qaz said:
The big one there was "bought at the right time". I'd take a well located capitcal growth property in a good area, with a crappy cashflow also bought at the right time over a crappy house in a crappy area bought at the right time.
Qaz.
Ok l'll only worry about this one because it's one that I think is interesting.
Also because I've never read this in a book , and have never heard it from any one else. It's my own thinking.
I think there is more potential to make money from crappy houses bought at the right time than good house bought at the right time.
Reasons being ... ( all this is a generalisation , but IHMO valid )
Crappy houses tend to be in cheaper areas. Because they usually represent a cheaper option , they're often the sort of property that people buy when they start out investing or buying a first home.
As as investment property they often are bought by people who don't know what they're doing when they're investing , and I think it's a reasonable assumption to make that many people who buy those sort of properties are less likely to make good investing decisions , are more prone to emotional decisions or pying more than logic would dictate . Thus they are more likely to pay over the top prices when the booms occur. Also because of this , when they see the property they've bought start going down , they get disillusioned so they are more likely to make a dud decision when they finally unload the property after a number of years of poor returns.
As far as timing goes , crappy areas tend to move later in the cycle , so it's easier to get the timing right. You wait untill the better areas start moving and then buy. As a result you can maximise you return over a shorter period of time.
Now the home buyers. ( again generalisation only , so apologies to some forumites ). Many people who buy homes in these areas , buy there because that's all they can afford. They often have limited financial resources ( having said that I know millionaires who live in Luxford Rd , Mt Druitt ) and arn't very good at managing money. They frequently make poor decisions and forced sales / mortgage sales are quite common. When the market is flat for a while , it's not uncommon to see bargains.... real bargains.
In addition because these areas have a higher proportion of investors , they don't have the number of home owners who tend to stabilise prices in nicer areas. This also tends to accentuate the difference between the bottom of the market and the top of the market.
As an example at the peak of the last boom ( around 89 ) , prices in Mt Druitt were above 100 K . Going back 4-5 years ago , just before the market started moving this time, and AFTER the centre of Sydney had started moving, some houses were selling in the 50-60 K range. Those houses , now sell for 200 +. Given that these houses were well and truly cash flow positive, servicability would not be a significant issue , so someone with limited resources would easily be able to get in to the property market and some one with a reasonable amount of equity would be able to buy numerous such properties, and make significantly more money than from buying a nice , above median property that fits rental reality. Houses that fit rental reality , are above median price in good areas may well be a "safe " long term investment , but I think there are other areas where you can do much better.
The person with limited resources wouldn't be able to get a look in at buying a nice house in a nice suburb , if only because they don't have enough to pay for the deposit.
See Change
