddon]

Hi Jamie

So just how good an investment did your father make Jamie?

I use a quick rule of thumb guide as follows:

Take the initial purchase price $34,000 and double it and keep on doubling it until you reach today's value.

34,000 x 2 = 68,000
68,000 x 2 = 136,000
136,000 x 2 = 272,000
272,000 x 2 = 544,000
544,000 x 2 = 1,088,000

or maybe 5.1 times to $1.2 M (subtract the $100,000 used for refurbishment.

Now divide the 27 years by 5.1 = 5.29

Now divide 72 (the magic number) by 5.29 = 13.6 or the approximate compound interest capital gain for this property is 13.6% per annum.

It's rough but you can do it in the field without a calculator.

So just how good an investment did your father make Jamie?

Pretty bloody good in my books jamie

Regards

Ross

[Jamie]

Hi Ross,

Have edited this twice cos I think I missed what point you were making. My original point was that my father SOLD it in 1979 for 134k. He wasnt the owner when it sold for 1.3 million. My point was, seeing he paid 34k cash for it, he should have held on til now.

My other response to your post is this (being not sure how you meant your reply...)

Hi Ross,

I think youve hit the nail RIGHT on the head. I was using the numbers to illustrate that, IMO, a buy and hold strategy will ALWAYS win out in the end.

BUT...

My father chose to sell up and raise his children in an environment he felt was better than what Sydney was providing at the time. The sale enabled the purchase of a family home, a business and a block of land in a coastal area, which he felt was better for his family. I cant argue with that in any way at all.

My post was merely meant to stimulate discussion on whether any forumites regretted selling, and why, what, where etc.

Thanx for the post,
Jamie :p

[gailh]

Hi everyone,

My folks sold the family home 7 years ago - did pretty well. Bought for $47,000 in 1971 and sold for $550,000.

Two years ago the people who bought it off my dad sold it for $1 million. (sob).

My folks needed the money to retire when they sold it, so they couldn't realistically have held it for much longer. But boy, didn' the new owners do well.

When I was a kid, my dad owned three blocks of land and a house on the esplanade at St. Leonards (seaside town just out of Geelong in Vic). Sold up years ago. I can't even begin to imagine what it would all be worth now.

Breaks my heart, but my folks needed the money for other things then. And they can't take it with them I guess. But, boy it just breaks my heart to think about it.....

Gail

[Ross Sneddon]

Hi Jamie

I apologise for the misunderstanding. I was not in any way being critical of your father or you for your comments. Indeed I agree that we can look back on many stories similar to yours and understand that the buyer / seller wished that they had been able to keep the particular property.

I understand that your father sold the home in 1979 for very sound and proper reasons. I implied no criticism.

My only excuse is that it was late in the evening and maybe I had lost count of the number of glasses of red wine I spilt.

In agreeing with you, I offered the calculation to show just how good the purchase of property really is and your family home in particular.

Your home. Purchased in 1975 was sold 4 years later having doubled in price, twice in that time. That is a great capital gain.

Looking at the property, not the three owners, the property has shown a capital gain of 13.6% in about 27 years. That is still an excellent Cap Gain. Yes, I can understand that your father may be kicking himself for being unable to have kept the property.

My story

My parents bought a block of land in Croydon (Sydney) for forty five pounds in 1940. I can't do a pound sign on the computer so will convert it to dollars. $90.

Land $90, and built a 2 BR home, double brick plus garage and coal bin at rear for $2,300 or a total of $2,390. Two thousand three hundred and ninety dollars.

Using the same rule of thumb as I did earlier with your family home, that is an 8.75 doubling effect over 62 years for a Capital Gain of 10.16% per annum compounding.

So just how good an investment was this property?

Pretty bloody good, BUT like your father, my parents sold the property in 1950 and we all moved to the country for a better family life etc., etc.. This is really true.

I spoke to my Mother recently (who is now ninety years old) and told her the story and said that if she and Dad had still owned it she would be a property millionaire. She wasn't impressed.

So many people question the notion of Capital Gain and say that we should not rely on it for investment purposes. We shouldn't rely on it to make an investment survive or even to work BUT surely we can expect, over a period of time, that an increase in value will occur.

Australia has shown in most property investments that a 10% compound interest capital gain is not unreasonable if looked at over the past 100 years.

Once again, my apologies for the misunderstanding.

Regards

Ross

[Kevmeister]

The question is whether that return is "typical".

My parents bought their house in Cranbourne (Vic) in 1977 for $27,000 - a commission housing estate. They might be able to get $130K for it now, as a guess.

That's a compounding capital growth of only around 6.5% (roughly).

In this case there has never really been land "scarcity" in Cranbourne to drive prices up continually. There is massive amounts of land still there. It's part of the south eastern growth corridor. It's not particularly close to the city (about 50 kms from CBD).

The point is that if you pick the right places (ie. they become popular) and there is the potential for land scarcity in the future, capital growth will be good.

Even in poor examples like above, there will still be capital growth.

Where I find all of this interesting relates to negative/positive gearing. Sure it's true that negative gearing relies on a _promise_ of future capital growth, which supposedly might not happen. But I think given the above example you would have to be fairly unlucky to achieve no capital growth.

That's not to say negative gearing is always a winner, far from it, simply that it's reasonable to expect some degree of capital gain even with lesser quality real estate.

Kevin.

[Jacque]

Had to add to this thread :)
Twelve years ago, my husband and I bought our very first IP in Penrith, NSW. A typical 3 bed house on a quarter acre block, quiet street in a nice neighbourhood. We paid $125K for it at the time, after looking at about 10 other prospects. We rented it out immediately and got about $160 a week.

For some unknown reason, we sold it some seven years later in 1998 for a measly $145K. We did no renovations to it and never increased the rent in all that time (we have since learnt to be far wiser by not listening to property managers and real estate agents as though they were gods!) We were purchasing our own house in Sydney and figured that we needed the funds :)

Some three years later, in 2001, when looking again at the Penrith market, we discovered that similar houses in the street where our house was were now selling for $250-$270K. :(

Lessons learnt: Hold property for at least 10 years :)

[Ross Sneddon]

Hi Kevin

When we put our own true stories on the forum, it allows us to discuss and compare real stories and figures and that is good for the forum. We also run the risk of inadvertently saying something out of place about someone else's situation and that can be difficult. I made that error with Jamie.

I am not very familiar with the geography of Victoria, however, let me make some comments.

Your parents decided to move to Cranbourne out of Melbourne for a number of reasons which in part may have included job opportunities for your father (and Mother), proximity to schools, shops, family lifestyle and all those other things which your parents would have considered.

We discuss these requirements for home purchase here on the forum but mostly we discuss investment property and all that goes with it. The thought processes used to buy a "family home to live in" as opposed to an investment property, differ.

With investment, one of the factors we consider is potential growth, Capital Gain, and we may look for investments in an area where land is in short supply to help increase the value of our investment, whereas your parents may have rated land availability as a lesser factor of importance.

Therefore for this, and other reasons, the increase in value in your parents home has not been as great as perhaps elsewhere.

We often talk about the "mean average" price of real estate. That means that there are as many properties of a similar type valued above the mean average price as below it.

So is that "typical" of your parents home? Respectfully, perhaps yes.

As you have stated, you pick the right places for investment and go on from there, and you then discuss negative / positive gearing.

I don't think that anyone should "rely on a promise of future capital gain" to make their investment sink or swim. However, if we choose the area carefully, consider ALL the other factors which go into investing then we can consider some gain in value of the property. The risk is that if we attempt to hang everything on the maximum gain, we may find ourselves in trouble.

In general, if we look at capital gain on a moving decade basis over the last 100 years, ( and there have been 100 decades in this time) we find that there has NEVER been a decade in Australia when capital gain did not occur. Some better than others but always there, and that includes the big depression of the thirties, five major stock bear markets of several years duration, two world wars and a couple of lesser ones and what else?

Now some people can immediately point to areas of land where this may not have occurred and that may be true for specific areas, BUT we are talking about investment and we are looking more at this type of land than at specific land where an unusual event has developed.

I agree, Negative Gearing is not always a winner, nor is Positive Gearing nor the Stock Market nor Lotto nor many other things but you have to have a go or look forward to the pension at retirement. What pension?

Regards

Ross

[Macca]

Ross said that in 1940 his parents paid $90 for a block of land and spent $2300 putting a house on it.

That means the house cost 25.5 times the cost of the land, if we apply that to todays prices it shows the importance of limited land in an area to give capital gain.

I suppose we also need an increase in population in the area, we can see the effects in Tasmania where house prices have been very weak as the population decreases.

In the cities and popular retirement area we can expect history to repeat I think.


"land appreciates, buildings depreciate" or

"Gods still making people but he has stopped making land"

Macca

[Ross Sneddon]

Hi

To give people an understanding of the increase in land values, and for those people on the forum who are not familiar with Sydney, Croydon is 9Km from the centre of Sydney CBD.

When my parents bought the land, there were market gardens, horse stables and two dairy farms in the area all within 1 Km of the land they purchased.

I'd guess that there hasn't been a spare block of dirt in the area for 50 years and the market gardens and dairy farms are long gone. May be a stable or two adjoining the Canterbury race course, I don't know.

John Howard lived about 4 or 5 Km away on the other side of the racecourse in Earlwood, also about 9 Km from the city. I never new him then and I don't live in Kirribilli now.

Regards

Ross

[Bear924]

While talking about 'if only stories'. When my father was in his early twenties he brought a Jaguar XK120 (I think that was the model) which had handbeaten metal work eg bonnet etc. When my father owned this car the whole 'classic car' concept wasn't around and it really wasn't worth all that much... standard XK120 now sell from around $70K from my understanding and I hate to imagine what an eary hand made one would sell for... I reckon you may get $120Kish or more.

I'm not suggesting that investing in motor vehicles in anything like investing in property however I thought this story was similar to other experiences.

[Jamie]

Hi Ross,

No worries, you said nothing out of place. Absolutely no apology necessary, just missed what you were saying.

Have a good day,

Jamie.

[Glenn]

Kevmeister's point is pretty well noted by me, having 2 sets of friends that bought their first property in Australia in the early 80's. One of these friends, who we shall call friend A has Australian heritage for the last 120 years that they know of and the grand total of property/shares/businesses passed down by past generations was ZERO! The other friend, friend B came to Australia as a refugee from Vietnam with only the clothes on his back in the late 70's so they started from pretty much a similar base apart from A's better grasp of English and the way things were in Australia.

Friend A bought his first house in the outer suburbs of Perth for $42,000 in 1982 while friend B bought a house 2 km from the Perth CBD for $39,000 in 1983.

Friend A promptly paid off his house while embarking on a program to have an income higher than average, working many hours per week to do this. Due to him working long hours, he sporadically paid Snake Oil merchants to invest (lose) his money as he did not have the time to do this for himself as he was so busy creating income.

Friend B promptly paid off his house, started a small business that the whole family worked in and began buying houses within a 3km radius of the CBD until he had enough equity to begin buying commercial property in the same area.

Friend A is now 55, owns his house and car (which he feels needs to be updated although being in good condition), has about 300k in superannuation and will end up working another 5-10 years before he feels comfortable enough to retire and spend the rest of his life spending his superannuation.

Friend B is now 60, sold his business last year and is looking for another. The props that I know of are worth at least 6 million with about 2 million in debt and more cashflow than he knows what to do with. He drives a 10 year old Commodore, has never had a mobile phone (he made his first million without one, reckons he doesn't need one to make a few more) and enjoys his wife's cooking more than eating out.

Both of these friends' lives provide a template....but I know which one I want to follow.


Glenn

[Bill.L]

OK, while on the only if stories. My grandparents bought a large home in outer suburban melbourne after WW1, in Canterbury on 1/2 acre. They sold several years later to go to small WA town. Later they moved to Mt Lawley, only 4 km from Perth CBD. About 25 years ago my grandmother was convinced to swap here home for a unit in the retirement village come nursing home. When she passed away about 8 years ago, the inheritance my mother and uncle received totaled about $50,000. Now if the properties in Canterbury and Mt Lawley had been kept.... hmmmm.

[NigelW]

with the benefit of an infinite time horizon there's little doubt that buy and hold will see you right in the end...but you've got to remember:

1) sad to say, none of us is gonna get of this wonderful experiment called "life" alive...so there needs to be a balance between the benefits of long term compounding growth and the immediate cashflow needs and lifestyle wants of the investor.

2) remember also the time value of money...depending upon your needs, a dollar today may well be better than three in five years' time!

this is an interesting thread, don't get me wrong, but wistful reminiscing about "what might have been" with the benefit of hindsight is only valuable if we learn from history and try not to repeat the mistakes of the past (not that I'm suggesting all the sell decisions mentioned were mistakes - in fact I'm arguing, perhaps not as eloquently as I'd hoped, the exact opposite).

Whilst many a loving grandparent would probably be pleased to know that their property held in the family is now worth $X Million it seems a little bit unfair to me to suggest that selling to enjoy the fruits of one's investing (whilst making adequate provision for the next generation) is either selfish or necessarily a mistake.

For example, how can you weigh the intangible benefits of the father who sold the property mentioned at the start of this thread so that his family could have an enjoyable rural upbringing? You can't.

[Ken]

Hi,

Could not resist this topic, so here is my tale.

Wife, new baby & I built a b/v 3br house on full 1/4 acre block in quiet cul-de-sac at Wilberforce (Sydney) in 1980 Total cost - $34,000.

Wife, 3 kids & I move. Sold in 1990 for $113,000 at auction.

It would have a value today of the low/mid 200's.

Yet when I sold in 1990 my mindset didn't notice the significance of the value increase and how this could be used, too worried about work, family etc I guess.... I look back and wish I had started then what I am now doing, would have been 9 years further advanced....oh well.

I am educating my kids, so they can see the value in starting on the road to property investment at a young age.


Ken

[brains]

Great thread.. My story is in 1988 (i was 27) i put my hand up at an auction and bought a terrace in Leichhardt (5km from Sydney CBD) for $170 000.

I Rented it for $250/week for 2 years and then moved in with a friend for 2 years. Sold in 1992 for $187 000.

Today Leichhardt has become sooo trendy (Its the italian centre of Sydney)The property would be worth conservatively say $500 000.

I sold it in 1992 to buy a house on a big block in the burbs of Sydney, i ended uo doing a dual occupancy/subdivision on the block and making $80 000 nett on the new house in 1996 and $40 000 on the existing house (PPOR)on half a block in 1997.

And still the IP light didnt come on......six months ago i started reading some investment books and now own 5 properties in QLD.

I just wish i realised all those years ago.

***Dont forget that the increases in value of properties mentioned on this thread have to be balanced against inflation over all those yeras, theres been a lot of inflation in 50 years***

[ruk]

everything sounds cheap back then, compared to now
but when you consider that my annual income in 1973 was around $ 3,000.

[Macca]

thats true ruk, another thing that we have to consider is the after tax pay we get in our hand.
In the early sixties my father was a "tradesman house painter", working 2 hrs o/t a week he earned 23 pounds gross or $46. His tax was the grand total of $2.30 or 5%, he had a wife and 2 kids as dependants.

What would the % be in tax deduction for that tradesman today?

Society has changed, today all governments need to tax much more heavily than then because the general public expect the government to be responsible for everything.
We expect much better social benefits than were available in 1963, somebody has to pay for it all, guess that's us!!!

Macca

[Donna L]

What do I learn...........

It's 1985 and I inherit some shares from my father. Stockmarket rolling - making $1,000 a week. I start buying $300 pairs of shoes (which was expensive for 1987) After a lovely holiday decide to invest in a block of land at our favourite spot on South Coast. Find block of land for $26,500, only half the value of the shares - we can pay cash. Decide to sell shares. It was a very busy Friday at work and din't get around to ringing stockbroker. Will ring Monday - that's BLACK MONDAY - 1987 stockmarket crash. Lose $30-40K in a few days.

1988 - regroup. OK we still want the land - new block, same place, almost same price - you couldn't sell land at that time, tripping over FOR SALE signs with all the executives selling up after the Crash. Buy land with a loan and dutifully pay it off P & I until 1994. Few thousand left on loan. Land now valued at $60k. Need to build extension to home - do we borrow against land - no. DOH! we sell it. Property values in that area proceed to stagnate for over 7 years. 2 years ago see another block down there (dying to get back in) for $80k, even better than the one we had before. Put a deposit on but back out thinking we will make more money in Sydney. Less than six months later, block worth $150k and rising fast. Deep depression Could have had retirement place ready and waiting but greed got to us!

Lesson 1 - Never sell the land. Borrow as many golden eggs as you want but never sell the goose.

Of course, not as depressing as a friend's mother who was offered some very cheap land in the US about 50 years ago. "Must have thought I was an idiot!" she said. "It was a dust bowl." Fifteen years later - Las Vegas!!

[Ross Sneddon]

Hi Jamie

You started an excellent post. Look at the response. Brilliant.

I dips me lid to ya. Well done

Ross

[AlexE]

Well here is my little story...

Back in 1971 my salary was $6000 and I went and bought a brad new V8 XB Falcon Hard top for $4.750. Those days the single front houses in Richmond were $4.000 - $6.000.

So I could've been a millionere many years ago...

But I've learned my lesson.

A.E

[Crystal]

An old, wealthy and well educated English friend of my mother's uses the word....
"deflation"
to keep my enthusiasm under control.
He uses Japan as an example that deflation can and is happening...
The price of Japanese property has been going down for the last ten years!??
Surely, there is land scarcity there!!!
Can anyone explain this phenomenom?
Cheers,
Crystal

[Macca]

Hi Crystal,

Read an article on this somewhere.

There is an extreme shortage of land in Japan, but there is an abundance of multi level apartment blocks.

When the Nikkei index was flying high, home units in Japan were selling for $2m, you could sign up for 200 year loans and you passed on the mortage in your will.

The amount of repayments were such that whole families would crowd into (by our standards) small units and all would contribute to the repayments.

As the Nikkei collapsed, demand for investment apartments dried up, the "yuppies" had to sell off their units and this triggered the collapse.

A classic case of over supply!

Are we approaching this in Sydney and Melbourne?

Macca

[Crystal]

Hi Macca,
Thanks for your reply.
It would seem our developers are working hard to oversupply our cities with units.
Surely though, such deflation could not happen here, to such an extent. I certainly hope not!!!
Cheers,
Crystal

[paulzag]

Some members of the US Federal Reserve board are publicly expressing their strategies for dealing with deflation in the US (should it eventuate) . That in itself is an anti-deflation strategy.

Long term declines in real values of assets have happened in the the past. These tend to be generational.

I don't think it will happen in Oz, but I've been wrong before. My current thinking is if it happens we are in so much trouble that my portfolio will be the least of my concerns.

Paul Zag
Dreamspinner

[mannypalma]

Hi Jamie,

As they say, swings and roundabouts...my parents bought their first house in Oz in Bondi Jct for 5000 pounds in 1965 and sold it for $39,000 in 1975. Seemed OK at the time. Same house now probably worth $750,000. When they sold, they moved to Maroubra, two blocks from the beach and bought for $53,000. Sold it for half a million when they retired several years ago. Same house probably worth $900,000 now. With the money they bought in the South Coast of NSW, got an investment property up the street, both properties paid for in cash. Now live a very comfortable life with income stream from rent, money still left over in the bank, brand new car, boat, all the gadgets they could ever wish for and part pension as they meet the assets test. Ok, so the properties are worth a lot more now than what they sold them for, but in the meantime they have secured their retirement and have a lifestyle they like....isn't that the whole point at the end of the day?:cool: